<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 10, 1998
REGISTRATION NO. 333-34421
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 6
TO
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 62-1710772
(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. [ ]
---------------------
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
FEBRUARY 10, 1998
4,700,000 Shares
[PROVINCE HEALTHCARE LOGO]
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. The Common Stock has been
approved for trading on the Nasdaq National Market under the symbol "PRHC,"
subject to notice of issuance.
Upon completion of the offering, officers and directors of the Company and
affiliates of the Company's officers and directors will beneficially own 57.7%
of the Common Stock (54.6% 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 9.
------------------
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 $2,500,000, payable
by the Company.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
705,000 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 BT Alex. Brown Incorporated, Baltimore, Maryland, on or about
, 1998.
BT AlexS Brown
BancAmerica Robertson Stephens
Goldman, Sachs & Co.
The Robinson-Humphrey Company
THE DATE OF THIS PROSPECTUS IS , 1998.
<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. 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. The
Company offers a wide range of inpatient and outpatient medical services and
also provides specialty services, including skilled nursing, geriatric
psychiatry and rehabilitation. 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. For the nine months ended September 30, 1997, the Company had
net operating revenue of $123.9 million.
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. The Company expects to make capital expenditures
and to incur operating costs in implementing this
3
<PAGE> 5
strategy, which costs management believes will be offset by increases in market
share and profitability resulting from such implementation.
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, a subsidiary of Brim merged with PHC in a
transaction accounted for as a reverse acquisition (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. James Thomas Anderson, the Company's
Senior Vice President of Acquisitions and Development, was previously a Vice
President/Group Director of Community.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company................ 4,700,000 shares
Common Stock to be outstanding after the
offering......................................... 12,481,373 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."
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 2,509,966
shares of Common Stock and the repurchase of 1,059,207 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 284,530 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 $4.58 per share.
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL AND STATISTICAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
<TABLE>
<CAPTION>
BRIM (PREDECESSOR)(1)(2) COMPANY (SUCCESSOR)(1)(2)
------------------------------ ---------------------------------------------------------
PRO FORMA AS ADJUSTED(3)
---------------------------------
PERIOD PERIOD NINE NINE NINE
YEAR ENDED JAN. 1, FEB. 2, MONTHS YEAR MONTHS MONTHS
DECEMBER 31, 1996 TO 1996 TO ENDED ENDED ENDED ENDED
------------------- DEC. 18, DEC. 31, SEPT. 30, DEC. 31, SEPT. 30, SEPT. 30,
1994 1995 1996 1996 1997 1996 1996 1997
-------- -------- -------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net operating revenue.... $102,067 $101,214 $112,600 $ 17,255 $ 123,948 $ 152,223 $ 113,656 $ 123,948
Operating expenses....... 96,887 97,993 109,129 18,268 111,800 153,582 110,160 111,800
Interest expense......... 935 738 1,675 976 6,177 3,435 1,955 4,811
Costs of
recapitalization....... -- -- 8,951 -- -- 8,951 -- --
Loss (gain) on sale of
assets................. (635) (2,814) 442 -- (156) 442 170 (156)
-------- -------- -------- -------- --------- --------- --------- ---------
Income (loss) from
continuing operations
before provision for
income taxes........... 4,880 5,297 (7,597) (1,989) 6,127 (14,187) 1,371 7,493
Income (loss) from
continuing
operations............. $ 2,858 $ 3,369 $ (5,307) (1,316) 3,309 (10,092) 232 4,142
Net income (loss) to
common
shareholders(4)........ (1,750) (399)
Net income (loss) per
share to common
shareholders(4)(5): $ (0.44) $ (0.06) $ (0.80) $ 0.02 $ 0.33
Weighted average number
of common and common
equivalent shares(5)... 3,980 6,501 12,642 12,642 12,652
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------
PRO FORMA
ACTUAL AS ADJUSTED(6)
-------- ----------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 5,896 $ 5,896
Total assets.............................................. 172,735 172,735
Long-term obligations, less current maturities............ 86,069 64,827
Mandatory redeemable preferred stock...................... 50,153 --
Common stockholders' equity (deficit)..................... (447) 74,658
</TABLE>
<TABLE>
<CAPTION>
BRIM (PREDECESSOR)(1)(2) COMPANY (SUCCESSOR)(1)(2)
-------------------------------- --------------------------------------------
PERIOD PERIOD PERIOD
YEAR ENDED JANUARY 1, FEBRUARY 2, FEBRUARY 2, NINE MONTHS
DECEMBER 31, 1996 TO 1996 TO 1996 TO ENDED
----------------- DECEMBER 18, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1996 1996 1997
------- ------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
STATISTICAL DATA(7):
Hospitals owned or leased (at end of
period)............................ 4 4 5 7 1 8
Licensed beds (at end of period)..... 294 294 371 513 93 570
Admissions........................... 8,868 8,839 9,496 1,964 531 11,008
Patient days......................... 57,161 56,088 56,310 8,337 1,904 61,443
Adjusted patient days(8)............. 91,047 92,085 96,812 15,949 3,893 109,866
Average length of stay (days)(9)..... 6.5 6.4 5.9 4.3 3.6 5.6
Gross outpatient service revenue (in
thousands)......................... $46,312 $51,414 $ 64,472 $14,088 $ 3,972 $82,014
Gross outpatient service revenue (%
of gross patient service
revenue)........................... 37.2% 39.1% 43.4% 48.2% 51.2% 44.9%
EBITDA (in thousands)(10)............ $ 6,903 $ 5,185 $ 5,244 $ 294 $ 300 $17,541
CASH PROVIDED BY (USED IN):
Operating activities................. 3,095 4,123 220 1,636 186 (2,096)
Investing activities................. (714) (1,527) 9,378 3,602 (23,233) (15,270)
Financing activities................. (3,039) (2,128) 15,943 6,018 27,791 12,006
</TABLE>
5
<PAGE> 7
- ---------------
(1) PHC was formed on February 2, 1996. On December 18, 1996, Brim completed a
leveraged recapitalization. Immediately thereafter, on December 18, 1996, a
subsidiary of Brim merged with PHC in a transaction in which Brim issued
junior preferred and common stock in exchange for all of the outstanding
common stock of PHC. Because the PHC shareholders became owners of a
majority of the outstanding shares of Brim after the Merger, PHC was
considered the acquiring enterprise for financial reporting purposes and
the transaction was accounted for as a reverse acquisition. Therefore, the
historical financial statements of PHC replaced the historical financial
statements of Brim, the assets and liabilities of Brim were recorded at
fair value as required by the purchase method of accounting, and the
operations of Brim were reflected in the operations of the combined
enterprise from the date of acquisition. Since PHC had been in existence
for less than a year at December 31, 1996, and because Brim had been in
existence for several years, PHC is considered the successor to Brim's
operations. Although PHC was considered the acquiring enterprise for
financial reporting purposes, PHC became a wholly-owned subsidiary of Brim,
the predecessor company, as a result of the Merger.
(2) The Company's financial statements for the periods presented are not
strictly comparable due to the significant effect that the acquisitions,
divestitures and the Recapitalization have had on such statements. See Note
3 of Notes to Consolidated Financial Statements.
(3) Pro forma 1996 and 1997 statements of operations data give effect to: (i)
the operating results of Brim for the period prior to the Merger; (ii) the
operating results of the three hospitals acquired by PHC and Brim in 1996
(the "1996 Acquired Hospitals") for periods prior to their acquisition;
(iii) the conversion of the Junior Preferred Stock and accumulated and
unpaid dividends with an aggregate carrying amount of approximately $35.1
million into 2,509,966 shares of Common Stock in connection with the
offering (the "Preferred Stock Conversion"); and (iv) 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 converted in the
Preferred Stock Conversion, 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.
(4) Includes preferred stock dividends and accretion of $0.2 million and $3.7
million for the period February 2, 1996 to December 31, 1996 and the nine
months ended September 30, 1997, respectively.
(5) Net income (loss) per share to common shareholders for the historical
period February 2, 1996 to December 31, 1996 and nine months ended
September 30, 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). Net income (loss) per share applicable to common shareholders on
the 1996 and 1997 pro forma amounts are based on the assumptions outlined
in Note 3 above.
(6) The pro forma balance sheet data as of September 30, 1997 gives effect to:
(i) the conversion from no par value to $0.01 par value Common Stock in
connection with the Reincorporation (as defined below); (ii) the Preferred
Stock Conversion; and (iii) 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 converted in the Preferred Stock Conversion, 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
September 30, 1997 and assuming an initial public offering price of $14.00
per share.
(7) Excludes Fifth Avenue Hospital in Seattle, Washington, which was sold in
May 1995.
(8) 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.
(9) Average length of stay is calculated based on the number of patient days
divided by the number of admissions.
(10) As calculated herein, EBITDA represents the sum of income (loss) from
continuing operations before provision for income taxes, interest expense,
depreciation and amortization, plus costs of recapitalization and loss
(gain) on sale of assets. Management does not believe it is appropriate to
include nonrecurring items in its calculation of EBITDA, since such items
by their nature are difficult to anticipate and do not recur, and therefore
are not particularly helpful to investors in analyzing a company's ability
to service debt. Management understands that industry analysts generally
consider EBITDA to be one measure of the financial performance of a company
that is presented to assist investors in analyzing the operating
performance of the Company and its ability to service debt. Management
believes that an increase in EBITDA level is an indicator of the Company's
improved ability to service existing debt, to sustain potential future
increases in debt and to satisfy capital requirements. However, EBITDA is
not a measure of financial performance under generally accepted accounting
principles and should not be considered an alternative (i) to net income as
a measure of operating performance or (ii) to cash flows from operating,
investing, or financing activities as a measure of liquidity. Given that
EBITDA is not a measurement determined in accordance with generally
accepted accounting principles and is thus susceptible to varying
calculations, EBITDA as presented may not be comparable to other similarly
titled measures of other companies.
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. 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, a subsidiary of Brim merged with PHC in a transaction
accounted for as a reverse acquisition, and the Company operated under the name
Principal Hospital Company.
During 1996, prior to the Merger, 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 Communities Hospital in Needles, California (the "Needles
Acquisition", and, together with the 1996 Acquisitions, the "Acquisitions").
In January 1998, the Company will be merged with and into Province
Healthcare Company, a Delaware corporation, to change the Company's name and
jurisdiction of incorporation 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. The basic elements of the December
1996 recapitalization of Brim included the following: GTCR Fund IV and other
investors purchased new shares of Brim's common and preferred stock; Brim sold
its senior living business and entered into a new credit facility to, along with
the proceeds from the sale of the new shares, provide financing for the
redemption of a portion of its pre-existing common and preferred stock; this
pre-existing common and preferred stock was redeemed; and certain pre-existing
debt was repaid.
Following the Recapitalization, PHC became a wholly-owned subsidiary of
Brim as a result of the Merger. In connection with the Merger, the stockholders
of PHC received an aggregate of 14,403 shares of Brim's Junior Preferred Stock
and 2,757,947 shares of Brim's Common Stock, and PHC's existing debt of $19.3
million was repaid. Because the PHC shareholders became owners of a majority of
the outstanding shares of Brim after the Merger, PHC was considered the
acquiring enterprise for financial reporting purposes and the transaction was
accounted for as a reverse acquisition. Therefore, the historical financial
statements of PHC replaced the historical financial statements of Brim, the
assets and liabilities of Brim were recorded at fair value as required by the
purchase method of accounting, and the operations of Brim were reflected in the
operations of the combined enterprise from the date of acquisition. Since PHC
had been in existence for less than a year at December 31, 1996, and because
Brim had been in existence for several years, PHC is considered the successor to
Brim's operations. Although PHC was considered the acquiring enterprise for
financial reporting purposes, PHC became a wholly-owned subsidiary of Brim, the
predecessor company, as a result of the Merger.
8
<PAGE> 10
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, and may affect the Company's
ability to exercise existing purchase options for hospitals, including the
hospitals in Eureka, California (lease expires in December 2000) and Blythe,
California (lease expires in December 2002, subject to a ten-year renewal
option).
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.
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<PAGE> 11
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
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."
HEALTH CARE INDUSTRY INVESTIGATIONS
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 and
hospital practices to maintain compliance with prevailing industry
interpretations of applicable law, and believes that its current practices are
consistent with current industry practices. The applicable laws are complex and
constantly evolving, however, and there can be no assurance that the government
investigations will not result in interpretations which are inconsistent with
industry practices, including the Company's practices. In public statements
surrounding the current investigations, governmental authorities have taken
positions on a number of issues, including some for which little official
interpretation has previously been available, such as the legality of physician
ownership in health care facilities in which they perform services and the
propriety of including marketing costs in the Medicare cost report of
hospital-affiliated home health agencies. Certain of these positions appear to
be inconsistent with practices that have been common within the industry and
which have not previously been challenged in this manner. Moreover, in certain
instances, government investigations that have in the past been conducted under
the civil provisions of federal law, are now being conducted as criminal
investigations under the Medicare fraud and abuse laws. The Company has reviewed
the current billing practices at all of its facilities in light of these
investigations and does not believe that any of its facilities are taking
positions on reimbursement issues that are contrary to the government's position
on these issues. Moreover, none of the Company's hospitals have physician
investors. 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 -- Hospital
Operations -- Regulatory Compliance Program" and "-- Health Care Reform,
Regulation and Licensing."
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
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<PAGE> 12
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."
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 " -- Health Care Industry
Investigations."
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
11
<PAGE> 13
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 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
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<PAGE> 14
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 September 30, 1997, after giving effect to: (i) the Preferred Stock
Conversion; and (ii) the application of the net proceeds of the offering, the
Company's total long-term debt (excluding current maturities) would be $64.8
million or 46.5% of its total capitalization. The Company has a $100.0 million
line of credit with a group of banks and is in the process of amending the
agreement to increase the line of credit to $200.0 million, contingent upon the
consummation of the offering. 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 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 Communities Hospital in Needles,
California which was acquired in August 1997, for the nine months ended
September 30, 1997, 39.9% 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.
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<PAGE> 15
RISKS RELATED TO INTANGIBLE ASSETS
The Company's acquisitions and the Merger have resulted in significant
increases in intangible assets and goodwill. At September 30, 1997, the Company
had goodwill and other intangible assets of $54.4 million, which are being
amortized over periods ranging from 5 to 35 years, with a weighted average life
of 30.2 years at September 30, 1997. There can be no assurance that the value of
intangible assets will ever be realized by the Company. On an ongoing basis, the
Company makes an evaluation, based on undiscounted cash flows, to determine
whether events and circumstances indicate that all or a portion of the carrying
value of intangible assets may no longer be recoverable, in which case an
additional charge to earnings may be necessary. Any future determination
requiring the write off of a significant portion of unamortized intangible
assets could have a material adverse effect on the Company's business, financial
condition or results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview" and Note 2 of Notes
to Consolidated Financial Statements.
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.
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 57.7% of the outstanding
shares of Common Stock, including the 36.9% 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 "Management" and "Principal Stockholders."
BENEFITS OF OFFERING TO CERTAIN STOCKHOLDERS
The Company will receive net proceeds of approximately $58.7 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, $22.6 million will be used to redeem the Senior Preferred Stock,
including all accrued and unpaid dividends thereon, held by Leeway & Co., $12.4
million will be used to repurchase the Common Stock issued to GTCR Fund IV in
respect of the conversion of 11,363 of its shares of Junior Preferred Stock, and
$2.5 million will be used to repurchase the Common Stock issued to Leeway & Co.
in respect of the conversion of 2,273 of its shares of Junior Preferred Stock.
See "Use of Proceeds" and "Certain Relationships and Related Transactions."
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<PAGE> 16
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 Common Stock has
been approved for trading on the Nasdaq National Market, subject to notice of
issuance. 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
$13.11 per share. Purchasers of the Common Stock in the offering will experience
immediate and substantial dilution in the amount of $13.11 per share, and
present stockholders will experience an immediate and substantial increase in
net tangible book value in the amount of $11.00 per share of Common Stock. The
net tangible book value (deficit) of the Company at September 30, 1997 was
$(64.0 million), or $(10.11) per share of Common Stock. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
There will be 12,481,373 shares of Common Stock outstanding upon completion
of the offering (13,186,373 shares if the Underwriters over-allotment option is
exercised in full). All of the 4,700,000 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. The remaining
7,781,373 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,
5,978,824 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, its
executive 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 BT Alex.
Brown 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
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<PAGE> 17
the Company's current stockholders who will hold an aggregate of 7,781,373
shares of Common Stock following the Preferred Stock Conversion and the
application of a portion of the proceeds of the offering to repurchase shares of
Common Stock. Substantially all of such 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 959,016 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 $58.7 million
($67.9 million if the Underwriters' over-allotment option is exercised in full).
Of this amount, $21.2 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");
$22.6 million will be used to redeem in full the outstanding Senior Preferred
Stock and all accrued and unpaid dividends thereon; and $14.9 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 September 30, 1997, the effective rate was 8.4%.
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 ($22.6 million as of the assumed offering date). 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 ($35.1 million as of the assumed offering date). 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 5 of Notes to Consolidated Financial Statements.
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CAPITALIZATION
The following table sets forth as of September 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 September 30,
1997.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED
-------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents............................. $ 5,896 $ 5,896 $ 5,896
======== ======== ========
Current maturities of long-term obligations........... $ 1,921 $ 1,921 $ 1,921
======== ======== ========
Long-term obligations, less current maturities(2):.... $ 86,069 $ 86,069 $ 64,827
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 $818,000 and $139,000,
respectively); 20,000 shares pro forma and no
shares pro forma as adjusted..................... 19,043 19,043 --
Series B redeemable junior preferred stock, no par
value, authorized: 50,000 shares; issued and
outstanding: 32,295 shares (net of issuance costs
and discount of $1,185,000); no shares pro forma
and pro forma as adjusted........................ 31,110 -- --
-------- -------- --------
Total mandatory redeemable preferred stock.......... 50,153 19,043 --
Common stockholders' equity (deficit):
Common stock, no par value, authorized: 20,000,000
shares; issued and outstanding: 6,330,614 shares;
$0.01 par value, authorized: 25,000,000 shares;
issued and outstanding: 8,840,580 shares pro
forma and 12,481,373 shares pro forma as
adjusted(4)...................................... 2,122 88 125
Additional paid-in capital.......................... -- 35,989 78,860
Retained deficit.................................... (2,569) (4,327) (4,327)
-------- -------- --------
Total common stockholders' equity (deficit)...... (447) 31,750 74,658
-------- -------- --------
Total capitalization........................ $135,775 $136,862 $139,485
======== ======== ========
</TABLE>
- ---------------
(1) Gives effect to: (i) the conversion from no par value to $0.01 par value
Common Stock in connection with the Reincorporation and (ii) the Preferred
Stock Conversion.
(2) For information regarding the Company's long-term obligations, see Note 5 of
Notes to Consolidated Financial Statements.
(3) For information regarding the Company's mandatory redeemable preferred
stock, see Note 6 of Notes to Consolidated Financial Statements.
(4) Excludes 284,530 shares of Common Stock issuable upon exercise of
outstanding stock options with a weighted average exercise price of $4.58
per share. See "Management -- Long-Term Equity Incentive Plan" and Note 15
of Notes to Consolidated Financial Statements.
18
<PAGE> 20
DILUTION
The net tangible book value (deficit) of the Company at September 30, 1997
was $(64.0 million), or $(10.11) 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 September 30, 1997. After giving effect to: (i) the Preferred
Stock Conversion; and (ii) the sale by the Company of the 4,700,000 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
September 30, 1997 would have been $11.1 million, or $0.89 per share of Common
Stock. This represents an immediate increase in net tangible book value of
$11.00 per common share to existing stockholders and an immediate dilution of
$13.11 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 per common share prior to the
offering(1)............................................ $(10.11)
Increase per common share attributable to new investors... 11.00
-------
Pro forma net tangible book value per common share after the
offering.................................................. 0.89
------
Dilution per common share to new investors(2)............... $ 13.11
======
</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 conversion from no par
value to $0.01 par value Common Stock in connection with the Reincorporation;
(ii) the Preferred Stock Conversion; and (iii) 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)............... 7,781,373 62.3% $ 22,432,659 25.4% $ 2.88
New investors....................... 4,700,000 37.7 65,800,000 74.6 $14.00
---------- ----- ------------ -----
Total..................... 12,481,373 100.0% $ 88,232,659 100.0%
========== ===== ============ =====
</TABLE>
- ---------------
(1) Excludes common shares issuable upon the exercise of outstanding options to
purchase 284,530 shares of Common Stock pursuant to the Company's 1997
Long-Term Equity Incentive Plan at a weighted average exercise price of
$4.58 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 $12.46 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 (i)
the Company's predecessor (Brim) as of and for each of the four fiscal years
ended December 31, 1995, and as of December 18, 1996 and for the period January
1, 1996 to December 18, 1996, and as of and for the nine-month period ended
September 30, 1996; and (ii) the Company as of December 31, 1996 and for the
period February 2, 1996 to December 31, 1996, and as of September 30, 1996 and
for the period February 2, 1996 to September 30, 1996 and as of and for the
nine-month period ended September 30, 1997. The selected financial information
for the predecessor and the Company has been derived from the audited
consolidated financial statements of the predecessor and the Company (except for
the September 30, 1996 and 1997 financial data, which information has been
derived from the consolidated financial statements of the Company and its
predecessor 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.
20
<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
BRIM (PREDECESSOR)(1)(2)
-----------------------------------------------------------------------
PERIOD
YEAR ENDED DECEMBER 31, JAN. 1, 1996 NINE MONTHS
--------------------------------------- TO DEC. 18, ENDED
1992 1993 1994 1995 1996 SEPT. 30, 1996
------- ------- -------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net operating revenue..... $69,245 $84,859 $102,067 $101,214 $112,600 $87,311
Operating expenses........ 65,645 80,784 96,887 97,993 109,129 80,557
Interest expense.......... 1,204 1,097 935 738 1,675 665
Costs of
recapitalization........ -- -- -- -- 8,951 --
Loss (gain) on sale of
assets.................. (7) (10) (635) (2,814) 442 170
------- ------- -------- -------- -------- -------
Income (loss) from
continuing operations
before provision for
income taxes and
extraordinary item...... 2,403 2,988 4,880 5,297 (7,597) 5,919
Provision (benefit) for
income taxes............ 1,078 1,772 2,022 1,928 (2,290) 2,415
------- ------- -------- -------- -------- -------
Income (loss) from
continuing operations
before extraordinary
item.................... 1,325 1,216 2,858 3,369 (5,307) 3,504
Income (loss) from
discontinued operations,
less applicable income
taxes................... 496 593 (157) (264) 6,015 272
------- ------- -------- -------- -------- -------
Income (loss) before
cumulative effect of
change in accounting for
income taxes and
extraordinary items..... 1,821 1,809 2,701 3,105 708 3,776
Extraordinary loss from
extinguishment of debt,
net of taxes............ -- -- -- -- -- --
Cumulative effect of
change in accounting for
income taxes............ -- 1,141 -- -- -- --
------- ------- -------- -------- -------- -------
Net income (loss)......... $ 1,821 $ 2,950 $ 2,701 $ 3,105 $ 708 $ 3,776
======= ======= ======== ======== ======== =======
Preferred stock dividends
and accretion...........
Net loss to common
shareholders............
Net income (loss) per
share to common
shareholders(3):
Income (loss) before
extraordinary item......
Extraordinary item........
Net income (loss) to
common shareholders.....
Weighted average number of
common and common
equivalent shares(3)......
Cash dividends declared per
common share..............
<CAPTION>
COMPANY (SUCCESSOR)(1)(2)
--------------------------------------------------
PERIOD PERIOD NINE MONTHS
FEB. 2, 1996 TO FEB. 2, 1996 TO ENDED
DEC. 31, 1996 SEPT. 30, 1996 SEPT. 30, 1997
--------------- --------------- --------------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Net operating revenue..... $ 17,255 $ 3,977 $123,948
Operating expenses........ 18,268 3,986 111,800
Interest expense.......... 976 441 6,177
Costs of
recapitalization........ -- -- --
Loss (gain) on sale of
assets.................. -- -- (156)
-------- ------- --------
Income (loss) from
continuing operations
before provision for
income taxes and
extraordinary item...... (1,989) (450) 6,127
Provision (benefit) for
income taxes............ (673) -- 2,818
-------- ------- --------
Income (loss) from
continuing operations
before extraordinary
item.................... (1,316) (450) 3,309
Income (loss) from
discontinued operations,
less applicable income
taxes................... -- -- --
-------- ------- --------
Income (loss) before
cumulative effect of
change in accounting for
income taxes and
extraordinary items..... (1,316) (450) 3,309
Extraordinary loss from
extinguishment of debt,
net of taxes............ (262)
Cumulative effect of
change in accounting for
income taxes............ -- -- --
-------- ------- --------
Net income (loss)......... $ (1,578) $ (450) $ 3,309
======== ======= ========
Preferred stock dividends
and accretion........... (172) -- (3,708)
-------- ------- --------
Net loss to common
shareholders............ $ (1,750) $ (450) $ (399)
======== ======= ========
Net income (loss) per
share to common
shareholders(3):
Income (loss) before
extraordinary item...... $ (0.37) $ (0.12) $ (0.06)
Extraordinary item........ (0.07) -- --
-------- ------- --------
Net income (loss) to
common shareholders..... $ (0.44) $ (0.12) $ (0.06)
======== ======= ========
Weighted average number of
common and common
equivalent shares(3)...... 3,980 3,878 6,501
Cash dividends declared per
common share.............. -- -- --
</TABLE>
21
<PAGE> 23
<TABLE>
<CAPTION>
BRIM (PREDECESSOR)(1)(2)
------------------------------------------------------------------------
DECEMBER 31,
---------------------------------------
1992 1993 1994 1995 DEC. 18, 1996 SEPT. 30, 1996
------- ------- -------- -------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents......... $ 538 $ 2,477 $ 1,819 $ 2,287 $ 27,828 $ 3,993
Total assets.......... 34,147 47,463 50,170 50,888 76,998 58,410
Long-term obligations,
less current
maturities.......... 7,940 11,884 9,371 7,161 75,995 7,419
Mandatory redeemable
preferred stock..... -- 8,816 8,816 8,816 31,824 8,816
Common stockholders'
equity (deficit).... 7,308 9,973 12,380 15,366 (56,308) 19,318
<CAPTION>
COMPANY (SUCCESSOR)(1)(2)
-----------------------------------------------
DEC. 31, 1996 SEPT. 30, 1996 SEPT. 30, 1997
------------- -------------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents......... $ 11,256 $ 4,744 $ 5,896
Total assets.......... 160,521 31,325 172,735
Long-term obligations,
less current
maturities.......... 77,789 13,700 86,069
Mandatory redeemable
preferred stock..... 46,227 -- 50,153
Common stockholders'
equity (deficit).... (490) 13,482 (447)
</TABLE>
- ---------------
(1) PHC was formed on February 2, 1996. On December 18, 1996, Brim completed a
leveraged recapitalization. Immediately thereafter on December 18, 1996, a
subsidiary of Brim merged with PHC in a transaction in which Brim issued
junior preferred and common stock in exchange for all of the outstanding
common stock of PHC. Because the PHC shareholders became owners of a
majority of the outstanding shares of Brim after the Merger, PHC was
considered the acquiring enterprise for financial reporting purposes and the
transaction was accounted for as a reverse acquisition. Therefore, the
historical financial statements of PHC replaced the historical financial
statements of Brim, the assets and liabilities of Brim were recorded at fair
value as required by the purchase method of accounting, and the operations
of Brim were reflected in the operations of the combined enterprise from the
date of acquisition. Since PHC had been in existence for less than a year at
December 31, 1996, and because Brim had been in existence for several years,
PHC is considered the successor to Brim's operations. The balance sheet data
of Brim (Predecessor) as of December 18, 1996 represents the historical cost
basis of Brim's assets and liabilities after the leveraged recapitalization
but prior to the reverse acquisition. The reverse acquisition resulted in a
new basis of accounting such that Brim's assets and liabilities were
recorded at their fair value in the Company's consolidated balance sheet
upon consummation of the reverse acquisition. Although PHC was considered
the acquiring enterprise for financial reporting purposes, PHC became a
wholly-owned subsidiary of Brim, the predecessor company, as a result of the
Merger.
(2) 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 Note
3 of Notes to Consolidated Financial Statements.
(3) 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). 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). 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 net income (loss) per share
applicable to common shareholders presentation included in the pro forma
condensed consolidated financial statements included elsewhere herein.
22
<PAGE> 24
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On February 1, 1996, Brim acquired Parkview Regional Hospital from Parkview
Regional Hospital, Inc. (a not-for-profit organization). On December 18, 1996,
Brim and PHC consummated the Merger. PHC previously had acquired Memorial Mother
Frances Hospital from Memorial Hospital Foundation of Palestine, Inc. on July
26, 1996, and had acquired Starke Memorial Hospital from Starke County, Indiana,
on October 1, 1996.
The following unaudited pro forma condensed consolidated balance sheet as
of September 30, 1997 gives effect to: (i) the conversion from no par value to
$0.01 par value Common Stock in connection with the Reincorporation; (ii) the
Preferred Stock Conversion; and (iii) 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 September 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 nine months ended September 30, 1996
and 1997, give effect to: (i) the operating results of Brim for the period prior
to the Merger; (ii) the operating results of Memorial Mother Frances Hospital
and Starke Memorial Hospital for periods prior to their acquisition; (iii) the
Preferred Stock Conversion; and (iv) 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.
23
<PAGE> 25
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRE-OFFERING PRE-OFFERING OFFERING
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS(1) CONSOLIDATED ADJUSTMENTS(2) CONSOLIDATED
---------- -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........ $ 5,896 $ 5,896 $ 58,694(d)
(14,829)(e)
(22,623)(f)
(21,242)(g) $ 5,896
Accounts receivable, less
allowance for doubtful
accounts....................... 29,879 29,879 29,879
Other current assets............. 10,995 10,995 10,995
-------- ------- -------- -------- --------
Total current assets...... 46,770 -- 46,770 -- 46,770
Property, plant and equipment,
net.............................. 58,555 58,555 58,555
Cost in excess of net assets
acquired......................... 53,389 53,389 53,389
Other assets....................... 14,021 14,021 14,021
-------- ------- -------- -------- --------
Total assets.............. $172,735 $ -- $172,735 $ -- $172,735
======== ======= ======== ======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable................. $ 7,144 $ 7,144 $ 7,144
Accrued salaries and benefits.... 6,448 6,448 6,448
Accrued expenses................. 4,360 4,360 4,360
Current maturities of long-term
obligations.................... 1,921 1,921 1,921
-------- ------- -------- -------- --------
Total current
liabilities............. 19,873 -- 19,873 -- 19,873
Long-term obligations, less current
maturities....................... 86,069 86,069 $(21,242)(g) 64,827
Third-party settlements............ 5,542 5,542 5,542
Other liabilities.................. 11,545 $ 1,758(a)
(2,845)(c) 10,458 (2,623)(f) 7,835
-------- ------- -------- -------- --------
103,156 (1,087) 102,069 (23,865) 78,204
Mandatory redeemable preferred
stock
Senior preferred stock......... 19,043 19,043 (19,043)(f) --
Junior preferred stock......... 31,110 (31,110)(c) -- --
-------- ------- -------- -------- --------
50,153 (31,110) 19,043 (19,043) --
Common stockholders' equity
(deficit)
Common stock..................... 2,122 (2,059)(b) 47(d)
25(c) 88 (10)(e) 125
Additional paid-in-capital....... -- 2,059(b) 58,647(d)
33,930(c) (14,819)(e)
35,989 (957)(f) 78,860
Retained earnings (deficit)...... (2,569) (1,758)(a) (4,327) (4,327)
-------- ------- -------- -------- --------
(447) 32,197 31,750 42,908 74,658
-------- ------- -------- -------- --------
$172,735 $ -- $172,735 $ -- $172,735
======== ======= ======== ======== ========
</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.
24
<PAGE> 26
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
- ---------------
<TABLE>
<S> <C>
(a) Reflects the accrual of $1,758 of dividends on the Senior Preferred
Stock and Junior Preferred Stock for the period from October 1, 1997
to the anticipated closing date of the offering.
(b) Reflects the reclassification of $2,059 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.
(c) Reflects the conversion of 32,295 shares of Junior Preferred Stock
with a liquidation value of $32,295 net of issuance costs of $1,185
and estimated accumulated and unpaid dividends of $2,845 into
2,509,966 shares of Common Stock as follows (at an assumed offering
price of $14.00 per share):
Accumulated and unpaid dividends................... $ (2,845)
Junior Preferred Stock............................. (31,110)
Common Stock....................................... 25
Additional paid-in-capital......................... 33,930
--------
$ --
========
(d) Reflects the sale of 4,700,000 shares of Common Stock in the offering
at an assumed offering price of $14.00 per share, for net proceeds of
$58,694 as follows:
Common Stock....................................... $ 47
Additional paid-in-capital......................... 58,647
--------
Cash proceeds...................................... $ 58,694
========
(e) Reflects the repurchase of 1,059,207 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 $14,829 as follows:
Common Stock....................................... $ (10)
Additional paid-in-capital......................... (14,819)
--------
Cash disbursed..................................... $(14,829)
========
(f) 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 $957 and the payment of estimated accumulated and unpaid dividends
of $2,623 using offering proceeds of $22,623 as follows:
Accumulated and unpaid dividends................... $ (2,623)
Senior Preferred Stock............................. (19,043)
Additional paid-in-capital......................... (957)
--------
Cash disbursed..................................... $(22,623)
========
(g) Reflects the application of the remaining proceeds from the offering
of $21,242 for the repayment of long-term obligations.
</TABLE>
25
<PAGE> 27
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
--------------------------------------------------------------------- -------------------------------
MEMORIAL
MOTHER STARKE
COMPANY BRIM FRANCES MEMORIAL MEMORIAL
FEB. 2, 1996 TO JAN. 1, 1996 TO JAN. 1, 1996 TO JAN. 1, 1996 TO MOTHER STARKE
DEC. 31, 1996 DEC. 18, 1996 JULY 26, 1996 OCT. 1, 1996 BRIM FRANCES MEMORIAL
--------------- --------------- --------------- --------------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net operating
revenue.............. $17,255 $112,600 $14,395 $ 7,973
Operating expenses.... 18,268 109,129 16,083 8,181 $ 2,270(a) $ (571)(a) $ 222(a)
Interest expense...... 976 1,675 799 91 47(b) (88)(b)
Costs of
recapitalization..... -- 8,951 -- --
Loss on sale of
assets............... -- 442 -- --
------- -------- ------- ------- ------- ------ ------
Loss from continuing
operations before
income taxes......... (1,989) (7,597) (2,487) (299) (2,270) 524 (134)
Income tax benefit.... (673) (2,290) -- -- (223)(c) (765)(c) (169)(c)
------- -------- ------- ------- ------- ------ ------
Loss from continuing
operations........... (1,316) (5,307) (2,487) (299) (2,047) 1,289 35
------- -------- ------- ------- ------- ------ ------
Preferred stock
dividends and
accretion............ (172) -- -- --
------- -------- ------- ------- ------- ------ ------
Loss from continuing
operations to common
shareholders......... $(1,488) $ (5,307) $(2,487) $ (299) $(2,047) $1,289 $ 35
======= ======== ======= ======= ======= ====== ======
Loss per common
share-primary and
fully diluted........
Weighted average
number of common and
common equivalent
shares...............
<CAPTION>
PRE-OFFERING PRO FORMA
PRO FORMA OFFERING PRO FORMA
CONSOLIDATED ADJUSTMENTS CONSOLIDATED
------------ ----------- ------------
<S> <C> <C> <C>
Net operating
revenue.............. $152,223 $152,223
Operating expenses.... 153,582 153,582
Interest expense...... 3,500 $ (65)(d) 3,435
Costs of
recapitalization..... 8,951 8,951
Loss on sale of
assets............... 442 442
-------- ----- --------
Loss from continuing
operations before
income taxes......... (14,252) 65 (14,187)
Income tax benefit.... (4,120) 25(c) (4,095)
-------- ----- --------
Loss from continuing
operations........... (10,132) 40 (10,092)
-------- ----- --------
Preferred stock
dividends and
accretion............ (172) 172(e) --
-------- ----- --------
Loss from continuing
operations to common
shareholders......... $(10,304) $ 212 $(10,092)
======== ===== ========
Loss per common
share-primary and
fully diluted........ $ (0.80)
========
Weighted average
number of common and
common equivalent
shares............... 12,642
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated statements
of operations.
26
<PAGE> 28
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------------------------
MEMORIAL
MOTHER STARKE
COMPANY BRIM FRANCES MEMORIAL
FEB. 2, 1996 TO JAN. 1, 1996 TO JAN. 1, 1996 TO JAN. 1, 1996 TO
SEPT. 30, 1996 SEPT. 30, 1996 JULY 26, 1996 OCT. 1, 1996
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net operating revenue........................ $ 3,977 $ 87,311 $14,395 $ 7,973
Operating expenses........................... 3,986 80,557 16,083 8,181
Interest expense............................. 441 665 799 91
Loss on sale of assets....................... -- 170 -- --
------- -------- ------- -------
Income (loss) from continuing operations
before income taxes......................... (450) 5,919 (2,487) (299)
Provision (benefit) for income taxes......... -- 2,415 -- --
------- -------- ------- -------
Loss (income) from continuing operations..... $ (450) $ 3,504 $(2,487) $ (299)
======= ======== ======= =======
Income per common share -- primary and fully
diluted.....................................
Weighted average number of common and common
equivalent shares...........................
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------
MEMORIAL
MOTHER STARKE PRO FORMA
BRIM FRANCES MEMORIAL CONSOLIDATED
------- -------- -------- ------------
<S> <C> <C> <C> <C>
Net operating revenue........................ $113,656
Operating expenses........................... $ 1,702(a) $ (571)(a) $ 222(a) 110,160
Interest expense............................. 47(b) (88)(b) 1,955
Loss on sale of assets....................... 170
------- ------ ------ --------
Income (loss) from continuing operations
before income taxes......................... (1,702) 524 (134) 1,371
Provision (benefit) for income taxes......... (342)(c) (765)(c) (169)(c) 1,139
------- ------ ------ --------
Loss (income) from continuing operations..... $(1,360) $1,289 $ 35 $ 232
======= ====== ====== ========
Income per common share -- primary and fully
diluted..................................... $ 0.02
========
Weighted average number of common and common
equivalent shares........................... 12,642
========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated statements
of operations.
27
<PAGE> 29
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 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................................ $123,948 $123,948
Operating expenses................................... 111,800 111,800
Interest expense..................................... 6,177 $(1,366)(d) 4,811
Gain on sale of assets............................... (156) (156)
-------- ------- --------
Income from continuing operations before income
taxes.............................................. 6,127 1,366 7,493
Provision for income taxes........................... 2,818 533(c) 3,351
-------- ------- --------
Income from continuing operations.................... 3,309 833 4,142
-------- ------- --------
Preferred stock dividends and accretion.............. (3,708) 3,708(e) --
-------- ------- --------
Income loss from continuing operations to common
shareholders....................................... $ (399) $ 4,541 $ 4,142
======== ======= ========
Income per common share-primary and fully diluted.... $ 0.33
========
Weighted average number of common and common
equivalent shares.................................. 12,652
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated statements
of operations.
28
<PAGE> 30
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 Brim,
Memorial Mother Frances and Starke Memorial and the inclusion of the
Company's depreciation of property, plant and equipment and amortization of
goodwill and other intangible assets.
(b) Reflects the elimination of the historical interest expense related to debt
of Memorial Mother Frances and Starke Memorial 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 $21,242
of long-term obligations incurred on December 18, 1996 and 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.
29
<PAGE> 31
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.
PHC of Delaware, Inc., a subsidiary of the Company, 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 Starke Memorial Hospital in Knox, Indiana ("Starke Memorial"), in
October 1996 (the "Starke Acquisition").
On December 18, 1996, a subsidiary of Brim, Inc. and PHC merged in a
transaction in which Brim issued Junior Preferred Stock and Common Stock in
exchange for all of the outstanding common stock of PHC and PHC became a
wholly-owned subsidiary of Brim. Since the PHC shareholders became owners of a
majority of the outstanding shares of Brim after the Merger, PHC was considered
the acquiring enterprise for financial reporting purposes and the transaction
was accounted for as a reverse acquisition. Therefore, the historical financial
statements of PHC replaced the historical financial statements of Brim, the
assets and liabilities of Brim were recorded at fair value as required by the
purchase method of accounting, and the operations of Brim were reflected in the
operations of the combined enterprise from the date of acquisition. Since PHC
had been in existence for less than a year at December 31, 1996, and because
Brim had been in existence for several years, PHC is considered the successor to
Brim's operations. Although PHC was considered the acquiring enterprise for
financial reporting purposes, PHC became a wholly owned subsidiary of Brim, the
predecessor company, as a result of the Merger.
At September 30, 1997, the Company had goodwill and other intangible assets
of $54.4 million, which are being amortized over periods ranging from 5 to 35
years, with a weighted average life of 30.2 years at September 30, 1997. In
January 1998, the Company will be merged with and into Province Healthcare
Company, a Delaware corporation, to change the Company's name and jurisdiction
of incorporation and to make certain other changes to the Company's authorized
capitalization.
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, 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.
30
<PAGE> 32
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 December 1996, Brim sold its senior living business (see " --
Discontinued Operations") and certain assets related to three medical office
buildings. 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. On December 18, 1996, a subsidiary of Brim and PHC merged
in a transaction which has been accounted for as a reverse acquisition (i.e.,
the acquisition of Brim by PHC).
In August 1997, the Company acquired Needles Desert Communities Hospital
("Needles") by assuming certain liabilities and entering into an operating lease
agreement, and by purchasing certain net assets for a purchase price of $2.6
million.
The December 31, 1996 results of operations of the Company include five
months of operations for Memorial Mother Frances, three months of operations for
Starke Memorial, and 13 days of operations for Brim. The September 30, 1996
results include two months of operations for Memorial Mother Frances. The
September 30, 1997 results include nine months of operations for all the above
entities, plus two months of operations for Needles.
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 of Brim, Inc.
31
<PAGE> 33
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
(successor) and Brim (predecessor) included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
BRIM (PREDECESSOR) COMPANY (SUCCESSOR)
---------------------------- --------------------------------------------
PERIOD FROM PERIOD FROM PERIOD FROM
YEAR ENDED JANUARY 1, FEBRUARY 2, FEBRUARY 2, NINE MONTHS
DECEMBER 31, 1996 TO 1996 TO 1996 TO ENDED
------------- DECEMBER 18, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1996 1996 1997
----- ----- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net patient service revenue... 76.5% 75.0% 78.1% 95.2% 99.2% 86.8%
Management and professional
services revenue............ 15.7 19.3 16.3 3.5 -- 9.9
Other revenue................. 7.8 5.7 5.6 1.3 0.8 3.3
----- ----- ----- ----- ----- -----
Net operating revenue......... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Expenses:
Salaries, wages and
benefits.................. 52.6 54.6 51.6 44.0 43.4 42.0
Purchased services.......... 16.5 14.2 15.3 13.2 9.7 13.9
Supplies.................... 10.8 10.0 10.0 11.0 12.5 9.6
Provision for doubtful
accounts.................. 5.0 4.5 6.8 11.1 13.8 7.1
Other operating expenses.... 5.3 7.9 7.7 17.7 12.0 10.1
Rentals and leases.......... 3.1 3.5 4.0 1.2 1.1 3.2
Depreciation and
amortization.............. 1.7 1.9 1.6 7.6 7.8 4.4
Interest expense............ 0.9 0.7 1.5 5.7 11.1 5.0
Costs of recapitalization... -- -- 7.9 -- -- --
Loss (gain) on sale of
assets.................... (0.6) (2.8) 0.4 -- -- (0.1)
----- ----- ----- ----- ----- -----
Income (loss) from continuing
operations before provision
for income taxes............ 4.8% 5.2% (6.7)% (11.5)% (11.3)% 4.9%
Income (loss) from continuing
operations.................. 2.8% 3.3% (4.7)% (7.6)% (11.3)% 2.7%
Net income (loss)............. 2.6% 3.1% 0.6% (9.1)% (11.3)% 2.7%
</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. 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).
32
<PAGE> 34
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.
Nine Months Ended September 30, 1997 Compared to Period from February 2, 1996
(PHC's inception) to September 30, 1996 (successor)
The September 30, 1996 results of operations include two months of
operations for Memorial Mother Frances. The September 30, 1997 results include
nine months of operations for Memorial Mother Frances, Starke Memorial and Brim,
plus two months of operations for Needles.
Net operating revenue was $123.9 million in 1997, compared to $4.0 million
in 1996, an increase of $119.9 million.
Net patient service revenue totaled $107.5 million in 1997, compared to
$3.9 million in 1996, an increase of $103.6 million. This increase is
principally the result of the Merger and the Starke Acquisition. Net patient
services revenue is shown net of contractual adjustments of $75.3 million and
$3.8 million in 1997 and 1996, respectively.
Management and professional services revenue totaled $12.3 million in 1997,
which consisted of management fees, professional services fees and reimbursable
expenses of $7.1 million, $0.2 million and $5.0 million, respectively. PHC did
not provide management and professional services, and accordingly, had no
management and professional services revenue in 1996. Reimbursable expenses
(which are included in operating revenue and operating expenses at the same
amount) are comprised of salaries, employee benefits and other costs paid by the
Company and fully reimbursed by client hospitals.
Other revenue totaled $4.1 million in 1997. PHC did not have other revenue
in 1996.
Salaries, wages and benefits totaled $52.0 million in 1997, compared to
$1.7 million in 1996, an increase of $50.3 million principally as a result of
the Merger and the Starke Acquisition. Salaries, wages and benefits, excluding
reimbursable expenses of $5.0 million in 1997, increased $45.3 million.
Purchased services expense totaled $17.3 million in 1997, compared to $0.4
million in 1996, an increase of $16.9 million principally as a result of the
Merger and the Starke Acquisition.
Supplies expense totaled $11.9 million in 1997 compared to $0.5 million in
1996, an increase of $11.4 million principally as a result of the Merger and the
Starke Acquisition.
Provision for doubtful accounts totaled $8.8 million in 1997, compared to
$0.6 million in 1996, an increase of $8.2 million principally as a result of the
Merger and the Starke Acquisition.
Other operating expenses totaled $12.5 million in 1997, compared to $0.5
million in 1996, an increase of $12.0 million, principally as a result of the
Merger and the Starke Acquisition.
Rentals and leases totaled $3.9 million in 1997. PHC did not have rentals
and leases expense in 1996.
Depreciation and amortization totaled $5.4 million in 1997, compared to
$0.3 million in 1996, an increase of $5.1 million primarily as a result of the
Merger and the Starke Acquisition. Depreciation and amortization related to fair
market value adjustments and goodwill recorded in connection with the Merger
totaled $1.7 million.
33
<PAGE> 35
Interest expense totaled $6.2 million in 1997, compared to $0.4 million in
1996, an increase of $5.8 million. This increase resulted primarily from $72.0
million of new bank debt incurred in connection with the Brim Recapitalization,
immediately prior to the Merger.
The Company recorded a gain on sale of assets of $0.2 million in 1997. The
gain related primarily to the sale of the remaining assets of Fifth Avenue
Hospital.
The net result of the above was that the Company recorded net income of
$3.3 million for the nine months ended September 30, 1997, compared to a loss of
$0.5 million in 1996, an increase of $3.8 million.
Period from February 2, 1996 (PHC's inception) to December 31, 1996
(Successor)
PHC of Delaware, Inc. was founded on February 2, 1996, by GTCR Fund IV and
Martin S. Rash to acquire and operate hospitals in attractive non-urban markets.
In July 1996, PHC purchased certain assets totaling $26.4 million and assumed
certain liabilities totaling $3.2 million of Memorial Mother Frances for a
purchase price of $23.2 million. 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. On
December 18, 1996, a subsidiary of Brim merged into PHC, and PHC became a
subsidiary of Brim. In exchange for their shares in PHC, the PHC shareholders
received 14,403 shares of Brim's redeemable Junior Preferred Stock and 2,757,947
shares of Brim's Common Stock. This transaction has been accounted for as a
reverse acquisition under the purchase method of accounting. As a result, for
accounting purposes PHC was considered to have acquired Brim. The historical
financial statements of PHC became the historical financial statements of Brim
and include the results of Brim from the effective date of the Merger, December
18, 1996. As a result of these acquisitions, the Company has unallocated
purchase price of $7.3 million related to Starke Memorial and $52.3 million of
cost in excess of net assets acquired related to Brim. The allocation of the
Starke purchase price was finalized in the third quarter of 1997 and consisted
of property, plant and equipment of $5.2 million and cost in excess of net
assets acquired of $2.3 million. The final allocation did not have a significant
impact on the Company's consolidated results of operations.
The results of operations of the Company for the period February 2, 1996 to
December 31, 1996 include the operations of Memorial Mother Frances since the
acquisition date of July 26, 1996, the results of operations of Starke Memorial
since the acquisition date of October 1, 1996, and the results of operations of
Brim since the Merger date of December 18, 1996.
Net operating revenue totaled $17.3 million for the period. Net patient
service revenue totaled $16.4 million (net of contractual adjustments of $13.5
million), or 95.2% of net operating revenue. Management and professional
services revenue totaled $0.6 million, or 3.5% of net operating revenue, and
other revenue totaled $0.2 million, or 1.3% of net operating revenue. The
management and professional services revenue relates to thirteen days' revenue
from the management company acquired in the Brim Merger.
Interest expense of $1.0 million results principally from thirteen days'
interest on the $52.7 million additional debt incurred by Brim to effect the
Recapitalization, immediately before the Merger with PHC, and interest on debt
incurred by PHC to effect the Memorial Mother Frances acquisition in July 1996
($13.7 million), and the Starke Memorial acquisition in October 1996 ($5.6
million).
All other operating expenses totaled $18.2 million.
Loss from early retirement of debt of $0.3 million (net of taxes) relates
to the refinancing of $19.3 million of debt at the time of the Merger with Brim,
and was treated as an extraordinary item for accounting purposes.
34
<PAGE> 36
The Company recorded a net loss of $1.6 million for the period February 2,
1996 to December 18, 1996.
Period from January 1, 1996 to December 18, 1996 Compared to Year Ended
December 31, 1995 (Predecessor)
Net operating revenue was $112.6 million in 1996, compared to $101.2
million in 1995, an increase of $11.4 million, or 11.3%.
Net patient service revenue totaled $87.9 million in 1996, compared to
$75.9 million in 1995, an increase of $12.0 million, or 15.8%. This increase was
principally the result of the Parkview acquisition ($9.1 million in net patient
service revenue). Net patient service revenue increased $2.9 million, or 3.8%,
on a same hospital basis related to increased patient volumes, new patient
services and increased customary charges. Net patient service revenue is shown
net of contractual adjustments of $63.8 million and $57.4 million in 1996 and
1995, respectively.
The components of management and professional services revenue are as
follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED PERIOD FROM
DECEMBER 31, JANUARY 1 TO INCREASE
1995 DECEMBER 18, 1996 (DECREASE)
------------ ----------------- ----------
<S> <C> <C> <C>
Management fees......................... $10.5 $ 8.9 $(1.6)
Professional services fees.............. 0.2 0.4 0.2
Reimbursable expenses................... 8.9 9.0 0.1
----- ------- -----
Total......................... $19.6 $18.3 $(1.3)
===== ======= =====
</TABLE>
The decrease in management fees is principally the result of a decline in
the number of management contracts, offset partially by price increases.
Professional services fees increased $0.2 million in 1996 as a result of the
introduction of managed care consulting. Reimbursable expenses increased $0.1
million, or 1.1%, as a result of an increase in the number of management
contracts which provide for reimbursable expenses.
Other revenue totaled $6.4 million in 1996, compared to $5.8 million in
1995, an increase of $0.6 million, or 10.3%. This increase is principally
attributable to a $1.0 million fee received in 1996 relating to a terminated
merger.
Salaries, wages and benefits expenses totaled $58.1 million in 1996,
compared to $55.3 million in 1995, an increase of $2.8 million, or 5.1%.
Salaries, wages and benefits, excluding reimbursable expenses, increased $2.7
million, or 5.8%. The Parkview acquisition accounted for $4.0 million of this
increase. Salaries, wages and benefits increased $1.3 million, or 2.8%, on a
same hospital basis, primarily as a result of the sale of Fifth Avenue Hospital
in mid 1995.
Purchased services expense totaled $17.2 million in 1996, compared to $14.4
million in 1995, an increase of $2.8 million, or 19.4%. The Parkview acquisition
accounted for $1.7 million of this increase. Purchased services increased $1.1
million, or 14.6%, on a same hospital basis, primarily as a result of increased
professional fees at the corporate level related to the Recapitalization.
Supplies expense totaled $11.2 million in 1996, compared to $10.1 million
in 1995, an increase of $1.1 million, or 10.9% as a result of the Parkview
acquisition.
Provision for doubtful accounts totaled $7.7 million in 1996, compared to
$4.6 million in 1995, an increase of $3.1 million, or 67.4%. The Parkview
acquisition (ten and a half month's operations in 1996) accounted for $1.0
million of this increase. The provision increased $2.1 million, or 45.7%, on a
same hospital basis. Of the same hospital increase, approximately $0.5 million
relates to a provision and write-off during 1996 for accounts receivable
acquired and subsequently deemed uncollectible at a clinic purchased by one of
the leased hospitals, and $0.6 million relates to a provision and a write-off of
uncollectible accounts receivable at the management company. The remaining $0.9
million increase reflects a deterioration in the aging of the accounts in 1996.
35
<PAGE> 37
Other operating expenses totaled $8.7 million in 1996, compared to $8.0
million in 1995, an increase of $0.7 million, or 8.8%, principally as a result
of the Parkview acquisition.
Rentals and leases totaled $4.5 million in 1996, compared to $3.6 million
in 1995, an increase of $0.9 million, or 25.0%. Of this increase, $0.4 million
resulted from the Parkview acquisition. The remaining increase resulted from
scheduled rent increases in the long-term facilities leases and other lease and
rental obligations at the other hospitals.
Depreciation and amortization totaled $1.8 million in 1996, compared to
$2.0 million in 1995, a decrease of $0.2 million, or 10.0%. This decrease
resulted primarily from the sale of Fifth Avenue Hospital in May 1995 and the
short period in 1996.
Interest expense totaled $1.7 million in 1996, compared to $0.7 million in
1995, an increase of $1.0 million, or 142.9%. This increase resulted primarily
from interest penalties required to settle debt on property sold in connection
with the sale of the senior living business.
Recapitalization expense totaled $9.0 million in 1996. This expense
consisted of $8.0 million paid to settle options and $1.0 million of
transaction-related costs (principally professional fees).
Brim 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 resulted from 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 Brim recorded a loss from continuing
operations before provision for income taxes of $7.6 million in 1996, compared
to income from continuing operations of $5.3 million in 1995, a decrease of
$12.9 million.
Brim recognized an income tax benefit of $2.3 million in 1996, as a result
of the $7.6 million loss from continuing operations (30.2% effective rate),
compared to tax expense of $1.9 million in 1995 on income of $5.3 million (36.4%
effective rate). The benefit in 1996 resulted in an increase in deferred tax
assets to a balance of $4.8 million at December 18, 1996. Management believes it
is more likely than not that the deferred tax assets will ultimately be realized
through future taxable income from operations.
Income from discontinued operations, net of income taxes, in 1996 was $0.5
million, compared to $0.8 million in 1995, a decrease of $0.3 million, or 37.5%.
The income is the result of income from the operations of the senior living
business, which was sold in December 1996.
Gain on disposal of discontinued operations, net of income taxes, in 1996
was $5.5 million, compared to a loss of $1.0 million in 1995. The 1996 gain is
related to the sale of the senior living business. The 1995 loss resulted from
the loss on the sale of Brim's managed care business and Fifth Avenue Hospital.
The net result of the above was that Brim recorded net income in 1996 of
$0.7 million, compared to net income of $3.1 million in 1995, a decrease of $2.4
million, or 80.0%.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
(Predecessor)
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 2.3% to $74.1 million.
36
<PAGE> 38
The components of management and professional services revenue are as
follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, INCREASE
1994 1995 (DECREASE)
------------ ------------ ----------
<S> <C> <C> <C>
Management fees............................... $ 8.1 $10.5 $2.4
Professional service fees..................... 0.3 0.2 (0.1)
Reimbursable expenses......................... 7.6 8.9 1.3
----- ----- ----
$16.0 $19.6 $3.6
===== ===== ====
</TABLE>
The $3.6 million increase in management and professional services revenue
resulted primarily from an increase in the number of management contracts and an
increase in reimbursable expenses. Reimbursable expenses increased $1.3 million,
or 17.1%, primarily as a result of the increase in the number of management
contracts and other contracts which provide for reimbursable expenses.
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 was the result of a decrease
in miscellaneous revenues at the hospitals of $0.9 million. 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%.
Salaries, wages and benefits, excluding reimbursable expenses, increased $0.3
million, or 0.6%, principally as a 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 was
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 was 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 was the
result of decreased patient service revenue in 1995 and the sale of Fifth Avenue
Hospital.
Other operating expenses totaled $8.0 million in 1995, compared to $5.4
million in 1994, an increase of $2.6 million, or 48.1%. This increase was
principally the result of increased operating expense at the hospitals of $1.8
million, $0.5 million at the management company, and $0.3 million related to
merger activity in 1995.
Rentals and leases totaled $3.6 million in 1995, compared to $3.2 million
in 1994, an increase of $0.4 million, or 12.5%. This increase was 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 $0.3
million.
Depreciation and amortization totaled $2.0 million in 1995, compared to
$1.7 million in 1994, an increase of $0.3 million, or 17.6%, which was primarily
attributable to increases in property and equipment.
Interest expense totaled $0.7 million in 1995, compared to $0.9 million in
1994, a decrease of $0.2 million, or 22.2%. This decrease resulted primarily
from a decrease in average debt balances.
Brim 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.
Brim recorded income from continuing operations, before provision for
income taxes, of $5.3 million in 1995, compared to $4.9 million in 1994, an
increase of $0.4 million, or 8.2%. Brim recorded a provision for income taxes on
continuing operations of $1.9 million in 1995 (36.4%
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<PAGE> 39
effective rate), compared to $2.0 million in 1994 (41.4% effective rate). The
difference in the effective rates for 1995 and 1994 related principally to the
tax effect of the change in the valuation allowance for deferred tax assets.
Income from discontinued operations, net of income taxes, was $0.8 million
in 1995, compared to a loss of $0.2 million in 1994, which was the result of
operations of the senior living business sold in 1996.
Loss on disposal of discontinued operations, net of income taxes, in 1995
was $1.0 million dollars. The loss resulted from the loss on the sale of Brim's
managed care and outpatient surgery business, which was discontinued in
September 1995.
The net result of the above was that Brim recorded net income of $3.1
million for the year ended December 31, 1995, compared to net income of $2.7
million in 1994, an increase of $0.4 million, or 14.8%.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had working capital of $26.9 million,
including cash and cash equivalents of $5.9 million. The ratio of current assets
to current liabilities was 2.4 to 1.0 at September 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 provided by operations was
$1.6 million for the period February 2, 1996 to December 31, 1996. Cash provided
by (used in) operations was $0.2 million and $(2.1 million) for the period
February 2, 1996 to September 30, 1996 and the nine months ended September 30,
1997, respectively.
Cash provided by investing activities totaled $3.6 million for the period
February 2, 1996 to December 31, 1996. Cash used in investing activities totaled
$23.2 million and $15.3 million for the period February 2, 1996 to September 30,
1996 and the nine months ended September 30, 1997, respectively. These amounts
related to acquisitions, of hospitals and purchases and disposals of property,
plant and equipment in each period.
Cash provided by financing activities totaled $6.0 million for the period
February 2, 1996 to December 31, 1996, and $27.8 million and $12.0 million for
the period February 2, 1996 to September 30, 1996 and the nine months ended
September 30, 1997, respectively. These amounts resulted from the proceeds from
long-term debt, net of debt refinancing and issuance of stock.
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 nine months ended September 30, 1997
were $7.9 million, exclusive of the purchase of the building and equipment of
Ojai for $4.8 million as a result of exercising the purchase option under the
lease agreement. The Company expects to make capital expenditures in 1997 of
approximately $8.5 million, exclusive of any acquisitions. Planned capital
expenditures for 1997 include approximately $6.5 million of capital improvements
at the Company's owned and leased hospitals, and approximately $2.0 million of
capital expenditures for standardizing management information systems for the
owned and leased hospitals and the corporate office.
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
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<PAGE> 40
debt or equity financing for any particular acquisition, or that any needed
financing will be available on favorable terms.
As part of its Recapitalization, Brim 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
September 30, 1997 and December 31, 1996 were $81.0 million and $72.0 million,
respectively, of which $35.0 million related to the term loan portion of the
Credit Agreement as of each such date. 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 nine-month
period ended September 30, 1997, and 8.1% to 9.3% during the period February 2,
1996 to 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 8.4%. 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.
Management is in the process of amending the Credit Agreement to increase
the credit facility to $200.0 million, contingent upon the consummation of the
offering. There can be no assurances that such amendments will be made.
The Company believes that its future 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.
39
<PAGE> 41
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 all 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
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. 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."
40
<PAGE> 42
BUSINESS
OVERVIEW
Province Healthcare Company is a provider of health care services in
attractive non-urban markets in the United States. 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. The
Company offers a wide range of inpatient and outpatient medical services and
also provides specialty services including skilled nursing, geriatric psychiatry
and rehabilitation. 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. For
the nine months ended September 30, 1997, the Company had net operating revenue
of $123.9 million.
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.
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, a subsidiary of Brim was merged into PHC,
and PHC became a subsidiary of Brim. 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. James Thomas Anderson, the Company's Senior Vice President of Acquisitions
and Development, was previously a Vice President/Group Director of Community.
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<PAGE> 43
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.
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<PAGE> 44
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 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.
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<PAGE> 45
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, PHC purchased Memorial Mother Frances in Palestine, Texas and
leased Starke Memorial in Knox, Indiana and Brim leased Parkview in Mexia,
Texas. In August 1997, the Company leased Needles in Needles, California. Brim
provided management services to Parkview, and the Company provided management
services to 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
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<PAGE> 46
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. All of the Company's owned and leased
hospitals currently purchase supplies and certain equipment pursuant to an
arrangement between the Company and a large investor-owned hospital company.
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 95.2% and 86.8% of the
Company's net operating revenues for the period from February 2, 1996 to
December 31, 1996 and the nine months ended September 30, 1997, respectively.
Management believes that the facilities at its owned and leased hospitals are
generally suitable and adequate for the services offered.
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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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 Communities 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 unit 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 recently completed a renovation of General
Hospital's obstetrical unit. 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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Memorial Mother Frances Hospital is located approximately halfway between
Dallas and Houston, and approximately 50 miles from Tyler, Texas. The hospital
has added a six-bed inpatient rehabilitation unit and is in the process of
expanding the 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 Communities Hospital is located approximately 100 miles
south of Las Vegas, Nevada and is the only hospital in town. The hospital
expects to open an inpatient rehabilitation unit in March 1998. 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 expects to open an inpatient sub-acute unit in
March 1998. 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. 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 owns a 48,000 square foot office building in Portland,
Oregon and leases approximately 8,000 square feet of office space for its
corporate headquarters in Brentwood, Tennessee under a 3-year lease which
expires on December 31, 1999 and contains customary terms and conditions.
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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>
BRIM (PREDECESSOR) COMPANY (SUCCESSOR)
-------------------------------- --------------------------------------------
PERIOD PERIOD PERIOD
YEAR ENDED JANUARY 1, FEBRUARY 2, FEBRUARY 2, NINE MONTHS
DECEMBER 31, 1996 TO 1996 TO 1996 TO ENDED
----------------- DECEMBER 18, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1996 1996 1997
------- ------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Hospitals owned or leased (at end of
period).............................. 4 4 5 7 1 8
Licensed beds (at end of period)....... 294 294 371 513 93 570
Beds in service (at end of period)..... 243 243 266 393 93 468
Admissions............................. 8,868 8,839 9,496 1,964 531 11,008
Average length of stay (days)(1)....... 6.5 6.4 5.9 4.3 3.6 5.6
Patient days........................... 57,161 56,088 56,310 8,337 1,904 61,443
Adjusted patient days(2)............... 91,047 92,085 96,812 15,949 3,893 109,866
Occupancy rate (% of licensed
beds)(3)............................. 53.3 52.3 43.1 39.5 31.0 39.5
Occupancy rate (% of beds in
service)(4).......................... 64.4 63.2 60.1 51.3 31.0 48.5
Net patient service revenue (in
thousands)........................... $78,109 $75,871 $87,900 $16,425 $3,944 $107,524
Gross outpatient service revenue (in
thousands)........................... $46,312 $51,414 $64,472 $14,088 $3,972 $ 82,014
</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 volume of service provided to inpatients and outpatients by converting
total patient revenues to equivalent patient days.
(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."
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<PAGE> 50
<TABLE>
<CAPTION>
BRIM (PREDECESSOR) COMPANY (SUCCESSOR)
---------------------------- --------------------------------------------
PERIOD PERIOD PERIOD
YEAR ENDED JANUARY 1, FEBRUARY 2, FEBRUARY 2, NINE MONTHS
DECEMBER 31, 1996 TO 1996 TO 1996 TO ENDED
------------- DECEMBER 18, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996(1) 1996(1) 1996 1997(1)
----- ----- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Medicare...................... 49.1% 50.2% 54.7% 63.3% 63.7% 61.0%
Medicaid...................... 14.2 16.8 17.0 12.0 15.2 14.2
Private and other sources..... 36.7 33.0 28.3 24.7 21.1 24.8
----- ----- ----- ----- ----- -----
Total................ 100.0% 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. The Ojai Valley skilled nursing facility utilization is as
follows:
<TABLE>
<CAPTION>
PRIVATE AND
MEDICARE MEDICAID OTHER SOURCES
-------- -------- -------------
<S> <C> <C> <C>
Period January 1 to December 18, 1996 (Predecessor)........ 12.9 73.5 13.6
Period February 2 to December 31, 1996 (Successor)......... 16.0 68.6 15.4
Nine months ended September 30, 1997 (Successor)........... 10.4 78.5 11.1
</TABLE>
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
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<PAGE> 51
understanding the local markets in which such hospitals operate. This division
represented 9.9% of net operating revenue for the nine months ended September
30, 1997. PHC did not provide management services, and, accordingly, had no
management and professional services revenue in 1996.
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.
EMPLOYEES AND MEDICAL STAFF
As of September 30, 1997, the Company had 1,623 "full-time equivalent"
employees, 26 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 September 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.
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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-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.
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<PAGE> 53
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.
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
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<PAGE> 54
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."
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--Health Care Industry Investigations."
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
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<PAGE> 55
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 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
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<PAGE> 56
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.
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.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the Company's
directors and executive officers as of January 14, 1998.
<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................. 40 Senior Vice President and Chief Operating Officer
James Thomas Anderson............ 44 Senior Vice President of Acquisitions and Development
James O. McKinney................ 44 Senior Vice President of Managed Operations
Howard T. Wall, III.............. 39 Senior Vice President and General Counsel
Brenda B. Rector................. 49 Vice President and Controller
Bruce V. Rauner.................. 41 Chairman of the Board and Director
Joseph P. Nolan.................. 33 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., an operator of
non-urban acute care hospitals, 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., a hospital management company, 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. Anderson has served as Senior Vice President of Acquisitions and
Development of the Company since January 1998. From November 1993 to January
1998, Mr. Anderson served as a Vice President/Group Director of Community Health
Systems, Inc., and was its Operations Controller from September 1992 to November
1993. From April 1990 to September 1992, Mr. Anderson served as Chief Financial
Officer of Clarksville Memorial Hospital in Clarksville, Tennessee, and from
1984 to April 1990, he served as Chief Executive Officer of Harton Medical
Center in Tullahoma, TN.
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.
Mr. Wall has served as Senior Vice President and General Counsel of the
Company since September 1997. From 1990 to September 1997, Mr. Wall served as a
Partner of Waller Lansden Dorch & Davis, a law firm based in Nashville,
Tennessee, and practiced in the health care group.
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<PAGE> 58
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., a venture capital firm and the
general partner of GTCR Fund IV, since 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., a diversified staffing services company, 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.
57
<PAGE> 59
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid by the Company and its
subsidiaries in 1996 and 1997 to: (i) the Company's chief executive officer;
(ii) the Company's four other most highly compensated executive officers at
December 31, 1997; and (iii) the Company's former Senior Vice President of
Acquisitions and Development, who resigned in December 1997 (collectively, the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)
- --------------------------- ---- --------- -------- ---------------
<S> <C> <C> <C> <C>
Martin S. Rash(1)................................... 1996 229,166 114,583 --
President and Chief Executive Officer 1997 261,458 130,729 12,647
Richard D. Gore(2).................................. 1996 123,958 61,979 --
Executive Vice President and Chief Financial 1997 181,205 90,602 10,236
Officer
James O. McKinney(3)................................ 1996 141,036 20,974 4,760
Senior Vice President of Managed Operations 1997 177,329 88,665 10,070
John M. Rutledge(4)................................. 1996 7,167 -- --
Senior Vice President and Chief Operating Officer 1997 172,005 86,002 9,959
Brenda B. Rector(5)................................. 1996 22,917 9,167 --
Vice President and Controller 1997 130,503 52,201 6,072
Steven P. Taylor(6)................................. 1996 196,027 48,180 6,436
Former Senior Vice President of 1997 193,166 88,000 10,595
Acquisitions and Development
</TABLE>
- ---------------
(1) Mr. Rash was compensated at an annual salary of $250,000 in 1996, and he
joined PHC upon its formation in February 1996 and became the Company's
Chief Executive Officer in December 1996. All other compensation included
Company contributions of $4,800 under a 401(k) plan and $7,847 under a
supplemental deferred compensation plan in 1997.
(2) Mr. Gore was compensated at an annual salary of $175,000 in 1996 and he
joined PHC in April 1996 and became the Company's Executive Vice President
and Chief Financial Officer in December 1996. All other compensation
included Company contributions of $4,800 under a 401(k) plan and $5,436
under a supplemental deferred compensation plan in 1997.
(3) All other compensation included Company contributions of (i) $4,760 under a
401(k) plan in 1996, and (ii) $4,750 under a 401(k) plan and $5,320 under a
supplemental deferred compensation plan in 1997.
(4) Mr. Rutledge was compensated at an annual salary of $172,000 in 1996 and he
joined the Company in December 1996. All other compensation included Company
contributions of $4,799 under a 401(k) plan and $5,160 under a supplemental
deferred compensation plan in 1997.
(5) Ms. Rector was compensated at an annual salary of $110,000 in 1996 and she
joined PHC in October 1996 and became the Company's Vice President and
Controller in December 1996. All other compensation included Company
contributions of $3,462 under a 401(k) plan and $2,610 under a supplemental
deferred compensation plan in 1997.
(6) Mr. Taylor resigned from the Company in December 1997. All other
compensation included Company contributions of (i) $6,436 under a 401(k)
plan in 1996 and (ii) $4,800 under a 401(k) plan and $5,795 under a
supplemental deferred compensation plan in 1997.
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.
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<PAGE> 60
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. Brim and Taylor
effective as of December 17, 1996. Mr. Brim will receive an annual base salary
of $121,680, increased in accordance with increases in the salary of similarly
situated executives of the Company. Mr. Brim is also entitled to an automobile
and expense allowance, and the Company pays certain club dues on his behalf. Mr.
Brim's agreement terminates on the earliest to occur of his death, permanent
disability, termination for cause, voluntary termination and December 17, 1999.
In the event that Mr. Brim's employment is terminated without cause, the Company
has agreed to pay him an amount equal to his base salary. Mr. Brim has agreed
not to compete with the Company or to solicit Company employees during the term
of his employment, and has agreed not to disclose confidential information
regarding the Company. Mr. Taylor resigned from the Company in December 1997.
Pursuant to his employment agreement, Mr. Taylor served as a Senior Vice
President of the Company and received an annual base salary of $176,000,
increased in accordance with increases in the salary of similarly situated
executives of the Company. Mr. Taylor was 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 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. Taylor's employment agreement provides that in the
earliest to occur of his death, permanent disability, termination for cause,
voluntary termination and the event his employment is terminated without cause,
the Company will pay him an amount equal to his base salary and the maximum
bonus payment for the unexpired portion of the term of his employment. Mr.
Taylor agreed not to compete with the Company or solicit Company employees
during the term of his employment, and has 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 October 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 959,016 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 284,530
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<PAGE> 61
shares of Common Stock, including grants of options to purchase 6,831 shares to
Mr. Brim and 5,464 shares to Mr. McKinney. All of the options granted in March
1997 have an exercise price of $4.58 per share, and all of such options are
subject to vesting in five equal annual installments. In September 1997, the
Company's board of directors approved the grant of options to purchase an
aggregate of 70,586 shares of Common Stock, including grants of options to
purchase 1,844 shares to Mr. Brim, and 11,066 shares each to Messrs. Steffy and
Willis. The grants approved in September 1997 would have an exercise price per
share equal to the initial public offering price, and would be 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
114,754 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 ten 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
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.
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<PAGE> 62
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> 63
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
REDEMPTION OF SENIOR PREFERRED STOCK AND COMMON STOCK CONVERSION AND REPURCHASE
Of the estimated $58.7 million in net proceeds from the offering, $22.6
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 $14.9 million (based on an assumed initial offering price of $14.00 per
share). 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 December 17, 1996 between the
Company and the Investors, the Company sold 2,733 shares of Junior Preferred
Stock and 448,033 shares of Common Stock to GTCR Fund IV; 794 shares of Junior
Preferred Stock and 130,164 shares of Common Stock to Leeway & Co.; 64 shares of
Junior Preferred Stock and 71,639 shares of Common Stock to Mr. Rash; 119 shares
of Junior Preferred Stock and 49,672 shares of Common Stock to Mr. Gore; and
22.5 shares of Junior Preferred Stock and 3,689 shares of Common Stock to each
of the two other Investors for a purchase price of $1,000 per share of Junior
Preferred Stock and $0.61 per share of Common Stock, resulting in an aggregate
purchase price of $4.2 million. Mr. Rash is a Director and executive officer of
the Company, and Mr. Gore is an executive officer of the Company. The two other
Investors are affiliated with banks which are lenders to the Company under its
bank credit facility. In addition, in September 1997, Leeway & Co. exercised its
warrant to purchase 253,228 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
September 30, 1997, PHC and the Company had paid or accrued an aggregate of $1.4
million and $149,590, respectively, in fees under the agreement. The agreement
will be terminated immediately prior to the
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<PAGE> 64
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."
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. Unvested shares are subject to repurchase by the
Company (or, if the Company does not elect to repurchase such shares, by GTCR
Fund IV) at their original cost upon termination of executive's employment with
the Company for any reason. For purposes of determining earnings per share, 100%
of the Common Stock purchased by Messrs. Rash and Gore is considered
outstanding. 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> 65
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of January 14, 1998 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(2) PERCENT(3) NUMBER(2) PERCENT(3)
- ---- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Golder, Thoma, Cressey, Rauner Fund IV,
L.P.(4)...................................... 3,725,738 58.9% 4,608,751 36.9%
Bruce V. Rauner(4)............................. 3,725,738 58.9 4,608,751 36.9
Joseph P. Nolan(4)............................. 3,725,738 58.9 4,608,751 36.9
Leeway & Co.(5)................................ 998,474 15.8 1,174,667 9.4
Martin S. Rash................................. 589,585 9.3 619,362 5.0
Richard D. Gore................................ 374,161 5.9 429,840 3.4
James O. McKinney(6)........................... 18,142 * 26,267 *
John M. Rutledge(7)............................ 21,858 * 21,858 *
Brenda B. Rector(8)............................ 5,596 * 5,596 *
A.E. Brim(9)................................... 111,858 1.8 164,515 1.3
Michael T. Willis.............................. -- -- -- --
David L. Steffy................................ -- -- -- --
Steven P. Taylor............................... 110,492 1.7 163,149 1.3
All executive officers and directors as a group
(13 persons)................................. 4,957,430 77.9% 6,039,338 48.3%
</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.
(2) Includes shares of Common Stock subject to options which are exercisable
within 60 days of January 15, 1998.
(3) Shares of Common Stock subject to options which are exercisable within 60
days of January 15, 1998 are considered to be outstanding for the purpose of
determining the percent of the shares held by a holder, but not for the
purpose of computing the percentage held by others.
(4) 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.
(5) 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.
(6) Includes options to purchase 1,093 shares.
(7) Includes options to purchase 21,858 shares.
(8) Reflects options to purchase 5,596 shares.
(9) Includes 110,492 shares, which are held of record by Brim Capital
Corporation, and options to purchase 1,366 shares.
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<PAGE> 66
DESCRIPTION OF CAPITAL STOCK
Upon consummation of the Reincorporation, the Company's authorized capital
stock will consist of 25,000,000 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 October 31, 1997,
there were 6,330,614 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, 12,481,373 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 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.
The Common Stock has been approved for trading on the Nasdaq National
Market under the symbol "PRHC," subject to notice of issuance.
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
65
<PAGE> 67
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 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 12,481,373 shares of
Common Stock outstanding (13,186,373 shares if Underwriter's over-allotment
option is exercised in full). Of these shares, the 4,700,000 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.
66
<PAGE> 68
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 124,800 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 completion of the offering, 5,978,824 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 executive officers and
directors, and substantially all of its current stockholders have agreed that
for a period of 180 days after the date of the offering they will not, without
the prior written consent of BT Alex. Brown 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 5,978,824 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."
STOCK OPTIONS
At January 15, 1998, options to purchase a total of 284,530 shares of
Common Stock pursuant to the Company's 1997 Plan were outstanding, of which
56,906 will become exercisable within 60 days of the date of this Prospectus. Of
the shares subject to options, 175,518 are subject to lock-up agreements. Upon
completion of this offering, an additional 674,486 shares of Common Stock will
be available for future option grants under the Company's 1997 Plan, and in
September 1997 the Company's board of directors approved the grant of options to
purchase an aggregate of 70,586 shares of Common Stock with an exercise price
equal to the initial public offering price. See "Management -- Long-Term Equity
Incentive Plan."
REGISTRATION AGREEMENT
In connection with the Recapitalization in December 1996, the stockholders
of Brim at such time (the "Original Stockholders") entered into a Registration
Agreement with Brim (the
67
<PAGE> 69
"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.
68
<PAGE> 70
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting
Agreement, the Underwriters named below (the "Underwriters") through their
Representatives, BT Alex. Brown Incorporated, BancAmerica Robertson Stephens,
Goldman, Sachs & Co., and The Robinson-Humphrey Company, LLC 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>
BT Alex. Brown Incorporated.................................
BancAmerica Robertson Stephens..............................
Goldman, Sachs & Co.........................................
The Robinson-Humphrey Company, LLC..........................
---------
Total............................................. 4,700,000
=========
</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 705,000
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 4,700,000, 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 4,700,000 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 BT Alex. Brown Incorporated. In addition, after giving effect to the
Preferred Stock Conversion and the application of the estimated net proceeds
from the sale of Common Stock in the offering to repurchase shares of Common
Stock as described in "Use of Proceeds," stockholders of the Company holding in
the aggregate approximately 7,756,199 shares of Common Stock and options to
purchase 175,518 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
69
<PAGE> 71
date of this Prospectus without the prior written consent of BT Alex. Brown
Incorporated. See "Shares Eligible for Future Sale."
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 matters
relating to health care regulation and other matters will be passed upon by
Waller Lansden Dortch & Davis, A Professional Limited Liability Company,
Nashville, Tennessee.
EXPERTS
The consolidated financial statements and supplemental schedule of Province
Healthcare Company at December 31, 1996, and for the period February 2, 1996 to
December 31, 1996, and the consolidated financial statements of Brim, Inc. for
the period January 1, 1996 to December 18, 1996, appearing in this Registration
Statement, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon (which as to Province contains an explanatory
paragraph regarding a change in the application of the method of accounting for
its December 18, 1996 merger with Brim, Inc.) 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 of Brim, Inc. and subsidiaries 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 report
dated March 8, 1996, except for Note 1 to the consolidated financial statements,
as to which the date is January 16, 1998 of KPMG Peat Marwick
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<PAGE> 72
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, 1994, 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 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.
CHANGE IN ACCOUNTANTS
In connection with the Recapitalization, the Company's board of directors
approved the appointment of 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 on December
18, 1996.
During 1994 and 1995, and the period from January 1, 1996 through December
18, 1996, 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.
71
<PAGE> 73
INDEX TO FINANCIAL STATEMENTS
PROVINCE HEALTHCARE COMPANY
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheet at December 31, 1996............. F-3
Consolidated Statement of Operations for the period February
2, 1996 to December 31, 1996.............................. F-4
Consolidated Statement of Changes in Common Stockholders'
Deficit................................................... F-5
Consolidated Statements of Cash Flows for the period
February 2, 1996 to December 31, 1996..................... F-6
Notes to Consolidated Financial Statements.................. F-7
Condensed Consolidated Balance Sheet at September 30, 1997
(Unaudited)............................................... F-22
Condensed Consolidated Statements of Operations for the
period February 2, 1996 to September 30, 1996 and the Nine
Months Ended September 30, 1997 (Unaudited)............... F-23
Condensed Consolidated Statements of Changes in Common
Stockholders' Equity (Deficit) for the Nine Months Ended
September 30, 1997 (Unaudited)............................ F-24
Condensed Consolidated Statements of Cash Flows for the
period February 2, 1996 to September 30, 1996 and the Nine
Months Ended September 30, 1997 (Unaudited)............... F-25
Notes to Condensed Consolidated Financial Statements
(Unaudited)............................................... F-26
BRIM, INC. AND SUBSIDIARIES
Report of Independent Auditors.............................. F-29
Independent Auditors' Report................................ F-30
Consolidated Balance Sheets at December 31, 1995 and
December 18, 1996......................................... F-31
Consolidated Statements of Income for the Years Ended
December 31, 1994 and 1995 and for the period January 1,
1996 to December 18, 1996................................. F-32
Consolidated Statements of Changes in Common Stockholders'
Equity (Deficit) for the Years Ended December 31, 1994 and
1995 and for the period January 1, 1996 to December 18,
1996...................................................... F-33
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994 and 1995 and for the period January 1,
1996 to December 18, 1996................................. F-34
Notes to Consolidated Financial Statements.................. F-35
MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.
Independent Auditors' Report................................ F-50
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-51
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-52
Notes to the Consolidated Financial Statements.............. F-53
Independent Auditors' Report................................ F-57
Consolidated Statement of Revenues and Expenses for the Year
Ended May 31, 1994........................................ F-58
Consolidated Statement of Cash Flows for the Year Ended May
31, 1994.................................................. F-59
Notes to the Consolidated Financial Statements.............. F-60
</TABLE>
F-1
<PAGE> 74
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 Principal Hospital Company) and
subsidiaries as of December 31, 1996, and the related consolidated statements of
operations, changes in common stockholders' deficit, and cash flows for the
period February 2, 1996 (date of inception) to December 31, 1996. 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 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 period
February 2, 1996 to December 31, 1996 in conformity with generally accepted
accounting principles.
As discussed more fully in Notes 1 and 3, the Company has changed its
application of the method of accounting for its December 18, 1996 merger with
Brim, Inc. and, accordingly, has restated the consolidated financial statements
referred to above to reflect this change.
Ernst & Young LLP
Nashville, Tennessee
April 30, 1997,
except for Note 14, and Notes 1, 3 and 15, as to which the dates are
May 8, 1997 and February 4, 1998, respectively
F-2
<PAGE> 75
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 11,256
Accounts receivable, less allowance for doubtful accounts
of $4,477.............................................. 22,829
Inventories............................................... 2,883
Prepaid expenses and other................................ 8,159
--------
Total current assets.............................. 45,127
Property, plant and equipment, net.......................... 49,497
Other assets:
Unallocated purchase price................................ 7,265
Cost in excess of net assets acquired, net................ 52,333
Other..................................................... 6,299
--------
65,897
--------
$160,521
========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND COMMON
STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 7,915
Accrued salaries and benefits............................. 7,772
Accrued expenses.......................................... 5,359
Current maturities of long-term obligations............... 1,873
--------
Total current liabilities......................... 22,919
Long-term obligations, less current maturities.............. 77,789
Third-party settlements..................................... 6,604
Other liabilities........................................... 7,472
--------
91,865
Mandatory redeemable preferred stock........................ 46,227
Common stockholders' deficit:
Common stock -- no par value; authorized 20,000,000
shares; issued and outstanding 5,370,500 shares........ 1,680
Retained deficit.......................................... (2,170)
--------
(490)
--------
$160,521
========
</TABLE>
See accompanying notes.
F-3
<PAGE> 76
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FEBRUARY 2, 1996 TO DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<S> <C>
Revenue:
Net patient service revenue............................... $16,425
Management and professional services...................... 607
Other..................................................... 223
-------
Net operating revenue............................. 17,255
-------
Expenses:
Salaries, wages and benefits.............................. 7,599
Purchased services........................................ 2,286
Supplies.................................................. 1,897
Provision for doubtful accounts........................... 1,909
Other operating expenses.................................. 3,056
Rentals and leases........................................ 214
Depreciation and amortization............................. 1,307
Interest expense.......................................... 976
-------
Total expenses.................................... 19,244
-------
Loss before income tax benefit.............................. (1,989)
Income tax benefit.......................................... (673)
-------
Loss before extraordinary item.............................. (1,316)
Loss from early retirement of debt, net of taxes of $167.... (262)
-------
Net loss.................................................... $(1,578)
=======
Preferred stock dividends and accretion..................... (172)
-------
Net loss to common shareholders............................. $(1,750)
=======
Net loss per share to common shareholders:
Loss before extraordinary item............................ $ (0.37)
Extraordinary item........................................ (0.07)
-------
Net loss to common shareholders........................... $ (0.44)
=======
Weighted average number of common and common equivalent
shares.................................................... 3,980
=======
</TABLE>
See accompanying notes.
F-4
<PAGE> 77
PROVINCE HEALTHCARE COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN COMMON
STOCKHOLDERS' DEFICIT
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES
CLASS A COMMON CLASS B COMMON RECEIVABLE
STOCK STOCK COMMON STOCK FOR
----------------- ----------------- ------------------- COMMON RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT STOCK DEFICIT TOTAL
------- ------- -------- ------ ---------- ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at February 2,
1996.................. -- $ -- -- $ -- -- $ -- $ -- $ -- $ --
Issuance of stock..... 13,983 13,983 85,890 86 -- -- (211) -- 13,858
Dividends on Class A
Common Stock........ 420 420 -- -- -- -- -- (420) --
Exchange of PHC Class
A and Class B common
stock for Brim
common stock........ (14,403) (14,403) (85,890) (86) 2,757,947 86 211 -- (14,192)
Reverse acquisition of
Brim................ -- -- -- -- 2,612,553 1,594 -- -- 1,594
Preferred stock
dividends and
accretion........... -- -- -- -- -- -- -- (172) (172)
Net loss.............. -- -- -- -- -- -- -- (1,578) (1,578)
------- ------- -------- ---- ---------- ------ ----- ------- --------
Balance at December 31,
1996.................. -- $ -- -- $ -- 5,370,500 $1,680 $ -- $(2,170) $ (490)
======= ======= ======== ==== ========== ====== ===== ======= ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 78
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FEBRUARY 2, 1996 TO DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss.................................................... $ (1,578)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................. 1,307
Provision for doubtful accounts........................... 1,909
Deferred income taxes..................................... (874)
Extraordinary charge from retirement of debt.............. 429
Provision for professional liability...................... 200
Changes in operating assets and liabilities, net of
effects from acquisitions and disposals:
Accounts receivable..................................... (3,243)
Inventories............................................. 91
Prepaid expenses and other.............................. 724
Other assets............................................ 375
Accounts payable and accrued expenses................... 2,160
Accrued salaries and benefits........................... 643
Other liabilities....................................... (507)
---------
Net cash provided by operating activities................... 1,636
INVESTING ACTIVITIES
Purchase of property, plant and equipment................... (1,043)
Purchase of acquired companies, net of cash received........ 4,645
---------
Net cash provided by investing activities................... 3,602
FINANCING ACTIVITIES
Proceeds from long-term debt................................ 19,300
Repayments of debt.......................................... (26,431)
Additions to deferred loan costs............................ (709)
Issuance of common stock.................................... 13,858
---------
Net cash provided by financing activities................... 6,018
---------
Net increase in cash and cash equivalents................... 11,256
Cash and cash equivalents at beginning of period............ --
---------
Cash and cash equivalents at end of period.................. $ 11,256
=========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid during the period............................. $ 1,011
=========
ACQUISITIONS
Assets acquired............................................. $ 148,326
Liabilities assumed......................................... (119,553)
Common and preferred stock issued........................... (33,418)
---------
Cash paid................................................... $ (4,645)
=========
NONCASH TRANSACTIONS
Dividends and accretion..................................... $ 172
=========
</TABLE>
See accompanying notes.
F-6
<PAGE> 79
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND RESTATEMENT OF FINANCIAL STATEMENTS
The Company (formerly Principal Hospital Company (PHC) until February 4,
1998) was founded on February 2, 1996 by Golder, Thoma, Cressey, Rauner Fund IV,
L.P. (GTCR) and Mr. Martin Rash. The Company is 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 discussed in Note 3, on December 18, 1996, a subsidiary of
Brim, Inc. (Brim) and PHC merged in a transaction in which Brim issued junior
preferred stock and common stock in exchange for all of the outstanding Class A
and Class B common stock of PHC. The merger was originally accounted for as a
combination of businesses under the common control of GTCR and the previously
separate companies were combined at historical cost in a manner similar to a
pooling of interests. After further consideration, because the PHC shareholders
became owners of a majority of the outstanding shares of Brim after the merger,
the decision was made that PHC should be considered the acquiring enterprise for
financial reporting purposes and the transaction should be accounted for as a
reverse acquisition. Therefore, the historical financial statements of PHC
replaced the historical financial statements of Brim, the assets and liabilities
of Brim were recorded at fair value as required by the purchase method of
accounting, and the operations of Brim were reflected in the operations of the
combined enterprise from the date of acquisition. Since PHC has been in
existence for less than a year at December 31, 1996 and because Brim has been in
existence for several years, PHC is considered the successor to Brim's
operations. Brim, the predecessor company and surviving legal entity, changed
its name to Principal Hospital Company on January 16, 1997. Subsequently, in
February 1998, the merged company was renamed Province Healthcare Company during
the reincorporation more fully described in Note 15.
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
F-7
<PAGE> 80
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
INTANGIBLE ASSETS
Intangible assets arising from the accounting for acquired businesses are
amortized using the straight-line method over the estimated useful lives of the
related assets which range from 5 years for management contracts to 20 to 35
years for cost in excess of net assets acquired. The Company reviews its
long-lived and intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. The
measurement of possible impairment is based upon determining whether projected
undiscounted future cash flows of the acquired business or from the use of the
asset over the remaining amortization period is less than the carrying amount of
the asset. As of December 31, 1996, in the opinion of management, there has been
no such impairment.
At December 31, 1996, cost in excess of net assets acquired and accumulated
amortization totaled $52,393,000 and $60,000, respectively. Management contracts
are included in other noncurrent assets. At December 31, 1996, management
contracts and accumulated amortization totaled $1,200,000 and $9,000,
respectively.
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
$48,000, 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. Under the terms of these agreements, the insurance companies
will reimburse the Company based on the level of reinsurance which ranges from
$30,000 per individual claim up to $1,000,000. These reimbursements are included
in salaries, wages and benefits in the accompanying consolidated statement of
operations.
F-8
<PAGE> 81
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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,
supplemental deferred compensation liability, deferred income taxes 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 63% of gross patient service revenue for the period February
2, 1996 to December 31, 1996, is from participation in the Medicare and state
sponsored Medicaid programs.
MANAGEMENT AND PROFESSIONAL SERVICES
Management and professional services is comprised of fees from management
and professional consulting services provided to third-party hospitals pursuant
to management contracts and consulting arrangements. The base fees associated
with the hospital management contracts are determined in the initial year of the
contract on an individual hospital basis. In certain contracts, the Company is
entitled to a yearly bonus based on the performance of the managed hospital. The
base fee, which is fixed, is based on a fair market wage and is not dependent on
any bonus structure. The management contracts are adjusted yearly based on an
agreed upon inflation indicator. The substantial majority of management and
professional services revenue consists of the management fees earned under the
hospital management contracts and reimbursable expenses. The reimbursable
expenses relate to salaries and benefits of Company employees that serve as
executives at the managed hospitals. The salaries and benefits of these
employees are legal obligations of, and are paid by, the Company and are
reimbursed by the managed hospitals. Fees are recognized as revenue as services
are performed. Reimbursable expenses are included in salaries, wages and
benefits in the accompanying consolidated statement of operations. Management
and professional services revenue, excluding reimbursable expenses, was $294,000
for the period February 2, 1996 to December 31, 1996. The Company does not
maintain any ownership interest in and does not fund operating losses or
guarantee any minimum income for these managed hospitals. The Company does not
have any guarantees to these hospitals, except for one managed hospital for
which the Company has guaranteed the hospital's long-term debt of $500,000.
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> 82
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTEREST RATE SWAP AGREEMENTS
The Company enters into interest rate swap agreements as a means of
managing its interest rate exposure. The differential to be paid or received is
recognized over the life of the agreement as an adjustment to interest expense.
NET LOSS PER SHARE
Net loss per share for the period February 2, 1996 to December 31, 1996 is
computed using the weighted average number of shares of common stock outstanding
during the period. Pursuant to the Securities and Exchange Commission Staff
Accounting Bulletins, all 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).
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 to treat all 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.
F-10
<PAGE> 83
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. ACQUISITIONS
MEMORIAL MOTHER FRANCES HOSPITAL
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, summarized as follows (In
thousands):
<TABLE>
<S> <C>
Assets acquired:
Current assets............................................ $ 3,545
Property, plant and equipment, net........................ 22,849
-------
26,394
Liabilities assumed
Current liabilities....................................... (478)
Long-term obligations..................................... (2,234)
Other liabilities......................................... (499)
-------
(3,211)
-------
Purchase price.............................................. $23,183
=======
</TABLE>
STARKE MEMORIAL HOSPITAL
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, summarized as
follows (In thousands):
<TABLE>
<CAPTION>
<S> <C>
Purchase price.............................................. $7,742
Add current liabilities assumed............................. 211
Less current assets acquired................................ 458
------
Unallocated purchase price.................................. $7,495
======
</TABLE>
The unallocated purchase price was being amortized over 20 years until the
final allocation was completed. The allocation was finalized in the third
quarter of 1997 and consisted of property, plant and equipment of $5,201,000 and
cost in excess of net assets acquired of $2,294,000. The cost in excess of net
assets acquired is being amortized over 20 years. The final allocation did not
have a significant impact on the Company's consolidated results of operations.
BRIM, INC.
On December 18, 1996, a subsidiary of Brim merged with PHC. Brim is engaged
in the business of owning, leasing and managing hospitals in non-urban
communities primarily in the northwestern and southwestern United States. In
exchange for their shares in PHC, the PHC shareholders received 14,403 shares of
newly-designated redeemable junior preferred stock and 2,757,947 shares of newly
designated common stock of Brim. Because GTCR had a significant ownership in
both PHC and Brim at the time the merger took place, the merger was originally
accounted for as a combination of businesses under common control. As discussed
in Note 1, after further consideration, the decision was made that the merger
should be accounted for as a reverse acquisition under the purchase method of
accounting. As a result, for accounting purposes PHC was considered as having
acquired Brim. The historical financial statements of PHC became the historical
financial statements of Brim and include the results of operations of Brim from
the effective date of the merger, December 18,
F-11
<PAGE> 84
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1996. The reverse acquisition of Brim by PHC resulted in cost in excess of net
assets acquired of $52,393,000 summarized as follows (In thousands):
<TABLE>
<S> <C>
Purchase price.............................................. $ 1,594
Add liabilities assumed:
Current liabilities....................................... 18,768
Long-term obligations, less current maturities............ 75,943
Other liabilities......................................... 13,889
---------
108,600
Mandatory redeemable preferred stock........................ 31,824
---------
140,424
Less assets acquired:
Current assets............................................ 57,015
Property, plant and equipment, net........................ 26,570
Other noncurrent assets................................... 4,840
Management contracts...................................... 1,200
---------
89,625
---------
Cost in excess of net assets acquired....................... $ 52,393
=========
</TABLE>
The cost in excess of net assets acquired of $52,393,000 is being amortized
over a period ranging from 20 to 35 years, resulting in a weighted average
useful life of 30.9 years.
The principal elements of transactions occurring in conjunction with the
reverse acquisition included the following:
- First Additional Investment -- As a result of the reverse acquisition,
PHC is deemed for financial reporting purposes to have assumed an
agreement between Brim and GTCR 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 448,033
shares of the Company's common stock at a price of $0.61 per share, at
any time through December 17, 1999. The agreement provides that Leeway &
Co., Mr. Rash, Mr. Richard Gore, and 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 15).
- 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 745,082 shares of the Company's common stock at a price
of $0.61 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 15).
- The Company approved a plan to terminate approximately 200 corporate and
hospital operating personnel of Brim. The Company accrued approximately
$2,190,000 of severance liability relating to these approved terminations
as of December 31, 1996 and included this liability in the cost in excess
of net assets acquired of Brim. Subsequent to year-end, the Company
terminated approximately 200 employees and paid severance benefits of the
full amount of the recorded severance liability.
F-12
<PAGE> 85
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- As a result of the reverse acquisition, PHC is deemed for financial
reporting purposes to have assumed a warrant that had been issued by Brim
for 253,228 shares of Brim's common stock. The warrant has an exercise
price of $0.061 per share and has a twelve-year term (see Note 15).
In accordance with its stated policy, management of the Company evaluates
all acquisitions independently to determine the appropriate amortization period
for cost in excess of net assets acquired. Each evaluation includes an analysis
of factors such as historic and projected financial performance, evaluation of
the estimated useful lives of buildings and fixed assets acquired, the
indefinite lives of certificates of need and licenses acquired, the competition
within local markets, and lease terms where applicable.
OTHER INFORMATION
The foregoing acquisitions were accounted for using the purchase method of
accounting. The operating results of the acquired companies have been included
in the accompanying consolidated statement of operations from the respective
dates of acquisition.
The following pro forma information reflects the operations of the entities
acquired in 1996, as if the respective transactions had occurred as of January
1, 1996. The pro forma results of operations do not purport to represent what
the Company's results would have been had such transactions in fact occurred at
January 1, 1996.
<TABLE>
<CAPTION>
DECEMBER 31,
1996
--------------
(IN THOUSANDS)
<S> <C>
Total revenue............................................... $152,223
Net loss.................................................... $(10,384)
Net loss per share.......................................... $ (2.61)
Weighted average common shares.............................. 3,980
</TABLE>
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.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at December 31, 1996
(In thousands):
<TABLE>
<S> <C>
Land........................................................ $ 2,181
Leasehold improvements...................................... 2,616
Buildings and improvements.................................. 31,359
Equipment................................................... 12,359
-------
48,515
Less allowances for depreciation and amortization........... (927)
-------
47,588
Construction-in-progress (estimated cost to complete at
December 31, 1996 -- $1,427).............................. 1,909
-------
$49,497
=======
</TABLE>
Assets under capital leases were $18,491,000 net of accumulated
amortization of $171,000 at December 31, 1996.
F-13
<PAGE> 86
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following at December 31, 1996 (In
thousands):
<TABLE>
<CAPTION>
<S> <C>
Revolving credit agreement.................................. $37,000
Term loan................................................... 35,000
Other debt obligations...................................... 87
-------
72,087
Obligations under capital leases (see Note 10).............. 7,575
-------
79,662
Less current maturities..................................... (1,873)
-------
$77,789
=======
</TABLE>
Prior to the merger, the Company had outstanding debt of $19,300,000. In
connection with the merger, the Company repaid its outstanding debt and reported
a $262,000 loss on early retirement, net of taxes of $167,000, as a result of
the write off of related deferred financing costs.
As a result of the reverse acquisition, PHC is deemed for financial
reporting purposes to have assumed a $100 million credit facility which Brim had
entered into in December 1996 during its recapitalization, 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. The interest
rate ranged from 8.09% to 9.25% during 1996. The 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.
F-14
<PAGE> 87
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. The Company secured an 8.77% fixed interest rate. The
Company is exposed to credit losses in the event of non-performance by the
counterparty to its financial instruments. The Company anticipates that the
counterparty will be able to fully satisfy its obligations under the contract.
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>
6. MANDATORY REDEEMABLE PREFERRED STOCK
Redeemable preferred stock consists of the following at December 31, 1996
(In thousands):
<TABLE>
<CAPTION>
<S> <C>
Series A redeemable senior preferred stock -- $1,000 per
share stated value, authorized 25,000, issued and
outstanding 20,000, net of issuance costs of $892,000 and
a warrant of $139,000..................................... $18,969
Series B redeemable junior preferred stock -- $1,000 per
share stated value, authorized 50,000, issued and
outstanding 28,540, net of issuance costs of $1,282,000... 27,258
-------
$46,227
=======
</TABLE>
The 20,000 outstanding shares of Series A redeemable senior preferred stock
and a warrant to purchase 253,228 shares of common stock were issued in December
1996 by Brim for cash of $20.0 million. 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 28,540 outstanding shares of Series B redeemable junior preferred stock
were issued in December 1996 by Brim. 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
F-15
<PAGE> 88
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
7. STOCKHOLDERS' EQUITY
STOCKHOLDERS EQUITY
The capital stock of the Company consists of common stock, no par value, of
which 20,000,000 shares are authorized and 5,370,500 shares are issued and
outstanding as of December 31, 1996.
The capital stock of PHC consisted of Class A Common Stock, and Class B
Common Stock. All of the PHC Class A and Class B Common Stock was exchanged by
the PHC shareholders in the merger for 14,403 shares of Brim junior preferred
stock and 2,757,947 shares of Brim common stock as more fully discussed in Note
3.
STOCK OPTIONS
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 15).
WARRANT
In connection with the reverse acquisition of Brim (see Note 3), the
Company is deemed for financial reporting purposes to have assumed a warrant
that had been issued by Brim to purchase 253,228 shares of Brim's common stock.
The warrant has an exercise price of $0.061 per share and has a twelve-year term
(See Note 15.)
8. 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.
F-16
<PAGE> 89
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- 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.
9. INCOME TAXES
The provision for income tax expense (benefit) attributable to the loss
before extraordinary item consists of the following for the period February 2,
1996 to December 31, 1996 (In thousands):
<TABLE>
<S> <C>
Current:
Federal................................................... $ 162
State..................................................... 39
-----
201
Deferred:
Federal................................................... (706)
State..................................................... (168)
-----
(874)
-----
$(673)
=====
</TABLE>
The differences between the Company's effective income tax rate of 33.8%
before extraordinary item and the statutory federal income tax rate of 34.0% are
as follows for the period February 2, 1996 to December 31, 1996 (In thousands):
<TABLE>
<S> <C>
Statutory federal rate...................................... $(676)
State income taxes, net of federal income tax benefit....... (85)
Other....................................................... 88
-----
$(673)
=====
</TABLE>
F-17
<PAGE> 90
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 as of December 31, 1996 (In thousands):
<TABLE>
<S> <C>
Deferred tax assets -- current:
Accounts and notes receivable............................. $ 3,305
Accrued vacation liability................................ 710
Accrued liabilities....................................... 1,260
-------
Net deferred tax assets--current............................ $ 5,275
=======
Deferred tax assets--noncurrent:
Net operating losses from separate return subsidiary...... $ 278
Accrued liabilities....................................... 706
-------
984
Less valuation allowance.................................. (278)
-------
Deferred tax assets -- noncurrent......................... 706
Deferred tax liabilities--noncurrent:
Property, plant and equipment............................. (4,246)
Management contracts...................................... (464)
Other..................................................... (41)
-------
Deferred tax liabilities -- noncurrent.................... (4,751)
-------
Net deferred tax liabilities -- noncurrent.................. $(4,045)
=======
</TABLE>
In the accompanying consolidated balance sheets, net current deferred tax
assets and net noncurrent deferred tax liabilities are included in prepaid
expenses and other, and other liabilities, 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 Brim, Inc.'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.
10. 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.
F-18
<PAGE> 91
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 (In thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1997........................................................ $ 2,345 $ 3,528
1998........................................................ 2,302 2,888
1999........................................................ 1,983 2,213
2000........................................................ 1,058 1,862
2001........................................................ 663 1,784
Thereafter.................................................. 1,141 5,831
------- -------
Total minimum lease payments................................ 9,492 $18,106
=======
Amount representing interest................................ (1,917)
-------
Present value of net minimum lease payments
(including $1,826 classified as current)........ 7,575
=======
</TABLE>
11. 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.
12. 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 $112,000 for the period
February 2, 1996 to December 31, 1996.
The Company sponsors 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
$4,000 for the period February 2, 1996 to December 31, 1996.
13. 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
F-19
<PAGE> 92
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
discounted cash flow analyses, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
14. 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 common share and per share data, included in the
accompanying consolidated financial statements and footnotes thereto, have been
restated to reflect this stock split.
15. 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, 959,016 shares have been reserved for grant. In March 1997,
the Company granted options to purchase an aggregate of 284,530 shares of Common
Stock at an exercise price of $4.575. The options granted vest and are
exercisable ratably over a five-year period. In September 1997, the Company's
Board of Directors approved the grant of options to acquire 70,586 common shares
at an exercise price per share equal to the initial public offering price of the
Company's common stock. Shares available for grant total 674,486.
STOCK SALE
In July 1997, GTCR exercised its right, obtained in December 1996 (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 $0.61
per share. GTCR acquired 2,733 shares of redeemable junior preferred stock and
448,033 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 258,853 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.)
ACQUISITIONS
Effective August 1, 1997, the Company acquired Needles Desert Communities
Hospital by entering into a 15-year lease agreement with three five-year renewal
terms and by purchasing assets totaling $631,000, prepaying rent totaling
$2,052,000, and assuming certain liabilities totaling $121,000.
PURCHASE OF HOSPITAL PROPERTY, PLANT AND EQUIPMENT
Effective August 12, 1997, the Company acquired the building and equipment
of Ojai Valley Community Hospital for a price of $4,800,000. The Company had
been leasing this facility prior to that date.
F-20
<PAGE> 93
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PUBLIC OFFERING OF COMMON STOCK
The Company is in the registration process under the Securities Act of 1933
for a public offering of common stock. The net proceeds from the offering are
planned to be used to reduce the balance of the outstanding term and revolving
credit loans, redeem the outstanding balance of the Series A redeemable senior
preferred stock plus accrued dividends, and repurchase a portion of the common
stock held by GTCR and Leeway & Co. In connection with the offering, the Series
B redeemable junior preferred stock will be converted into common stock. The
conversion will be effected at the public offering price of the common stock.
EXERCISE OF WARRANT
On September 12, 1997, Leeway & Co. exercised its warrant to purchase
253,228 shares of the Company's common stock. The warrant had an exercise price
of $0.061 per share, resulting in total proceeds to the Company of $15,447 (see
Note 7.)
REINCORPORATION
On February 4, 1998, the Company merged with a wholly-owned subsidiary in
order to change its jurisdiction of incorporation to Delaware and change its
name to Province Healthcare Company. In the Merger, the Company exchanged 1.83
shares of its no par common stock for each share of the subsidiary's $0.01 par
value common stock. All common share and per share data included in the
consolidated financial statements and footnotes thereto, have been restated to
reflect this reincorporation.
F-21
<PAGE> 94
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
--------------
(IN THOUSANDS)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,896
Accounts receivable, less allowance for doubtful accounts
of $6,260.............................................. 29,879
Inventories............................................... 3,381
Prepaid expenses and other................................ 7,614
--------
Total current assets.............................. 46,770
Property, plant and equipment, net.......................... 58,555
Other assets:
Cost in excess of net assets acquired..................... 53,389
Other..................................................... 14,021
--------
67,410
--------
$172,735
========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND COMMON
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 7,144
Accrued salaries and benefits............................. 6,448
Accrued expenses.......................................... 4,360
Current maturities of long-term obligations............... 1,921
--------
Total current liabilities......................... 19,873
Long-term obligations, less current maturities.............. 86,069
Third-party settlements..................................... 5,542
Other liabilities........................................... 11,545
--------
103,156
Mandatory redeemable preferred stock........................ 50,153
Common stockholders' equity (deficit):
Common stock, no par value, authorized 20,000,000; issued
and outstanding 6,330,614.............................. 2,122
Retained deficit.......................................... (2,569)
--------
(447)
--------
$172,735
========
</TABLE>
See accompanying notes.
F-22
<PAGE> 95
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE
PERIOD
FEBRUARY 2, NINE MONTHS
1996 TO ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1997
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Revenue:
Net patient service revenue............................... $3,944 $107,524
Management and professional services...................... -- 12,325
Other..................................................... 33 4,099
------ --------
Net operating revenue....................................... 3,977 123,948
------ --------
Expenses:
Salaries, wages and benefits.............................. 1,725 52,009
Purchased services........................................ 384 17,269
Supplies.................................................. 496 11,943
Provision for doubtful accounts........................... 550 8,806
Other operating expenses.................................. 479 12,515
Rentals and leases........................................ 43 3,865
Depreciation and amortization............................. 309 5,393
Interest expense.......................................... 441 6,177
Loss (gain) on sale of assets............................. -- (156)
------ --------
Total expenses.............................................. 4,427 117,821
------ --------
(Loss) income before provision for income taxes............. (450) 6,127
Provision for income taxes.................................. -- 2,818
------ --------
Net (loss) income........................................... $ (450) $ 3,309
====== ========
Preferred stock dividends and accretion..................... -- (3,708)
------ --------
Net loss to common shareholders............................. $ (450) $ (399)
====== ========
Net loss per share to common shareholders................... $(0.12) $ (0.06)
====== ========
Weighted average number of common and common equivalent
shares.................................................... 3,878 6,501
====== ========
</TABLE>
See accompanying notes.
F-23
<PAGE> 96
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COMMON
STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
NO PAR VALUE
COMMON STOCK RETAINED
------------------ EARNINGS
SHARES AMOUNT (DEFICIT) TOTAL
--------- ------ --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at December 31, 1996............................ 5,370,500 $1,680 $(2,170) $ (490)
Net income............................................ -- -- 3,309 3,309
Issuance of stock..................................... 960,114 442 -- 442
Dividends and accretion............................... -- -- (3,708) (3,708)
--------- ------ ------- -------
Balance at September 30, 1997........................... 6,330,614 $2,122 $(2,569) $ (447)
========= ====== ======= =======
</TABLE>
See accompanying notes.
F-24
<PAGE> 97
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE
PERIOD
FEBRUARY 2, NINE MONTHS
1996 TO ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1997
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $ (450) $ 3,309
Adjustments to reconcile net loss to cash provided by (used
in) operating activities:
Depreciation and amortization............................. 309 5,393
Provision for doubtful accounts........................... 550 8,806
Deferred income taxes..................................... -- (487)
Provision for professional liability...................... -- (112)
Changes in operating assets and liabilities, net of effects
from acquisitions and disposals:
Accounts receivable....................................... 82 (15,856)
Inventories............................................... 53 (438)
Prepaid expenses and other................................ (422) 1,338
Other assets.............................................. (709) (1,096)
Accounts payable and accrued expenses..................... (1,385) (1,891)
Accrued salaries and benefits............................. 580 (1,324)
Third party settlements................................... -- (1,062)
Other liabilities......................................... 1,578 1,324
-------- --------
Net cash provided by (used in) operating activities......... 186 (2,096)
INVESTING ACTIVITIES
Purchase of property, plant and equipment................... (50) (12,708)
Purchase of acquired companies.............................. (23,183) (2,562)
-------- --------
Net cash used in investing activities....................... (23,233) (15,270)
FINANCING ACTIVITIES
Proceeds from long-term debt................................ 13,700 9,000
Repayments of debt.......................................... (148) (1,402)
Issuance of common stock.................................... 85 442
Issuance of preferred stock................................. 13,847 3,755
Proceeds from common stock note............................. -- 211
Other....................................................... 307 --
-------- --------
Net cash provided by financing activities................... 27,791 12,006
-------- --------
Net increase (decrease) in cash and cash equivalents........ 4,744 (5,360)
Cash and cash equivalents at beginning of period............ -- 11,256
-------- --------
Cash and cash equivalents at end of period.................. $ 4,744 $ 5,896
======== ========
ACQUISITIONS
Fair value of assets acquired............................... $ 26,394 $ 2,683
Liabilities assumed......................................... (3,211) (121)
-------- --------
Cash paid................................................... $ 23,183 $ 2,562
======== ========
</TABLE>
See accompanying notes.
F-25
<PAGE> 98
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 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 nine months ended September 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. NET LOSS PER SHARE
Net loss 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). Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletins, all 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).
3. ACQUISITIONS
In October 1996, the Company acquired Starke Memorial Hospital by assuming
certain liabilities ($211,000), purchasing net assets ($458,000) and entering
into a capital lease agreement for a purchase price of $7,742,000. The
allocation of the unallocated purchase price of $7,495,000 was finalized in the
third quarter of 1997 and consisted of property, plant and equipment and cost in
excess of net assets acquired of $5,201,000 and $2,294,000, respectively. The
cost in excess of net assets acquired is being amortized over 20 years.
Effective August 1, 1997, the Company acquired Needles Desert Communities
Hospital by entering into a 15-year lease agreement with three five-year renewal
terms and by purchasing assets totaling $631,000, prepaying rent totaling
$2,052,000, and assuming certain liabilities totaling $121,000.
Purchase of Hospital Property, Plant and Equipment -- Effective August 12,
1997, the Company acquired the building and equipment of Ojai Valley Community
Hospital for a price of $4,800,000. The Company had been leasing this facility
prior to that date.
4. 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.
F-26
<PAGE> 99
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
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.
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 nine months ended September 30, 1997 the Company received a
weighted average rate of 5.69% and paid a weighted average rate of 6.27%.
5. STOCKHOLDERS' EQUITY
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, 959,016 shares have been reserved for grant. In March 1997,
the Company granted options to purchase an aggregate of 284,530 shares of Common
Stock at an exercise price of $4.575. The options granted vest and are
exercisable ratably over a five-year period. In September 1997, the Company's
Board of Directors approved the grant of options to acquire 70,586 common shares
at an exercise price per share equal to the initial public offering price of the
Company's common stock. Shares available for grant total 674,486.
STOCK SALE
In July 1997, GTCR exercised its right, obtained in December 1996, 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 $0.61 per share.
GTCR acquired 2,733 shares of redeemable junior preferred stock and 448,033
shares of common stock thereunder. 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 258,853 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.
F-27
<PAGE> 100
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
EXERCISE OF WARRANT
On September 12, 1997, Leeway & Co. exercised its warrant to purchase
253,228 shares of the Company's common stock. The warrant had an exercise price
of $0.061 per share, resulting in total proceeds to the Company of $15,447.
6. SUBSEQUENT EVENTS
PUBLIC OFFERING OF COMMON STOCK
The Company is in the registration process under the Securities Act of 1933
for a public offering of common stock which is expected to close in the first
quarter of 1998. The net proceeds from the offering are planned to be used to
reduce the balance of the outstanding term and revolving credit loans, redeem
the outstanding balance of the Series A redeemable senior preferred stock plus
accrued dividends, and repurchase approximately 1,000,000 shares of common stock
held by GTCR and Leeway & Co. In connection with the offering, the Series B
redeemable junior preferred stock will be converted into common stock. The
conversion will be effected at the public offering price of the common stock.
REINCORPORATION
On February 4, 1998, the Company merged with a wholly-owned subsidiary in
order to change its jurisdiction of incorporation to Delaware and change its
name to Province Healthcare Company. In the Merger, the Company exchanged 1.83
shares of its no par common stock for each share of the subsidiary's $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-28
<PAGE> 101
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Brim, Inc.
We have audited the accompanying consolidated balance sheet of Brim, Inc.
and subsidiaries as of December 18, 1996 and the related consolidated statements
of income, changes in common stockholders' equity (deficit), and cash flows for
the period January 1, 1996 to December 18, 1996. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Brim, Inc. and
subsidiaries as of December 18, 1996, and the consolidated results of their
operations and their cash flows for the period January 1, 1996 to December 18,
1996 in conformity with generally accepted accounting principles.
Ernst & Young LLP
Nashville, Tennessee
April 30, 1997,
except for Notes 2 and 16, as to which the date is
February 4, 1998
F-29
<PAGE> 102
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Brim, Inc.:
We have audited the accompanying consolidated balance sheet of Brim, Inc.
and subsidiaries as of December 31, 1995, and the related consolidated
statements of income, 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 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.
As discussed more fully in Note 1 to the consolidated financial statements,
the Company changed its accounting for its provision for professional liability
and comprehensive general liability, and its accounting for one of its hospital
leases and, accordingly, has restated the consolidated financial statements
referred to above to reflect these changes.
KPMG Peat Marwick LLP
Portland, Oregon
March 8, 1996, except for Note 1
to the consolidated financial statements,
as to which the date is January 16, 1998
F-30
<PAGE> 103
BRIM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 18,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,287 $ 27,828
Accounts receivable, less allowance for doubtful accounts
of $2,078 in 1995 and $3,468 in 1996................... 18,286 18,889
Inventories............................................... 1,754 2,140
Prepaid expenses and other................................ 6,403 7,125
------- --------
Total current assets.............................. 28,730 55,982
Property, plant and equipment, net.......................... 14,430 16,954
Other assets:
Investments in other health care-related businesses....... 4,564 423
Other..................................................... 3,164 3,639
------- --------
7,728 4,062
------- --------
$50,888 $ 76,998
======= ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND COMMON
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 4,065 $ 6,312
Accrued salaries and benefits............................. 3,661 4,742
Accrued expenses.......................................... 2,128 4,256
Current maturities of long-term obligations............... 1,247 1,318
------- --------
Total current liabilities......................... 11,101 16,628
Long-term obligations, less current maturities.............. 7,161 75,995
Third-party settlements..................................... 6,472 6,604
Other liabilities........................................... 1,972 2,255
------- --------
15,605 84,854
Mandatory redeemable preferred stock........................ 8,816 31,824
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 2,612,553 in 1996.................. 414 1,594
Notes receivable for common stock......................... -- (180)
Common stock warrant...................................... -- 139
Retained earnings (deficit)............................... 14,952 (57,861)
------- --------
15,366 (56,308)
------- --------
$50,888 $ 76,998
======= ========
</TABLE>
See accompanying notes.
F-31
<PAGE> 104
BRIM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
PERIOD
JANUARY 1,
YEAR ENDED DECEMBER 31, 1996 TO
------------------------ DECEMBER 18,
1994 1995 1996
---------- ---------- ------------
<S> <C> <C> <C>
Revenue:
Net patient service revenue........................... $ 78,109 $ 75,871 $ 87,900
Management and professional services.................. 15,969 19,567 18,330
Other................................................. 7,989 5,776 6,370
-------- -------- --------
Net operating revenue......................... 102,067 101,214 112,600
-------- -------- --------
Expenses:
Salaries, wages and benefits.......................... 53,659 55,289 58,105
Purchased services.................................... 16,879 14,411 17,199
Supplies.............................................. 11,035 10,143 11,218
Provision for doubtful accounts....................... 5,056 4,601 7,669
Other operating expenses.............................. 5,363 8,030 8,674
Rentals and leases.................................... 3,172 3,555 4,491
Depreciation and amortization......................... 1,723 1,964 1,773
Interest expense...................................... 935 738 1,675
Costs of recapitalization............................. -- -- 8,951
(Gain) loss on sale of assets......................... (635) (2,814) 442
-------- -------- --------
Total expenses................................ 97,187 95,917 120,197
-------- -------- --------
Income (loss) from continuing operations before
provision for income taxes............................ 4,880 5,297 (7,597)
Provision (benefit) for income taxes.................... 2,022 1,928 (2,290)
-------- -------- --------
Income (loss) from continuing operations................ 2,858 3,369 (5,307)
Discontinued operations:
(Loss) income from discontinued operations, less
applicable income taxes............................... (157) 783 537
(Loss) gain on disposal of discontinued operations, to
related parties in 1996, less applicable income
taxes................................................. -- (1,047) 5,478
-------- -------- --------
Total discontinued operations................. (157) (264) 6,015
-------- -------- --------
Net income.............................................. $ 2,701 $ 3,105 $ 708
======== ======== ========
</TABLE>
See accompanying notes.
F-32
<PAGE> 105
BRIM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON
STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES
NO PAR VALUE RECEIVABLE
COMMON STOCK FOR COMMON RETAINED
------------------ COMMON STOCK EARNINGS
SHARES AMOUNT STOCK WARRANT (DEFICIT) TOTAL
--------- ------ ---------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 -- as
previously reported........... 837,154 $ 824 $ -- $ -- $ 8,289 $ 9,113
Prior period adjustment --
(Note 1) -- -- -- -- 857 857
--------- ------ ----- ---- -------- --------
Balance at January 1, 1994 --
as restated................ 837,154 824 -- -- 9,146 9,970
Issuance of stock............. 33,490 546 -- -- -- 546
Retirement of stock........... (52,922) (837) -- -- -- (837)
Net income.................... -- -- -- -- 2,701 2,701
--------- ------ ----- ---- -------- --------
Balance at December 31, 1994.... 817,722 533 -- -- 11,847 12,380
Issuance of stock............. 12,328 245 -- -- -- 245
Retirement of stock........... (16,521) (364) -- -- -- (364)
Net income.................... -- -- -- 3,105 3,105
--------- ------ ----- ---- -------- --------
Balance at December 31, 1995.... 813,529 414 -- -- 14,952 15,366
Recapitalization
transaction................ 1,799,024 1,180 (180) 139 (73,521) (72,382)
Net income.................... -- -- -- -- 708 708
--------- ------ ----- ---- -------- --------
Balance at December 18, 1996.... 2,612,553 $1,594 $(180) $139 $(57,861) $(56,308)
========= ====== ===== ==== ======== ========
</TABLE>
See accompanying notes.
F-33
<PAGE> 106
BRIM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR ENDED JANUARY 1,
DECEMBER 31, 1996 TO
------------------------ DECEMBER 18,
1994 1995 1996
---------- ---------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 2,701 $ 3,105 $ 708
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization............................. 2,155 2,631 1,773
Provision for doubtful accounts........................... 5,076 4,734 7,669
Loss (income) from investments............................ 64 (86) 272
Deferred income taxes..................................... 203 (137) (3,277)
Gain on sale of assets.................................... (361) (2,608) (8,519)
Provision for professional liability...................... 433 301 468
Changes in operating assets and liabilities, net of effects from
acquisitions and disposals:
Accounts receivable..................................... (9,493) (5,269) (5,899)
Inventories............................................. 124 (140) (48)
Prepaid expenses and other.............................. (408) 3,178 2,448
Accounts payable and accrued expenses................... 1,044 (1,880) 3,450
Accrued salaries and benefits........................... -- -- 1,144
Third-party settlements................................. 1,693 62 245
Other liabilities....................................... (136) 232 (214)
---------- ---------- --------
Net cash provided by (used in) operating activities......... 3,095 4,123 220
INVESTING ACTIVITIES
Purchase of property, plant and equipment................... (5,271) (1,398) (12,642)
Net capital contributions and withdrawals -- investments.... (1,489) (2,063) 1,775
Purchase of acquired company................................ (4,364) (15,765) (1,763)
Proceeds from sale of assets................................ 5,688 20,607 21,957
Sale of marketable securities............................... 1,031 -- --
Escrow deposit on facility purchase......................... 3,829 (3,829) --
Other....................................................... (138) 921 51
---------- ---------- --------
Net cash (used in) provided by investing activities......... (714) (1,527) 9,378
FINANCING ACTIVITIES
Proceeds from long-term debt................................ 2,871 39 72,000
Repayments of debt.......................................... (5,619) (2,048) (6,657)
Issuance of common stock.................................... 546 245 --
Repurchase of common stock.................................. (837) (364) --
Recapitalization............................................ -- -- (49,400)
---------- ---------- --------
Net cash (used in) provided by financing activities......... (3,039) (2,128) 15,943
---------- ---------- --------
Net (decrease) increase in cash and cash equivalents........ (658) 468 25,541
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 $ 27,828
========== ========== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid during the year............................... $ 925 $ 1,584 $ 558
========== ========== ========
Income taxes paid during the year........................... $ 1,842 $ 4,183 $ 2,288
========== ========== ========
ACQUISITIONS
Fair value of assets acquired............................... $ 4,632 $ 15,784 $ 3,092
Liabilities assumed......................................... (268) (19) (1,329)
---------- ---------- --------
Cash paid................................................... $ 4,364 $ 15,765 $ 1,763
========== ========== ========
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.................................................... $ -- $ -- $ 3,045
========== ========== ========
Noncash issuance of stock in connection with
recapitalization.......................................... $ -- $ -- $ 4,118
========== ========== ========
</TABLE>
See accompanying notes.
F-34
<PAGE> 107
BRIM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 18, 1996
1. RESTATEMENT OF FINANCIAL STATEMENTS
The Company has restated its consolidated financial statements for the
years ended December 31, 1994 and 1995 in order to reflect the provision for
professional liability and comprehensive general liability not previously
recognized. As stated in Note 2 to the consolidated financial statements, the
Company is insured for professional liability based on a claims-made policy. For
claims reported outside of the policy term, the Company has established a
liability based on an estimate for claims incurred but not reported (IBNR). This
IBNR liability was not reported in previous years. The Company has also restated
its consolidated financial statements for the years ended December 31, 1994 and
1995 in order to account for one of its hospital leases as a capital lease. The
impact of the restatement on the Company's financial results as originally
reported is summarized below (In thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1994 1995
------------------- -------------------
AS AS AS AS
REPORTED RESTATED REPORTED RESTATED
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Other operating expenses..................... $ 4,930 $ 5,363 $ 7,729 $ 8,030
Provision for income taxes................... 2,097 2,022 1,953 1,928
Net income................................... 2,818 2,701 3,145 3,105
Retained earnings............................ 11,107 11,847 14,252 14,952
</TABLE>
Retained earnings at January 1, 1994 has been restated in the accompanying
consolidated statements of changes in common stockholders' equity to reflect a
cumulative increase in earnings of $857,000 relating to the establishment of the
IBNR liability and the change in accounting for one of its hospital leases.
2. ORGANIZATION AND ACCOUNTING POLICIES
Brim, Inc. and its subsidiaries (Brim or 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, the Company consummated a leveraged recapitalization on
December 18, 1996. Immediately thereafter, as more fully described in Note 16, a
subsidiary of the Company merged with Principal Hospital Company (PHC) in a
transaction accounted for as a reverse acquisition of Brim by PHC. These
accompanying financial statements present the historical cost basis of Brim's
assets and liabilities after the leveraged recapitalization but prior to the
reverse acquisition. The reverse acquisition resulted in a new basis of
accounting such that Brim's assets and liabilities were recorded at their fair
value in PHC's consolidated balance sheet upon consummation of the reverse
acquisition. Brim, the predecessor company, was renamed Principal Hospital
Company on January 16, 1997. Subsequently in February 1998, the merged company
was renamed Province Healthcare Company (Province) during the reincorporation
more fully described in Note 16. Province is considered the successor company of
Brim.
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.
F-35
<PAGE> 108
BRIM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 18, 1996, consist of receivables from
Medicare and Medicaid of 27% and 19%, 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.
OTHER ASSETS
Deferred loan costs totaling $2,959,000 at December 18, 1996 are included
in other noncurrent assets and are amortized over the term of the related debt
by the interest method.
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. Under the terms of these agreements, the insurance companies
will reimburse the Company based on the level of reinsurance which ranges from
$30,000 per individual claim up to $1,000,000. These reimbursements are included
in salaries, wages and benefits in the accompanying consolidated statements of
income.
F-36
<PAGE> 109
BRIM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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% of gross patient service revenue for each of the years
ended December 31, 1994 and 1995, and for the period January 1, 1996 to December
18, 1996, is from participation in the Medicare and state sponsored Medicaid
programs.
MANAGEMENT AND PROFESSIONAL SERVICES
Management and professional services is comprised of fees from management
and professional consulting services provided to third-party hospitals pursuant
to management contracts and consulting arrangements. The base fees associated
with the hospital management contracts are determined in the initial year of the
contract on an individual hospital basis. In certain contracts, the Company is
entitled to a yearly bonus based on the performance of the managed hospital. The
base fee, which is fixed, is based on a fair market wage and is not dependent on
any bonus structure. The management contracts are adjusted yearly based on an
agreed upon inflation indicator. The substantial majority of management and
professional services revenue consists of the management fees earned under the
hospital management contracts and reimbursable expenses. The reimbursable
expenses relate to salaries and benefits of Company employees that serve as
executives at the managed hospitals. The salaries and benefits of these
employees are legal obligations of, and are paid by, the Company and are
reimbursed by the managed hospitals. Fees are recognized as revenue as services
are performed. Reimbursable expenses are included in salaries, wages and
benefits in the accompanying consolidated statements of income. Management and
professional services revenue, excluding reimbursable expenses, was $9,048,000,
$10,652,000 and $9,329,000 for the years ended December 31, 1994 and 1995, and
for the period January 1, 1996 to December 18, 1996, respectively. The Company
does not maintain any ownership interest in and does not fund operating losses
or guarantee any minimum income for these managed hospitals. The Company does
not have any guarantees to these hospitals, except for one managed hospital for
which the Company has guaranteed the hospital's long-term debt of $500,000.
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,
F-37
<PAGE> 110
BRIM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 income 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
Company does not present earnings per share information since its common stock
is not publicly-held.
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. The basic elements of the
recapitalization of the Company included the following: GTCR and other investors
purchased new shares of the Company's common and preferred stock; the Company
sold its senior living business and entered into a new credit facility to, along
with the proceeds from the sale of the new shares, provide financing for the
redemption of a portion of the pre-existing common and preferred stock; this
pre-existing common and preferred stock was redeemed; and certain pre-existing
debt was repaid. The recapitalization was accounted for as such and,
accordingly, did not result in a new basis of accounting.
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 (see Note 11),
and sold for cash certain real estate properties for a price of $406,500
plus assumption of debt of approximately $800,000 (see Note 4).
- GTCR purchased 1,051,476 shares, Mr. Martin Rash purchased 16,886 shares,
Mr. Richard Gore purchased 31,477 shares, two banks purchased 15,737
shares, and Leeway & Co., a subsidiary of AT&T, purchased 615,082 shares
of Brim newly-designated common stock for cash of approximately $1.1
million. Messrs. Rash and Gore purchased 295,011 shares of Brim
newly-designated common stock for notes of $179,956.
F-38
<PAGE> 111
BRIM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- 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 586,884 shares of
Brim newly-designated common stock with a value of approximately $4.0
million 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 253,228 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 that were
made in connection with the recapitalization. Escrow funds not used for
settlement of breaches within 18 months of the recapitalization will be
released to the redeemed Brim shareholders.
The common stock ownership subsequent to the recapitalization consists of a
22.5% interest held by certain of the pre-recapitalization Brim shareholders and
77.5% held by the new investors.
The recapitalization resulted in a direct charge to retained earnings in
the amount of $73,521,000, comprised of the following:
<TABLE>
<CAPTION>
<S> <C>
Excess of redemption amount over carrying amount of common
stock redeemed............................................ $52,337,000
Excess of redemption amount over carrying amount of
preferred stock redeemed.................................. 21,037,000
Issuance costs related to the sale of new shares of common
stock..................................................... 147,000
-----------
Total........................................ $73,521,000
===========
</TABLE>
Total financing fees and legal, accounting and other related costs of the
recapitalization amounted to approximately $14,231,000. Costs totaling
$8,951,000 were charged to operations at the date of the recapitalization,
consisting of cash paid to buy-out stock options of $7,995,000 and
transaction-related costs of $956,000. 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.
F-39
<PAGE> 112
BRIM, INC. 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. The gain on the sale of $138,000 was
deferred to be recognized over the lease term.
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. The
operating results of Parkview have been included in the accompanying
consolidated statements of income from the date of acquisition. Accordingly, the
accompanying consolidated statement of income for the period January 1, 1996 to
December 18, 1996 includes the results of approximately 10 months of operations
of Parkview.
In December 1996, the Company sold its senior living business (see Note 11)
and certain assets related to three medical office buildings. The assets related
to three medical office buildings were sold to a limited liability company for
$406,500 plus assumption of debt of approximately $800,000. The accounting basis
for the sale was fair market value and a pre-tax gain of approximately $94,000
was recognized on the sale. The members of the limited liability company were
officers and employees of the Company prior to the recapitalization who
collectively owned 75% of the Company's fully diluted common stock prior to the
recapitalization.
The following 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>
FOR THE PERIOD
YEAR ENDED DECEMBER 31, JANUARY 1 TO
------------------------ DECEMBER 18,
1994(1) 1995(2) 1996(3)
---------- ---------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Total revenue....................................... $101,976 $111,201 $113,433
Income from continuing operations................... 3,060 3,849 (749)
</TABLE>
- ---------------
(1) Excludes the hospital divested in 1995.
(2) Includes Parkview Regional Hospital and excludes the hospital divested in
1995.
(3) Includes Parkview Regional 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-40
<PAGE> 113
BRIM, INC. 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, DECEMBER 18,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Land.................................................... $ 1,186 $ 828
Leasehold improvements.................................. 1,315 4,448
Buildings and improvements.............................. 9,103 8,242
Equipment............................................... 9,742 10,136
------- -------
21,346 23,654
Less allowances for depreciation and amortization....... (7,634) (7,130)
------- -------
13,712 16,524
Construction-in-progress (estimated cost to complete at
December 18, 1996 -- $1,049).......................... 718 430
------- -------
$14,430 $16,954
======= =======
</TABLE>
Assets under capital leases were $9,654,000 and $10,781,000 net of
accumulated amortization of $3,775,000 and $4,602,000 at December 31, 1995 and
December 18, 1996, respectively.
6. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 18,
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).......... 4,018 5,226
------ -------
8,408 77,313
Less current maturities................................. (1,247) (1,318)
------ -------
$7,161 $75,995
====== =======
</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 18,
1996. Future borrowings under the revolver are limited, in certain instances, to
acquisitions of identified businesses. At December 18, 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 was
9.25% at December 18, 1996. The Company
F-41
<PAGE> 114
BRIM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Aggregate maturities of long-term obligations at December 18, 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-42
<PAGE> 115
BRIM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. MANDATORY REDEEMABLE PREFERRED STOCK
Redeemable preferred stock consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 18,
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 14,137 shares in 1996, net of issuance costs of
$1,282,000 in 1996...................................... -- 12,855
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 $31,824
====== =======
</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 253,228 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 6,414 shares issued to GTCR, 103 shares issued to Mr. Rash, 192
shares issued to Mr. Gore, and 96 shares issued to two banks for $6,805,000;
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
F-43
<PAGE> 116
BRIM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
dividends, redemption of securities, acquisition and merger activity, sale of a
majority of assets, and the creation of unrelated businesses.
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 18, 1996, the Company did not have a stock option plan in place
and no stock options were outstanding.
WARRANT
In connection with the recapitalization in December 1996, the Company
issued a warrant to purchase 253,228 shares of its common stock. The warrant has
an exercise price of $0.061 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.
F-44
<PAGE> 117
BRIM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Medicare and
Medicaid resulted in an increase in patient service revenue of $788,000 for the
period January 1, 1996 to December 18, 1996.
10. INCOME TAXES
The provision for income tax expense (benefit) attributable to income from
continuing operations consists of the following amounts (In thousands):
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED PERIOD
DECEMBER 31, JANUARY 1, 1996
------------------------ TO DECEMBER 18,
1994 1995 1996
---------- ---------- ---------------
<S> <C> <C> <C>
Current:
Federal.................................. $1,519 $1,580 $ 561
State.................................... 300 334 134
------ ------ -------
1,819 1,914 695
Deferred:
Federal.................................. 177 11 (2,411)
State.................................... 26 3 (574)
------ ------ -------
203 14 (2,985)
------ ------ -------
$2,022 $1,928 $(2,290)
====== ====== =======
</TABLE>
The differences between the Company's effective income tax rate of 41.4%,
36.4% and 30.2% from continuing operations for 1994, 1995 and 1996,
respectively, and the statutory federal income tax rate of 34.0% are as follows
(In thousands):
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED PERIOD
DECEMBER 31, JANUARY 1, 1996
----------------------- TO DECEMBER 18,
1994 1995 1996
---------- ---------- ---------------
<S> <C> <C> <C>
Statutory federal rate....................... $1,659 $1,801 $(2,580)
State income taxes, net of federal income tax
benefit.................................... 215 222 (290)
Amortization of goodwill..................... 61 69 16
Change in valuation allowance................ 54 (141) (2)
Nondeductible recapitalization costs......... -- -- 298
Other........................................ 33 (23) 268
------ ------ -------
$2,022 $1,928 $(2,290)
====== ====== =======
</TABLE>
F-45
<PAGE> 118
BRIM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the Company's deferred tax assets and liabilities are as
follows (In thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- DECEMBER 18,
1994 1995 1996
---------- ---------- ------------
<S> <C> <C> <C>
Deferred tax assets -- current:
Accounts and notes receivable................ $ 491 $ 544 $2,957
Accrued vacation liability................... 674 692 628
Accrued liabilities.......................... 187 121 1,178
Other........................................ -- 2 --
------ ------ ------
Net deferred tax assets--current............... $1,352 $1,359 $4,763
====== ====== ======
Deferred tax assets--noncurrent:
Net operating losses from separate return
subsidiary................................ 421 280 278
Accrued liabilities.......................... 489 620 623
Deferred revenue............................. -- 42 --
------ ------ ------
910 942 901
Less valuation allowance....................... (421) (280) (278)
------ ------ ------
Deferred tax assets -- noncurrent.............. 489 662 623
Deferred tax liabilities -- noncurrent
Depreciation of property, plant and
equipment................................. (652) (617) (734)
Other........................................ -- (76) (41)
------ ------ ------
Deferred tax liabilities -- noncurrent......... (652) (693) (775)
------ ------ ------
Net deferred tax liabilities -- noncurrent..... (163) (31) (152)
====== ====== ======
</TABLE>
In the accompanying consolidated balance sheets, net current deferred tax
assets and net noncurrent deferred tax liabilities are included in prepaid
expenses and other and other liabilities, respectively.
The decrease in the valuation allowance for deferred tax assets for the
years ended December 31, 1994 and 1995 and for the period January 1, 1996 to
December 18, 1996 was $54,000, $141,000 and $2,000, respectively. The Company
had net operating loss carryforwards (NOLs) of approximately $714,000 at
December 18, 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 18, 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
F-46
<PAGE> 119
BRIM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$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.
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 to companies whose shareholders included unrelated third parties and
certain shareholders, officers, and employees of Brim. The sale of the senior
living business was accomplished in the following separate transactions: (i) the
sale of assets used in connection with the senior living business through the
merger of Brim Senior Living, Inc. with a Delaware limited liability company and
(ii) the sale of Meridian Senior Living, Inc. The sale of assets used in
connection with the senior living business was to a limited liability company
for $15 million. The accounting basis for the sale was fair market value and a
pre-tax gain of $11.4 million was recognized on the sale. The limited liability
company was owned 65% by an unrelated third party and 35% by officers and
shareholders of the Company prior to the recapitalization who collectively owned
61% of the Company's fully diluted common stock prior to the recapitalization.
The sale of the outstanding common stock of Meridian Senior Living, Inc., a
wholly-owned subsidiary, was to an unrelated third party for $4.7 million. The
accounting basis for the sale was fair market value and a loss of $2.4 million
was recognized on the sale. Subsequent to the sale to the unrelated third party,
certain individuals who were officers and stockholders of the Company prior to
the recapitalization became limited partners with the unrelated third party and
collectively held a 14% limited partnership interest. These individuals owned
approximately 60% of the Company's fully diluted common stock prior to the
recapitalization.
The senior living 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 and 1995 and for the period January 1, 1996 to
December 18, 1996, respectively. Income from operations was $742,000, $1,178,000
and $537,000, net of taxes, for the years ended December 31, 1994 and 1995 and
for the period January 1, 1996 to December 18, 1996, respectively. The gain on
the disposal of this business segment was $5,478,000, net of taxes.
F-47
<PAGE> 120
BRIM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE
PERIOD
JANUARY 1,
DECEMBER 31, 1996 TO
----------------- DECEMBER 18,
1994 1995 1996
------ ------- ------------
<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 18, 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........................................................ $1,585 $ 3,369
1998........................................................ 1,546 2,768
1999........................................................ 1,460 2,180
2000........................................................ 957 1,862
2001........................................................ 563 1,784
Thereafter.................................................. 5 5,831
------ -------
Total minimum lease payments................................ 6,116 17,794
=======
Amount representing interest................................ (890)
------
Present value of net minimum lease payments
(including $1,271 classified as current)....... $5,226
======
</TABLE>
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
F-48
<PAGE> 121
BRIM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $385,000 for the years ended
December 31, 1994 and 1995 and for the period January 1, 1996 to December 18,
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 $95,000 for the year ended December 31, 1995 and for
the period January 1, 1996 to December 18, 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. SUBSEQUENT EVENTS
Immediately after the recapitalization discussed in Note 3, a subsidiary of
the Company was merged into PHC and the Company was renamed Principal Hospital
Company. In exchange for their shares in PHC, the PHC shareholders received
newly-issued redeemable junior preferred stock and common stock of the Company.
While the Company was the legal acquirer, the merger was accounted for as a
reverse acquisition of the Company by PHC.
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.
REINCORPORATION
On February 4, 1998, Principal Hospital Company merged with a wholly-owned
subsidiary in order to change its jurisdiction of incorporation to Delaware and
change its name to Province Healthcare Company (Province). In the Merger,
Province exchanged 1.83 shares of its no par common stock for each share of the
subsidiary's $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-49
<PAGE> 122
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-50
<PAGE> 123
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-51
<PAGE> 124
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-52
<PAGE> 125
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-53
<PAGE> 126
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.
F-54
<PAGE> 127
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-55
<PAGE> 128
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-56
<PAGE> 129
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Memorial Hospital Foundation -- Palestine, Inc.
We have audited the accompanying consolidated statement of revenues and
expenses and cash flows for the year ended May 31, 1994 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 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 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 audit
provides 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 year ended May 31, 1994, in conformity with generally accepted
accounting principles.
HARRELL, RADER, BONNER & BOLTON, LLP
Palestine, Texas
August 23, 1994
F-57
<PAGE> 130
MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.
CONSOLIDATED STATEMENT OF REVENUES AND EXPENSES
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
MAY 31, 1994
------------
<S> <C>
GROSS PATIENT REVENUES...................................... $40,539,349
Less provisions for:
Contractual allowance under health insurance programs..... $13,325,275
Uncollectible accounts.................................... 2,976,979
Charity allowances........................................ 1,209,347
-----------
Total revenue deductions.......................... 17,511,601
-----------
Net patient service revenue....................... 23,027,748
OTHER OPERATING REVENUE:
Rent income............................................... 15,934
Insurance sales........................................... 13,111
Other income.............................................. 175,784
-----------
Total other operating revenue..................... 204,829
-----------
Total operating revenue........................... 23,232,577
OPERATING EXPENSES:
Nursing services.......................................... 6,436,401
Other professional services............................... 6,364,052
General services.......................................... 1,742,113
Fiscal and administrative services........................ 6,622,316
Depreciation.............................................. 1,831,069
Rent property expense..................................... 29,158
Insurance sales expense................................... 63,014
-----------
Total operating expenses.......................... 23,088,123
-----------
Excess revenues over expenses from operations..... 144,454
NON OPERATING INCOME........................................ 95,783
-----------
Excess revenues over expenses..................... $ 240,237
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-58
<PAGE> 131
MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
MAY 31, 1994
------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Excess revenues over expenses............................. $ 240,237
Non-cash expenses:
Depreciation........................................... 1,831,069
Amortization........................................... 9,931
(Increase) Decrease in:
Accounts and notes receivable.......................... 168,173
Inventories............................................ (1,172)
Prepaid expenses....................................... 152,913
Increase (Decrease) in:
Accounts payable....................................... 223,038
Accrued expenses....................................... 227,734
Health insurance programs payable...................... (351,717)
------------
Net Cash provided by Operating Activities......... 2,500,206
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in mutual fund................................. (78,106)
Purchase of property, plant and equipment................. (12,480,673)
Start-up costs for new ventures........................... (186,732)
Increase in deposits...................................... (2,844)
Investment of loan proceeds:
Cash invested in assets whose use is limited........... (6,824,308)
------------
Net Cash used by Investing Activities............. (19,572,663)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowing -- retainage and construction
accounts payable....................................... 1,923,762
Proceeds from issue of long-term debt net of $389,623
discount............................................... 16,020,377
Proceeds from bank loan................................... 734,882
Proceeds from capital leases.............................. 34,766
Payment of bond issue costs............................... (1,077,374)
Principal payments on notes and bank loans................ (119,481)
Principal payments on capital leases...................... (1,166,566)
------------
Net cash provided by financing activities......... 16,350,366
------------
Net decrease in cash.............................. (722,091)
------------
Cash at beginning of period....................... 3,208,541
------------
Cash at end of period............................. $ 2,486,450
============
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest............................................... $ 870,523
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-59
<PAGE> 132
MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED MAY 31, 1994
SIGNIFICANT ACCOUNTING POLICIES
Organization. Memorial Hospital Foundation -- Palestine, Inc. (Foundation)
is a not-for-profit acute care hospital. The Foundation renders care to patients
primarily from Anderson County and the immediate surrounding area. The
Foundation grants credit to patients who qualify according to the Foundation's
criteria.
On September 21, 1988, Anderson County entered into a 15 year lease
agreement with the Foundation that provided for the Foundation to lease and
operate Anderson County Memorial Hospital (Hospital). The lease was effective as
of September 22, 1988, and provided for the transfer of all Hospital assets and
liabilities to the Foundation in exchange for a nominal fee. The lease also
contains a 10 year renewal option exercisable at the sole discretion of the
Foundation.
The consolidated financial statements of the Foundation include the
accounts of East Texas Medical Management, Inc. and Benefit Solutions, Inc.
Benefit Solutions, Inc. is a wholly owned subsidiary of East Texas Medical
Management, Inc., which is a wholly owned subsidiary of the Foundation. All
significant intercompany transactions and accounts have been eliminated in
consolidation.
Concentrations of credit risk. Financial instruments that potentially
subject the Foundation to concentrations of credit risk consist principally of
temporary cash investments and accounts receivable. The Foundation places its
temporary cash accounts and investments with local financial institutions. As of
May 31, 1994, the Foundation had $1,332,995 on deposit in excess of federally
insured limits. Concentrations of credit risk with respect to accounts
receivable are derived from providing services and granting credit to patients,
substantially all of whom are area residents.
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.
Allowance for doubtful accounts. The allowance for doubtful accounts and
the corresponding provision for uncollectible accounts charged against earnings
is based on prior years' history and an evaluation of current year receivables.
Recoveries of amounts written off in prior years are shown as a reduction of the
provision for uncollectible accounts in the year of recovery.
Property, plant and equipment. Depreciation on these assets is calculated
using the straight-line method over the estimated useful life of the asset which
ranges from 3 to 50 years. Depreciation expense was $1,831,069 in 1994.
Expenditures for additions, major renewals and betterments are capitalized
and expenditures for maintenance and repairs are charged against income as
incurred.
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 income.
Amortizable assets. Amortization on deferred costs is calculated using the
straight-line method. Bond issue costs are amortized over 25 years and are being
capitalized during the construction period as part of the cost of constructing a
new primary health care facility. Bond issue cost capitalized during the year
was $34,117.
Start-up costs are generally amortized using the straight-line method over
60 months. Start-up cost expensed in 1994 was $9,931.
F-60
<PAGE> 133
MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Medical malpractice. The Foundation is covered for medical malpractice by
a claims-made insurance policy. The potential exists for losses above the limits
established in the policy. However, any potential losses cannot be reasonably
estimated and no provision is made for such loss accruals.
The Foundation intends to maintain its coverage for medical malpractice by
continued renewal of the claims-made policy.
The Foundation has also purchased a tail-coverage policy to cover Anderson
County for any claims made related to incidents occurring prior to the transfer
of the Hospital to the Foundation.
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 pursuant to Section 501(a) of the Code. The
Foundation is classified by the Internal Revenue Service as one that is not a
private foundation and qualifies for the charitable contribution deduction under
Section 170(b)(1)(A)(iii) of the Internal Revenue Code.
East Texas Medical Management, Inc. and Benefit Solutions, Inc. are
for-profit corporations and are subject to Federal income taxes on their taxable
income. Provisions are made for deferred income tax as a result of timing
differences between financial and taxable income. There are presently no
differences between financial and taxable income.
RETIREMENT PLAN
On November 1, 1988, the Foundation established 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.
Employee retirement plan expense for the year ended May 31, 1994 was
$292,329.
LEASE COMMITMENTS
Capital leases
The Foundation has entered into agreements to lease certain hospital
equipment. The leases, which expire over the next four years, are noncancelable
and are classified as capital leases.
At May 31, 1994, property recorded under capitalized leases was as follows:
<TABLE>
<S> <C>
Equipment................................................... $4,870,604
Less accumulated amortization............................... 3,198,851
----------
Total property.................................... $1,671,753
==========
</TABLE>
Noncancelable operating lease
The Foundation leases medical office space and equipment and the leases are
classified as noncancelable operating leases.
F-61
<PAGE> 134
MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The future minimum lease payments by year and in the aggregate amount under
capitalized leases and under noncancelable operating leases with initial or
remaining noncancelable lease terms in excess of one year, consisted of the
following at May 31, 1994.
<TABLE>
<CAPTION>
NONCANCELABLE
CAPITALIZED OPERATING
LEASES LEASES
----------- -------------
<S> <C> <C>
1995........................................................ $ 914,149 $ 53,342
1996........................................................ 594,198 50,942
1997........................................................ 334,474 50,942
1998........................................................ 4,173 45,718
1999........................................................ 3,825 8,167
Thereafter.................................................. -- --
---------- --------
Total minimum payments due.................................. 1,850,819 209,111
Amounts representing interest............................... 125,873 --
---------- --------
Present value of net minimum lease payments................. $1,724,946 $209,111
========== ========
</TABLE>
Amortization expense and accumulated amortization on capital leases are
included with depreciation expense and accumulated depreciation for the year
ended May 31, 1994.
Certain capital leases provide for purchase options. Generally, purchase
options are at prices representing the expected fair value of the property at
the expiration of the lease term.
CHARITY ALLOWANCE
The Foundation provides health care regardless of ability to pay. Charity
care provided during the year ended May 31, 1994, amounted to $1,209,347.
RELATED PARTY TRANSACTIONS
In May 1992, ETCHS, Inc., a non-profit corporation, was created to provide
community clinical health services on an ability-to-pay basis.
On August 17, 1992, the Foundation purchased a building for $250,000. It is
anticipated the building will be used by ETCHS, Inc. to provide community
clinical health services.
ETCHS, Inc. had not commenced operations as of May 31, 1994.
The Foundation contracts with a corporation, of which a former board member
is a stockholder, to provide holter monitoring services and physician recruiting
services. The Foundation paid $27,125 for holter monitoring services and
$132,850 as reimbursement to the corporation for physician recruitment services
and physician income guarantees, during the former board member's 1994 term.
On June 25, 1993, the Foundation purchased a building for $156,000 from a
board member. The building is rented to physicians for office space.
CONTINGENCIES
In July 1992, three former employees of the Foundation filed a class action
suit alleging that, in 1988, the Foundation wrongfully reclaimed funds
previously contributed to a defined benefit retirement plan (plan) terminated in
1988. The suit asks for actual and punitive damages totaling $11,000,000. On
March 29, 1994, the U.S. District Court in Tyler, Texas granted the plaintiff's
motion for partial summary judgement. The Court ruled the Plan is subject to the
provision of the
F-62
<PAGE> 135
MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Employee Retirement Security Act (ERISA). However, the Court did not address the
issue of damages and the Foundation is appealing the Court's ruling regarding
ERISA. The Foundation believes the suit is without merit and expects to defend
and conclude the action in its favor.
The Foundation is a defendant in a lawsuit filed by one of its patients for
injuries sustained. On April 6, 1994, the jury returned a verdict against the
Foundation and awarded the plaintiffs $5,031,014 in damages, plus interest at
10% per annum. The Foundation is appealing the decision. The Foundation is of
the opinion that the Foundation's insurer is solely responsible for payment of
the damages plus interest. The Foundation's insurer has posted a $5,545,000
bond. Due to the uncertainty of the outcome of the appeals process and the
coverage provided by the Foundation's insurer, the amount of damages plus
interest has not been reflected in the accompanying consolidated financial
statements.
On August 11, 1993, the Anderson County Appraisal Review Board voted to
revoke the tax-exempt status previously granted to the Foundation, effective
January 1, 1993. The amount of tax in controversy is $120,507. The Foundation
filed suit, on August 31, 1993, against the Anderson County Appraisal District
in order to overturn the decision of the District and regain its status as an
entity that is exempt from paying property taxes. The Foundation believes it
meets the legal requirements for property tax exemption and will prevail in the
suit.
The Foundation is a defendant in two lawsuits filed on behalf of former
patients. Outside counsel for the Foundation has advised that at this stage in
the proceedings they cannot offer an opinion as to the probable outcome. The
Foundation believes the suit is without merit and is vigorously defending its
position. Therefore, no contingent liability has been accrued.
F-63
<PAGE> 136
======================================================
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.......................... 9
Use of Proceeds....................... 17
Dividend Policy....................... 17
Capitalization........................ 18
Dilution.............................. 19
Selected Consolidated Financial
Data................................ 20
Pro Forma Condensed Consolidated
Financial Statements................ 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 30
Business.............................. 41
Management............................ 56
Certain Relationships and Related
Transactions........................ 62
Principal Stockholders................ 64
Description of Capital Stock.......... 65
Shares Eligible for Future Sale....... 66
Underwriting.......................... 69
Legal Matters......................... 70
Experts............................... 70
Additional Information................ 71
Index to Financial Statements......... F-1
</TABLE>
---------------------
UNTIL , 1998 (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.
======================================================
======================================================
4,700,000 Shares
[PROVINCE HEALTHCARE LOGO]
Common Stock
-------------------
PROSPECTUS
-------------------
BT Alex. Brown
BancAmerica Robertson Stephens
Goldman, Sachs & Co.
The Robinson-Humphrey
Company
, 1998
======================================================
<PAGE> 137
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............................. 500,000
Transfer Agent's Fees and Expenses.......................... 11,500
Accounting Fees and Expenses................................ 1,355,000
Legal Fees and Expenses..................................... 450,000
Miscellaneous Expenses...................................... 91,371
----------
Total..................................................... $2,500,000
==========
</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> 138
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, on December 18, 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 14,137 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 2,612,553 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 approximately $35.7 million.
In connection with the Merger, on December 18, 1996, the Company issued an
aggregate of 14,403 shares of Junior Preferred Stock and 2,757,947 shares of
Common Stock to the stockholders of PHC in exchange for all of the outstanding
capital stock of PHC. The stockholders of PHC included GTCR Fund IV, certain
members of management and certain other investors.
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 706,886 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 approximately $4.2 million.
In addition, on September 12, 1997, Leeway & Co. exercised its warrant to
purchase 253,228 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
</TABLE>
II-2
<PAGE> 139
<TABLE>
<C> <C> <S>
*2.4 -- Amended and Restated Agreement and Plan of Merger dated as
of January 15, 1998 between Principal Hospital Company and
Province Healthcare Company
3.1 -- Amended and Restated Certificate of Incorporation of the
registrant
*3.2 -- Amended and Restated By-laws of the registrant
*4.1 -- Form of Common Stock Certificate
*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, dated as of December 17, 1996, 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, dated as of December 17, 1996, 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
</TABLE>
II-3
<PAGE> 140
<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 Principal-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 -- Intentionally left blank
*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.
*10.28 -- First Amendment to Securities Purchase Agreement, dated as
of September 30, 1997, between PHC and Leeway & Co.
*10.29 -- Second Amendment to Senior Management Agreement, dated as of
October 15, 1997, between the Company, Rash and GTCR Fund
IV.
*10.30 -- Second Amendment to Senior Management Agreement, dated as of
October 15, 1997, between the Company, Gore and GTCR Fund
IV.
*10.31 -- Second Amendment to Stockholders Agreement, dated as of
September 30, 1997, between the Company, GTCR Fund IV, Rash,
Gore and certain other stockholders.
10.32 -- Asset Acquisition Agreement and Escrow Instructions dated
March 22, 1994, between THC-Seattle, Inc., Community
Psychiatric Centers, Brim Fifth Avenue, Inc. and Brim
Hospitals, Inc.
10.33 -- Management Agreement dated March 22, 1994, between Brim
Fifth Avenue, Inc. and THC-Seattle, Inc.
10.34 -- Bill of Sale and Assignment dated July 9, 1997, by
Nationwide Health Properties, Inc. in favor of Brim
Hospitals, Inc.
10.35 -- Asset Purchase Agreement dated July 12, 1996 between
Memorial Hospital Foundation-Palestine, Inc. and Palestine
Principal Healthcare Limited Partnership.
10.36 -- Agreement of Limited Partnership dated July 17, 1996,
between Principal Hospital Company, Palestine-Principal,
Inc. and Mother Frances Hospital Regional Healthcare Center.
*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 (for SEC use only)
</TABLE>
- ------------------------
* Previously filed.
(b) Financial Statement Schedules.
Schedule II -- Valuation and Qualifying Accounts.
II-4
<PAGE> 141
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 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> 142
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 6 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Brentwood, State of Tennessee on February 10, 1998.
PROVINCE HEALTHCARE COMPANY
By: /s/ BRENDA B. RECTOR
------------------------------------
Brenda B. Rector
Vice President and Controller
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 6 to the Registration Statement has been signed on February 10, 1998, by the
following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President and Chief Executive Officer, Director
- ---------------------------------------------------
Martin S. Rash
* Executive Vice President and Chief Financial
- --------------------------------------------------- Officer
Richard D. Gore
/s/ BRENDA B. RECTOR Vice President and Controller (Chief Accounting
- --------------------------------------------------- Officer)
Brenda B. Rector
* Director
- ---------------------------------------------------
Bruce V. Rauner
* Director
- ---------------------------------------------------
Joseph P. Nolan
* Director
- ---------------------------------------------------
A. E. Brim
* Director
- ---------------------------------------------------
Michael T. Willis
* Director
- ---------------------------------------------------
David L. Steffy
*By: /s/ BRENDA B. RECTOR
------------------------------
Brenda B. Rector
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 143
REPORT OF INDEPENDENT AUDITORS ON SCHEDULE
Board of Directors
Province Healthcare Company
We have audited the consolidated financial statements of Province
Healthcare Company (formerly known as Principal Hospital Company) and
subsidiaries as of December 31, 1996, and for the period February 2, 1996 (date
of inception) to December 31, 1996, as restated to reflect the change in the
application of the method of accounting for its December 18, 1996 merger with
Brim, Inc., and have issued our report thereon dated April 30, 1997, except for
Note 14, and Notes 1, 3 and 15, as to which the dates are May 8, 1997 and
February 4, 1998, respectively (included elsewhere in this Registration
Statement). Our audit also included the financial statement schedule as of
December 31, 1996 and for the period February 2, 1996 (date of inception) to
December 31, 1996, 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 14, and Notes 1, 3
and 15 to the consolidated financial statements,
as to which the dates are May 8, 1997
and February 4, 1998, respectively
S-1
<PAGE> 144
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ---------------------------- ---------- ------------------------- ------------- ----------
ADDITIONS
-------------------------
(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>
For the period February 2,
1996 to December 31, 1996:
Allowance for doubtful
accounts............... $ -- $1,909 $3,468 $ 900(2) $4,477
</TABLE>
- ---------------
(1) Allowances as a result of acquisitions.
(2) Uncollectible accounts written off, net of recoveries.
S-2
<PAGE> 1
EXHIBIT 1.1
4,700,000 Shares
Province Healthcare Company
Common Stock
($0.01 Par Value)
UNDERWRITING AGREEMENT
February____, 1998
BT Alex. Brown Incorporated
BancAmerica Robertson Stephens
Goldman, Sachs & Co.
The Robinson-Humphrey Company, LLC
As Representatives of the
Several Underwriters
c/o BT Alex. Brown Incorporated
1 South Street
Baltimore, Maryland 21202
Gentlemen:
Province Healthcare Company, a Delaware corporation (the "Company"),
proposes to sell to the several underwriters (the "Underwriters") named in
Schedule I hereto for whom you are acting as representatives (the
"Representatives") an aggregate of 4,700,000 shares of the Company's Common
Stock, $0.01 par value (the "Firm Shares"). The respective amounts of the Firm
Shares to be so purchased by the several Underwriters are set forth opposite
their names in Schedule I hereto. The Company also proposes to sell at the
Underwriters' option an aggregate of up to 705,000 additional shares of the
Company's Common Stock (the "Option Shares") as set forth below.
As the Representatives, you have advised the Company (a) that you are
authorized to enter into this Agreement on behalf of the several Underwriters,
and (b) that the several Underwriters are willing, acting severally and not
jointly, to purchase the numbers of Firm Shares set forth opposite their
respective names in Schedule I, plus their pro rata portion of the Option Shares
if you elect to exercise the over-allotment option in whole or in part for the
accounts of the several Underwriters. The Firm Shares and the Option Shares (to
the extent the aforementioned option is exercised) are herein collectively
called the "Shares."
<PAGE> 2
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the
Underwriters as follows:
(a) A registration statement on Form S-1 (File No. 333-34221)
with respect to the Shares has been carefully prepared by the Company
in conformity with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the Rules and Regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder and has been filed with the Commission. Copies
of such registration statement, including any amendments thereto, the
preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein and the exhibits, financial statements
and schedules, as finally amended and revised, have heretofore been
delivered by the Company to you. Such registration statement, together
with any registration statement filed by the Company pursuant to Rule
462(b) of the Act, herein referred to as the "Registration Statement,"
which shall be deemed to include all information omitted therefrom in
reliance upon Rule 430A and contained in the Prospectus referred to
below, has become effective under the Act and no post-effective
amendment to the Registration Statement has been filed as of the date
of this Agreement. "Prospectus" means (a) the form of prospectus first
filed with the Commission pursuant to Rule 424(b) or (b) the last
preliminary prospectus included in the Registration Statement filed
prior to the time it becomes effective or filed pursuant to Rule 424(a)
under the Act that is delivered by the Company to the Underwriters for
delivery to purchasers of the Shares, together with the term sheet or
abbreviated term sheet filed with the Commission pursuant to Rule
424(b)(7) under the Act. Each preliminary prospectus included in the
Registration Statement prior to the time it becomes effective is herein
referred to as a "Preliminary Prospectus." Any reference herein to any
Prospectus shall be deemed to include any supplements or amendments
thereto, filed with the Commission after the date of filing of the
Prospectus under Rules 424(b) or 430A, and prior to the termination of
the offering of the Shares by the Underwriters.
(b) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with corporate power and authority to own or lease its
properties and conduct its business as described in the Registration
Statement. The Company is duly qualified and is active on the records
of the Corporation Division of the State of Oregon and is duly
qualified and in good standing as a foreign corporation authorized to
do business in each other jurisdiction in which the nature of its
business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not
have a material adverse effect on the earnings, business, assets,
operations, condition (financial or other) or prospects for the
business, assets, operations, condition (financial or other) of the
Company and its Subsidiaries (as defined), taken as a whole (such
effect is referred to herein as a "Material Adverse Effect").
-2-
<PAGE> 3
(c) All of the consolidated corporations, partnerships
(including, without limitation, general, limited and limited liability
partnerships) and limited liability companies in which the Company has
a direct or indirect ownership interest are listed in Schedule II to
this Agreement (collectively, the "Subsidiaries"). Each Subsidiary that
is a corporation (a "Corporate Subsidiary") has been duly organized and
is validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, with corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement. Each Corporate
Subsidiary is duly qualified and [is active on the records of the
Corporation Division of the State of Oregon and is duly qualified and]
in good standing as a foreign corporation authorized to do business in
each other jurisdiction in which the nature of its business or its
ownership or leasing of property requires such qualification, except
where the failure to be so qualified would not have a Material Adverse
Effect. All of the outstanding shares of capital stock of each
Corporate Subsidiary have been duly authorized and validly issued, are
fully paid and non-assessable, were not issued in violation of or
subject to any preemptive or similar rights, and, except as set forth
on Schedule 1(c), are owned by the Company directly, or indirectly
through one of the other Subsidiaries, free and clear of all security
interests, liens, encumbrances and equities and claims; and no options,
warrants or other rights to purchase, agreements or other obligations
to issue or other rights to convert any obligations into shares of
capital stock or ownership interests in any Corporate Subsidiary are
outstanding.
(d) Each Subsidiary that is a partnership (a "Partnership")
has been duly organized, is validly existing as a partnership in good
standing under the laws of its jurisdiction of organization and has the
partnership power and authority to own, lease and operate its
properties and to conduct its business as described in the Registration
Statement. Each Partnership is duly qualified and [active on the
records of the Corporation Division of the State of Oregon and is duly
qualified and ] in good standing as a foreign partnership authorized to
do business in each other jurisdiction in which the nature of its
business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not
have a Material Adverse Effect. The capital contributions with respect
to the outstanding units of each Partnership have been made to the
Partnership. Except as set forth in Schedule 1(d), the general and
limited partnership interests therein held directly or indirectly by
the Company are owned free and clear of all security interests, liens,
encumbrances and equities and claims; and no options, warrants or other
rights to purchase, agreements or other obligations to issue or other
rights to convert any obligations into ownership interests in any
Partnership are outstanding. Each partnership agreement pursuant to
which the Company or a Subsidiary holds an interest in a Partnership is
in full force and effect and constitutes the legal, valid and binding
agreement of the parties thereto, enforceable against such parties in
accordance with the terms thereof, except as enforcement thereof may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally. There has been no material
breach of or default under, and no event which with notice or lapse of
time would constitute a material breach of or default under, such
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<PAGE> 4
partnership agreements by the Company or any Subsidiary or, to the
Company's knowledge, any other party to such agreements.
(e) Each Subsidiary that is a limited liability company (an
"LLC") has been duly organized, is validly existing as a limited
liability company in good standing under the laws of its jurisdiction
of organization and has the limited liability company power and
authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement. Each LLC is duly
qualified and [active on the records of the Corporation Division of the
State of Oregon and is duly qualified and] in good standing as a
foreign limited liability company authorized to do business in each
other jurisdiction in which the nature of its business or its ownership
or leasing of property requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on
the earnings, business, management, properties, assets, rights,
operations, condition (financial or other) or prospects of the Company
and its Subsidiaries, taken as a whole. The capital contributions with
respect to the outstanding membership interests of each LLC have been
made to the LLC. All outstanding membership interests in the LLCs were
issued and sold in compliance with the applicable operating agreements
or such LLCs and all applicable federal and state securities laws, and,
except as set forth in Schedule 1(e), the membership interests therein
held directly or indirectly by the Company are owned free and clear of
all security interests, liens, encumbrances and equities and claims;
and no options, warrants or other rights to purchase, agreements or
other obligations to issue or other rights to convert any obligations
into ownership interests in any LLC are outstanding. Each operating
agreement pursuant to which the Company or a Subsidiary holds a
membership interest in an LLC is in full force and effect and
constitutes the legal, valid and binding agreement of the parties
thereto, enforceable against such parties in accordance with the terms
thereof, except as enforcement thereof may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of
creditors' rights generally. There has been no material breach of or
default under, and no event which with notice or lapse of time would
constitute a material breach of or default under, such operating
agreements by the Company or any Subsidiary or, to the Company's
knowledge, any other party to such agreements.
(f) Except to the extent disclosed in the Prospectus, each of
the hospitals described in the Prospectus as owned or leased by the
Company is owned or leased and operated by a Subsidiary in which the
Company directly or indirectly owns at least 80% of the outstanding
ownership interests. Except as disclosed in the Prospectus, there are
no consensual encumbrances or restrictions on the ability of any
Subsidiary (i) to pay any dividends or make any distributions on such
Corporate Subsidiary's capital stock, such Partnership's partnership
interests or such LLC's membership interests or to pay any indebtedness
owed to the Company or any other Subsidiary, (ii) to make any loans or
advances to, or investments in, the Company or any other Subsidiary, or
(iii) to transfer any of its property or assets to the Company or any
other Subsidiary.
(g) The outstanding shares of Common Stock of the Company have
been duly authorized and validly issued and are fully paid and
non-assessable; the Shares to be issued
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<PAGE> 5
and sold by the Company have been duly authorized and when issued and
paid for as contemplated herein will be validly issued, fully paid and
non-assessable; and no preemptive rights of stockholders exist with
respect to any of the Shares or the issue and sale thereof. Neither the
filing of the Registration Statement nor the offering or sale of the
Shares as contemplated by this Agreement gives rise to any rights,
other than those which have been waived or satisfied, for or relating
to the registration of any shares of Common Stock.
(h) The information set forth under the caption
"Capitalization" in the Prospectus is true and correct. All of the
Shares conform in all material respects to the description thereof
contained in the Registration Statement. The form of certificates for
the Shares conforms in all material respects to the corporate law of
the jurisdiction of the Company's incorporation.
(i) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed offering
of the Shares nor instituted proceedings for that purpose. The
Registration Statement conforms, and the Prospectus and any amendments
or supplements thereto will conform, to the requirements of the Act and
the Rules and Regulations. The Registration Statement and any amendment
thereto do not contain, and will not contain, any untrue statement of a
material fact and do not omit, and will not omit, to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading. The Prospectus and any amendments and
supplements thereto do not contain, and will not contain, any untrue
statement of material fact and do not omit, and will not omit, to state
any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that the Company
makes no representations or warranties as to information contained in
or omitted from the Registration Statement or the Prospectus, or any
such amendment or supplement, in reliance upon, and in conformity with,
written information furnished to the Company by or on behalf of any
Underwriter through the Representatives, specifically for use in the
preparation thereof.
(j) The consolidated financial statements of the Company and
the Subsidiaries, together with related notes and schedules as set
forth in the Registration Statement, present fairly the financial
position and the results of operations and cash flows of the Company
and the consolidated Subsidiaries, at the indicated dates and for the
indicated periods. Such financial statements and related schedules have
been prepared in accordance with generally accepted principles of
accounting, consistently applied throughout the periods involved,
except as disclosed therein, and all adjustments necessary for a fair
presentation of results for such periods have been made. The summary
financial and statistical data included in the Registration Statement
presents fairly the information shown therein and such data has been
compiled on a basis consistent with the financial statements presented
therein and the books and records of the company. The pro forma
financial statements and other pro forma financial information included
in the Registration Statement and the Prospectus present fairly the
information shown therein, have been
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<PAGE> 6
prepared in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements, have been properly compiled
on the pro forma bases described therein, and, in the opinion of the
Company, the assumptions used in the preparation thereof are reasonable
and the adjustments used therein are appropriate to give effect to the
transactions or circumstances referred to therein.
(k) Ernst & Young LLP and KPMG Peat Marwick LLP, who have
certified certain of the financial statements filed with the Commission
as part of the Registration Statement, are independent public
accountants as required by the Act and the Rules and Regulations.
(l) There is no action, suit, claim or proceeding pending or,
to the knowledge of the Company, overtly threatened against the Company
or any of the Subsidiaries before any court or administrative agency or
otherwise which if determined adversely to the Company or any of its
Subsidiaries would reasonably be expected to, individually or in the
aggregate, result in a Material Adverse Effect or to prevent the
consummation of the transactions contemplated hereby, except as set
forth in the Registration Statement.
(m) The Company and the Subsidiaries have good and marketable
title to all of the material properties and assets reflected in the
financial statements (or as described in the Registration Statement)
hereinabove described, subject to no lien, mortgage, pledge, charge or
encumbrance of any kind except those reflected in such financial
statements (or as described in the Registration Statement) or which are
not material in amount. The Company and the Subsidiaries occupy their
leased properties under valid and binding leases conforming in all
material respects to the description thereof set forth in the
Registration Statement; provided, however, that the Company makes no
representations or warranties regarding the validity or enforceability
of any purchase options for leased premises.
(n) The Company and the Subsidiaries have filed all Federal,
State, material local and material foreign income tax returns which
have been required to be filed and have paid all taxes indicated by
said returns and all assessments received by them or any of them to the
extent that such taxes have become due, other than taxes being
contested in good faith by appropriate proceedings. All tax liabilities
have been adequately provided for in the financial statements of the
Company.
(o) Since the respective dates as of which information is
given in the Registration Statement, as it may be amended or
supplemented, there has not been any material adverse change or any
development that would reasonably be expected to, individually or in
the aggregate, result in a Material Adverse Effect, whether or not
occurring in the ordinary course of business, and there has not been
any material transaction entered into or any material transaction that
is probable of being entered into by the Company or the Subsidiaries,
other than transactions in the ordinary course of business and changes
and transactions described in the Registration Statement, as it may be
amended or supplemented. The Company and the Subsidiaries have no
material contingent obligations
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<PAGE> 7
which are not disclosed in the Company's financial statements which are
included in the Registration Statement.
(p) Neither the Company nor any of the Subsidiaries is or with
the giving of notice or lapse of time or both, will be, in violation of
or in default under its Charter or By-Laws or other organizational
agreement or under any agreement, lease, contract, indenture or other
instrument or obligation to which it is a party or by which it, or any
of its properties, is bound, except for such violations or defaults
which would not reasonably be expected to, individually or in the
aggregate, result in a Material Adverse Effect. The execution and
delivery of this Agreement and the consummation of the transactions
herein contemplated and the fulfillment of the terms hereof will not
conflict with or result in a breach of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of
trust or other agreement or instrument to which the Company or any
Subsidiary is a party, or of the Charter or by-laws of the Company or
any order, rule or regulation applicable to the Company or any
Subsidiary of any court or of any regulatory body or administrative
agency or other governmental body having jurisdiction, except for such
conflicts, breaches or defaults which would not reasonably be expected
to, individually or in the aggregate, result in a Material Adverse
Effect.
(q) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or
other governmental body necessary in connection with the execution and
delivery by the Company of this Agreement and the consummation of the
transactions herein contemplated (except such additional steps as may
be required by the Commission, the National Association of Securities
Dealers, Inc. (the "NASD") or such additional steps as may be necessary
to qualify the Shares for public offering by the Underwriters under
state securities or Blue Sky laws) has been obtained or made and is in
full force and effect.
(r) Each of the Company and its Subsidiaries owns or possesses
adequate rights to use all material patents, patent rights, inventions,
trade secrets, know-how, trademarks, service marks, trade names and
copyrights described or referred to in the Prospectus as owned or used
by it or which are necessary for the conduct of its business as
described in the Prospectus. Neither the Company nor any of the
Subsidiaries has infringed, or received notice of any infringement of,
any patents, patent rights, trade names, trademarks or copyrights,
except for any infringement which has been settled and except for such
infringements which would not reasonably be expected to, individually
or in the aggregate, result in a Material Adverse Effect. The Company
knows of no material infringement by others of patents, patent rights,
trade names, trademarks or copyrights owned by or licensed to the
Company or any Subsidiary.
(s) Neither the Company, nor to the Company's best knowledge,
any of its affiliates, has taken or may take, directly or indirectly,
any action designed to cause or result in, or which has constituted or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the shares of Common Stock to facilitate
the sale or resale of the Shares.
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<PAGE> 8
(t) Neither the Company nor any Subsidiary is, nor will the
Company nor any Subsidiary become upon the sale of the Shares and the
application of the proceeds therefrom as described in the Prospectus
under the caption "Use of Proceeds," an "investment company" within the
meaning of such term under the Investment Company Act of 1940 and the
rules and regulations of the Commission thereunder.
(u) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
(v) The Company and each of its Subsidiaries carry, or are
covered by, insurance in such amounts and covering such risks as is
customary for companies engaged in similar industries.
(w) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and
published interpretations thereunder ("ERISA"); no "reportable event"
(as defined in ERISA) has occurred with respect to any "pension plan"
(as defined in ERISA) for which the Company would have any liability
which would reasonably be expected to, individually or in the
aggregate, result in a Material Adverse Effect; the Company has not
incurred and does not expect to incur liability under (i) Title IV of
ERISA with respect to termination of, or withdrawal from, any "pension
plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of
1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension plan" for
which the Company would have any liability that is intended to be
qualified under Section 401(a) of the Code is so qualified in all
material respects and nothing has occurred, whether by action or by
failure to act, which would cause the loss of such qualification.
(x) The Shares have been approved for listing, subject to
notice of issuance, on the Nasdaq National Market.
(y) To the best of the Company's knowledge, no officer,
director or securityholder of the Company has an "association" or
"affiliation" with any member of the National Association of Securities
Dealers, Inc. ("NASD"), within the meaning of Article III, Section 44
of the Rules of Fair Practice of the NASD. The Company does not have an
"association" or "affiliation" with any member of the NASD, within the
meaning of Article III, Section 44 of the Rules of Fair Practice of the
NASD.
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<PAGE> 9
(z) Each of the parties to the Amended and Restated Plan and
Agreement of Merger, dated as of January 15, 1998 (the "Merger
Agreement"), by and between the Company and Principal Hospital Company,
an Oregon corporation, had, at the time of the execution and delivery
of the Merger Agreement and at all times through and including the
consummation of the transactions contemplated thereby, full legal
right, power and authority to enter into the Merger Agreement and to
perform the transactions contemplated thereby. The Merger Agreement was
duly authorized, executed and delivered by each of the parties thereto;
the performance of the Merger Agreement and the consummation of the
transactions therein contemplated did not result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, or require the consent or approval of any person or entity
under, (i) any bond, debenture, note or other evidence of indebtedness,
or under any lease, contract, indenture, mortgage, deed of trust, loan
agreement, joint venture or other agreement or instrument to which any
of the parties to the Merger Agreement is or was a party or by which
any of such parties or their respective properties is or was bound,
(ii) the charter or bylaws of any of the parties to the Merger
Agreement, or (iii) any law, order, rule, regulation, writ, injunction,
judgment or decree of any court, government or governmental agency or
body, domestic or foreign, having jurisdiction over any of the parties
to the Merger Agreement or over their respective properties, except for
such consents or approvals as have been duly and timely received or
obtained and except for such breaches, violations or defaults which
would not reasonably be expected to, individually or in the aggregate,
result in a Material Adverse Effect. No consent, approval,
authorization or order of or qualification with any court, government
or governmental agency or body, domestic or foreign, having
jurisdiction over any of the parties to the Merger Agreement or over
their respective properties is or was required for the execution and
delivery of the Merger Agreement and the consummation of the
transactions contemplated thereby, except for such consents, approvals,
authorizations, orders or qualifications as have been duly and timely
received or obtained. The merger contemplated by the Merger Agreement
has been duly and validly consummated and has become effective under
applicable law. The transactions contemplated by the Merger Agreement
constitute an entirely tax free reorganization under Section
368(a)(1)(F) of the Internal Revenue Code of 1986, as amended (the
"Code"), and otherwise did not require the Company to recognize gain
under the Code.
(aa) The Company and its Subsidiaries have operated and
currently operate their business in conformity with all applicable
laws, rules and regulations of each jurisdiction in which it is
conducting business, except where the failure to so be in compliance
would not reasonably be expected to, individually or in the aggregate,
have a Material Adverse Effect. The Company and each of the
Subsidiaries holds all material certificates, consents, exemptions,
orders, licenses, authorizations, accreditations, permits or other
approvals or rights from all governmental authorities, all
self-regulatory organizations, all governmental and private accrediting
bodies and all courts and other tribunals (collectively, "Permits")
which are necessary to own their properties and to conduct their
businesses, including, without limitation, such Permits as are required
(i) under such federal and state healthcare laws as are applicable to
the Company and the Subsidiaries and (ii) with respect to those
facilities operated by the Company or any Subsidiary that participate
in Medicare and/or
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<PAGE> 10
Medicaid, to receive reimbursement thereunder, except for such failures
to have Permits which would not reasonably be expected to, individually
or in the aggregate, result in a Material Adverse Effect. The Company
and each of the Subsidiaries have fulfilled and performed all of their
material obligations with respect to such Permits, and no event or
change in condition has occurred which allows, or after notice or lapse
of time would allow, revocation or termination thereof or results in
any other material impairment of the rights of the holder of any such
Permit, except as to such qualifications as may be set forth in the
Prospectus and except for such failures which would not reasonably be
expected to, individually or in the aggregate, result in a Material
Adverse Effect. During the period for which financial statements are
included in the Prospectus, denials by third party payers of claims for
reimbursement for services rendered by the Company have not had a
Material Adverse Effect, and any such denials are either under appeal
or the Company has ceased seeking reimbursement for the services or
supplies to which they relate.
(bb) The accounts receivable of the Company 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,
managed care systems and other third party payors. The accounts
receivable relating to such third party payors do not and shall not
exceed amounts the Company and its Subsidiaries are entitled to
receive, subject to adjustments to reflect reimbursement policies of
third party payors and normal discounts in the ordinary course of
business.
(cc) None of the Company nor any of its officers, directors or
stockholders, or to the knowledge of the Company, any employee or other
agent of the Company, has engaged on behalf of the Company 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 or from any third party (where applicable federal or state law
prohibits such payments to third parties); (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 or from any third party (where
applicable federal or state law prohibits such payments to third
parties); (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 or from any
third party (where applicable federal or state law prohibits such
payments to third parties) on its own behalf or on behalf of another,
with intent to secure such benefit or payment fraudulently; (iv)
knowingly and willfully offering, paying, soliciting or receiving any
remuneration (including any kickback, bribe or rebate), directly or
indirectly overtly or covertly, in cash or in kind (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 any third party (where
applicable federal or state law prohibits such payments to third
parties), 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
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<PAGE> 11
Medicare or Medicaid or any third party (where applicable federal or
state law prohibits such payments to third parties); provided, however,
that it is agreed and understood that (x) from time to time the Company
settles, without admitting liability, claims made by governmental
authorities which allege conduct which may be deemed to violate clause
(i) or (ii) above; (y) such settlements have not been, individually or
in the aggregate, material; and (z) such claims and settlements do not
constitute a breach of the representations and warranties contained in
this paragraph (cc).
(dd) Neither the Company nor any of its Subsidiaries has
failed to file with applicable regulatory authorities any statement,
report, information or form required by any applicable law, regulation
or order, except where the failure to be so in compliance would not
reasonably be expected to, individually or in the aggregate, have a
Material Adverse Effect, all such filings or submissions were in
material compliance with applicable laws when filed and no material
deficiencies have been asserted by any regulatory commission, agency or
authority with respect to any such filings or submissions.
(ee) The property, assets and operations of the Company and
the Subsidiaries comply in all material respects with all applicable
federal, state or local law, common law, doctrine, rule, order, decree,
judgment, injunction, license, permit or regulation relating to
environmental matters (the "Environmental Laws"). None of the property,
assets or operations of the Company and the Subsidiaries is the subject
of any material federal, state or local investigation evaluating
whether any remedial action is needed to respond to a release into the
environment of any substance regulated by, or form the basis of
liability under, any Environmental Laws (a "Hazardous Material"), or is
in contravention of any Environmental Law. Neither the Company nor any
Subsidiary has received any notice or claim, nor are there pending or,
to the Company's knowledge, threatened lawsuits against them with
respect to violations of an Environmental Law or in connection with the
release of any Hazardous Material into the environment. Neither the
Company nor any Subsidiary has any material contingent liability in
connection with any release of Hazardous Material into the environment.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
(a) On the basis of the representations, warranties and
covenants herein contained, and subject to the conditions herein set
forth, the Company agrees to sell to the Underwriters and each
Underwriter agrees, severally and not jointly, to purchase, at a price
of $_____ per share, the number of Firm Shares set forth opposite the
name of each Underwriter in Schedule I hereof, subject to adjustments
in accordance with Section 9 hereof.
(b) Payment for the Firm Shares to be sold hereunder is to be
made in immediately available funds by wire transfer to the account(s)
designated by the Company against delivery of certificates therefor to
the Representatives for the several accounts of the Underwriters. Such
payment and delivery are to be made at the offices of BT Alex. Brown
Incorporated, 1 South Street, Baltimore, Maryland, 21202 at 10:00 a.m.,
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<PAGE> 12
Baltimore time, on the third business day after the date of this
Agreement or at such other time and date not later than five business
days thereafter as you and the Company shall agree upon, such time and
date being herein referred to as the "Closing Date." (As used herein,
"business day" means a day on which the New York Stock Exchange is open
for trading and on which banks in New York are open for business and
are not permitted by law or executive order to be closed.) The
certificates for the Firm Shares will be delivered in such
denominations and in such registrations as the Representatives requests
in writing not later than the second full business day prior to the
Closing Date, and will be made available for inspection by the
Representatives at least one business day prior to the Closing Date.
(c) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions
herein set forth, the Company hereby grants an option to the several
Underwriters to purchase the Option Shares at the price per share as
set forth in the first paragraph of this Section 2. The option granted
hereby may be exercised in whole or in part by giving written notice
(i) at any time before the Closing Date and (ii) only once thereafter
within 30 days after the date of this Agreement, by you, as
Representatives of the several Underwriters, to the Company setting
forth the number of Option Shares as to which the several Underwriters
are exercising the option, the names and denominations in which the
Option Shares are to be registered and the time and date at which such
certificates are to be delivered. The time and date at which
certificates for Option Shares are to be delivered shall be determined
by the Representatives but shall not be earlier than three nor later
than 10 full business days after the exercise of such option, nor in
any event prior to the Closing Date (such time and date being herein
referred to as the "Option Closing Date"). If the date of exercise of
the option is three days before the Closing Date, the notice of
exercise shall set the Closing Date as the Option Closing Date. The
number of Option Shares to be purchased by each Underwriter shall be in
the same proportion to the total number of Option Shares being
purchased as the number of Firm Shares being purchased by such
Underwriter bears to the Total number of Firm Shares, adjusted by you
in such manner as to avoid fractional shares. The option with respect
to the Option Shares granted hereunder may be exercised only to cover
over-allotments in the sale of the Firm Shares by the Underwriters.
You, as Representatives of the several Underwriters, may cancel such
option at any time prior to its expiration by giving written notice of
such cancellation to the Company. To the extent, if any, that the
option is exercised, payment for the Option Shares shall be made on the
Option Closing Date in immediately available funds by wire transfer to
the account(s) designated by the Company against delivery of
certificates therefor at the offices of BT Alex. Brown Incorporated, 1
South Street, Baltimore, Maryland.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a
public offering of the Firm Shares as soon as the Representatives deem
it advisable to do so. The Firm Shares are to be initially offered to
the public at the initial public offering price set forth in the
Prospectus. The Representatives may from time to time thereafter change
the public
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<PAGE> 13
offering price and other selling terms. To the extent, if at all, that
any Option Shares are purchased pursuant to Section 2 hereof, the
Underwriters will offer them to the public on the foregoing terms.
It is further understood that you will act as the
Representatives for the Underwriters in the offering and sale of the
Shares in accordance with a Master Agreement Among Underwriters entered
into by you and the several other Underwriters.
4. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the several Underwriters
that:
(a) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule
430A of the Rules and Regulations is followed, to prepare and timely
file with the Commission under Rule 424(b) of the Rules and Regulations
a Prospectus in a form approved by the Representatives containing
information previously omitted at the time of effectiveness of the
Registration Statement in reliance on Rule 430A of the Rules and
Regulations and (B) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives
shall not previously have been advised and furnished with a copy or to
which the Representatives shall have reasonably objected in writing or
which is not substantially in compliance with the Rules and
Regulations.
(b) The Company will advise the Representatives promptly (A)
when the Registration Statement or any post-effective amendment thereto
shall have become effective, (B) of receipt of any written comments
from the Commission, provided that the Company shall request any oral
comments of the Commission to be provided in writing, (C) of any
request of the Commission for amendment of the Registration Statement
or for supplement to the Prospectus or for any additional material
information, and (D) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the
use of the Prospectus or of the institution of any proceedings for that
purpose. The Company will use its reasonable best efforts to prevent
the issuance of any such stop order preventing or suspending the use of
the Prospectus and to obtain as soon as possible the lifting thereof,
if issued.
(c) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of
such jurisdictions as the Representatives may reasonably have
designated in writing and will make such applications, file such
documents, and furnish such information as may be reasonably required
for that purpose, provided the Company shall not be required to qualify
as a foreign corporation or to file a general consent to service of
process in any jurisdiction where it is not now so qualified or
required to file such a consent. The Company will, from time to time,
prepare and file such statements, reports, and other documents, as are
or may be required to continue such qualifications in effect for so
long a period (not to
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<PAGE> 14
exceed nine months) as the Representatives may reasonably request for
distribution of the Shares.
(d) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary
Prospectus as the Representatives may reasonably request. The Company
will deliver to, or upon the order of, the Representatives during the
period when delivery of a Prospectus is required under the Act, as many
copies of the Prospectus in final form, or as thereafter amended or
supplemented, as the Representatives may reasonably request. The
Company will deliver to the Representatives at or before the Closing
Date, one signed and four conformed copies of the Registration
Statement and all amendments thereto including all exhibits filed
therewith, and will deliver to the Representatives such number of
copies of the Registration Statement (including such number of copies
of the exhibits filed therewith that may reasonably be requested), and
of all amendments thereto, as the Representatives may reasonably
request.
(e) The Company will comply in all material respects with the
Act and the Rules and Regulations, and the Securities Exchange Act of
1934 (the "Exchange Act"), and the rules and regulations of the
Commission thereunder, so as to permit the completion of the
distribution of the Shares as contemplated in this Agreement and the
Prospectus. If during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer, any event shall occur
as a result of which, in the judgment of the Company or in the
reasonable opinion of the Underwriters, it becomes necessary to amend
or supplement the Prospectus in order to make the statements therein,
in the light of the circumstances existing at the time the Prospectus
is delivered to a purchaser, not misleading, or, if it is necessary at
any time to amend or supplement the Prospectus to comply with any law,
the Company promptly will prepare and file with the Commission an
appropriate amendment to the Registration Statement or supplement to
the Prospectus so that the Prospectus as so amended or supplemented
will not, in the light of the circumstances when it is so delivered, be
misleading, or so that the Prospectus will comply with the law.
(f) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not
later than 15 months after the effective date of the Registration
Statement, an earning statement (which need not be audited) in
reasonable detail, covering a period of at least 12 consecutive months
beginning after the effective date of the Registration Statement, which
earning statement shall satisfy the requirements of Section 11(a) of
the Act and Rule 158 of the Rules and Regulations and will advise you
in writing when such statement has been so made available.
(g) The Company will, for a period of two years from the
Closing Date, deliver to the Representatives copies of annual reports
and copies of all other documents, reports and information furnished by
the Company to its stockholders or filed with any securities exchange
pursuant to the requirements of such exchange or with the Commission
pursuant to the Act or the Securities Exchange Act of 1934, as amended.
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(h) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other securities convertible
into or exchangeable or exercisable for shares of Common Stock or
derivative of Common Stock (or agreement for such) will be made for a
period of 180 days after the date of this Agreement, directly or
indirectly, by the Company otherwise than hereunder or with the prior
written consent of BT Alex. Brown Incorporated, except for grants of
options pursuant to the Company's 1997 Long-Term Incentive Plan, as
amended.
(i) The Company will use its reasonable best efforts to list,
subject to notice of issuance, the Shares on the Nasdaq National
Market.
(j) The Company has caused each officer and director and
specific shareholders of the Company identified to the Company to
furnish to you, on or prior to the date of this agreement, a letter or
letters, in form and substance satisfactory to the Underwriters,
pursuant to which each such person shall agree not to offer, sell, sell
short or otherwise dispose (except bona fide gifts and transfers to
affiliates as specifically provided in such letters) of any shares of
Common Stock of the Company or other capital stock of the Company, or
any other securities convertible, exchangeable or exercisable for
Common Shares or derivative of Common Shares owned by such person or
request the registration for the offer or sale of any of the foregoing
(or as to which such person has the right to direct the disposition of)
for a period of 180 days after the date of this Agreement, directly or
indirectly, except with the prior written consent of BT Alex. Brown
Incorporated ("Lockup Agreements").
(k) The Company shall apply the net proceeds of its sale of
the Shares substantially as set forth in the Prospectus and shall file
such reports with the Commission with respect to the sale of the Shares
and the application of the proceeds therefrom as may be required in
accordance with Rule 463 under the Act.
(l) The Company shall endeavor in the future to conduct its
business in such a manner so as to ensure that the Company or any of
the Subsidiaries to will not be an "investment company" or an entity
"controlled" by an "investment company" under the Investment Company
Act of 1940, as amended (the "1940 Act").
(m) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a
registrar for the Common Stock.
(n) Until its completion of participation in the distribution,
the Company will not take, directly or indirectly, any action designed
to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price
of any securities of the Company for the applicable restricted period
required by Regulation M under the Securities Act.
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<PAGE> 16
5. COSTS AND EXPENSES.
The Company will pay all costs, expenses and fees incident to
the performance of the obligations of the Company under this Agreement,
including, without limiting the generality of the foregoing, the
following: accounting fees of the Company; the fees and disbursements
of counsel for the Company; the cost of printing and delivering to, or
as requested by, the Underwriters copies of the Registration Statement,
Preliminary Prospectuses, the Prospectus, the Listing Application, the
Blue Sky Survey and any supplements or amendments thereto; the filing
fees of the Commission; the filing fees incident to securing any
required review by the National Association of Securities Dealers, Inc.
(the "NASD") of the terms of the sale of the Shares; the Listing Fee of
the Nasdaq National Market; and the expenses, including the reasonable
fees and disbursements of counsel for the Underwriters not to exceed
$5,000, incurred in connection with the qualification of the Shares
under State securities or Blue Sky laws. The Company shall not,
however, be required to pay for any of the Underwriters expenses (other
than those related to qualification under NASD regulation and State
securities or Blue Sky laws) except that, if this Agreement shall not
be consummated because the conditions in Section 6 hereof are not
satisfied, or because this Agreement is terminated by the
Representatives pursuant to Section 11(b)(i), (iv) or (vi) hereof, or
by reason of any failure, refusal or inability on the part of the
Company to perform any undertaking or satisfy any condition of this
Agreement or to comply with any of the terms hereof on its part to be
performed, unless such failure to satisfy said condition or to comply
with said terms be due to the default or omission of any Underwriter,
then the Company shall reimburse the several Underwriters for
reasonable out-of-pocket expenses, including reasonable fees and
disbursements of counsel, reasonably incurred in connection with
investigating, marketing and proposing to market the Shares or in
contemplation of performing their obligations hereunder; but the
Company shall not in any event be liable to any of the several
Underwriters for damages on account of loss of anticipated profits from
the sale by them of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the
Firm Shares on the Closing Date and the Option Shares, if any, on the
Option Closing Date are subject to the accuracy, as of the Closing Date
or the Option Closing Date, as the case may be, of the representations
and warranties of the Company contained herein, and to the performance
by the Company of its covenants and obligations hereunder and to the
following additional conditions:
(a) The Registration Statement and all post-effective
amendments thereto shall have become effective and any and all filings
required by Rule 424 and Rule 430A of the Rules and Regulations shall
have been made, and any request of the Commission for additional
material information (to be included in the Registration Statement or
otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction. No stop order
suspending the effectiveness of the Registration Statement, as
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<PAGE> 17
amended from time to time, shall have been issued and no proceedings
for that purpose shall have been taken or, to the knowledge of the
Company, shall be contemplated by the Commission and no injunction,
restraining order, or order of any nature by a Federal or state court
of competent jurisdiction shall have been issued as of the Closing Date
which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, the opinion of
Kirkland & Ellis, counsel for the Company, dated the Closing Date or
the Option Closing Date, as the case may be, addressed to the
Underwriters (and stating that it may be relied upon by counsel to the
Underwriters) to the effect that:
(i) The Company has been duly organized and is
existing as a corporation in good standing under the General
Corporation Law of the State of Delaware. The Company is duly
qualified to transact business as a foreign corporation in the
states of Oregon and Tennessee, and is active on the records
of the Corporation Divsion of the state of Oregon and is in
good standing in the state of Tennessee.
(ii) The Company has the corporate power to own or
lease its properties and conduct its business as described in
the Registration Statement.
(iii) The issuance of the Shares to be sold on the
date hereof pursuant to the Underwriting Agreement has been
duly authorized by the Company and when appropriate
certificates representing those Shares are duly countersigned
by the Company's transfer agent and registrar (or other
similar action is taken by the Company's transfer agent and
registrar with regard to electronic transfer of such Shares)
and delivered against payment of the agreed consideration
therefor in accordance with this Agreement, those Shares will
be validly issued, fully paid and nonassessable. Such counsel
may assume for purposes of the foregoing opinion that in the
case of eachsuch share issuance and transfer, the shares were
represented by a share certificate in the form of the specimin
certificate filed as an exhibit to the Registration Statement.
The Shares conform in all material respects to the description
of the terms thereof contained in the Registration Statement
and the Prospectus under the heading "Description of Capital
Stock." The issuance of those Shares is not subject to any
preemptive rights under the terms of the General Corporation
Law of the State of Delaware, under the Company's Certificate
of Incorporation or bylaws, or under any contractual
provisions of which such counsel has knowledge. To such
counsel's knowledge, no holder of securities of the Company
has the right, which has not been satisfied or effectively
waived, to have any Common Shares or other securities of the
Company included in the Registration Statement or the right,
as a result of the filing of the Registration Statement, to
require registration under the Act of any shares of Common
Stock or other securities of the Company. The form of
certificate evidencing the Shares, a specimen of which is
filed as an exhibit to the Registration Statement, complies
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<PAGE> 18
with all applicable requirements of the General Corporation
Law of the State of Delaware.
(iv) The Company's authorized capital stock is as
set forth under the caption "Capitalization" in the
Prospectus. The issued and outstanding shares of the Company's
Common Stock have been duly authorized and validly issued and
are fully paid and non-assessable. None of the issued shares
of capital stock of the Company has been issued in violation
of any statutory preemptive rights of shareholders. For
purposes of this opinion, such counsel may assume that in the
case of each share issuance and transfer, the shares were
represented by a share certificate which complied with all
applicable requirements imposed by law, by the Company's
certificate of incorporation and bylaws and by any applicable
resolutions by the Company's board of directors, that such
certificate was properly signed and authenticated and that
payment for such shares was received by the Company.
(v) A member of the Commission's staff has advised
such counsel by telephone that the Commission's Division of
Corporation Finance pursuant to authority delegated to it by
the Commission, has entered an order declaring the
Registration Statement effective under the Securities Act on
February ___, 1998 (the "Effective Date") and such counsel has
no knowledge that any stop order suspending its effectiveness
has been issued or that any proceedings for that purpose are
pending before, or overtly threatened by, the Commission.
(vi) The Company was not required to obtain any
consent, approval, authorization or order of any governmental
agency or body or, to such counsel's knowledge, court for the
issuance, delivery and sale by the Company of the Shares, the
execution, delivery and performance of the Underwriting
Agreement and the consummation by the Company of the
transactions contemplated thereby, except for the order by the
Commission declaring the Registration Statement effective and
the effectiveness of the Form 8-A under the Exchange Act.
(vii) The statements in the Registration Statement
and Prospectus under the headings "The Recapitalization and
The Merger," "Management -- Employment Agreements" (with
respect to the agreements with Messrs. Rash and Gore only),
"Management--Long-Term Incentive Plan," "Certain Relationships
and Related Transactions -- Professional Services Agreement,"
"--Stockholders Agreement and Senior Management Agreements,"
and "-- Registration Agreement," "Description of Capital
Stock," and "Shares Eligible for Future Sale -- Registration
Rights Agreement," to the extent they summarize laws,
governmental rules or regulations (other than those regarding
accounting treatment, as to which such counsel need express no
opinion) or documents are correct in all material respects.
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<PAGE> 19
(viii) Such counsel has no knowledge about any
contract, lease or other legal document to which the Company
or a Subsidiary is a party or to which any of their property
is subject that has caused such counsel to conclude that such
contract, lease or other document is required to be described
in the Prospectus but is not so described or is required to be
filed as an exhibit to the Registration Statement but has not
been so filed.
(ix) The Company has corporate power to enter into
this Agreement and to issue, sell and deliver the Shares to
the Underwriters as provided herein. This Agreement has been
duly authorized, executed and delivered by the Company.
(x) The Company's execution and delivery of this
Agreement and the consummation of the transactions herein
contemplated do not and will not (a) violate the Charter or
by-laws of the Company, (b) breach, or result in a default
under, any existing obligation of the Company under any of the
agreements filed as any of the following exhibits to the
Registration Statement (provided, that such counsel need not
express an opinion as to compliance with any financial test or
cross-default provision in any such agreement): 4.2, 10.7,
10.8, 10.9, 10.10, 10.11, 10.12, 10.13, 10.14, 10.28, 10.29,
10.30, and 10.31; (c) except with respect to Health Care Laws
as to which such counsel renders no opinion, to such counsel's
knowledge, violate or conflict with any applicable statute,
rule or regulation or, to such counsel's knowledge, any
judgment, decree or order of any court or governmental agency
or body (except that such counsel need not express an opinion
as to compliance with any disclosure requirement or any
prohibition against fraud or misrepresentation or as to
whether performance of the indemnification or contribution
provisions of this Agreement would be permitted); or (d) other
than with respect to Health Care Laws, to such counsel's
knowledge, result in the creation or imposition of any lien,
charge, claim or encumbrance upon any property or asset of the
Company or the Subsidiaries, respectively.
(xi) The Company is not, and after giving effect to
the offering and sale of the Shares and the application of the
net proceeds therefrom as described in the Prospectus, will
not be an "investment company" as such term is defined in the
1940 Act.
(xii) Each of the parties to the Amended and
Restated Plan and Agreement of Merger, dated as of January 15,
1998 (the "Merger Agreement"), by and between the Company and
Principal Hospital Company, an Oregon corporation, had, at the
time of the execution and delivery of the Merger Agreement and
at all times through and including the consummation of the
transactions contemplated thereby, the corporate power to
enter into the Merger Agreement and to consummate the
transactions contemplated thereby. The Merger Agreement has
been duly authorized by all necessary corporate action on the
part of each of the parties thereto and was duly executed and
delivered by each of the parties thereto. The execution and
delivery of the Merger Agreement and
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<PAGE> 20
the consummation of the transactions therein contemplated did
not and will not (a) violate the Charter or by-laws of the
Company, (b) breach, or result in a default under, any
existing obligation of the Company under any of the agreements
filed as any one of the following exhibits to the Registration
Statement (provided, that such counsel need not express an
opinion as to compliance with any financial test or
cross-default provision in any such agreement): 4.2, 10.7,
10.8, 10.9, 10.10, 10.11, 10.12, 10.13, 10.14, 10.28, 10.29,
10.30, and 10.31; (c) except with respect to Health Care Laws
as to which such counsel renders no opinion, to such counsel's
knowledge, violate or conflict with any applicable statute,
rule or regulation, or, to such counsel's knowledge, judgment,
decree or order of any court or governmental agency or body;
or (d) other than with respect to Health Care Laws, to such
counsel's knowledge, result in the creation or imposition of
any lien, charge, claim or encumbrance upon any property or
asset of the Company or the Subsidiaries, respectively, except
for such consents or approvals as have been duly and timely
received or obtained. The merger contemplated by the Merger
Agreement has become effective under applicable law.
For purposes of this opinion, the term "Health Care Laws"
shall mean those statutes, rules and regulations, judgments, decrees or
orders which are generally applicable to hospitals and health care
providers as a group as described under the headings "Risk Factors --
Effect of Reimbursement and Payment Policies; Health Care Reform
Legislation," "Risk Factors -- Health Care Regulation," "Business --
Reimbursement" and "Business -- Health Care Reform, Regulation and
Licensing" in the Prospectus, including, without limitation, (i) health
care licensure, permit, certificate of need and medical waste
requirements, (ii) Title XVIII, XVIX and XXI of the Social Security
Act; (iii) the Anti-Kickback Amendments (as defined in the Prospectus)
and the regulations promulgated thereunder, (iv) the Stark Laws (as
defined in the Prospectus) and the regulations promulgated thereunder,
(v) the False Claims Act, (vi) the Health Insurance Portability and
Accountability Act of 1996, and (vii) state statutes, rules and
regulations concerning matters similar to (ii) through (vi) above.
Such counsel may state that the purpose of its professional
engagement was not to establish factual matters, and preparation of the
Registration Statement involved many determination of a wholly or
partially nonlegal character. Such counsel need not make any
representation that it has independently verified the accuracy,
completeness or fairness of the Prospectus or Registration Statement or
that the actions taken in connection with the preparation of the
Registration Statement or Prospectus (including the actions described
in the next paragraph) were sufficient to cause the Prospectus or
Registration Statement to be accurate, complete or fair. Such counsel
need not pass upon or assume any responsibility for the accuracy,
completeness or fairness of the Prospectus or the Registration
Statement except to the extent otherwise explicitly indicated in
numbered paragraphs (iii), (iv), (vii) and (viii) above.
Such counsel shall, however, confirm that it has participated
in conferences with representatives of the Company, representatives of
the Underwriters, counsel for the
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Underwriters and representatives of the independent accountants for the
Company during which disclosures in the Registration Statement and
Prospectus and related matters were discussed. In addition, such
counsel shall state that it has reviewed such corporate records as it
deemed necessary in connection with the foregoing representation.
Based upon such counsel's participation in the conferences and
its document review identified in the preceding paragraph, its
understanding of applicable law and the experience it has gained in its
practice thereunder and relying as to materiality of factual matters
upon the opinions and statements of officers of the Company, such
counsel shall, however, advise the Underwriters that nothing has come
to its attention that has caused it to conclude that (i) the
Registration Statement, at the Effective Date (but after giving effect
to any modifications incorporated therein pursuant to Rule 430A under
the Act) and as of the Closing Date or the Option Closing Date, as the
case may be, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) the
Prospectus, or any supplement thereto, at the date it bears and as of
the Closing Date or the Option Closing Date, as the case may be,
contained an untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements, in the light
of the circumstances under which they are made, not misleading (except
that such counsel need express no view as to financial statements,
schedules and statistical information therein), or (iii) the
Registration Statement, at the Effective Date and as of the Closing
Date or the Option Closing Date, or Prospectus, or any supplement
thereto, at the date it bears and as of the Closing Date or the Option
Closing Date, appeared on its face not to be responsive in all material
respects to the requirements of Form S-1.
(c) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, the opinion of
Waller Lansden Dortch & Davis, a Professional Limited Liability Company
("Waller Lansden"), counsel for the Company, dated the Closing Date or
the Option Closing Date, as the case may be, addressed to the
Underwriters (and stating that it may be relied upon by counsel to the
Underwriters) to the effect that:
(i) Each of the Corporate Subsidiaries has been duly
organized and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its
incorporation, with corporate power and authority to own or
lease its properties and conduct its business as described in
the Registration Statement; each of the Corporate Subsidiaries
are duly qualified to transact business as a foreign
corporation and in good standing in those states listed on a
Schedule thereto; and the outstanding shares of capital stock
of each of the Corporate Subsidiaries have been duly
authorized and validly issued and are fully paid and
non-assessable and are owned by the Company or a Corporate
Subsidiary; and, to the best of such counsel's knowledge, the
outstanding shares of capital stock of each of the
Subsidiaries is owned free and clear of all liens,
encumbrances and equities and claims, and no options, warrants
or other rights to purchase, agreements or other obligations
to issue or other rights to convert any obligations
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<PAGE> 22
into any shares of capital stock or of ownership interests in
the Corporate Subsidiaries are outstanding.
(ii) Each of the Partnerships has been duly
organized and is an existing partnership in good standing
under the laws of the jurisdiction of its organization, with
the power and authority to own, lease and operate its
properties and to conduct its business as described in the
Registration Statement and Prospectus, and is duly qualified
to conduct its business; each of the Partnerships is in good
standing as a foreign partnership in those states listed on a
schedule thereto ; to the best of such counsel's knowledge,
the partnership interests in the Partnerships held directly or
indirectly by the Company are free and clear of all liens,
encumbrances and equities and claims, and no options, warrants
or other rights to purchase, agreements or other obligations
to issue or other rights to convert any obligations into any
ownership interests in the Partnerships are outstanding.
(iii) Each of the LLCs has been duly organized and is
an existing limited liability company in good standing under
the laws of the jurisdiction of its organization, with the
power and authority to own, lease and operate its properties
and to conduct its business as described in the Registration
Statement and Prospectus, and is duly qualified to conduct its
business; each of the LLCs is in good standing as a foreign
limited liability company in those states listed on a schedule
thereto; to the best of such counsel's knowledge, the
membership interests in the LLCs held directly or indirectly
by the Company are free and clear of all liens, encumbrances
and equities and claims, and no options, warrants or other
rights to purchase, agreements or other obligations to issue
or other rights to convert any obligations into any ownership
interests in the LLCs are outstanding.
(iv) Such counsel knows of no material legal or
governmental proceedings pending or threatened against the
Company or any of the Subsidiaries except as set forth in the
Prospectus.
(v) Such counsel is not aware that the Company or
any of the Subsidiaries is in violation of its certificate or
articles of incorporation or bylaws, or other organizational
documents or is in default in the performance of any material
obligation, agreement or condition contained in any evidence
of indebtedness, except as may be disclosed in the Prospectus.
(vi) To such counsel's knowledge in the course of
their representation, none of the Company or any of the
Subsidiaries is in violation of any material law, ordinance,
administrative or governmental rule or regulation applicable
to the Company or any of the Subsidiaries or of any decree of
any court or governmental agency or body having jurisdiction
over the Company or any of the Subsidiaries. To such counsel's
knowledge, the Company and its Subsidiaries are not in
violation of applicable state licensure, Medicare or Medicaid
requirements, which violation is likely to have a Material
Adverse Effect.
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<PAGE> 23
(vii) The Company and each of the Subsidiaries have
all necessary Permits (except where the failure to have such
Permits, individually or in the aggregate, would not have a
material adverse effect on the business, operations or
financial condition of the Company and the Subsidiaries taken
as a whole), to own their respective properties and to conduct
their respective businesses as now being conducted, and as
described in the Registration Statement and Prospectus,
including, without limitation, such Permits as are required
(a) under Health Care Laws and (b) with respect to those
facilities owned or operated by the Company or any Subsidiary
that participate in Medicare and/or Medicaid, to receive
reimbursement thereunder.
(viii) The descriptions of statutes and regulations
under the captions "Risk Factors -- Effect of Reimbursement
and Payment Policies; Health Care Reform Legislation," "Risk
Factors -- Health Care Regulation," "Business --
Reimbursement," "Business -- Health Care Reform, Regulation
and Licensing," "Management -- Employment Agreements" and
"Certain Relationships and Related Transactions -- Senior
Living Divestiture" and "-- Option Settlements" in the
Prospectus have been reviewed by such counsel and fairly
summarize such statutes and regulations in all material
respects.
(ix) The execution and delivery of this Agreement
and the consummation of the transactions herein contemplated
do not and will not (a) breach, or result in a default under,
any existing obligation of the Company under any of the
agreements filed as any of the following exhibits to the
Registration Statement (provided, that such counsel need not
express an opinion as to compliance with any financial test or
cross-default provision in any such agreement): 10.1, 10.2,
10.3, 10.4, 10.5, 10.6, 10.15, 10.16, 10.17, 10.18, 10.19,
10.20, 10.21, 10.22, 10.23, 10.24, 10.25 and 10.27; (b) with
respect to Health Care Laws, violate or conflict with any
applicable statute, rule or regulation or, to such counsel's
knowledge any judgment, decree or order of any court or
governmental agency or body (except that such counsel need not
express an opinion as to compliance with any disclosure
requirement or any prohibition against fraud or
misrepresentation or as to whether performance of the
indemnification or contribution provisions of this Agreement
would be permitted); or (c) to such counsel's knowledge,
result in the creation or imposition or any lien, charge,
claim or encumbrance upon any property or asset of the Company
or the Subsidiaries, respectively, under any Health Care Laws.
(x) The execution and delivery of the Merger
Agreement and the consummation of the transactions therein
contemplated did not and will not, (a) breach, or result in a
default under, any existing obligation of the Company under
any of the agreements filed as any one of the following
exhibits to the Registration Statement (provided, that such
counsel need not express an opinion as to compliance with any
financial test or cross-default provision in any such
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<PAGE> 24
agreement): 10.1, 10.2, 10.3, 10.4, 10.5, 10.6, 10.15, 10.16,
10.17, 10.18, 10.19, 10.20, 10.21, 10.22, 10.23, 10.24, 10.25
and 10.27; (b) with respect to Health Care Laws, violate or
conflict with any applicable statute, rule or regulation, or
to such counsel's knowledge, any judgment, decree or order of
any court or governmental agency or body; or (c) to such
counsel's knowledge, result in the creation or imposition or
any lien, charge, claim or encumbrance upon any property or
asset of the Company or the Subsidiaries, respectively, under
any Health Care Laws. With respect to Health Care Laws, no
consent, approval, authorization or order of or qualification
with any court, government or governmental agency or body
having jurisdiction over any party to the Merger Agreement or
over any of their respective properties or operations is or
was required for the execution and delivery of the Merger
Agreement and the consummation of the transactions
contemplated thereby, except for such consents, approvals,
authorizations, orders or qualifications as have been duly and
timely received or obtained.
For purposes of this opinion, the term "Health Care Laws"
shall mean those statutes, rules and regulations, judgments, decrees or
orders which are generally applicable to hospitals and health care
providers as a group as described under the headings "Risk Factors --
Effect of Reimbursement and Payment Policies; Health Care Reform
Legislation," "Risk Factors -- Health Care Regulation," "Business --
Reimbursement" and "Business -- Health Care Reform, Regulation and
Licensing" in the Prospectus, including, without limitation, (i) health
care licensure, permit, certificate of need and medical waste
requirements, (ii) Title XVIII, XVIX and XXI of the Social Security
Act; (iii) the Anti-Kickback Amendments (as defined in the Prospectus)
and the regulations promulgated thereunder, (iv) the Stark Laws (as
defined in the Prospectus) and the regulations promulgated thereunder,
(v) the False Claims Act, (vi) the Health Insurance Portability and
Accountability Act of 1996, and (vii) state statutes, rules and
regulations concerning matters similar to (ii) through (vi) above.
In rendering such opinion Waller Lansden may rely as to
matters governed by the laws of states other than Tennessee, Delaware
or Federal laws on local counsel in such jurisdictions, provided that
in each case Waller Lansden shall state that they believe that they and
the Underwriters are justified in relying on such other counsel.
(d) The Representatives shall have received from Alston & Bird
LLP, counsel for the Underwriters, an opinion dated the Closing Date or
the Option Closing Date, as the case may be, substantially to the
effect specified in subparagraphs (ii), (iii), (iv), (v) and (x) of
Paragraph (b) of this Section 6, and that the Company is validly
incorporated and validly existing under the laws of the State of
Delaware. In rendering such opinion Alston & Bird LLP may rely as to
all matters governed other than by the laws of the State of Delaware or
Federal laws on the opinion of counsel referred to in Paragraph (b) of
this Section 6. In addition to the matters set forth above, such
opinion shall also include a statement to the effect that nothing has
come to the attention of such counsel which leads them to believe that
(i) the Registration Statement, or any amendment thereto, as of the
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<PAGE> 25
time it became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act)
as of the Closing Date or the Option Closing Date, as the case may be,
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Prospectus, or any
supplement thereto, on the date it was filed pursuant to the Rules and
Regulations and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or
omitted to state a material fact, necessary in order to make the
statements, in the light of the circumstances under which they are
made, not misleading (except that such counsel need express no view as
to financial statements, schedules and statistical information
therein). With respect to such statement, Alston & Bird LLP may state
that their belief is based upon the procedures set forth therein, but
is without independent check and verification.
(e) You shall have received, on each of the dates hereof, the
Closing Date and the Option Closing Date, as the case may be, letters
dated the date hereof, the Closing Date or the Option Closing Date, as
the case may be, in form and substance satisfactory to you, of Ernst &
Young LLP and KPMG Peat Marwick LLP confirming that they are
independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating that
in their opinion the financial statements and schedules examined by
them and included in the Registration Statement comply in form in all
material respects with the applicable accounting requirements of the
Act and the related published Rules and Regulations; and containing
such other statements and information as is ordinarily included in
accountants' "comfort letters" to Underwriters with respect to the
financial statements and certain financial and statistical information
contained in the Registration Statement and Prospectus.
(g) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, a certificate or
certificates of the Chief Executive Officer and the Chief Financial
Officer of the Company to the effect that, as of the Closing Date or
the Option Closing Date, as the case may be, on behalf of the Company:
(i) The Registration Statement has become effective
under the Act and no stop order suspending the effectiveness
of the Registrations Statement has been issued, and no
proceedings for such purpose have been taken or are, to his
knowledge, contemplated by the Commission;
(ii) The representations and warranties of the
Company contained in Section 1 hereof are true and correct as
of the Closing Date or the Option Closing Date, as the case
may be;
(iii) All filings required to have been made pursuant
to Rules 424 or 430A under the Act have been made;
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<PAGE> 26
(iv) As of the effective date of the Registration
Statement, the statements contained in the Registration
Statement were true and correct, and such Registration
Statement and Prospectus did not omit to state a material fact
required to be stated therein or necessary in order to make
the statements therein not misleading, and since the effective
date of the Registration Statement, no event has occurred
which should have been set forth in a supplement to or an
amendment of the Prospectus which has not been so set forth in
such supplement or amendment; and
(v) Since the respective dates as of which
information is given in the Registration Statement and
Prospectus, there has not been any material adverse change or
any development involving a prospective material adverse
change in or affecting the earnings, business, assets,
operations, condition (financial or otherwise) or prospects
for the business, assets, operations, condition (financial or
other) of the Company and the Subsidiaries taken as a whole,
whether or not arising in the ordinary course of business.
(h) The Company shall have furnished to the Representatives
such further certificates and documents confirming the representations
and warranties, covenants and conditions contained herein and related
matters as the Representatives may reasonably have requested.
(i) The Firm Shares and Option Shares, if any, have been
approved for designation upon notice of issuance on the Nasdaq National
Market.
(j) The Lockup Agreements described in Section 4(j) are in
full force and effect.
The opinions and certificates mentioned in this Agreement
shall be deemed to be in compliance with the provisions hereof only if
they are in all material respects reasonably satisfactory to the
Representatives and to Alston & Bird LLP, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this
Section 6 shall not have been fulfilled when and as required by this
Agreement to be fulfilled, the obligations of the Underwriters
hereunder may be terminated by the Representatives by notifying the
Company of such termination in writing or by telegram at or prior to
the Closing Date or the Option Closing Date, as the case may be.
In such event, the Company and the Underwriters shall not be
under any obligation to each other (except to the extent provided in
Sections 5 and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to sell and deliver the portion
of the Shares required to be delivered as and when specified in this
Agreement are subject to the
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<PAGE> 27
conditions that at the Closing Date or the Option Closing Date, as the
case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or
proceedings therefor initiated or threatened.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter
within the meaning of the Act, against any losses, claims, damages or
liabilities to which such Underwriter or any such controlling person
may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto, or (ii) the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; and will
reimburse each Underwriter and each such controlling person upon demand
for any legal or other expenses reasonably incurred by such Underwriter
or such controlling person in connection with investigating or
defending any such loss, claim, damage or liability, action or
proceeding or in responding to a subpoena or governmental inquiry
related to the offering of the Shares, whether or not such Underwriter
or controlling person is a party to any action or proceeding; provided,
however, that (x) the Company will not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement, or
omission or alleged omission made in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or such amendment or
supplement, in reliance upon and in conformity with written information
furnished to the Company by or through the Representatives specifically
for use in the preparation thereof and (y) the indemnity agreement
provided in this Section 8(a) with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter from whom
the person asserting any losses, claims, damages or liabilities or
actions based upon any untrue statement or alleged untrue statement of
material fact or omission or alleged omission to state therein a
material fact purchased the Shares, if a copy of the Prospectus in
which such untrue statement or alleged untrue statement or omission or
alleged omission was corrected had not been sent or given to such
person within the time required by the Act and the Rules and
Regulations, unless such failure is the result of noncompliance by the
Company with Section 4(d) hereof. This indemnity agreement will be in
addition to any liability which the Company may otherwise have.
(b) Each Underwriter severally and not jointly will indemnify
and hold harmless the Company, each of its directors, each of its
officers who have signed the Registration Statement and each person, if
any, who controls the Company within the meaning of the Act, against
any losses, claims, damages or liabilities to which the Company or any
such director, officer, or controlling person may become subject under
the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of
or are based upon (i) any untrue statement or alleged untrue
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<PAGE> 28
statement of any material fact contained in the Registration Statement,
any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto, or (ii) the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of
the circumstances under which they were made; and will reimburse any
legal or other expenses reasonably incurred by the Company or any such
director, officer, or controlling person in connection with
investigating or defending any such loss, claim, damage, liability,
action or proceeding; provided, however, that each Underwriter will be
liable in each case to the extent, but only to the extent, that (x)
such untrue statement or alleged untrue statement or omission or
alleged omission has been made in the Registration Statement, any
Preliminary Prospectus, the Prospectus or such amendment or supplement,
in reliance upon and in conformity with written information furnished
to the Company by or through the Representatives specifically for use
in the preparation thereof and (y) such untrue statement or alleged
untrue statement or omission or alleged omission was corrected in the
Prospectus, if a copy of such Prospectus had not been sent or given by
such Underwriter to the purchaser of the Shares within the time
required by the Act and the Rules and Regulations, unless such failure
is the result of noncompliance by the Company with Section 4(d) hereof.
This indemnity agreement will be in addition to any liability which
such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity may be sought pursuant to this Section 8, such person
(the "indemnified party") shall notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing within 60
days. No indemnification provided for in Section 8(a) or (b) or
contribution provided for in Section 8(d) shall be available to any
party who shall fail to give notice as provided in this Section 8(c) if
the party to whom notice was not given was prejudiced in any material
respect by the failure to give such notice, but the failure to give
such notice shall not relieve the indemnifying party or parties from
any liability which it or they may have to the indemnified party
otherwise than on account of the provisions of Section 8(a), (b) or
(d). In case any such proceeding shall be brought against any
indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party and shall
pay as incurred the fees and disbursements of such counsel related to
such proceeding. In any such proceeding, any indemnified party shall
have the right to retain its own counsel at its own expense.
Notwithstanding the foregoing, the indemnifying party shall pay as
incurred (or within 30 days of presentation) the fees and expenses of
the counsel retained by the indemnified party in the event (i) the
indemnifying party and the indemnified party shall have mutually agreed
to the retention of such counsel, (ii) the named parties to any such
proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or
potential differing interests between them or (iii) the indemnifying
party shall have failed to assume the defense and employ counsel
reasonably acceptable to the indemnified party within a
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<PAGE> 29
reasonable period of time after notice of commencement of the action.
It is understood that the indemnifying party shall not, in connection
with any proceeding or related proceedings in the same jurisdiction, be
liable for the reasonable fees and expenses of more than one separate
firm for all such indemnified parties. Such firm shall be designated in
writing by you in the case of parties indemnified pursuant to Section
8(a) and by the Company in the case of parties indemnified pursuant to
Section 8(b). The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but
if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified
party from and against any loss or liability by reason of such
settlement or judgment. In addition, the indemnifying party will not,
without the prior written consent of the indemnified party, settle or
compromise or consent to the entry of any judgment in any pending or
threatened claim, action or proceeding of which indemnification may be
sought hereunder (if the indemnified party is a party to such claim,
action or proceeding) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all
liability arising out of such claim, action or proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient (other than as a result of the failure
to give notice required by Section 8(c)) to hold harmless an
indemnified party under Section 8(a) or (b) above in respect of any
losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) referred to therein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by the Company on
the one hand and the Underwriters on the other from the offering of the
Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law then each
indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect
not only such relative benefits but also the relative fault of the
Company on the one hand and the Underwriters on the other in connection
with the statements or omissions which resulted in such losses, claims,
damages or liabilities, (or actions or proceedings in respect thereof),
as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Underwriters
on the other shall be deemed to be in the same proportion as the total
net proceeds from the offering (before deducting expenses) received by
the Company bear to the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table on
the cover page of the Prospectus. The relative fault shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by
the Company on the one hand or the Underwriters on the other and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be
just and equitable if contributions pursuant to this Section 8(d) were
determined by pro rata allocation (even if
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<PAGE> 30
the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to above in this Section 8(d). The amount paid
or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions or proceedings in respect thereof)
referred to above in this Section 8(d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), (i) no
Underwriter shall be required to contribute any amount in excess of the
underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters' obligations in
this Section 8(d) to contribute are several in proportion to their
respective underwriting obligations and not joint.
(e) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or
contribution under this Section 8 shall be paid by the indemnifying
party to the indemnified party as such losses, claims, damages,
liabilities or expenses are incurred. The indemnity and contribution
agreements contained in this Section 8 and the representations and
warranties of the Company set forth in this Agreement shall remain
operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or
any persons controlling the Company, (ii) acceptance of any Shares and
payment therefor hereunder, and (iii) any termination of this
Agreement, provided that in the event of termination, the Company shall
not be liable to any of the several Underwriters for damages on account
of loss of anticipated profits from the sale by them of the Shares. A
successor to any Underwriter, or to the Company, its directors or
officers, or any person controlling the Company, shall be entitled to
the benefits of the indemnity, contribution and reimbursement
agreements contained in this Section 8.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case
may be, any Underwriter shall fail to purchase and pay for the portion
of the Shares which such Underwriter has agreed to purchase and pay for
on such date (otherwise than by reason of any default on the part of
the Company), you, as Representatives of the Underwriters, shall use
your reasonable efforts to procure within 36 hours thereafter one or
more of the other Underwriters, or any others, to purchase from the
Company such amounts as may be agreed upon and upon the terms set forth
herein, the Firm Shares or Option Shares, as the case may be, which the
defaulting Underwriter or Underwriters failed to purchase. If during
such 36 hours you, as such Representatives, shall not have procured
such other Underwriters, or any others, to purchase the Firm Shares or
Option Shares, as the case may be, agreed to be purchased by the
defaulting Underwriter or Underwriters, then (a) if the aggregate
number of shares with respect to which such default shall occur does
not
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<PAGE> 31
exceed 10% of the Firm Shares or Option Shares, as the case may be,
covered hereby, the other Underwriters shall be obligated, severally,
in proportion to the respective numbers of Firm Shares or Option
Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case
may be, which such defaulting Underwriter or Underwriters failed to
purchase, or (b) if the aggregate number of shares of Firm Shares or
Option Shares, as the case may be, with respect to which such default
shall occur exceeds 10% of the Firm Shares or Option Shares, as the
case may be, covered hereby, the Company or you as the Representatives
of the Underwriters will have the right, by written notice given within
the next 36-hour period to the parties to this Agreement, to terminate
this Agreement without liability on the part of the non-defaulting
Underwriters or of the Company except to the extent provided in Section
8 hereof. In the event of a default by any Underwriter or Underwriters,
as set forth in this Section 9, the Closing Date or Option Closing
Date, as the case may be, may be postponed for such period, not
exceeding seven days, as you, as Representatives, may determine in
order that the required changes in the Registration Statement or in the
Prospectus or in any other documents or arrangements may be effected.
The term "Underwriter" includes any person substituted for a defaulting
Underwriter. Any action taken under this Section 9 shall not relieve
any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or telegraphed
and confirmed as follows: if to the Underwriters, to BT Alex. Brown
Incorporated, 1 South Street, Baltimore, Maryland 21202, Attention: Harris
Hyman, IV; with a copy to BT Alex. Brown Incorporated, 1 South Street,
Baltimore, Maryland 21202, Attention: General Counsel; if to the Company, to
Province Healthcare Company, 109 Westpark Drive, Suite 180, Brentwood, Tennessee
37027, Attention: Howard T.
Wall, III.
11. TERMINATION.
This Agreement may be terminated by you by notice to the
Company as follows:
(a) at any time prior to the earlier of (i) the time the
Shares are released by you for sale by notice to the Underwriters, or
(ii) 11:30 a.m. on the first business day following the date of this
Agreement;
(b) at any time prior to the Closing Date if any of the
following has occurred: (i) since the respective dates as of which
information is given in the Registration Statement and the prospectus,
any material adverse change or any development reasonably involving a
prospective material adverse change in or affecting the earnings,
assets, operations, condition (financial or otherwise) or prospects for
the business, assets, operations, condition (financial or other) of the
Company and its Subsidiaries taken as a whole, whether or not arising
in the ordinary course of business, (ii) any outbreak or material
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<PAGE> 32
escalation of hostilities or declaration of war or national emergency
or other national or international calamity or crisis or change in
economic or political conditions if the effect of such outbreak,
escalation, declaration, emergency, calamity, crisis or change on the
financial markets of the United States would, in your reasonable
judgment, make it impracticable to market the Shares or to enforce
contracts for the sale of the Shares, or (iii) suspension of trading in
securities generally on the New York Stock Exchange or the American
Stock Exchange or limitation on prices (other than limitations on hours
or numbers of days of trading) for securities on either such Exchange,
(iv) the enactment, publication, decree or other promulgation of any
statute, regulation, rule or order of any court or other governmental
authority which in your opinion materially and adversely affects or may
materially and adversely affect the business or operations of the
Company, (v) declaration of a banking moratorium by United States or
New York State authorities, (vi) the suspension of trading of the
Company's common stock by the Commission on the Nasdaq National Market
or (vii) the taking of any action by any governmental body or agency in
respect of its monetary or fiscal affairs which in your reasonable
opinion has a material adverse effect on the securities markets in the
United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of
the Underwriters and the Company and their respective successors,
executors, administrators, heirs and assigns, and the officers,
directors and controlling persons referred to herein, and no other
person will have any right or obligation hereunder. No purchaser of any
of the Shares from any Underwriter shall be deemed a successor or
assign merely because of such purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company and the Underwriters acknowledge and agree that
the only information furnished or to be furnished by any Underwriter to
the Company for inclusion in any Prospectus or the Registration
Statement consists of the information set forth in the last paragraph
on the front cover page (insofar as such information relates to the
Underwriters), legends required by Item 502(d) of Regulation S-K under
the Act and the information under the caption "Underwriting" in the
Prospectus.
14. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect
regardless of (a) any termination of this Agreement, (b) any
investigation made by or on behalf of any Underwriter or controlling
person thereof, or by or on behalf of the Company or its directors or
officers and (c) delivery of and payment for the Shares under this
Agreement.
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<PAGE> 33
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together
shall constitute one and the same instrument.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York.
[Remainder of Page Intentionally Blank]
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<PAGE> 34
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
PROVINCE HEALTHCARE COMPANY
By:
---------------------------------------
Martin S. Rash, Chief Executive Officer
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
BT ALEX. BROWN INCORPORATED
BANCAMERICA ROBERTSON STEPHENS
GOLDMAN, SACHS & CO.
THE ROBINSON-HUMPHREY COMPANY, LLC
As Representatives of the several
Underwriters listed on Schedule I
By: BT Alex. Brown Incorporated
By:
------------------------------------
Authorized Officer
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<PAGE> 35
SCHEDULE I
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
Number of Firm Shares
Underwriter to be Purchased
- ------------------------------------------------------------------------------
<S> <C>
BT Alex. Brown Incorporated
BancAmerica Robertson Stephens
Goldman, Sachs & Co.
The Robinson-Humphrey Company, LLC
----------
Total
----------
</TABLE>
-35-
<PAGE> 36
SCHEDULE I
SCHEDULE OF SUBSIDIARIES
-36-
<PAGE> 37
SCHEDULE 1(c)
-37-
<PAGE> 38
SCHEDULE 1(d)
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<PAGE> 39
SCHEDULE 1(e)
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<PAGE> 1
Exhibit 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
PROVINCE HEALTHCARE COMPANY
ARTICLE ONE
The name of the Corporation is Province Healthcare Company.
ARTICLE TWO
The address of the Corporation's registered office in the State of
Delaware is Corporation Service Company. The address of such registered agent is
1013 Centre Road, in the City of Wilmington, County of New Castle, Delaware
19805. The registered office and/or registered agent of the Corporation may be
changed from time to time by action of the board of directors.
ARTICLE THREE
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware (the "Delaware
General Corporation Law") either alone or with others through wholly or
partially owned subsidiaries, as a partner (limited or general) in any
partnership, as a joint venturer in any joint venture, or otherwise.
ARTICLE FOUR
SECTION 1. The aggregate number of shares of stock which the
Corporation has authority to issue is 25,175,000, consisting of 25,000 shares of
Series A Senior Preferred Stock, no par value (the "Senior Preferred Stock"),
50,000 shares of Series B Junior Preferred Stock, no par value (the "Junior
Preferred Stock"), 100,000 shares of Preferred Stock, par value $.01 per share
(the "Preferred Stock"), and 25,000,000 shares of Common Stock, par value $.01
per share (the "Common Stock"). All of such shares shall be issued as fully paid
and non-assessable shares, and the holder thereof shall not be liable for any
further payments in respect thereof.
SECTION 2. The preferences, limitations, designations and relative
rights of the shares of each class and the qualifications, limitations or
restrictions thereof shall be as follows:
I. SENIOR PREFERRED STOCK
A. Dividends.
1. General Obligation. When and as declared by the
Corporation's Board of Directors and to the extent permitted by law, the
Corporation shall pay preferential dividends in cash
<PAGE> 2
to the holders of the Senior Preferred Stock as provided in this Section 2.I.A
of Article Four. Dividends on each share of the Senior Preferred Stock (a
"Senior Preferred Share") shall accrue on a daily basis at the rate of 11% per
annum of the sum of the Liquidation Value thereof plus all accumulated and
unpaid dividends thereon from and including the date of issuance of such Senior
Preferred Share to and including the first to occur of (i) the date on which the
Liquidation Value of such Senior Preferred Share (plus all accrued and unpaid
dividends thereon) is paid to the holder thereof in connection with the
liquidation of the Corporation or the redemption price provided for in Section
2.I.D.1. of Article Four is paid in connection with the redemption of such
Senior Preferred Share by the Corporation or (ii) the date on which such share
is otherwise acquired by the Corporation. Such dividends shall accrue whether or
not they have been declared and whether or not there are profits, surplus or
other funds of the Corporation legally available for the payment of dividends,
and such dividends shall be cumulative such that all accrued and unpaid
dividends shall be fully paid or declared with funds irrevocably set apart for
payment before any dividends, distributions, redemptions or other payments may
be made with respect to any Junior Securities. Following a Public Offering, the
Corporation shall pay all dividends accrued since the date of such Public
Offering in cash to the holders of the Senior Preferred Stock; provided that
such payment is permitted under the Corporation's senior bank credit agreement,
if any. The date on which the Corporation initially issues any Senior Preferred
Share shall be deemed to be its "date of issuance" regardless of the number of
times transfer of such Senior Preferred Share is made on the stock records
maintained by or for the Corporation and regardless of the number of
certificates which may be issued to evidence such Senior Preferred Share. The
holders of the Senior Preferred Stock have certain rights pursuant to the
Stockholders Agreement to acquire additional securities upon certain issuances
of securities by the Corporation.
2. Dividend Reference Dates. To the extent not paid, on the
last day of December, March, June and September of each year, beginning December
31, 1997 (the "Dividend Reference Dates"), all dividends which have accrued on
each Senior Preferred Share outstanding during the quarterly period (or other
period in the case of the initial Dividend Reference Date) ending upon each such
Dividend Reference Date shall be accumulated and shall remain accumulated
dividends with respect to such Senior Preferred Share until paid to the holder
thereof.
3. Distribution of Partial Dividend Payments. Except as
otherwise provided herein, if at any time the Corporation pays less than the
total amount of dividends then accrued with respect to the Senior Preferred
Stock, such payment shall be distributed pro rata among the holders thereof
based upon the aggregate accrued but unpaid dividends on the Senior Preferred
Shares held by each such holder.
B. Liquidation.
1. Liquidation Payments. Upon any liquidation, dissolution or
winding up of the Corporation (whether voluntary or involuntary), each holder of
Senior Preferred Stock shall be entitled to be paid, before any distribution or
payment is made upon any Junior Securities, an amount in cash equal to the
aggregate Liquidation Value of all Senior Preferred Shares held by such holder
(plus all accrued and unpaid dividends thereon), and the holders of Senior
Preferred Stock shall not be entitled to any further payment. If upon any such
liquidation, dissolution or winding up of the Corporation the Corporation's
assets to be distributed among the holders of the Senior Preferred
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Stock are insufficient to permit payment to such holders of the aggregate amount
which they are entitled to be paid under this Section 2.I.B. of Article Four,
then the entire assets available to be distributed to the holders of the Senior
Preferred Stock shall be distributed pro rata among such holders based upon the
aggregate Liquidation Value (plus all accrued and unpaid dividends) of the
Senior Preferred Stock held by each such holder. Prior to the liquidation,
dissolution or winding up of the Corporation, the Corporation shall declare for
payment all accrued and unpaid dividends with respect to the Senior Preferred
Stock, but only to the extent of funds of the Corporation legally available for
the payment of dividends. Not less than 60 days prior to the payment date stated
therein, the Corporation shall mail written notice of any such liquidation,
dissolution or winding up to each record holder of Senior Preferred Stock,
setting forth in reasonable detail the amount of proceeds to be paid with
respect to each Senior Preferred Share, each share of Common Equivalent Stock
and each other equity security of the Corporation in connection with such
liquidation, dissolution or winding up.
2. Distribution Other Than Cash. Whenever the distribution
provided for in this Section 2.I.B. of Article Four shall be payable in property
other than cash, the value of such distribution shall be the fair market value
of such property as determined in good faith by the Board of Directors;
provided, however, that if the holders of a majority of the then outstanding
share of Senior Preferred Stock (the "Contesting Senior Preferred Holders")
notify the Board of Directors within five business days after receiving written
notification of such determination of fair market value that they disagree with
such determination, then the Board of Directors and the Contesting Senior
Preferred Holders shall have 30 days to agree upon a fair market value of the
relevant property. If, by the end of such 30-day period, they are unable to
agree on a fair market value, the fair market value shall be determined by an
appraisal, the cost of which shall be shared equally by the Corporation, on one
hand, and the Contesting Senior Preferred Holders, on the other hand. All
appraisals shall be undertaken by two appraisers, one selected by the
Corporation and one selected by the Contesting Senior Preferred Holders, which
selections must be made within 10 days after the expiration of the 30-day period
described above. If one selecting party fails to timely select its appraiser,
the other selecting party shall select both appraisers. The fair market value
shall be the fair market value arrived at by those appraisers within 60 days
following the appointment of the last appraiser to be appointed. In the event
that the two appraisers cannot agree on such fair market value within such a
period of time, (a) if the appraisers' valuations are within 10% of each other,
the fair market value shall be the average of the two valuations, and (b) if the
differences in the valuations are greater, the appraisers shall elect a third
appraiser who will calculate fair market value independently, and, except as
provided in the next sentence, the fair market value of the property shall in
each case be the average of the two fair market values arrived at by the
appraisers who are closest in amount. If one appraiser's valuation is the
average of the other two valuations, the average valuation shall be the fair
market value. In the event that the two original appraisers cannot agree upon a
third appraiser within 30 days following the end of the 60-day period referred
to above, the third appraiser shall be appointed by the American Arbitration
Association.
C. Priority of Senior Preferred Stock on Dividends and Redemptions. So
long as any Senior Preferred Stock remains outstanding, without the prior
written consent of the holders of a majority of the outstanding shares of Senior
Preferred Stock, the Corporation shall not, nor shall it permit any Subsidiary
to, redeem, purchase or otherwise acquire directly or indirectly any Junior
Securities, nor shall the Corporation directly or indirectly pay or declare any
dividend or make any
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distribution upon any Junior Securities; provided that the Corporation may
repurchase shares of Common Equivalent Stock from stockholders of the
Corporation pursuant to the Stockholders Agreement and pursuant to the Senior
Management Agreements so long as the purchase price thereof is paid solely by
delivery of a promissory note (which promissory note will constitute
subordinated debt under the Corporation's senior bank credit agreement, if any);
and further provided that the Corporation may purchase and redeem such stock
with up to $500,000 in cash in the aggregate so long as no Event of
Noncompliance is in existence at the time of or immediately after such
repurchase or would be caused by such repurchase.
D. Redemptions.
1. Mandatory and Optional Redemption. On the ninth anniversary
of the date of the Securities Purchase Agreement (the "Investment Date"), the
Corporation shall redeem each share of Senior Preferred Stock then outstanding
(the "Mandatory Redemption"). In addition, the Corporation may, at its option,
at any time and from time to time, redeem all or any portion of the shares of
Senior Preferred Stock then outstanding (an "Optional Senior Preferred
Redemption"). Upon the Mandatory Redemption, the Corporation shall pay a price
per share equal to the Liquidation Value thereof (plus all accrued and unpaid
dividends thereon). Upon an Optional Senior Preferred Redemption, the
Corporation shall pay a price per share equal to the Base Amount (as defined
below) (plus all accrued and unpaid dividends thereon). The "Base Amount" shall
mean an amount equal to (x) in the case of an Optional Senior Preferred
Redemption in connection with an initial public offering of the Corporation's
stock, at any time, $1,000, and (y) in the case of all other Option Redemptions,
$1,050 if the redemption occurs before the fifth anniversary of the Investment
Date; $1,030 if the redemption occurs after the fifth anniversary of the
Investment Date but before the sixth anniversary of the Investment Date; and
$1,000 if the redemption occurs after the sixth anniversary of the Investment
Date. No Optional Senior Preferred Redemption may be made for fewer than 1,000
shares (or such lesser number of Senior Preferred Shares then outstanding).
2. Redemption Payments. For each Senior Preferred Share which
is to be redeemed hereunder, the Corporation shall be obligated on the Senior
Preferred Redemption Date to pay to the holder thereof (upon surrender by such
holder at the Corporation's principal office of the certificate representing
such share) an amount in immediately available funds equal to the redemption
price described in Section 2.I.D.1. of Article Four. If the funds of the
Corporation legally available for redemption of Senior Preferred Shares on any
Senior Preferred Redemption Date are insufficient to redeem the total number of
Senior Preferred Shares to be redeemed on such date, those funds which are
legally available shall be used to redeem the maximum possible number of Senior
Preferred Shares pro rata among the holders of the Senior Preferred Shares to be
redeemed based upon the aggregate redemption price pursuant to Section 2.I.D.1.
of Article Four of such Senior Preferred Shares held by each such holder. At any
time thereafter when additional funds of the Corporation are legally available
for the redemption of Senior Preferred Shares, such funds shall immediately be
used to redeem the balance of the Senior Preferred Shares which the Corporation
has become obligated to redeem on any Senior Preferred Redemption Date but which
it has not redeemed.
3. Notice of Redemption. Except as otherwise provided herein,
the Corporation shall mail written notice of each redemption of any Senior
Preferred Stock to each record holder thereof not more than 60 nor less than 30
days prior to the date on which such redemption is to be
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made. In case fewer than the total number of Senior Preferred Shares represented
by any certificate are redeemed, a new certificate representing the number of
unredeemed Senior Preferred Shares shall be issued to the holder thereof without
cost to such holder within five business days after surrender of the certificate
representing the redeemed Senior Preferred Shares.
4. Determination of the Number of Each Holder's Senior
Preferred Shares to be Redeemed. The number of shares of Senior Preferred Stock
to be redeemed from each holder thereof in any Optional Senior Preferred
Redemption hereunder shall be the number of shares determined by multiplying the
total number of Senior Preferred Shares to be redeemed by a fraction, the
numerator of which shall be the total number of Senior Preferred Shares then
held by such holder and the denominator of which shall be the total number of
Senior Preferred Shares then outstanding.
5. Dividends After Senior Preferred Redemption Date. No Senior
Preferred Share shall be entitled to any dividends accruing after the date on
which the redemption price of such share pursuant to Section 2.I.D.1. of Article
Four is paid to the holder of such share. On such date, all rights of the holder
of such share shall cease, and such share shall no longer be deemed to be issued
and outstanding.
6. Redeemed or Otherwise Acquired Senior Preferred Shares. Any
Senior Preferred Shares which are redeemed or otherwise acquired by the
Corporation shall be canceled and retired to authorized but unissued shares and
shall not be reissued, sold or transferred.
7. Other Redemptions or Acquisitions. The Corporation shall
not, nor shall it permit any Subsidiary to, redeem or otherwise acquire any
shares of Senior Preferred Stock, except as expressly authorized herein or as
contemplated by the terms of the Securities Purchase Agreement.
8. Payment of Accrued Dividends. The Corporation may not
redeem any Senior Preferred Stock, unless all dividends accrued on the
outstanding Senior Preferred Stock through the immediately preceding Dividend
Reference Date have been declared and paid in full.
9. Special Redemptions.
a. If a Change in Ownership has occurred or the Corporation
obtains knowledge that a Change in Ownership is proposed to occur, the
Corporation shall give prompt written notice of such Change in
Ownership describing in reasonable detail the material terms and date
of consummation thereof to each holder of Senior Preferred Stock, but
in any event such notice shall not be given later than five days after
the occurrence of such Change in Ownership, and the Corporation shall
give each holder of Senior Preferred Stock prompt written notice of any
material change in the terms or timing of such transaction. The holder
or holders of a majority of the Senior Preferred Stock then outstanding
may require the Corporation to redeem all or any portion of the Senior
Preferred Stock owned by such holders at a price per share equal to the
Liquidation Value thereof (plus all accrued and unpaid dividends
thereon) by giving written notice to the Corporation of such election
prior to the later of (i) 21 days after receipt of the Corporation's
notice and (ii) five days prior to the consummation of the Change in
Ownership (the "Senior Preferred Expiration Date"). The Corporation
shall give prompt written notice of any such election to all other
holders of Senior Preferred Stock within five days after the receipt
thereof, and each such holder shall
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have until the later of (i) the Senior Preferred Expiration Date or
(ii) ten days after receipt of such second notice to request redemption
hereunder (by giving written notice to the Corporation) of all or any
portion of the Senior Preferred Stock owned by such holder. So long as
any Senior Preferred Stock remains outstanding, the Corporation shall
not, without the prior written consent of a majority of the holders of
the Senior Preferred Stock, redeem any Junior Securities.
Upon receipt of such election(s), the Corporation shall be
obligated to redeem the aggregate number of Senior Preferred Shares
specified therein on the later of (i) the occurrence of the Change in
Ownership or (ii) five days after the Corporation's receipt of such
election(s). If any proposed Change in Ownership does not occur, all
requests for redemption in connection therewith shall be automatically
rescinded, or if there has been a material change in the terms or the
timing of the transaction, any holder of Senior Preferred Stock may
rescind such holder's request for redemption by delivering written
notice thereof to the Corporation prior to the consummation of the
transaction.
b. If a Senior Preferred Fundamental Change is proposed to
occur, the Corporation shall give written notice of such Senior
Preferred Fundamental Change describing in reasonable detail the
material terms and date of consummation thereof to each holder of
Senior Preferred Stock not more than 45 days nor less than 20 days
prior to the consummation of such Senior Preferred Fundamental Change,
and the Corporation shall give each holder of Senior Preferred Stock
prompt written notice of any material change in the terms or timing of
such transaction. The holder or holders of a majority of the Senior
Preferred Shares then outstanding, may require the Corporation to
redeem all or any portion of the Senior Preferred Stock owned by such
holders at a price per share equal to the Liquidation Value thereof
(plus all accrued and unpaid dividends thereon) by giving written
notice to the Corporation of such election prior to the later of (i)
ten days prior to the consummation of the Senior Preferred Fundamental
Change or (ii) ten days after receipt of notice from the Corporation.
The Corporation shall give prompt written notice of such election to
all other holders of Senior Preferred Stock (but in any event within
five days prior to the consummation of the Senior Preferred Fundamental
Change), and each such holder shall have until two days after the
receipt of such notice to request redemption (by written notice given
to the Corporation) of all or any portion of the Senior Preferred Stock
owned by such holder.
Upon receipt of such election(s), the Corporation shall be
obligated to redeem the aggregate number of Senior Preferred Shares
specified therein upon the consummation of such Senior Preferred
Fundamental Change. If any proposed Senior Preferred Fundamental Change
does not occur, all requests for redemption in connection therewith
shall be automatically rescinded, or if there has been a material
change in the terms or the timing of the transaction, any holder of
Senior Preferred Stock may rescind such holder's request for redemption
by delivering written notice thereof to the Corporation prior to the
consummation of the transaction.
The term "Senior Preferred Fundamental Change" means (i) any
sale or transfer of more than 50% of the assets of the Corporation and
its Subsidiaries on a consolidated basis (measured either by book value
in accordance with generally accepted accounting principles
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consistently applied or by fair market value determined in the
reasonable good faith judgment of the Corporation's Board of Directors)
in any transaction or series of transactions (other than sales in the
ordinary course of business) and (ii) any merger or consolidation to
which the Corporation is a party, except for a merger in which the
Corporation is the surviving corporation, the terms of the Senior
Preferred Stock are not changed and the Senior Preferred Stock is not
exchanged for cash, securities or other property, and after giving
effect to such merger, the holders of the Corporation's outstanding
capital stock possessing a majority of the voting power (under ordinary
circumstances) to elect a majority of the Corporation's Board of
Directors immediately prior to the merger shall continue to own the
Corporation's outstanding capital stock possessing the voting power
(under ordinary circumstances) to elect a majority of the Corporation's
Board of Directors.
E. Voting and Other Rights.
1. Voting. Except as otherwise provided herein and as
otherwise required by applicable law, the Senior Preferred Stock shall have no
voting rights; provided that each holder of Senior Preferred Stock shall be
entitled to notice of all stockholders meetings at the same time and in the same
manner as notice is given to all stockholders entitled to vote at such meetings.
The number of shares of Senior Preferred Stock entitled to vote on any matter
shall be determined as of the record date for the determination of shareholders
entitled to vote on such matter or, if no such record date is established, at
the date such vote is taken or any written consent of shareholders is solicited.
Except as otherwise expressly provided for herein or as required by law, the
holders of Senior Preferred Stock shall vote together as a single class on all
matters.
2. Other Rights. In addition to any rights provided by law,
without the written consent of the holders of a majority of shares of Senior
Preferred Stock then outstanding, the Corporation shall not:
a. effect any amendment to, or modification of, the
Corporation's Certificate of Incorporation (including Certificates of
Designation thereunder) or By-laws other than the amendment to be filed
in accordance with Section 8.1 the Securities Purchase Agreement within
thirty days of the date thereof;
b. authorize, issue or sell, or obligate itself to authorize,
issue or sell, any equity securities that are senior to or pari passu
with the Senior Preferred Stock with respect to dividends, liquidation
preferences or redemption rights;
c. reclassify any shares of Senior Preferred Stock, or any
Junior Securities;
d. declare or pay any dividends, return any capital to its
stockholders as such, or make any distribution of assets to its
stockholders as such, except that nothing herein contained shall
prevent the Corporation from (i) declaring or paying any dividends on
the Senior Preferred Stock pursuant to Section 2.I.A. of Article Four;
(ii) declaring or paying any dividend on the Junior Preferred Stock in
accordance with the Certificate of Designation therefor at any time
when no shares of Senior Preferred Stock are outstanding; or (iii)
making the payments contemplated by the Professional Services
Agreement, dated on or about
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December 17, 1996 between Brim, Inc. and Golder, Thoma, Cressey,
Rauner, Inc., as such agreement may be amended, supplemented or
modified from time to time;
e. redeem or repurchase or otherwise acquire for value any
shares of its capital stock (or rights, options or warrants to purchase
such shares) or other equity interests, except for (i) the redemption
by the Corporation of the Senior Preferred Stock pursuant to Section
2.I.D. of Article Four and (ii) the repurchase of shares of Common
Equivalent Stock or Junior Preferred Stock from stockholders of the
Corporation pursuant to the Stockholders Agreement and pursuant to the
Senior Management Agreements so long as the purchase price thereof is
paid solely by delivery of a promissory note (which promissory note
will constitute subordinated debt under the Corporation's senior bank
credit agreement, if any); and provided that the Corporation may
purchase and redeem such stock with up to $500,000 in cash in the
aggregate so long as no Event of Noncompliance is in existence at the
time of or immediately after such repurchase or would be caused by such
repurchase.
F. Events of Noncompliance.
1. Definition. An Event of Noncompliance shall have
occurred if:
a. the Corporation fails to make any redemption payment with
respect to the Senior Preferred Stock which it is required to make
hereunder, whether or not such payment is legally permissible or is
prohibited by any agreement to which the Corporation is subject;
b. the Corporation breaches or otherwise fails to perform or
observe any other covenant or agreement set forth herein or in the
Investment Agreement or the Securities Purchase Agreement;
c. any representation or warranty contained in the Investment
Agreement or required to be furnished to any holder of Senior Preferred
Stock pursuant to the Securities Purchase Agreement or any information
contained in writing required to be furnished by the Corporation or any
Subsidiary to any holder of Senior Preferred Stock, is false or
misleading in any material respect on the date made or furnished;
d. the Corporation or any Subsidiary makes an assignment for
the benefit of creditors or admits in writing its inability to pay its
debts generally as they become due; or an order, judgment or decree is
entered adjudicating the Corporation or any Subsidiary bankrupt or
insolvent; or any order for relief with respect to the Corporation or
any Subsidiary is entered under the Federal Bankruptcy Code; or the
Corporation or any Subsidiary petitions or applies to any tribunal for
the appointment of a custodian, trustee, receiver or liquidator of the
Corporation or any Subsidiary or of any substantial part of the assets
of the Corporation or any Subsidiary, or commences any proceeding
(other than a proceeding for the voluntary liquidation and dissolution
of a Subsidiary) relating to the Corporation or any Subsidiary under
any bankruptcy, reorganization, arrangement, insolvency, readjustment
of debt, dissolution or liquidation law of any jurisdiction; or any
such petition or application is filed, or any such proceeding is
commenced, against the Corporation or any Subsidiary and either (i) the
Corporation or any such Subsidiary by any act indicates its approval
thereof,
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consent thereto or acquiescence therein or (ii) such petition,
application or proceeding is not dismissed within 60 days;
e. a judgment in excess of $500,000 is rendered against the
Corporation or any Subsidiary and, within 60 days after entry thereof,
such judgment is not discharged or execution thereof stayed pending
appeal, or within 60 days after the expiration of any such stay, such
judgment is not discharged; or
f. the Corporation or any Subsidiary defaults in the
performance of any obligation or agreement if the effect of such
default is to cause an amount exceeding $500,000 to become due prior to
its stated maturity or to permit the holder or holders of any
obligation to cause an amount exceeding $500,000 to become due prior to
its stated maturity.
2. Consequences of Events of Noncompliance.
a. If an Event of Noncompliance has occurred and is
continuing, the dividend rate on the Senior Preferred Stock shall
increase immediately by an increment of 6 percentage point(s).
Thereafter, until such time as no Event of Noncompliance exists, the
dividend rate shall increase automatically at the end of each
succeeding 90-day period by an additional increment of 2 percentage
point(s) (but in no event shall the dividend rate exceed 18%). Any
increase of the dividend rate resulting from the operation of this
subparagraph shall terminate as of the close of business on the date on
which no Event of Noncompliance exists, subject to subsequent increases
pursuant to this paragraph.
b. If an Event of Noncompliance, other than an Event of
Noncompliance of the type described in Section 2.I.F.1.d. of Article
Four, has occurred and is continuing, the holder or holders of a
majority of the Senior Preferred Stock then outstanding may demand (by
written notice delivered to the Corporation) immediate redemption of
all or any portion of the Senior Preferred Stock owned by such holder
or holders at a price per share equal to the Liquidation Value thereof
(plus all accrued and unpaid dividends thereon). The Corporation shall
give prompt written notice of such election to the other holders of
Senior Preferred Stock (but in any event within five days after receipt
of the initial demand for redemption), and each such other holder may
demand immediate redemption of all or any portion of such holder's
Senior Preferred Stock by giving written notice thereof to the
Corporation within seven days after receipt of the Corporation's
notice. The Corporation shall redeem all Senior Preferred Stock as to
which rights under this paragraph have been exercised within 15 days
after receipt of the initial demand for redemption.
c. If an Event of Noncompliance of the type described in
Section 2.I.F.1.d. of Article Four has occurred, all of the Senior
Preferred Stock then outstanding shall be subject to immediate
redemption by the Corporation (without any action on the part of the
holders of the Senior Preferred Stock) at a price per share equal to
the Liquidation Value thereof (plus all accrued and unpaid dividends
thereon). The Corporation shall immediately redeem all Senior Preferred
Stock upon the occurrence of such Event of Noncompliance.
d. If any Event of Noncompliance has occurred and is
continuing, the number of directors constituting the Corporation's
Board of Directors shall, at the request of the holders
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of a majority of the Senior Preferred Stock then outstanding, be
increased by one member, and the holders of Senior Preferred Stock
shall have the special right, voting separately as a single class (with
each Senior Preferred Share being entitled to one vote) and to the
exclusion of all other classes of the Corporation's stock, to elect an
individual to fill such newly created directorship, to fill any vacancy
of such directorship and to remove any individual elected to such
directorship. The newly created directorship shall constitute a
separate class of directors, and the director elected by the holders of
the Senior Preferred Stock shall be entitled to cast a number of votes
on each matter considered by the Board of Directors (including for
purposes of determining the existence of a quorum) equal to the sum of
the number of votes entitled to be cast by all of the other directors
plus one. The special right of the holders of Senior Preferred Stock to
elect members of the Board of Directors may be exercised at the special
meeting called pursuant to this subparagraph, at any annual or other
special meeting of stockholders and, to the extent and in the manner
permitted by applicable law, pursuant to a written consent in lieu of a
stockholders meeting. Such special right shall continue until such time
as there is no longer any Event of Noncompliance in existence, at which
time such special right shall terminate subject to revesting upon the
occurrence and continuation of any Event of Noncompliance which gives
rise to such special right hereunder.
At any time when such special right has vested in the holders
of Senior Preferred Stock, a proper officer of the Corporation shall,
upon the written request of the holder of at least 10% of the Senior
Preferred Stock then outstanding, addressed to the secretary of the
Corporation, call a special meeting of the holders of Senior Preferred
Stock for the purpose of electing a director pursuant to this
subparagraph. Such meeting shall be held at the earliest legally
permissible date at the principal office of the Corporation, or at such
other place designated by the holders of at least 10% of the Senior
Preferred Stock then outstanding. If such meeting has not been called
by a proper officer of the Corporation within 10 days after personal
service of such written request upon the secretary of the Corporation
or within 20 days after mailing the same to the secretary of the
Corporation at its principal office, then the holders of at least 10%
of the Senior Preferred Stock then outstanding may designate in writing
one of their number to call such meeting at the expense of the
Corporation, and such meeting may be called by such Person so
designated upon the notice required for annual meetings of stockholders
and shall be held at the Corporation's principal office, or at such
other place designated by the holders of at least 10% of the Senior
Preferred Stock then outstanding. Any holder of Senior Preferred Stock
so designated shall be given access to the stock record books of the
Corporation for the purpose of causing a meeting of stockholders to be
called pursuant to this subparagraph.
At any meeting or at any adjournment thereof at which the
holders of Senior Preferred Stock have the special right to elect
directors, the presence, in person or by proxy, of the holders of a
majority of the Senior Preferred Stock then outstanding shall be
required to constitute a quorum for the election or removal of any
director by the holders of the Senior Preferred Stock exercising such
special right. The vote of a majority of such quorum shall be required
to elect or remove any such director.
Any director so elected by the holders of Senior Preferred
Stock shall continue to serve as a director until the expiration of the
lesser of (i) a period of six months following the date on which there
is not longer any Event of Noncompliance in existence or (ii) the
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remaining period of the full term for which such director has been
elected. After the expiration of such six-month period or when the full
term for which such director has been elected ceases (provided that the
special right to elect directors has terminated), as the case may be,
the number of directors constituting the board of directors of the
Corporation shall decrease to such number as constituted the whole
board of directors of the Corporation immediately prior to the
occurrence of the Event or Events of Noncompliance giving rise to the
special right to elect directors.
e. If any Event of Noncompliance exists, each holder of Senior
Preferred Stock shall also have any other rights which such holder is
entitled to under any contract or agreement at any time and any other
rights which such holder may have pursuant to applicable law.
G. Registration of Transfer. The Corporation shall keep at its
principal office a register for the registration of Senior Preferred Stock. Upon
the surrender of any certificate representing Senior Preferred Stock at such
place, the Corporation shall, at the request of the record holder of such
certificate, execute and deliver (at the Corporation's expense) a new
certificate or certificates in exchange therefor representing in the aggregate
the number of Senior Preferred Shares represented by the surrendered
certificate. Each such new certificate shall be registered in such name and
shall represent such number of Senior Preferred Shares as is requested by the
holder of the surrendered certificate and shall be substantially identical in
form to the surrendered certificate, and dividends shall accrue on the Senior
Preferred Stock represented by such new certificate from the date to which
dividends have been fully paid on such Senior Preferred Stock represented by the
surrendered certificate.
H. Replacement. Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder shall be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing shares of Senior Preferred Stock, and in the case of any such loss,
theft or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Corporation shall
(at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of shares of such class
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate, and dividends
shall accrue on the Senior Preferred Stock represented by such new certificate
from the date to which dividends have been fully paid on such lost, stolen,
destroyed or mutilated certificate.
I. Amendment and Waiver. No amendment, modification or waiver shall be
binding or effective with respect to any provision relating to the rights of the
Senior Preferred Stock hereof without the prior written consent of the holders
of a majority of the Senior Preferred Stock outstanding at the time such action
is taken; provided that no such action shall change (i) the rate at which or the
manner in which dividends on the Senior Preferred Stock accrue or the times at
which such dividends become payable or the amount payable on redemption of the
Senior Preferred Stock or the times at which redemption of Senior Preferred
Stock is to occur or (ii) the percentage required to approve any change
described in clause (i) above, without the prior written consent of the holders
of at least 80% of the Senior Preferred Stock then outstanding; and provided
further that no change
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in the terms relating to the rights of the Senior Preferred Stock hereof may be
accomplished by merger or consolidation of the Corporation with another
corporation or entity unless the Corporation has obtained the prior written
consent of the holders of the applicable percentage of the Senior Preferred
Stock then outstanding.
J. Notices. Except as otherwise expressly provided hereunder, all
notices referred to herein shall be in writing and shall be delivered by
registered or certified mail, return receipt requested and postage prepaid, or
by reputable overnight courier service, charges prepaid, and shall be deemed to
have been given when so mailed or sent (i) to the Corporation, at its principal
executive offices and (ii) to any stockholder, at such holder's address as it
appears in the stock records of the Corporation (unless otherwise indicated by
any such holder).
K. Adjustment. All numbers and amounts set forth herein which refer to
share prices or amounts shall be appropriately adjusted to reflect stock splits,
stock dividends, combinations of shares and other recapitalizations affecting
the Senior Preferred Stock.
II. SERIES B JUNIOR PREFERRED STOCK
A. Dividends.
1. General Obligation. When and as declared by the
Corporation's Board of Directors and to the extent permitted by law, the
Corporation shall pay preferential dividends in cash to the holders of the
Junior Preferred Stock as provided in this Section 2.II.A. of Article Four.
Dividends on each share of the Junior Preferred Stock (a "Junior Preferred
Share") shall accrue on a daily basis at the rate of 8% per annum of the sum of
the Liquidation Value thereof plus all accumulated and unpaid dividends thereon
from and including the date of issuance of such Junior Preferred Share to and
including the first to occur of (i) the date on which the Liquidation Value of
such Junior Preferred Share (plus all accrued and unpaid dividends thereon) is
paid to the holder thereof in connection with the liquidation of the Corporation
or the redemption of such Junior Preferred Share by the Corporation or (ii) the
date on which such share is otherwise acquired by the Corporation. Such
dividends shall accrue whether or not they have been declared and whether or not
there are profits, surplus or other funds of the Corporation legally available
for the payment of dividends, and such dividends shall be cumulative such that
all accrued and unpaid dividends shall be fully paid or declared with funds
irrevocably set apart for payment before any dividends, distributions,
redemptions or other payments may be made with respect to any Series B Junior
Securities. So long as any shares of Senior Preferred Stock are outstanding, the
Corporation shall not pay any dividends to holders of the Junior Preferred Stock
without the written consent of the holders of a majority of shares of the Senior
Preferred Stock then outstanding. The date on which the Corporation initially
issues any Junior Preferred Share shall be deemed to be its "date of issuance"
regardless of the number of times transfer of such Junior Preferred Share is
made on the stock records maintained by or for the Corporation and regardless of
the number of certificates which may be issued to evidence such Junior Preferred
Share. The holders of the Junior Preferred Stock have certain rights pursuant to
the Stockholders Agreement to acquire additional securities upon certain
issuances of securities by the Corporation.
2. Dividend Reference Dates. To the extent not paid, on the
last day of December, March, June and September of each year, beginning December
31, 1997 (the "Dividend
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Reference Dates"), all dividends which have accrued on each Junior Preferred
Share outstanding during the quarterly period (or other period in the case of
the initial Dividend Reference Date) ending upon each such Dividend Reference
Date shall be accumulated and shall remain accumulated dividends with respect to
such Junior Preferred Share until paid to the holder thereof.
3. Distribution of Partial Dividend Payments. Except as
otherwise provided herein, if at any time the Corporation pays less than the
total amount of dividends then accrued with respect to the Junior Preferred
Stock, such payment shall be distributed pro rata among the holders thereof
based upon the aggregate accrued but unpaid dividends on the Junior Preferred
Shares held by each such holder.
B. Liquidation.
1. Liquidation Payments. Upon any liquidation, dissolution or
winding up of the Corporation (whether voluntary or involuntary), each holder of
Junior Preferred Stock shall be entitled to be paid, before any distribution or
payment is made upon any Series B Junior Securities, an amount in cash equal to
the aggregate Liquidation Value of all Junior Preferred Shares held by such
holder (plus all accrued and unpaid dividends thereon), and the holders of
Junior Preferred Stock shall not be entitled to any further payment. If upon any
such liquidation, dissolution or winding up of the Corporation the Corporation's
assets to be distributed among the holders of the Junior Preferred Stock are
insufficient to permit payment to such holders of the aggregate amount which
they are entitled to be paid under this Section 2.II.B. of Article Four, then
the entire assets available to be distributed to the holders of the Junior
Preferred Stock shall be distributed pro rata among such holders based upon the
aggregate Liquidation Value (plus all accrued and unpaid dividends) of the
Junior Preferred Stock held by each such holder. Prior to the liquidation,
dissolution or winding up of the Corporation, the Corporation shall declare for
payment all accrued and unpaid dividends with respect to the Junior Preferred
Stock, but only to the extent of funds of the Corporation legally available for
the payment of dividends. Not less than 60 days prior to the payment date stated
therein, the Corporation shall mail written notice of any such liquidation,
dissolution or winding up to each record holder of Junior Preferred Stock,
setting forth in reasonable detail the amount of proceeds to be paid with
respect to each Junior Preferred Share, each share of Common Equivalent Stock
and each other equity security of the Corporation in connection with such
liquidation, dissolution or winding up.
2. Distribution Other Than Cash. Whenever the distribution
provided for in this Section 2.II.B. of Article Four shall be payable in
property other than cash, the value of such distribution shall be the fair
market value of such property as determined in good faith by the Board of
Directors; provided, however, that if the holders of a majority of the then
outstanding share of Junior Preferred Stock (the "Contesting Junior Preferred
Holders") notify the Board of Directors within five business days after
receiving written notification of such determination of fair market value that
they disagree with such determination, then the Board of Directors and the
Contesting Junior Preferred Holders shall have 30 days to agree upon a fair
market value of the relevant property. If, by the end of such 30-day period,
they are unable to agree on a fair market value, the fair market value shall be
determined by an appraisal, the cost of which shall be shared equally by the
Corporation, on one hand, and the Contesting Junior Preferred Holders, on the
other hand. All appraisals shall be undertaken by two appraisers, one selected
by the Corporation and one selected by the Contesting Junior Preferred Holders,
which selections must be made within 10 days after the
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expiration of the 30-day period described above. If one selecting party fails to
timely select its appraiser, the other selecting party shall select both
appraisers. The fair market value shall be the fair market value arrived at by
those appraisers within 60 days following the appointment of the last appraiser
to be appointed. In the event that the two appraisers cannot agree on such fair
market value within such a period of time, (i) if the appraisers' valuations are
within 10% of each other, the fair market value shall be the average of the two
valuations, and (ii) if the differences in the valuations are greater, the
appraisers shall elect a third appraiser who will calculate fair market value
independently, and, except as provided in the next sentence, the fair market
value of the property shall in each case be the average of the two fair market
values arrived at by the appraisers who are closest in amount. If one
appraiser's valuation is the average of the other two valuations, the average
valuation shall be the fair market value. In the event that the two original
appraisers cannot agree upon a third appraiser within 30 days following the end
of the 60-day period referred to above, the third appraiser shall be appointed
by the American Arbitration Association.
C. Priority of Junior Preferred Stock on Dividends and Redemptions. So
long as any Junior Preferred Stock remains outstanding, without the prior
written consent of the holders of a majority of the outstanding shares of Junior
Preferred Stock and the written consent of the holders of a majority of the
outstanding shares of Senior Preferred Stock, the Corporation shall not, nor
shall it permit any Subsidiary to, redeem, purchase or otherwise acquire
directly or indirectly any Series B Junior Securities, nor shall the Corporation
directly or indirectly pay or declare any dividend or make any distribution upon
any Series B Junior Securities; provided that the Corporation may repurchase
shares of Common Equivalent Stock from stockholders of the Corporation pursuant
to the Stockholders Agreement and pursuant to the Senior Management Agreements
so long as the purchase price thereof is paid solely by delivery of a promissory
note (which promissory note will constitute subordinated debt under the
Corporation's senior bank credit agreement, if any); and further provided that
the Corporation may purchase and redeem such stock with up to $500,000 in cash
in the aggregate so long as no Event of Noncompliance is in existence at the
time of or immediately after such repurchase or would be caused by such
repurchase.
D. Redemptions; Conversion.
1. Mandatory and Optional Redemption. On the tenth anniversary
of the date of the Securities Purchase Agreement, the Corporation shall redeem
each share of Junior Preferred Stock then outstanding; provided, however, that
the Corporation shall not redeem any shares of Junior Preferred Stock unless and
until it has redeemed all of the outstanding shares of Senior Preferred Stock.
In addition, the Corporation may, at its option, at any time and from time to
time so long as no shares of Senior Preferred Stock are then outstanding, redeem
all or any portion of the shares of Junior Preferred Stock then outstanding (an
"Optional Junior Preferred Redemption"). Upon any such redemption, the
Corporation shall pay a price per share equal to the Liquidation Value thereof
(plus all accrued and unpaid dividends thereon). No Optional Junior Preferred
Redemption may be made for fewer than 1,000 shares (or such lesser number of
Junior Preferred Shares then outstanding).
2. Conversion. Upon the consummation of an initial public
offering of the Corporation's Common Stock on or before March 31, 1998, so
long as no shares of Senior Preferred Stock remain outstanding, each Junior
Preferred Share will be converted into the right to receive a number of shares
of Common Stock equal to the whole number nearest to the quotient of
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(x) the sum of the Liquidation Value of such Junior Preferred Share plus all
accrued and unpaid dividends thereon divided by (y) the initial public offering
price per share of Common Stock pursuant to such initial public offering.
3. Redemption Payments. For each Junior Preferred Share which
is to be redeemed hereunder, the Corporation shall be obligated on the Junior
Preferred Redemption Date to pay to the holder thereof (upon surrender by such
holder at the Corporation's principal office of the certificate representing
such share) an amount in immediately available funds equal to the Liquidation
Value of such share (plus all accrued and unpaid dividends thereon). If the
funds of the Corporation legally available for redemption of Junior Preferred
Shares on any Junior Preferred Redemption Date are insufficient to redeem the
total number of Junior Preferred Shares to be redeemed on such date, those funds
which are legally available shall be used to redeem the maximum possible number
of Junior Preferred Shares pro rata among the holders of the Junior Preferred
Shares to be redeemed based upon the aggregate Liquidation Value of such Junior
Preferred Shares held by each such holder (plus all accrued and unpaid dividends
thereon). At any time thereafter when additional funds of the Corporation are
legally available for the redemption of Junior Preferred Shares, such funds
shall immediately be used to redeem the balance of the Junior Preferred Shares
which the Corporation has become obligated to redeem on any Junior Preferred
Redemption Date but which it has not redeemed.
4. Notice of Redemption. Except as otherwise provided herein,
the Corporation shall mail written notice of each redemption of any Junior
Preferred Stock to each record holder thereof not more than 60 nor less than 30
days prior to the date on which such redemption is to be made. In case fewer
than the total number of Junior Preferred Shares represented by any certificate
are redeemed, a new certificate representing the number of unredeemed Junior
Preferred Shares shall be issued to the holder thereof without cost to such
holder within five business days after surrender of the certificate representing
the redeemed Junior Preferred Shares.
5. Determination of the Number of Each Holder's Junior
Preferred Shares to be Redeemed. The number of shares of Junior Preferred Stock
to be redeemed from each holder thereof in any Optional Junior Preferred
Redemption hereunder shall be the number of shares determined by multiplying the
total number of Junior Preferred Shares to be redeemed by a fraction, the
numerator of which shall be the total number of Junior Preferred Shares then
held by such holder and the denominator of which shall be the total number of
Junior Preferred Shares then outstanding.
6. Dividends After Junior Preferred Redemption Date. No Junior
Preferred Share shall be entitled to any dividends accruing after the date on
which the Liquidation Value of such Junior Preferred Share (plus all accrued and
unpaid dividends thereon) is paid to the holder of such Junior Preferred Share.
On such date, all rights of the holder of such Junior Preferred Share shall
cease, and such Junior Preferred Share shall no longer be deemed to be issued
and outstanding.
7. Redeemed or Otherwise Acquired Junior Preferred Shares. Any
Junior Preferred Shares which are redeemed or otherwise acquired by the
Corporation shall be canceled and retired to authorized but unissued shares and
shall not be reissued, sold or transferred.
8. Other Redemptions or Acquisitions. The Corporation shall
not, nor shall it permit any Subsidiary to, redeem or otherwise acquire any
shares of Junior Preferred Stock, except
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as expressly authorized herein or as contemplated by the terms of the Senior
Management Agreements, the Stockholders Agreement or the Securities Purchase
Agreement.
9. Payment of Accrued Dividends. The Corporation may not
redeem any Junior Preferred Stock, unless all dividends accrued on the
outstanding Junior Preferred Stock through the immediately preceding Dividend
Reference Date have been declared and paid in full.
10. Special Redemptions.
a. If a Change in Ownership has occurred or the Corporation
obtains knowledge that a Change in Ownership is proposed to occur, the
Corporation shall give prompt written notice of such Change in
Ownership describing in reasonable detail the material terms and date
of consummation thereof to each holder of Junior Preferred Stock, but
in any event such notice shall not be given later than five days after
the occurrence of such Change in Ownership, and the Corporation shall
give each holder of Junior Preferred Stock prompt written notice of any
material change in the terms or timing of such transaction. The holder
or holders of a majority of the Junior Preferred Stock then outstanding
may require the Corporation to redeem all or any portion of the Junior
Preferred Stock owned by such holders at a price per share equal to the
Liquidation Value thereof (plus all accrued and unpaid dividends
thereon) by giving written notice to the Corporation of such election
prior to the later of (i) 21 days after receipt of the Corporation's
notice and (ii) five days prior to the consummation of the Change in
Ownership (the "Junior Preferred Expiration Date") provided that the
Corporation shall redeem the Senior Preferred Stock prior to redeeming
any Junior Preferred Stock. The Corporation shall give prompt written
notice of any such election to all other holders of Junior Preferred
Stock within five days after the receipt thereof, and each such holder
shall have until the later of (i) the Junior Preferred Expiration Date
or (ii) ten days after receipt of such second notice to request
redemption hereunder (by giving written notice to the Corporation) of
all or any portion of the Junior Preferred Stock owned by such holder.
Upon receipt of such election(s), the Corporation shall be
obligated to redeem the aggregate number of Junior Preferred Shares
specified therein on the later of (i) the occurrence of the Change in
Ownership or (ii) five days after the Corporation's receipt of such
election(s). If any proposed Change in Ownership does not occur, all
requests for redemption in connection therewith shall be automatically
rescinded, or if there has been a material change in the terms or the
timing of the transaction, any holder of Junior Preferred Stock may
rescind such holder's request for redemption by delivering written
notice thereof to the Corporation prior to the consummation of the
transaction.
b. If a Junior Preferred Fundamental Change is proposed to
occur, the Corporation shall give written notice of such Junior
Preferred Fundamental Change describing in reasonable detail the
material terms and date of consummation thereof to each holder of
Junior Preferred Stock not more than 45 days nor less than 20 days
prior to the consummation of such Junior Preferred Fundamental Change,
and the Corporation shall give each holder of Junior Preferred Stock
prompt written notice of any material change in the terms or timing of
such transaction. The holder or holders of a majority of the Junior
Preferred Shares then outstanding, may require the Corporation to
redeem all or any portion
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of the Junior Preferred Stock owned by such holders at a price per
share equal to the Liquidation Value thereof (plus all accrued and
unpaid dividends thereon) by giving written notice to the Corporation
of such election prior to the later of (i) ten days prior to the
consummation of the Junior Preferred Fundamental Change or (ii) ten
days after receipt of notice from the Corporation. The Corporation
shall give prompt written notice of such election to all other holders
of Junior Preferred Stock (but in any event within five days prior to
the consummation of the Junior Preferred Fundamental Change), and each
such holder shall have until two days after the receipt of such notice
to request redemption (by written notice given to the Corporation) of
all or any portion of the Junior Preferred Stock owned by such holder.
Upon receipt of such election(s), the Corporation shall be
obligated to redeem the aggregate number of Junior Preferred Shares
specified therein upon the consummation of such Junior Preferred
Fundamental Change. If any proposed Junior Preferred Fundamental Change
does not occur, all requests for redemption in connection therewith
shall be automatically rescinded, or if there has been a material
change in the terms or the timing of the transaction, any holder of
Junior Preferred Stock may rescind such holder's request for redemption
by delivering written notice thereof to the Corporation prior to the
consummation of the transaction.
The term "Junior Preferred Fundamental Change" means (i) any
sale or transfer of more than 50% of the assets of the Corporation and
its Subsidiaries on a consolidated basis (measured either by book value
in accordance with generally accepted accounting principles
consistently applied or by fair market value determined in the
reasonable good faith judgment of the Corporation's Board of Directors)
in any transaction or series of transactions (other than sales in the
ordinary course of business) and (ii) any merger or consolidation to
which the Corporation is a party, except for a merger in which the
Corporation is the surviving corporation, the terms of the Junior
Preferred Stock are not changed and the Junior Preferred Stock is not
exchanged for cash, securities or other property, and after giving
effect to such merger, the holders of the Corporation's outstanding
capital stock possessing a majority of the voting power (under ordinary
circumstances) to elect a majority of the Corporation's Board of
Directors immediately prior to the merger shall continue to own the
Corporation's outstanding capital stock possessing the voting power
(under ordinary circumstances) to elect a majority of the Corporation's
Board of Directors.
E. Voting and Other Rights.
1. Voting Rights. Except as otherwise provided herein and as
otherwise required by applicable law, the Junior Preferred Stock shall have no
voting rights; provided that each holder of Junior Preferred Stock shall be
entitled to notice of all stockholders meetings at the same time and in the same
manner as notice is given to all stockholders entitled to vote at such meetings.
The number of shares of Junior Preferred Stock entitled to vote on any matter
shall be determined as of the record date for the determination of shareholders
entitled to vote on such matter or, if no such record date is established, at
the date such vote is taken or any written consent of shareholders is solicited.
Except as otherwise expressly provided for herein or as required by law, the
holders of Junior Preferred Stock shall vote together as a single class on all
matters.
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2. Other Rights. In addition to any rights provided by law,
without the written consent of the holders of a majority of shares of Junior
Preferred Stock then outstanding, the Corporation shall not:
a. effect any amendment to, or modification of, the
Corporation's Certificate of Incorporation (including Certificates of
Designation thereunder) or By-laws other than the amendment to the
Certificate of Incorporation to be filed in accordance with Section 8.1
of the Securities Purchase Agreement within 30 days of the date
thereof;
b. authorize, issue or sell, or obligate itself to authorize,
issue or sell, any equity securities that are senior to or pari passu
with the Junior Preferred Stock with respect to dividends, liquidation
preferences or redemption rights;
c. reclassify any shares of Junior Preferred Stock, or any
Series B Junior Securities;
d. declare or pay any dividends, return any capital to its
stockholders as such, or make any distribution of assets to its
stockholders as such, except that nothing herein contained shall
prevent the Corporation from (i) declaring or paying any dividends on
the Senior Preferred Stock in accordance with the Certificate of
Designation therefor; (ii) declaring or paying any dividend on the
Junior Preferred Stock pursuant to Section 2.II.A. of Article Four; or
(iii) making the payments contemplated by the Professional Services
Agreement, dated on or about December 17, 1996 between Brim, Inc. and
Golder, Thoma, Cressey, Rauner, Inc., as such agreement may be amended,
supplemented or modified from time to time;
e. redeem or repurchase or otherwise acquire for value any
shares of its capital stock (or rights, options or warrants to purchase
such shares) or other equity interests, except for (i) the redemption
by the Corporation of the Senior Preferred Stock in accordance with the
terms thereof and (ii) the repurchase of shares of Common Equivalent
Stock or Junior Preferred Stock from stockholders of the Corporation
pursuant to the Stockholders Agreement and pursuant to the Senior
Management Agreements so long as the purchase price thereof is paid
solely by delivery of a promissory note (which promissory note will
constitute subordinated debt under the Corporation's senior bank credit
agreement, if any); and provided that the Corporation may purchase and
redeem such stock with up to $500,000 in cash in the aggregate so long
as no Event of Noncompliance is in existence at the time of or
immediately after such repurchase or would be caused by such
repurchase.
F. Events of Noncompliance.
1. Definition. An Event of Noncompliance shall have
occurred if:
a. the Corporation fails to make any redemption payment with
respect to the Junior Preferred Stock which it is required to make
hereunder, whether or not such payment is legally permissible or is
prohibited by any agreement to which the Corporation is subject;
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b. the Corporation breaches or otherwise fails to perform or
observe any other covenant or agreement set forth herein or in the
Investment Agreement or the Securities Purchase Agreement;
c. any representation or warranty contained in the Investment
Agreement or required to be furnished to any holder of Junior Preferred
Stock pursuant to the Securities Purchase Agreement or any information
contained in writing required to be furnished by the Corporation or any
Subsidiary to any holder of Junior Preferred Stock, is false or
misleading in any material respect on the date made or furnished;
d. the Corporation or any Subsidiary makes an assignment for
the benefit of creditors or admits in writing its inability to pay its
debts generally as they become due; or an order, judgment or decree is
entered adjudicating the Corporation or any Subsidiary bankrupt or
insolvent; or any order for relief with respect to the Corporation or
any Subsidiary is entered under the Federal Bankruptcy Code; or the
Corporation or any Subsidiary petitions or applies to any tribunal for
the appointment of a custodian, trustee, receiver or liquidator of the
Corporation or any Subsidiary or of any substantial part of the assets
of the Corporation or any Subsidiary, or commences any proceeding
(other than a proceeding for the voluntary liquidation and dissolution
of a Subsidiary) relating to the Corporation or any Subsidiary under
any bankruptcy, reorganization, arrangement, insolvency, readjustment
of debt, dissolution or liquidation law of any jurisdiction; or any
such petition or application is filed, or any such proceeding is
commenced, against the Corporation or any Subsidiary and either (i) the
Corporation or any such Subsidiary by any act indicates its approval
thereof, consent thereto or acquiescence therein or (ii) such petition,
application or proceeding is not dismissed within 60 days;
e. a judgment in excess of $500,000 is rendered against the
Corporation or any Subsidiary and, within 60 days after entry thereof,
such judgment is not discharged or execution thereof stayed pending
appeal, or within 60 days after the expiration of any such stay, such
judgment is not discharged; or
f. the Corporation or any Subsidiary defaults in the
performance of any obligation or agreement if the effect of such
default is to cause an amount exceeding $500,000 to become due prior to
its stated maturity or to permit the holder or holders of any
obligation to cause an amount exceeding $500,000 to become due prior to
its stated maturity.
2. Consequences of Events of Noncompliance.
a. If an Event of Noncompliance has occurred and is
continuing, the dividend rate on the Junior Preferred Stock shall
increase immediately by an increment of 6 percentage point(s).
Thereafter, until such time as no Event of Noncompliance exists, the
dividend rate shall increase automatically at the end of each
succeeding 90-day period by an additional increment of 2 percentage
point(s) (but in no event shall the dividend rate exceed 18%). Any
increase of the dividend rate resulting from the operation of this
subparagraph shall terminate as of the close of business on the date on
which no Event of Noncompliance exists, subject to subsequent increases
pursuant to this paragraph.
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b. If an Event of Noncompliance, other than an Event of
Noncompliance of the type described in Section 2.II.F.1.d. of Article
Four, has occurred and is continuing, the holder or holders of a
majority of the Junior Preferred Stock then outstanding may demand (by
written notice delivered to the Corporation) immediate redemption of
all or any portion of the Junior Preferred Stock owned by such holder
or holders at a price per share equal to the Liquidation Value thereof
(plus all accrued and unpaid dividends thereon), provided that the
Corporation shall redeem all of the outstanding shares of the Senior
Preferred Stock prior to redeeming any Junior Preferred Stock. The
Corporation shall give prompt written notice of such election to the
other holders of Junior Preferred Stock (but in any event within five
days after receipt of the initial demand for redemption), and each such
other holder may demand immediate redemption of all or any portion of
such holder's Junior Preferred Stock by giving written notice thereof
to the Corporation within seven days after receipt of the Corporation's
notice. The Corporation shall redeem all Junior Preferred Stock as to
which rights under this paragraph have been exercised within 15 days
after receipt of the initial demand for redemption.
c. If an Event of Noncompliance of the type described in
Section 2.II.F.1.d. of Article Four has occurred, all of the Junior
Preferred Stock then outstanding shall be subject to immediate
redemption by the Corporation (without any action on the part of the
holders of the Junior Preferred Stock) at a price per share equal to
the Liquidation Value thereof (plus all accrued and unpaid dividends
thereon). The Corporation shall immediately redeem all Junior Preferred
Stock upon the occurrence of such Event of Noncompliance.
d. In the event all of the outstanding Senior Preferred Stock
has been redeemed or repurchased and an Event of Noncompliance has
occurred and is continuing, the number of directors constituting the
Corporation's Board of Directors shall, at the request of the holders
of a majority of the Junior Preferred Stock then outstanding, be
increased by one member, and the holders of Junior Preferred Stock
shall have the special right, voting separately as a single class (with
each Junior Preferred Share being entitled to one vote) and to the
exclusion of all other classes of the Corporation's stock, to elect an
individual to fill such newly created directorship, to fill any vacancy
of such directorship and to remove any individual elected to such
directorship. The newly created directorship shall constitute a
separate class of directors, and the director elected by the holders of
the Junior Preferred Stock shall be entitled to cast a number of votes
on each matter considered by the Board of Directors (including for
purposes of determining the existence of a quorum) equal to the sum of
the number of votes entitled to be cast by all of the other directors
plus one. The special right of the holders of Junior Preferred Stock to
elect members of the Board of Directors may be exercised at the special
meeting called pursuant to this subparagraph, at any annual or other
special meeting of stockholders and, to the extent and in the manner
permitted by applicable law, pursuant to a written consent in lieu of a
stockholders meeting. Such special right shall continue until such time
as there is no longer any Event of Noncompliance in existence, at which
time such special right shall terminate subject to revesting upon the
occurrence and continuation of any Event of Noncompliance which gives
rise to such special right hereunder.
At any time when such special right has vested in the holders
of Junior Preferred Stock, a proper officer of the Corporation shall,
upon the written request of the holder of at
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least 10% of the Junior Preferred Stock then outstanding, addressed to
the secretary of the Corporation, call a special meeting of the holders
of Junior Preferred Stock for the purpose of electing a director
pursuant to this subparagraph. Such meeting shall be held at the
earliest legally permissible date at the principal office of the
Corporation, or at such other place designated by the holders of at
least 10% of the Junior Preferred Stock then outstanding. If such
meeting has not been called by a proper officer of the Corporation
within 10 days after personal service of such written request upon the
secretary of the Corporation or within 20 days after mailing the same
to the secretary of the Corporation at its principal office, then the
holders of at least 10% of the Junior Preferred Stock then outstanding
may designate in writing one of their number to call such meeting at
the expense of the Corporation, and such meeting may be called by such
Person so designated upon the notice required for annual meetings of
stockholders and shall be held at the Corporation's principal office,
or at such other place designated by the holders of at least 10% of the
Junior Preferred Stock then outstanding. Any holder of Junior Preferred
Stock so designated shall be given access to the stock record books of
the Corporation for the purpose of causing a meeting of stockholders to
be called pursuant to this subparagraph.
At any meeting or at any adjournment thereof at which the
holders of Junior Preferred Stock have the special right to elect
directors, the presence, in person or by proxy, of the holders of a
majority of the Junior Preferred Stock then outstanding shall be
required to constitute a quorum for the election or removal of any
director by the holders of the Junior Preferred Stock exercising such
special right. The vote of a majority of such quorum shall be required
to elect or remove any such director.
Any director so elected by the holders of Junior Preferred
Stock shall continue to serve as a director until the expiration of the
lesser of (i) a period of six months following the date on which there
is not longer any Event of Noncompliance in existence or (ii) the
remaining period of the full term for which such director has been
elected. After the expiration of such six-month period or when the full
term for which such director has been elected ceases (provided that the
special right to elect directors has terminated), as the case may be,
the number of directors constituting the board of directors of the
Corporation shall decrease to such number as constituted the whole
board of directors of the Corporation immediately prior to the
occurrence of the Event or Events of Noncompliance giving rise to the
special right to elect directors.
e. If any Event of Noncompliance exists, each holder of Junior
Preferred Stock shall also have any other rights which such holder is
entitled to under any contract or agreement at any time and any other
rights which such holder may have pursuant to applicable law.
G. Registration of Transfer. The Corporation shall keep at its
principal office a register for the registration of Junior Preferred Stock. Upon
the surrender of any certificate representing Junior Preferred Stock at such
place, the Corporation shall, at the request of the record holder of such
certificate, execute and deliver (at the Corporation's expense) a new
certificate or certificates in exchange therefor representing in the aggregate
the number of Junior Preferred Shares represented by the surrendered
certificate. Each such new certificate shall be registered in such name and
shall represent such number of Junior Preferred Shares as is requested by the
holder of the surrendered
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certificate and shall be substantially identical in form to the surrendered
certificate, and dividends shall accrue on the Junior Preferred Stock
represented by such new certificate from the date to which dividends have been
fully paid on such Junior Preferred Stock represented by the surrendered
certificate.
H. Replacement Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder shall be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing shares of Junior Preferred Stock, and in the case of any such loss,
theft or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Corporation shall
(at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of shares of such class
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate, and dividends
shall accrue on the Junior Preferred Stock represented by such new certificate
from the date to which dividends have been fully paid on such lost, stolen,
destroyed or mutilated certificate.
I. Amendment and Waiver. No amendment, modification or waiver shall be
binding or effective with respect to any provision relating to the rights of the
Junior Preferred Stock hereof without the prior written consent of the holders
of a majority of the Junior Preferred Stock outstanding at the time such action
is taken; provided that no such action shall change (i) the rate at which or the
manner in which dividends on the Junior Preferred Stock accrue or the times at
which such dividends become payable or the amount payable on redemption of the
Junior Preferred Stock or the times at which redemption of Junior Preferred
Stock is to occur or (ii) the percentage required to approve any change
described in clause (i) above, without the prior written consent of the holders
of at least 80% of the Junior Preferred Stock then outstanding; and provided
further that no change in the terms relating to the Junior Preferred Stock
hereof may be accomplished by merger or consolidation of the Corporation with
another corporation or entity unless the Corporation has obtained the prior
written consent of the holders of the applicable percentage of the Junior
Preferred Stock then outstanding.
J. Notices. Except as otherwise expressly provided hereunder, all
notices referred to herein shall be in writing and shall be delivered by
registered or certified mail, return receipt requested and postage prepaid, or
by reputable overnight courier service, charges prepaid, and shall be deemed to
have been given when so mailed or sent (i) to the Corporation, at its principal
executive offices and (ii) to any stockholder, at such holder's address as it
appears in the stock records of the Corporation (unless otherwise indicated by
any such holder).
K. Adjustment. All numbers and amounts set forth herein which refer to
share prices or amounts shall be appropriately adjusted to reflect stock splits,
stock dividends, combinations of shares and other recapitalizations affecting
the Junior Preferred Stock.
III. PREFERRED STOCK
A. Authorization; Series; Provisions.
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1. The Board of Directors of the Corporation is authorized,
subject to limitations prescribed by law and the provisions of this Article
Four, to provide for the issuance of shares of the Preferred Stock in series,
and by filing a certificate pursuant to the General Corporation Law of the State
of Delaware, to establish from time to time the number of shares to be included
in each such series and to fix the designations, powers, preferences and rights
of the shares of each such series and the qualifications, limitations or
restrictions thereof.
2. The Preferred Stock may be issued from time to time in one
or more series, the shares of each series to have such powers, designations,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as are stated and expressed
herein or in a resolution or resolutions providing for the issuance of such
series, adopted by the Board of Directors as hereinafter provided.
3. Authority is hereby expressly granted to the Board of
Directors, subject to the provisions of this Section 2.III.A. of Article Four,
to authorize the issuance of one or more series of Preferred Stock, and with
respect to each such series to fix by resolution or resolutions providing for
the issuance of such series:
a. the maximum number of shares to constitute such series and
the distinctive designation thereof;
b. whether the shares of such series shall have voting rights,
in addition to any voting rights provided by law, and, if so, the terms
of such voting rights;
c. the dividend rate, if any, on the shares of such series,
the conditions and dates upon which such dividends shall be payable,
the preference or relation which such dividends shall bear to the
dividends payable on any other class or classes or on any other series
of capital stock, and whether such dividends shall be cumulative or
noncumulative;
d. whether the shares of such series shall be subject to
redemption by the Corporation and, if made subject to redemption, the
times, prices and other terms and conditions of such redemption;
e. the rights of the holders of shares of such series upon the
liquidation, dissolution or winding up of the Corporation;
f. whether or not the shares of such series shall be subject
to the operation of a retirement or sinking fund and, if so, the extent
to and manner in which any such retirement or sinking fund shall be
applied to the purchase or redemption of the shares of such series for
retirement or to other corporate purposes and the terms and provisions
relative to the operation thereof;
g. whether or not the shares of such series shall be
convertible into, or exchangeable for, shares of stock of any other
class or classes, or of any other series of the same class, and if so
convertible or exchangeable, the price or prices or the rate or rates
of conversion or exchange and the method, if any, of adjusting the
same;
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<PAGE> 24
h. the limitations and restrictions, if any, to be effective
while any shares of such series are outstanding upon the payment of
dividends or making of other distributions on, and upon the purchase,
redemption or other acquisition by the Corporation of, Common Stock or
any other class or classes of stock of the Corporation ranking junior
to the shares of such series either as to dividends or upon
liquidation;
i. the conditions or restrictions, if any, upon the creation
of indebtedness of the Corporation or upon the issue of any additional
stock (including additional shares of such series or of any other
series or of any other class) ranking on a parity with or prior to the
shares of such series as to dividends or distribution of assets on
liquidation, dissolution or winding up; and
j. any other preference and relative, participating, optional
or other special rights, and qualifications, limitations or
restrictions thereof as shall not be inconsistent with this
Section 2.III.A. of Article Four.
B. Series Identical; Rank. All shares of any one series of Preferred
Stock shall be identical with each other in all respects, except that shares of
any one series issued at different times may differ as to the dates from which
dividends, if any, thereon shall be cumulative; and all series shall rank
equally and be identical in all respects, except as permitted by the foregoing
provisions of Section 2.III.A.3. of Article Four; and all shares of Preferred
Stock shall rank senior to the Common Stock both as to dividends and upon
liquidation.
C. Liquidation. In the event of any liquidation, dissolution or winding
up of the Corporation, before any payment or distribution of the assets of the
Corporation (whether capital or surplus) shall be made to or set apart for the
holders of any class or classes of stock of the Corporation ranking junior to
the Preferred Stock upon liquidation, the holders of the shares of the Preferred
Stock shall be entitled to receive payment at the rate fixed herein or in the
resolution or resolutions adopted by the Board of Directors providing for the
issue of such series, plus (if dividends on shares of such series of Preferred
Stock shall be cumulative) an amount equal to all dividends (whether or not
earned or declared) accumulated to the date of final distribution to such
holders; but they shall be entitled to no further payment. If, upon any
liquidation, dissolution or winding up of the Corporation, the assets of the
Corporation or proceeds thereof, distributable among the holders of the shares
of the Preferred Stock shall be insufficient to pay in full the preferential
amount aforesaid, then such assets, or the proceeds thereof, shall be
distributed among such holders ratably in accordance with the respective amounts
which would be payable on such shares if all amounts payable thereon were paid
in full.
D. Voting Rights. Except as shall be otherwise stated and expressed
herein or in the resolution or resolutions of the Board of Directors providing
for the issue of any series and except as otherwise required by the laws of the
State of Delaware, the holders of shares of Preferred Stock shall have, with
respect to such shares, no right or power to vote on any question or in any
proceeding or to be represented at, or to receive notice of, any meeting of
stockholders.
E. Reacquired Shares. Shares of any Preferred Stock which shall be
issued and thereafter acquired by the Corporation through purchase, redemption,
exchange, conversion or otherwise shall
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<PAGE> 25
return to the status of authorized but unissued Preferred Stock unless otherwise
provided in the resolution or resolutions of the Board of Directors.
F. Increase/Decrease in Authorized Shares of a Series. Unless otherwise
provided in the resolution or resolutions of the Board of Directors providing
for the issuance thereof, the number of authorized shares of stock of any such
series may be increased or decreased (but not below the number of shares thereof
outstanding) by resolution or resolutions of the Board of Directors. In case the
number of shares of any such series of Preferred Stock shall be decreased, the
shares representing such decrease shall, unless otherwise provided in the
resolution or resolutions of the Board of Directors providing for the issuance
thereof, resume the status of authorized but unissued Preferred Stock,
undesignated as to series.
IV. COMMON SECURITIES.
A. Rights Identical. Except as otherwise provided in this Section 2.IV.
of Article Four or as otherwise required by applicable law, all shares of Common
Stock shall be identical in all respects and shall entitle the holders thereof
to the same rights and privileges, subject to the same qualifications,
limitations and restrictions.
B. Voting Rights. Except as otherwise provided in this Section 2.IV. of
Article Four or as otherwise required by applicable law, holders of Common Stock
shall be entitled to one vote per share on all matters to be voted on by the
stockholders of the Corporation.
C. Dividends. Subject to the rights of the Senior Preferred Stock, the
Junior Preferred Stock and each series of the Preferred Stock, dividends may be
declared and paid or set apart for payment upon the Common Stock out of any
assets or funds of the Corporation legally available for the payment of
dividends, and the holders of Common Stock shall be entitled to participate in
such dividends ratably on a per share basis.
D. Liquidation. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, and after the holders of the
Senior Preferred Stock, Junior Preferred Stock and Preferred Stock of each
series shall have been paid in full the amounts to which they respectively shall
be entitled in accordance with Sections 2.I., 2.II. and 2.III. of Article Four,
the terms of any outstanding Senior Preferred Stock, Junior Preferred Stock and
Preferred Stock and applicable law, or an amount sufficient to pay the aggregate
amount to which the holders of the Senior Preferred Stock, Junior Preferred
Stock and Preferred Stock of each series shall be entitled shall have been
deposited with a bank or trust company having capital, surplus and undivided
profits of at least Twenty-Five Million Dollars ($25,000,000) as a trust fund
for the benefit of the holders of such Senior Preferred Stock, Junior Preferred
Stock and Preferred Stock, the remaining net assets of the Corporation shall be
distributed pro rata to the holders of the Common Stock, to the exclusion of the
holders of such Senior Preferred Stock, Junior Preferred Stock and Preferred
Stock.
V. GENERAL PROVISIONS
A. Nonliquidating Events. A consolidation or merger of the Corporation
with or into another corporation or corporations or a sale, whether for cash,
shares of stock, securities or properties, or any combination thereof, of all or
substantially all of the assets of the Corporation shall
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<PAGE> 26
not be deemed or construed to be a liquidation, dissolution or winding up of the
Corporation within the meaning of this Article Four.
B. No Preemptive Rights. No holder of Senior Preferred Stock,
Junior Preferred Stock, Preferred Stock or Common Stock of the Corporation shall
be entitled, as such, as a matter of right, to subscribe for or purchase any
part of any new or additional issue of stock of any class or series whatsoever
or of securities convertible into stock of any class whatsoever, whether now or
hereafter authorized and whether issued for cash or other consideration, or by
way of dividend.
C. Definitions.
"Change in Ownership" means any sale, transfer or issuance or
series of sales, transfers and/or issuances of Common Equivalent Stock by the
Corporation or any holders thereof which results in any Person or group of
Persons (as the term "group" is used under the Securities Exchange Act of 1934),
other than the holders of Common Stock as of the date of the Stockholders
Agreement, owning more than 50% of the Common Equivalent Stock outstanding at
the time of such sale, transfer or issuance or series of sales, transfers and/or
issuances.
"Common Equivalent Stock" means, collectively, the
Corporation's Common Stock and any capital stock of any class of the Corporation
hereafter authorized which is not limited to a fixed sum or percentage of par or
stated value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Corporation.
"Investment Agreement" means the Investment Agreement, dated
as of November 21, 1996, by and among Brim, Inc. Principal Hospital Company, and
Golder, Thoma, Cressey, Rauner Fund IV, L.P., as such agreement may be amended
from time to time in accordance with its terms.
"Junior Preferred Redemption Date" as to any shares of Junior
Preferred Stock means the date specified in the notice of any redemption at the
Corporation's option or at the holder's option; provided that no such date shall
be a Junior Preferred Redemption Date unless the Liquidation Value of such
Junior Preferred Share (plus all accrued and unpaid dividends thereon and any
required premium with respect thereto) is actually paid in full on such date,
and if not so paid in full, the Junior Preferred Redemption Date shall be the
date on which such amount is fully paid.
"Junior Securities" means any capital stock or other equity
securities of the Corporation, except for the Senior Preferred Stock of the
Corporation.
"Liquidation Value" of any Senior Preferred Share or any
Junior Preferred Share as of any particular date shall be equal to $1,000.
"Person" means an individual, a partnership, a corporation, a
limited liability company, a limited liability, 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.
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"Public Offering" means any offering by the Corporation of its
capital stock or equity securities to the public pursuant to an effective
registration statement under the Securities Act of 1933, as then in effect, or
any comparable statement under any similar federal statute then in force.
"Securities Purchase Agreement" means the Securities Purchase
Agreement dated on or about December 17, 1996 between Brim, Inc. and
Leeway & Co.
"Senior Management Agreements" means the Senior Management
Agreements dated on or about December 17, 1996 between Brim, Inc. and each of
Martin S. Rash and Richard D. Gore.
"Senior Preferred Redemption Date" as to any share of Senior
Preferred Stock means the date specified in the notice of any redemption at the
Corporation's option or at the holder's option; provided that no such date shall
be a Senior Preferred Redemption Date unless the redemption price provided in
Section 2.I.D.1. of Article Four of such share of Senior Preferred Stock is
actually paid in full on such date, and if not so paid in full, the Senior
Preferred Redemption Date shall be the date on which such amount is fully paid.
"Series B Junior Securities" means any capital stock or other
equity securities of the Corporation, except for the Senior Preferred Stock or
the Junior Preferred Stock of the Corporation.
"Stockholders Agreement" means the Stockholders Agreement
dated on or about December 17, 1996 among Brim, Inc. and the stockholders named
therein.
"Subsidiary" means, with respect to any Person, any
corporation, limited liability company, partnership, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Person or
one or more of the other Subsidiaries of that Person or a combination thereof,
or (ii) if a limited liability company, partnership, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a limited liability company, partnership, association or
other business entity if such Person or Persons shall be allocated a majority of
limited liability company, partnership, association or other business entity
gains or losses or shall be or control the managing general partner of such
limited liability company, partnership, association or other business entity.
ARTICLE FIVE
The Corporation is to have perpetual existence.
ARTICLE SIX
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors, and the directors need not be
elected by ballot unless required by the By-laws of the Corporation. In
furtherance and not in limitation of the powers conferred by statute, the Board
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<PAGE> 28
of Directors of the Corporation is expressly authorized to make, alter, amend,
change, add to or repeal the By-laws of the Corporation.
ARTICLE SEVEN
Meetings of stockholders may be held within or outside of the State of
Delaware, as the By-laws of the Corporation may provide. The books of the
Corporation may be kept outside the State of Delaware at such place or places as
may be designated from time to time by the Board of Directors or in the By-laws
of the Corporation. The Board of Directors shall from time to time decide
whether and to what extent and at what times and under what conditions and
requirements the accounts and books of the Corporation, or any of them, except
the stock book, shall be open to the inspection of the stockholders, and no
stockholder shall have any right to inspect any books or documents of the
Corporation except as conferred by the laws of the State of Delaware or as
authorized by the Board of Directors.
ARTICLE EIGHT
Subject to the rights of the holders of the Senior Preferred Stock, the
Junior Preferred Stock, and any series of Preferred Stock, from and after the
date on which the Common Stock of the Corporation is registered pursuant to the
Securities Exchange Act of 1934, as amended, (A) any action required or
permitted to be taken by the stockholders of the Corporation must be effected at
an annual or special meeting of stockholders of the Corporation and may not be
effected in lieu thereof by any consent in writing by such stockholders, and (B)
special meetings of stockholders of the Corporation may be called only by the
chairman of the board, the president or the Board of Directors pursuant to a
resolution adopted by the affirmative vote of at least two members then in
office.
ARTICLE NINE
The number of directors which shall constitute the whole board shall be
such as from time to time shall be fixed by resolution adopted by affirmative
vote of a majority of the Board of Directors except that such number shall not
be less than one (1) nor more than nine (9), the exact number to be determined
by resolution adopted by affirmative vote of a majority of the Board of
Directors.
Vacancies and newly created directorships resulting from any increase
in the number of directors may be filled only by the affirmative vote of the
majority of the Board of Directors then in office, although less than quorum, or
by a sole remaining director. Any director elected to fill a vacancy not
resulting from an increase in the number of directors shall have the same
remaining term as that of his predecessor.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of preferred stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filing of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation applicable thereto.
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Except to the extent prohibited by law, the Board of Directors shall
have the right (which, to the extent exercised, shall be exclusive) to establish
the rights, powers, duties, rules and procedures that from time to time shall
govern the Board of Directors and each of its members, including without
limitation the vote required for any action by the Board of Directors, and that
from time to time shall affect the directors' power to manage the business and
affairs of the Corporation; and no by-law shall be adopted by stockholders which
shall impair or impede the implementation of the foregoing.
ARTICLE TEN
ARTICLE EIGHT, ARTICLE NINE and this ARTICLE TEN of this Restated
Certificate of Incorporation and Sections 2 and 11 of Article II, Sections 2, 3,
4 and 5 of Article III and Article V of the By-laws of the Corporation shall not
be altered, amended or repealed by, and no provision inconsistent therewith
shall be adopted by, the stockholders without the affirmative vote of the
holders of at least 80% of the Common Stock, voting together as a single class.
ARTICLE ELEVEN
To the fullest extent permitted by the Delaware General Corporation Law
as it now exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than permitted prior thereto), no
director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages arising from a breach of fiduciary duty owed
to the Corporation or its stockholders.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
ARTICLE TWELVE
The Corporation expressly elects to be governed by Section 203 of the
Delaware General Corporation Law.
ARTICLE THIRTEEN
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation in the manner now or hereafter prescribed herein and by the laws
of the State of Delaware, and all rights conferred upon stockholders herein are
granted subject to this reservation.
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<PAGE> 1
Exhibit 5.1
KIRKLAND & ELLIS
PARTNERSHIPS INCLUDING PROFESSIONAL CORPORATIONS
200 East Randolph Drive
Chicago, Illinois 60601
312 861-2000 Facsimile:
312 861-2200
February 10, 1998
Province Healthcare Company
109 Westpark Drive
Brentwood, Tennessee 37027
Ladies and Gentlemen:
We have acted as special counsel to Province Healthcare
Company, a Delaware corporation (the "Company"), in connection with the proposed
registration by the Company of shares of the Company's Common Stock, par value
$0.01 per share with a proposed maximum offering price of up to $81,075,000 (the
"Shares") pursuant to a Registration Statement on Form S-1 (File No. 333-33421)
filed with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act") (such Registration Statement, as
amended or supplemented and together with any registration statement referred to
in the next sentence, is hereinafter referred to as the "Registration
Statement"). This also relates to any registration statement in connection with
this offering that is to be effective upon filing pursuant to Rule 462(b) under
the Act, and the term "Shares" as used herein includes any additional shares of
the Company's Common Stock registered pursuant to such subsequently filed
registration statement.
In that connection, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of such documents,
corporate records and other instruments as we have deemed necessary for the
purposes of this letter, including (i) the Amended and Restated Certificate of
Incorporation and By-Laws of the Company, (ii) minutes and records of the
corporate proceedings of the Company with respect to the Shares, (iii) the
Registration Statement and exhibits thereto, (iv) the form of underwriting
agreement (the "Underwriting Agreement") to be entered into among the Company
and BT Alex. Brown Incorporated, BancAmerica Robertson Stephens, Goldman, Sachs
& Co. and The Robinson-Humphrey Company, Inc., as representatives of the
underwriters and (v) such other documents and instruments as we have deemed
necessary for the expression of the opinions contained herein.
For purposes of this letter, we have assumed the authenticity
of all documents submitted to us as originals, the conformity to the originals
of all documents submitted to us as copies and the authenticity of the originals
of all documents submitted to us as copies. We have also assumed the genuineness
of the signatures of persons signing all documents in connection with which this
letter is rendered, the authority of such persons signing on behalf of the
parties thereto and the due authorization, execution and delivery of all
documents by the parties thereto other than the Company. In preparing this
letter we have relied without independent verification upon: (i) information
contained in certificates obtained from governmental authorities; (ii) factual
information provided to us by the Company or its representatives; and (iii)
factual information we
London Los Angeles New York Washington D.C.
<PAGE> 2
KIRKLAND & ELLIS
Province Healthcare Company
February 4, 1998
Page 2
have obtained from such other sources as we have deemed reasonable. We have
assumed that there has been no relevant change or development between the dates
as of which the information cited in the preceding sentence was given and the
date of this letter and that the information upon which we have relied is
accurate and does not omit disclosures necessary to prevent such information
from being misleading.
Our advice on every legal issue addressed in this letter is
based exclusively on the General Corporation Law of the State of Delaware and
the federal law of the United States, and represents our opinion as to how that
issue would be resolved were it to be considered by the highest court in the
jurisdiction which enacted such law.
Based upon and subject to the foregoing qualifications,
assumptions and limitations and the further limitations set forth below, we are
of the opinion that the issuance of the Shares has been duly authorized and (i)
upon effectiveness under the Act of the Registration Statement, and (ii) when
appropriate certificates representing the Shares are duly countersigned by the
Company's transfer agent/registrar and delivered against payment of the agreed
consideration therefor in accordance with the Underwriting Agreement, the Shares
will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this letter with the
Commission as Exhibit 5.1 to the Registration Statement. We also consent to the
reference to our firm under the heading "Legal Matters" in the Registration
Statement. In giving this consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Commission.
This letter is limited to the specific issues addressed
herein, and no opinion may be inferred or implied beyond that expressly stated
herein. This letter speaks as of the time of its delivery on the date it bears.
We do not assume any obligation to provide you with any subsequent opinion or
advice by reason of any fact about which we did not have knowledge at that time,
by reason of any change subsequent to that time in any law other governmental
requirement or interpretation thereof covered by any of our opinions or advice,
or for any other reason.
This is furnished to you in conjunction requirements of Item
601 of Regulation S-K under the Act.
Very truly yours,
KIRKLAND & ELLIS
<PAGE> 1
Exhibit 10.32
ASSET ACQUISITION AGREEMENT AND ESCROW INSTRUCTIONS
---------------------------------------------------
THIS ASSET ACQUISITION AGREEMENT AND ESCROW INSTRUCTIONS
(the "Agreement") is made as of March 22, 1994, between THC-SEATTLE, INC., a
Washington corporation ("THC" or "Buyer") and COMMUNITY PSYCHIATRIC CENTERS,
a Nevada corporation ("CPC"), on the one hand, and BRIM FIFTH AVENUE, INC., an
Oregon corporation ("Brim" or "Seller"), and BRIM HOSPITALS, INC., an Oregon
corporation ("BHI"), on the other hand.
R E C I T A L S
A. (i) Brim owns and operates a hospital located at 10560 Fifth Avenue,
N.E., Seattle, WA 98125-0977, licensed as a hospital with eighty (80) beds
(the "Hospital") for the provision of general acute care medical-surgical
services.
(ii) Brim owns the real property on which the Hospital is located
and which is more particularly described in Schedule A (the "Realty") and owns
or leases all buildings, structures, fixtures, trade fixtures and other
improvements thereon, therein and thereof (collectively, the "Improvements," and
together with the Realty, the "Real Property").
(iii) Brim is a wholly owned subsidiary of BHI.
B. (i) THC is a wholly owned subsidiary of Transitional Hospitals
Corporation, a Delaware corporation ("Transitional"), which is a wholly owned
subsidiary of CPC.
(ii) Transitional owns and operates facilities which provide
service, care and treatment for patients with long-term acute illnesses,
diseases or conditions.
(iii) CPC owns and operates facilities which provide treatment
for acute psychiatric illness and for chemical dependency and substance abuse.
C. Pursuant to all of the terms and conditions of this Agreement, Buyer
desires to purchase from Seller and Seller desires to sell to Buyer the Real
Property and substantially all of the assets owned and used by Seller in the
operation of the Hospital.
D. Brim and THC have entered into a Management and Operations Transfer
Agreement (the "Management Agreement") and a Management Agreement (the
"Management Subcontract") of even date herewith, each effective as of May 1,
1994 (the "Management Commencement Date").
<PAGE> 2
A G R E E M E N T
NOW, THEREFORE, it is agreed:
1. SALE AND TRANSFER OF ASSETS. On all of the terms and conditions of this
Agreement, Seller agrees to sell to Buyer, and Buyer agrees to purchase from
Seller, on the Closing Date (as defined in paragraph 9), for the consideration
specified in paragraphs 2.1 and 2.2, all of the assets described in paragraph
1.1, but excluding the assets described in paragraph 1.2.
1.1 THE ASSETS. The assets to be sold and purchased pursuant to this
Agreement consist of all real, personal tangible and intangible property used
in the operation of the Hospital (collectively, the "Assets"). Without
limitation of the foregoing sentence, the Assets include:
1.1.1 REAL PROPERTY. The Real Property;
1.1.2 PERSONAL PROPERTY. All furniture, furnishings, equipment and
all other tangible property owned by Seller on the Closing Date which is used
or held in connection with the operation of the Hospital, including that listed
and described in Schedule 1.1.2, and all inventory owned by Seller on the
Closing Date (the "Inventory") of housekeeping and operating items and
materials, supplies, consumables and disposables whether or not such items
would be classified as inventory according to generally accepted accounting
principles (collectively, the "Personal Property");
1.1.3 CONTRACTS. All right, title and interest of Seller under
the contracts, agreements, leases and other rights listed and described in
Schedule 1.1.3 (the "Assumed Contracts") which are assumed by Buyer pursuant to
paragraph 2.2;
1.1.4 INTANGIBLES. All intangible property owned by Seller and
used or necessary for the operation of the Hospital, including without
limitation:
(a) LICENSES. All of the Licenses (as defined in
paragraph 3.6.1), which by law or by their terms are transferrable and which
are necessary for the operation of the Hospital as it is presently operated;
(b) ADVANCES, PREPAYMENTS, DEPOSITS AND PREPAID EXPENSES.
All advances, prepayments, deposits and prepaid expenses on the Assumed
Contracts held by third parties and all patient deposits held by Seller on the
Management Commencement Date (collectively, "Prepaid Expenses");
(c) CLINICAL PROGRAMS. All clinical programs operated by
Seller at the Hospital.
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1.1.5 RECORDS.
(a) PATIENT RECORDS. Original medical records, or
complete and correct copies of medical records, maintained by Seller for the
Hospital;
(b) EMPLOYEE RECORDS. Original, or complete and correct
copies, of all personnel files and employee health records maintained by Seller
for those employees at the Hospital whom THC has given Brim written notice of
THC's intent to rehire after Closing and who have authorized Seller to release
such files to THC;
(c) MEDICAL STAFF FILES. Original, or complete and
correct copies, of all medical staff files maintained by Seller in connection
with the Hospital for which Seller has received written authority from the
physician to release to THC; and
(d) POLICIES AND PROCEDURES MANUALS. Original, or
complete and correct copies, of all current policies and procedures manuals for
the Hospital.
1.2 EXCLUDED ASSETS. Notwithstanding paragraph 1.1, Buyer shall not
purchase, Seller shall not sell and the Assets do not include the following:
1.2.1 CURRENT ASSETS. Accounts and notes receivable, cash on hand,
bank deposits, securities and current assets of Seller (other than Inventory
and Prepaid Expenses) at the Management Commencement Date or to which Seller is
entitled under the Management Subcontract.
1.2.2 CLAIMS. Any claims and causes of action arising before the
Management Commencement Date or in connection with Seller's actions under the
Management Subcontract.
1.2.3 BOOKS AND RECORDS. All financial books and records of Seller,
including but not limited to the general ledger, accounts payable, payroll and
fixed assets.
1.2.4 OTHER EXCLUDED ASSETS. Such other assets of Seller which are
listed and described in Schedule 1.2.4.
1.2.5 PERSONAL PROPERTY OWNED BY THIRD PARTIES. All items of
personal property located at or used in connection with operation of the
Hospital owned by parties other than Seller.
2. CONSIDERATION. The amount, payment and description of the consideration
to be given by Buyer to Seller for the Assets is described in paragraphs 2.1
and 2.2. This consideration shall be allocated among the Assets, the Covenants
(as defined in paragraph 5.12.2) and the consulting services to be provided by
Seller pursuant to paragraph 5.15 as provided in Schedule 2.
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2.1 PURCHASE PRICE. The cash purchase price (the "Purchase Price") to be
paid by Buyer is Six Million Dollars ($6,000,000). The Purchase Price has been
or shall be paid as follows:
2.1.1 DEPOSIT. Buyer has deposited Seventy-Five Thousand Dollars
($75,000) of the Purchase Price (together with all earnings and interest
thereon, the "Deposit") with Chicago Title Insurance Company ("Escrow Holder")
to be deposited and held in an interest-bearing escrow account (the "Escrow")
and invested as instructed by Buyer; provided, however, that such funds must
be readily available on the Closing Date;
(a) CLOSING. If there is a Closing, the Deposit shall be
applied to the Purchase Price at Closing, and
(b) NO CLOSING FOR FAILURE OF CONDITION. If the Closing
does not occur other than because of a material breach of this Agreement or
material breach or untruth of any warranty, representation or covenant
contained in this Agreement or other wrongful act or omission of any of the
parties, the Deposit shall be paid to Buyer as provided in this Agreement and,
except as otherwise provided in this Agreement, neither party shall have any
remedies available to it against the other.
(c) NO CLOSING BECAUSE OF BREACH. If the Closing does not
occur because of a material breach of this Agreement by Seller or material
breach or untruth of any warranty, representation or covenant of Seller
contained in this Agreement or other wrongful act or omission of Brim or BHI,
Buyer shall be entitled to return of the Deposit and shall be entitled to
pursue such other remedies as may be available to it in law or equity. If the
Closing does not occur because of a material breach of this Agreement by Buyer
or material breach or untruth of any warranty, representation or covenant of
Buyer contained in this Agreement or other wrongful act or omission of THC or
CPC, Seller shall be entitled to the Deposit and to pursue such other remedies
as may be available to it in law or equity.
2.1.2 BALANCE. The balance of the Purchase Price shall be paid
to Escrow Holder (the "Balance") in funds immediately available in Seattle,
Washington on the Closing Date, to be disbursed by Escrow Holder in accordance
with the provisions of this Agreement; provided, however, that:
(a) CREDITS. Buyer shall receive a credit against the
Balance due at Closing for (i) any principal payments made by Buyer prior to
Closing with respect to any deed of trust secured by the Hospital; (ii) the
portion of the License Payments (as defined in Section B.2.3 of the Management
Agreement) made by Buyer prior to Closing which is applicable to the Purchase
Price according to the Purchase Price Credit Schedule attached as Exhibit A to
the Management Agreement, and (iii) one hundred percent (100%)
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and fifty percent (50%) of the purchase price paid by Buyer for the Nonsurgical
Inventory and the Common Inventory (each as defined in Section A.10.3 of the
Management Subcontract), respectively, in each case, under the terms of the
Management Agreement and the Management Subcontract; and
(b) INTEREST. If the condition set forth in paragraph 7.5
is satisfied prior to satisfaction of the condition set forth in paragraph 7.3,
the Purchase Price shall bear interest at the rate of five percent (5%) per
annum from the date the condition set forth in paragraph 7.5 is satisfied until
Closing.
2.2 ASSUMPTION OF OBLIGATIONS. On and as of the Management Commencement
Date, Buyer shall assume and agrees to pay or perform in accordance with their
terms all of the Assumed Contracts, prorated and paid by Seller or otherwise
adjusted through the Management Commencement Date.
2.2.1 EXCLUSION OF OTHER LIABILITIES OF SELLER. It is
expressly agreed and understood that, except for the Assumed Contracts and
Permitted Encumbrances (as defined in paragraph 7.4.6), Buyer does not assume
and shall not be liable for, nor shall any of the Assets secure or be subject
to or encumbered by, any Seller's Liabilities (as defined in paragraph 3.3).
3. REPRESENTATIONS AND WARRANTIES OF SELLER. As a material part of the
consideration to THC in this transaction, Seller represents and warrants to
Buyer that:
3.1 ORGANIZATION AND GOOD STANDING. Brim and BHI are, and on the Closing
Date will be, corporations duly organized, validly existing and in good
standing under the laws of the State of Oregon with full power and
authorization to conduct the business of the Hospital as conducted as of the
Management Commencement Date and otherwise to conduct business in the State of
Washington.
3.2 AUTHORITY. The execution, delivery and performance of this Agreement
and the consummation of the transactions described in it by Seller and BHI have
been duly authorized and approved by Seller's and BHI's Boards of Directors,
respectively (either specifically or by appropriate grant of general authority),
and by all other necessary corporate and shareholder action on their part.
Each person who executes this Agreement on behalf of Seller and BHI has been
duly authorized to do so by all corporate action of Seller and BHI,
respectively. Seller and BHI have the corporate power and authority to enter
into, deliver and perform this Agreement, and this Agreement, when executed and
delivered by Seller and BHI, will be a valid and binding obligation of each of
them, enforceable against each according to its terms respectively applicable
to each, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws, regulations and authorities from time to
time in effect affecting creditors' rights generally and
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to general principles of equity, whether considered in a proceeding in equity
or at law.
3.3 SELLER'S LIABILITIES. Except for the Assumed Contracts and
Permitted Encumbrances, Buyer shall not be liable for, nor, after Closing, shall
any of the Assets secure or be encumbered by, any debts, liabilities or
obligations of Seller of any kind, accrued, contingent or absolute, due or to
become due, known or unknown, asserted or unasserted (collectively, "Seller's
Liabilities"), including without limitation:
3.3.1 ACTS OR OMISSIONS. Liabilities of Seller for its own acts or
omissions; including, but not limited to, personal injury, property damage,
professional malpractice and intentional torts;
3.3.2 GOVERNMENTAL PROGRAMS. Claims against Seller, the Hospital or
the Assets by the United States government under the Medicare or Medicaid
programs, the State of Washington under the Medicaid program, and any other
third party payors (including HMOs and Blue Cross/Blue Shield), arising out
of the Hospital's operations through the Management Commencement Date or
Seller's actions under the Management Subcontract or any claim under the
Medicare or Medicaid programs for recapture of depreciation generated by the
transactions contemplated hereby (except as otherwise provided in the
Management Agreement or Management Subcontract) and any claim for repayment
of any overpayments made to Seller under the Medicare or Medicaid programs for
services provided prior to the Management Commencement Date;
3.3.3 TAXES. Federal, state, local income or other taxes or
assessments of Seller and the Hospital, including, without limitation, ad
valorem, real property, personal property, sales, use, franchise and other
taxes, payable with respect to the activities, business or operations of Seller
and the Hospital prior to the Management Commencement Date.
3.3.4 DEFICIENCIES. Liabilities and/or capital expenditures
necessary for Buyer to correct or comply with life safety, building or fire
codes, environmental or health care laws or regulations or Joint Commission on
Accreditation of Health Care Organizations deficiencies existing on the
Management Commencement Date;
3.3.5 LITIGATION. Litigation to which Seller is party or which
relates to Seller's operation of the Hospital prior to the Management
Commencement Date or to Seller's actions under the Management Subcontract,
including but not limited to the litigation described on Schedule 3.7;
3.3.6 OTHER LIABILITIES. Any other debt, obligation or liability of
Seller, as it relates to the Hospital and the Assets (other than the Assumed
Contracts and Permitted Encumbrances),
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including but not limited to, (i) long-term debt and (ii) all debts, obligations
and liabilities to current or former officers, directors, shareholders or
employees including but not limited to salaries, wages, contractually obligated
bonuses, vacation days, sick leave, payroll taxes, withholding taxes and other
withholdings from employees and employees' benefit costs relating to the period
prior to the Management Commencement Date, except as otherwise provided in
paragraph 5.8.
3.4 ASSETS.
3.4.1 DESCRIPTION. Schedule A contains a complete and
correct description of the Realty and Schedule 1.1.2 completely and correctly
lists all material items of Personal Property used or held in connection with
the operation of the Hospital.
3.4.2 EXTENT. The Realty is all of the real property owned
by Seller which is used or held in connection with the operation of the
Hospital. The Personal Property includes all material items of such property
necessary for the operation of the Hospital and the conduct of its business as
presently operated and conducted.
3.4.3 CONDITION. All of the Improvements and Personal
Property are being sold in their As-Is condition. Schedule 3.4.3 sets forth
deficiencies in the condition of any of the Improvements or Personal Property
known to Seller on the Management Commencement Date.
3.4.4 TITLE. Seller now has, or prior to Closing will have,
and at Closing will vest in THC good and marketable title to all of the Assets
(including insurable title to the Real Property), free and clear of restrictions
on or conditions to transfer or assignment and free and clear of liens,
encumbrances, security interests, equities, claims, conditions or restrictions
except for the Permitted Encumbrances.
3.5 EFFECT OF AGREEMENT. Neither the execution and delivery of this
Agreement by Seller or BHI, nor the consummation of the transactions described
in it, at the Closing will:
3.5.1 ARTICLES AND BYLAWS. Violate Brim's or BHI's
Certificate of Incorporation or Bylaws;
3.5.2 BREACH OF AGREEMENTS. Violate, constitute a breach of,
cause a default-under, or permit the termination or foreclosure of any
agreement, obligation, liability, mortgage or deed of trust, security agreement
or other lien, charge or encumbrance on or secured by any of the Assets (except
for obligations to be discharged by Seller at Closing), or to which Seller is a
party;
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3.5.3 ACCELERATION OF INDEBTEDNESS. Accelerate or constitute an event
entitling the holder of any indebtedness secured by the Assets or to which
Seller is a party to accelerate the maturity of any such indebtedness or to
increase the rate of interest presently in effect thereon except for obligations
to be discharged by Seller at Closing; or
3.5.4 JUDGMENTS, ETC. Violate, conflict with or result in the breach
of any material judgment, order, writ, injunction, decree or any rule or
regulation of any court, governmental agency or instrumentality affecting the
Hospital or the Assets.
3.6 COMPLIANCE WITH LAW. The Hospital has been operated in substantial
conformity with, and Brim is in substantial compliance with, all federal, state
and local laws, regulations or orders, including without limitation, employment,
insurance, zoning, occupancy, building, occupational and licensure laws,
regulations and orders which affect it.
3.6.1 LICENSES, ETC. Brim holds all rights, permits, authority,
consents, licenses, certificates of need, exemptions, accreditations and the
like, including those necessary to enable it to (i) operate the Hospital as
presently operated and (ii) obtain payment or reimbursement under the Medicare
and Medicaid programs and under all contracts, programs and other arrangements
with third-party payors, insurers or fiscal intermediaries to which Brim is a
party (collectively, the "Licenses"). Brim has provided THC with a complete and
correct list and complete and correct copies of all of the Licenses, showing
their dates of expiration where applicable. The Hospital is duly licensed by the
State of Washington as a hospital, has an existing Medicare Provider Agreement
with the Health Care Finance Administration of the U.S. Department of Health and
Human Services and is certified for participation in the Medicare and Medicaid
programs, all of which licenses, agreements, certifications, contracts and
instruments are in full force and effect. No defaults have occurred thereunder,
and no event has occurred which, with the giving of notice or passage of time or
both, would constitute a material default thereunder.
3.6.2 HAZARDOUS MATERIALS. Except as disclosed in the documents and
reports listed in Schedule 3.6.2, to the best of Seller's knowledge there is and
has been no production, disposal, discharge, release or storage in, on, from,
above, beneath or around the Real Property or the Hospital prior to the
Management Commencement Date of any hazardous or toxic material which would give
rise to liability under any federal, state or local law or regulation or which
would require notification to any authority thereunder. As of the Management
Commencement Date (i) no written notification of a violation of federal, state
or local laws or regulations has been received with respect to the Real Property
or the Hospital, and (ii) there are no proceedings or inquiries, pending or
threatened, before any court, agency, authority or
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tribunal, involving, concerning or affecting the Real Property or the Hospital
in which the violation of any federal, state or local law or regulation
pertaining to hazardous or toxic materials has been determined or is admitted
or is at issue. For purposes of this paragraph 3.6.2, the phrase "hazardous or
toxic materials" includes substances defined as "hazardous substances,"
"hazardous materials," "toxic substances," "hazardous waste," "extremely
hazardous waste," "infectious waste," "reproductively toxic," "biohazardous
waste" or "restricted hazardous waste" when any such substance is improperly
"generated," "stored," "utilized," "heated," "disposed," "discharged,"
"released," "transported," or "managed," as all of those terms are defined by
any federal, state or local statute, ordinance, bylaw, code, rule or regulation
now in effect, applicable to (i) environmental conditions in, on, under,
around, adjacent to or in the vicinity of the Real Property or (ii) any
disposal, discharge, release, transportation or storage, including, without
limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601, ET SEQ.; the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, ET SEQ.; the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, ET SEQ.; the
Federal Water Pollution Control Act, 33 U.S.C. Section 1251, ET SEQ.; and
other federal, state and local laws of similar import or any other substances
having similar effects defined or designated in any regulations adopted and
publications promulgated pursuant to any of those laws as they may have been
amended from time to time on or before the date of this Agreement (collectively,
"Environmental Laws").
Seller further represents and warrants that as of the Management
Commencement Date:
(a) COMPLIANCE. Except with respect to the conditions
that are the subject of the work reflected in that bid dated December 9, 1993,
prepared by Lake Oswego Insulation Company and delivered to Buyer by Seller
(the "Asbestos Work"), Seller and the Real Property are in compliance in all
material respects with all Environmental Laws; and there are no present events
or conditions that are likely to interfere with or otherwise affect continued
compliance by Seller and the Real Property with any Environmental Law;
(b) TANKS. Except as disclosed in Schedule 3.6.2, there
are no underground tanks located at or about the Real Property; and
(c) DISPOSAL. Seller has provided Buyer with complete and
correct information regarding the disposal arrangements used by Seller in
connection with the Hospital.
3.6.3 HILL-BURTON ACT. The Hospital has no obligation to
provide free care pursuant to the Hill-Burton Act (42 U.S.C. Sections 291-2910).
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3.6.4 WARN ACT. Brim has no obligation to provide notice or payments
under the Worker Adjustment and Retraining Notification Act (29 U.S.C. Section
2101 ET SEQ.) and the rules and regulations promulgated thereunder.
3.7 LITIGATION. Except as set forth in Schedule 3.7:
3.7.1 CLAIMS, ACTIONS, ETC. There are no claims, actions, suits,
arbitrations, legal or other proceedings pending or, to the best of Seller's
knowledge, threatened before any court or governmental or administrative body or
agency, or arbitration tribunal, which do, or are reasonably likely to,
adversely affect the Assets or Seller's ability to consummate the transactions
contemplated by this Agreement.
3.7.2 GOVERNMENTAL INVESTIGATIONS. There are no pending or, to the
best of Seller's knowledge, threatened investigations of or claims against (i)
the Hospital or, (ii) any of the Medical Staff members, Board of Directors or
employees of the Hospital by any governmental agency or instrumentality; and
3.7.3 JUDGMENTS. Neither Brim nor BHI is a party to nor is either the
subject of any judgment, order, writ, injunction or decree of any court or
governmental agency or instrumentality which materially affects the Assets or
the condition or operation of the Hospital or the consummation of any of the
transactions described in this Agreement.
3.8 IMPROPER PAYMENTS. Neither Brim nor any of its affiliates, employees
or anyone acting with Seller's authority have, directly or indirectly, since
Brim's acquisition of the Hospital, given or made or agreed to give or make any
illegal commission, payment, gratuity, gift, political contribution or similar
illegal benefit to any customer, supplier, governmental employee or other person
who may be in a position to help or hinder the operation of the Hospital. Brim
has filed no reports with any governmental agency which disclose that it has
participated in any of the foregoing practices or acts giving rise to such
practices.
3.9 EMINENT DOMAIN. There are no pending or, to the best of Brim's
knowledge, threatened proceedings in eminent domain or otherwise affecting any
of the Assets.
3.10 CONTRACTS. Brim has provided THC with a complete and correct list and
complete and correct copies of all material contracts, commitments, leases,
obligations and other agreements applicable to the Hospital or the Assets as of
the Management Commencement Date.
3.11 INSURANCE. Brim has provided THC with a complete and correct list and
a brief description of all policies of fire, extended coverage, liability
(including, without limitation,
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medical malpractice and professional liability) and all other kinds of insurance
held by Seller covering the Assets and the Hospital as of the Management
Commencement Date. These policies are, and will be, maintained in full force and
effect until the Closing Date, subject to Buyer's obligations under the
Management Agreement.
3.12 LABOR ARRANGEMENTS. Except as shown in Schedule 3.12, Brim is not a
party to, bound by or obligated to contribute to, any collective bargaining
agreement or other similar contract with any labor organization, nor is it a
member of or affiliated with any organization, group or association as a result
of which it is bound as to the terms and conditions of employment or its hiring
or termination policies at the Hospital with respect to any of its employees.
Seller has experienced no, and there is no pending or, to the best knowledge of
Seller, threatened labor dispute, strike, work stoppage or slowdown or labor
disturbance affecting the Hospital, nor has there been any labor union
organizing activity at the Hospital within the last three (3) years. There is no
unfair labor practice or other charge or complaint pending, or, to Brim's best
knowledge, threatened against the Hospital, before any court, the National Labor
Relations Board or any other governmental agency.
3.13 PERSONNEL; COMPENSATION. Brim has provided THC with a complete and
correct list showing (i) the names and addresses of all Brim employees at the
Hospital, (ii) the compensation payable to each and (iii) all accrued vacation
time, sick leave and holiday time of each, in each case as of January 31, 1994.
3.14 EMPLOYMENT CONTRACTS AND EMPLOYEE BENEFIT PLANS. Brim has supplied
THC with a complete and correct list and description of all employment contracts
to which Brim is a party or by which it is bound and of all pension, profit
sharing, retirement, savings, deferred compensation, consulting, bonus,
commission, stock option, termination or severance allowance, insurance
(including, without limitation, life, disability, medical, hospitalization and
dental insurance or coverage) and other employee agreements and plans and
benefits, arrangements or other programs providing remuneration or benefits for
employees at the Hospital which are maintained, administered or contributed to
by Brim, including, without limitation, all "employee benefit plans" as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), whether or not funded and whether or not reflected in any
plan documents. To the best of Seller's knowledge, there have been no material
defaults, breaches, omissions or other failings by Seller under any of these
contracts or programs.
3.14.1 NONASSUMPTION. Buyer will have no liability under any of the
arrangements described in paragraph 3.14.
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3.14.2 CERTAIN CONTRIBUTIONS. Neither Brim nor any member of its
controlled group (within the meaning of Section 302(f)(6)(B) of ERISA) presently
has, nor has any such entity ever had, any obligation to contribute to an
employee pension benefit plan referred to in Section 302(a) of ERISA.
3.14.3 CERTAIN PLANS. Neither Brim nor any member of its controlled
group (within the meaning of Section 4001(a)(14) of ERISA) presently are, nor
has any such entity ever been, a contributing sponsor (within the meaning of
Section 4001(a)(13) of ERISA) of a single-employer plan (within the meaning of
Section 4001(a)(15) of ERISA).
3.15 BROKERS. Neither Brim nor BHI has employed, contracted for the services
of, or authorized any broker or finder to find Buyer or to provide services with
respect to the negotiation, execution, delivery or performance of this
Agreement.
3.16 ABSENCE OF CHANGES. Between December 10, 1993 and the Management
Commencement Date there has not been any:
3.16.1 ORDINARY COURSE. Transaction affecting the Assets except in
the ordinary course of the Hospital's business or as contemplated by the
Implementation Plan (as defined in paragraph 5.1.1).
3.16.2 ADVERSE CHANGE. Material adverse change in the Assumed Contracts
or the Assets, except in the ordinary course of business of the Hospital or as
contemplated by the Implementation Plan.
3.16.3 DESTRUCTION, ETC. Destruction, damage or loss (whether or not
covered by insurance) that materially and adversely affects the Assets;
3.16.4 TRANSFER OF ASSETS. Sale, transfer or hypothecation of any of
the Assets except in the ordinary course of the business of the Hospital or as
contemplated by the Implementation Plan;
3.16.5 LITIGATION. Commencement or written notice or, to the best of
Seller's knowledge, threat of any litigation or any governmental proceeding or
investigation which would adversely affect the Assets or the parties' ability to
consummate the transactions contemplated by this Agreement; or
3.16.6 OTHER ADVERSE EVENTS. Other event, occurrence or omission that
has or reasonably might have a material adverse effect on the Assets or Brim's
ability to consummate the transactions contemplated by this Agreement or BHI's
obligations as guarantor.
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3.17 NO UNTRUE REPRESENTATION OR WARRANTY. No representation or warranty
of Seller in this Agreement, and no statement, schedule or certificate
furnished or to be furnished to Buyer pursuant to this Agreement, or in
connection with the transactions described in it, contains or will contain any
untrue statement of a material fact, or omits or will omit to state a material
fact necessary to make the statements contained therein not misleading.
4. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to
Seller that:
4.1 ORGANIZATION AND GOOD STANDING. Buyer is, and on the Closing Date, will
be, a corporation duly organized, validly existing and in good standing under
the laws of the State of Washington. CPC is and on the Closing Date will be a
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada.
4.2 AUTHORITY. The execution, delivery and performance of this Agreement
and the consummation of the transactions described in it by Buyer and CPC have
been duly authorized and approved by Buyer's and CPC's Boards of Directors,
respectively (either specifically or by appropriate grant of general authority),
and by all other necessary corporate action on their part. Each person who
executes this Agreement on behalf of Buyer and CPC has been duly authorized to
do so by all necessary corporate action by Buyer and CPC's respectively. Buyer
and CPC have the corporate power and authority to enter into, deliver, and
perform this Agreement, and this Agreement, when executed and delivered by Buyer
and CPC, will be a valid and binding obligation of each of them enforceable
against each according to its terms respectively applicable to each, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and other similar
laws, regulations and authorities from time to time in effect affecting
creditors' rights generally and to general principles of equity, whether
considered in a proceeding in equity or at law.
4.3 BROKERS. Neither Buyer nor CPC has employed, contracted for the
services of, or authorized any broker or finder to find Seller or to provide
services with respect to the negotiation, execution, delivery or performance of
this Agreement.
4.4 EFFECT OF AGREEMENT. Neither the execution and delivery of this
Agreement by Buyer or of the guaranty by CPC nor the consummation of the
transactions described herein at the Closing will:
4.4.1 ARTICLES AND BYLAWS. Violate Buyer's or CPC's Certificate of
Incorporation or Restated Bylaws;
4.4.2 BREACH OF AGREEMENTS. Violate, constitute a breach of, cause a
default under, or permit the termination or foreclosure of any agreement,
obligation, liability, mortgage or
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deed of trust, security agreement or either lien, charge or encumbrance, to
which Buyer or CPC is a party;
4.4.3 ACCELERATION OF INDEBTEDNESS. Accelerate or constitute an event
entitling the holder of any indebtedness of Buyer or CPC, to accelerate the
maturity of any such indebtedness or to increase the rate of interest presently
in effect thereon; or
4.4.4 JUDGMENTS, ETC. Violate, conflict with or result in the breach
of any judgment, order, writ, injunction, decree, or, to the best knowledge of
Buyer, any rule or regulation of any court, governmental agency or
instrumentality affecting Buyer or CPC.
4.5 ADVERSE CHANGE. Since December 10, 1993, there has been no material
adverse change in the financial condition of THC or CPC which would affect THC's
ability to consummate the transactions described in this Agreement or CPC's
obligations as guarantor.
4.6 LITIGATION. Except as disclosed in Schedule 4.6, there are no claims,
actions, suits, arbitrations, legal or other proceedings pending, or to the best
of Buyer's knowledge, threatened before any court or governmental or
administrative body or agency, or arbitration tribunal, which adversely affects
THC's ability to consummate the transactions contemplated by this Agreement.
4.7 NO UNTRUE REPRESENTATION OR WARRANTY. No representation or warranty by
Buyer in this Agreement and no statement or certificate furnished or to be
furnished to Seller pursuant to this Agreement, or in connection with the
transactions described in it, contains or will contain any untrue statement of a
material fact, or omits or will omit to state a material fact necessary to make
the statements contained therein not misleading.
5. COVENANTS OF SELLER. Seller covenants and agrees that:
5.1 CONDUCT OF BUSINESS PENDING THE MANAGEMENT COMMENCEMENT DATE. From the
date of this Agreement to the Management Commencement Date, Seller shall:
5.1.1 OPERATION OF HOSPITAL. Undertake the actions required by the
implementation plan attached to this Agreement as Schedule 5.1.1 (the
"Implementation Plan");
5.1.2 PRESERVATION OF ORGANIZATION. Use its best efforts to preserve the
goodwill of all suppliers, physicians, employees, providers and others with
whom it has business relationships and with whom Buyer has advised Seller that
it intends to have ongoing relationships after the Management Commencement Date;
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5.1.3 MAINTENANCE OF ASSETS. Preserve and maintain the Assets in the
same condition and repair as on the date of this Agreement;
5.1.4 LIABILITIES. Not incur any obligation or liability which
encumbers or is secured by any of the Assets; and
5.1.5 ALIENATION OF ASSETS. Not sell, transfer, distribute or encumber
any of the Assets, except in the ordinary course of business of the Hospital as
it is now conducted.
5.2 PAYMENT OF LIABILITIES. Seller shall timely pay as and when due all
expenses, costs and liabilities arising from the business and operation of the
Hospital prior to the Management Commencement Date. On or before Closing, Seller
shall provide for the payment in full of all liabilities which encumber or are
secured by any of the Assets, other than liabilities created by Buyer after the
Management Commencement Date and liabilities arising after the Management
Commencement Date under any of the Assumed Contracts and Permitted Encumbrances.
Escrow Holder is hereby authorized and directed at the Closing to pay in full,
from funds otherwise payable to Seller on the Closing Date, all of Seller's
Liabilities which are made known to Escrow Holder in a writing signed by Buyer
and Seller as of or prior to the closing, which are secured by any of the Assets
and which Seller is obligated to discharge as of the Closing in accordance with
the terms of this Agreement; provided, however, that such authority of and
direction to Escrow Holder shall not in any way release Seller of Seller's
obligations under the first sentence of this paragraph 5.2.
5.3 MAINTAIN REPRESENTATIONS AND WARRANTIES. Seller shall not take any
action which would disable or prevent it from affirming, pursuant to paragraph
7.1, that the representations and warranties contained in paragraph 3 are true
and correct in all material respects at and as of the Closing Date as if made on
that date.
5.4 LICENSES. Seller shall use all reasonable efforts to assist Buyer in
applying for and obtaining the Certificate of Need Letter and the Licensure
Letter (each as defined in paragraph 6.4). Brim shall be responsible, at its
sole cost, to file a Plan of Correction satisfactory to the Washington
Department of Health, Licensing Administration (the "Licensing Administration")
and to cure all deficiencies cited in the Statement of Deficiencies and Plan of
Correction for the survey of the Hospital conducted by the Licensing
Administration on February 16-17, 1994.
5.5 CONSENTS. Seller shall, at no cost to Buyer, promptly obtain all
waivers, consents and approvals (collectively, the "Consents") necessary to
effect the assignment to and assumption by Buyer of the rights and obligations
of Seller under, and
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contracts included in, the Assumed Contracts and the Permitted Encumbrances.
5.6 LIABILITIES. Seller shall not incur any obligation or liability which
encumbers or is secured by any of the Assets, except in the ordinary course of
business in accordance with the Management Subcontract.
5.7 INSURANCE. Subject to Buyer's obligations under the Management
Agreement, Seller shall maintain in full force and effect through the Closing
Date all policies of insurance relating to the Assets and the Hospital now in
effect and will cooperate with Buyer in the giving of all notices and
presentation of all claims under such policies of insurance in a timely fashion
through the Closing Date.
5.8 TERMINATION OF EMPLOYMENT; PAYMENT OF ACCRUED COMPENSATION.
Effective immediately prior to the Closing Date, Seller shall terminate the
employment of all employees employed by Seller at the Hospital. At Closing,
Seller shall provide for (i) all salary, wages, vacation pay, sick leave and
other benefits, remuneration and emoluments due these employees and (ii) all
liabilities with respect to such employees accruing under any employment or
other contracts, employee benefit plans (including COBRA benefits) or
arrangements providing for payment of compensation or emoluments in any form to
such employees, in each case through the Management Commencement Date, on
account of their employment by Seller; provided that Seller may pay health
insurance claims as and when due; and provided further that any such accrued
vacation pay and sick leave benefits shall be applied to the Balance due from
Buyer at Closing, and Buyer shall assume and pay such amounts as and when due
after the Closing Date, to the extent not used by the employee during the term
of the Management Agreement. Seller shall further provide written notice to each
employee that effective as of the Closing Date, such employee shall accrue no
further compensation or emoluments in any form under any employment or other
contracts, employee benefit plans or arrangements with Seller, but shall instead
be entitled solely to such compensation and emoluments as may be provided
pursuant to such employee's employment by THC, as determined by THC. Seller
shall not be liable, nor shall Buyer be relieved of its obligations under this
Agreement, if any such employee leaves the employ of Seller prior to Closing,
elects not to accept employment from Buyer or terminates employment with Buyer
following Closing (except as a result of a breach by Seller of paragraph
5.12.1(b)).
5.9 FILING OF REPORTS. Seller will cause to be timely filed in the ordinary
course of business after review by Buyer, all cost reports of every kind
whatsoever required by law (including the "Stub Period" Cost Report required to
be filed upon sale of a facility) or required by written or oral contract or
otherwise to have been filed or made relating to services provided by Seller and
Buyer prior to the Closing Date, including without limitation those
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required as a result of this Agreement and those which may be timely filed
after the Closing Date relating to services provided prior to Closing. For the
period prior to the Management Commencement Date, Seller shall assume and shall
indemnify, defend and hold Buyer harmless from any liability shown on or
incurred as a result of such reports and shall be entitled to receive any refund
or other benefit which may result therefrom. For the period following the
Management Commencement Date, Buyer shall assume and shall indemnify, defend
and hold Seller harmless from any liability shown on or incurred as a result of
such report (other than any depreciation recapture due and owing from Seller as
a result of this transaction which shall be and remain the responsibility of
Seller unless otherwise provided in the Management Agreement and the Management
Subcontract) shown on or incurred as a result of such reports and shall be
entitled to receive any refund or other benefit which may result therefrom
except as otherwise provided in the Management Agreement and the Management
Subcontract. The timely filing by Seller of its cost reports, even if filed
after the Closing Date, shall not be deemed a default of this Agreement unless
Buyer is unable to obtain the Certificate of Need Letter or the Licensure Letter
because of Seller's failure to make such filing prior to Closing.
5.10 SATISFACTION OF CONDITIONS PRECEDENT. Seller, in addition to specific
obligations set forth elsewhere in this paragraph 5, shall use its best efforts
to satisfy or cause to be satisfied all of the conditions precedent set forth in
paragraph 7.
5.11 PRELIMINARY TITLE REPORT. Seller shall bear the sole cost and expense
of providing Buyer with a preliminary title report (the "PTR") from Chicago
Title Insurance Company (the "Title Company") together with legible copies of
all documents of record referred to therein, pursuant to which the Title Company
commits, upon payment of its usual and customary premium and satisfaction of any
other Title Company requirements, to issue its Standard Coverage Owner's Title
Insurance Policy (the "Title Policy") covering the Real Property, insuring
Buyer's interest in the Realty, free and clear of all covenants, conditions,
restrictions, rights, rights of way, easements, liens, encumbrances or any other
matters affecting title to or use of the Real Property, except the Permitted
Encumbrances and the customary terms and conditions of such Title Policy.
5.12 NONCOMPETITION AND NONSOLICITATION COVENANTS.
5.12.1 COVENANTS.
(a) NONCOMPETITION COVENANT. Seller and BHI each agree for a period
beginning on the Closing Date and ending on the fifth (5th) anniversary of the
Closing Date (the "Restricted Period"), that within a twenty-five (25) mile
radius of the Hospital (the "Restricted Area") it will not, and will not permit
any person or entity controlling, controlled by or under common
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control with it to, either jointly or individually, directly or indirectly,
compete with THC in the operation of any long-term acute care facility which
primarily provides long-term acute care services for medically complex
conditions including, without limitation, ventilator and respiratory care,
nutritional counseling, oncology support and wound care and other conditions
which require frequent visits by an attending physician, high degrees of
nursing, respiratory, rehabilitative and similarly intensive therapies and care,
or which is defined in section 412.23(e) of Subpart B of Part 412 of Subchapter
B of Chapter IV of Title 42 of the Code of Federal Regulations (individually and
collectively, a "Competing Business"), nor will it own, manage, operate, join,
control, advise, consult with, assist or otherwise participate in the ownership,
operation, management or control (other than as a shareholder owning less than
5% of the capital stock of an entity whose stock is publicly traded on a
national exchange) of any entity or business engaged in a Competing Business or
lease or sell property to a Competing Business in the Restricted Area during the
Restricted Period.
(b) NONSOLICITATION COVENANT. Seller and BHI each agree that
during the Restricted Period it will not, either jointly or individually
solicit any of THC's patients or employees within the Restricted Area.
5.12.2 TRANSFERABILITY. Seller and BHI each agree that each of
the covenants contained in paragraph 5.12.1 (the "Covenants") are personal to
Buyer and shall not inure to the benefit of any person, firm or business entity
to whom the ownership and operation of the Hospital may be transferred except an
Affiliate (as defined in paragraph 12.12) of Buyer.
5.12.3 SEVERABILITY. It is agreed that the scope of each of the
Covenants is reasonable both in time and area, and the Covenants are fairly
necessary to protect the investment of THC and CPC hereunder. Nevertheless, it
is further agreed that the Covenants shall be regarded as severable and shall be
operative as to time and area to the extent that they may be made so operative,
and if any part of them is declared invalid or unenforceable as to time or
area, the validity and enforceability of the remainder shall not be affected.
5.12.4 INJUNCTION. It is further agreed that THC and CPC will suffer
irreparable injury for which they will have no adequate remedy at law as a
result of the breach, of any of the Covenants, and that THC and CPC shall
therefore be entitled to seek specific performance and injunctive relief in the
event of such breach.
5.13 RETENTION OF BOOKS AND FILES. Brim shall maintain all books and files
not included in the Assets as and for the period required by applicable laws and
regulations and shall be
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responsible for responding to any inquiries from THC and any third parties
regarding such books and files, subject to applicable laws of confidentiality
and privacy.
5.14 PATIENT CHARTS. Seller shall use its best efforts to cause the
completion of all incomplete patient charts as of the Management Commencement
Date, if any, as soon as is reasonably possible after the Management
Commencement Date.
5.15 CONSULTING SERVICES. For a period of five (5) years after the
Closing Date, Brim shall provide consulting services to THC and the Hospital, on
an as-needed basis, in connection with the operation of the Hospital.
5.16 SELLER'S CERTIFICATE. At Closing, Seller shall execute and
deliver to Buyer a certificate ("Seller's Certificate") signed by an authorized
officer of Brim, dated as of the Closing Date, to the effect that each of its
representations and warranties set forth in this Agreement are true and correct
in all material respects at and as of the Closing Date and that each of the
covenants, conditions and agreements to be performed or complied with by Seller
and BHI as of the Closing Date have been so performed or complied with in all
material respects, and that, to the best knowledge of such signatory, there is
no fact or condition which would cause Seller to be in material breach of any of
the covenants, representations or warranties as of the Closing Date. The
execution and delivery of the Seller's Certificate by Seller shall not limit its
liabilities and obligations after the Closing Date.
6. COVENANTS OF BUYER. Buyer covenants and agrees that:
6.1 MAINTENANCE OF RECORDS; ACCESS BY SELLER. Subject to the applicable law
of confidentiality and privacy, Buyer shall maintain all business records of the
Hospital and make such records available for use by Seller as needed. Access to
such records shall be during normal business hours, with prior notice to Buyer
of the time when such access shall be needed. Seller's employees,
representatives and agents shall conduct themselves in such a manner as not
unnecessarily or unreasonably to disrupt Buyer's normal business activities.
6.2 SATISFACTION OF CONDITIONS PRECEDENT. Buyer, in addition to specific
obligations set forth elsewhere in this paragraph 6, will use its best efforts
to satisfy or cause to be satisfied all of the conditions precedent which are
set forth in paragraph 8.
6.3 MAINTAIN REPRESENTATIONS AND WARRANTIES. Buyer shall not take any action
which would disable or prevent it from affirming, pursuant to paragraph 8.1,
that the representations and warranties contained in paragraph 4 are true and
correct in all
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material respects at and as of the Closing Date as if made on that date.
6.4 LICENSES. No later than the later of (i) thirty (30) days after Buyer's
receipt from Seller of all documentation and information required from Seller
for Buyer to complete a Certificate of Need application or (ii) May 15, 1994,
Buyer, at its sole cost and expense, will apply to the Washington Department of
Health, Certificate of Need Division ("the CON Division") for a letter stating
that a certificate of need will be granted to operate the Hospital as
contemplated by this Agreement (the "Certificate of Need Letter"), and
thereafter Buyer, at its sole cost and expense, will proceed with all due
diligence to obtain the Certificate of Need Letter and a letter from the
Licensing Administration stating that a hospital license will be issued to THC
for operation of the Hospital as contemplated by this Agreement upon proof of
Closing (the "Licensure Letter").
6.5 BUYER'S CERTIFICATE. At Closing Buyer shall execute and deliver to
Seller a certificate ("Buyer's Certificate") signed by an authorized officer of
Buyer, dated as of the Closing Date, to the effect that each of its
representations and warranties set forth in this Agreement are true and correct
in all material respects at and as of the Closing Date and that each of the
covenants, conditions and agreements to be performed or complied with by THC and
CPC as of the Closing Date have been so performed or complied with in all
material respects, and that, to the best knowledge of such signatory, there is
no fact or condition which would cause Buyer to be in material breach of any of
its covenants, representations or warranties as of the Closing Date. The
execution and delivery of the Buyer's Certificate by Buyer shall not limit any
of Buyer's liabilities and obligations following the Closing Date.
6.6 NAME CHANGE. If Buyer changes the name of the Hospital after Closing,
the words "Fifth Avenue Hospital" shall be part of such name unless otherwise
agreed by Seller.
6.7 ASBESTOS WORK. THC shall assume full responsibility for completion of
and payment for the Asbestos Work.
6.8 REAL PROPERTY. Buyer shall order a survey of the Real Property (the
"Survey") within five (5) business days after mutual execution of this
Agreement. Buyer shall bear the sole cost and expense of the Survey and the
additional cost of extended coverage title insurance, if Buyer elects to obtain
such extended coverage.
7. BUYER'S CONDITIONS PRECEDENT TO CLOSING. Buyer's obligations to purchase the
Assets, pay the Balance and perform its other obligations under this Agreement
are subject to the occurrence of or compliance with each of the following
conditions, all of which are for the sole benefit of and may be waived by
Buyer in its absolute discretion:
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7.1 WARRANTIES TRUE AND CORRECT; PERFORMANCE OF COVENANTS. Each of the
representations and warranties of Seller set forth in this Agreement shall be
true and correct in all material respects at and as of the Closing Date, and the
covenants, agreements and conditions required by this Agreement to be performed
and complied with by Seller and BHI as of the Closing Date shall have been
performed and complied with in all material respects.
7.2 LITIGATION. No litigation or governmental investigation, proposed or
pending, shall have been commenced or threatened by persons other than Buyer,
CPC or their affiliates with regard to the transactions described in this
Agreement, which if successful, would have a material adverse effect on the
operations or financial condition of the Hospital or the Assets or Brim's
ability to consummate the transactions contemplated by this Agreement or BHI's
guaranty hereunder.
7.3 LICENSES. THC shall have obtained the Certificate of Need Letter and all
applicable appeal periods shall have expired, and THC shall have obtained the
Licensure Letter so that, upon proof of Closing, the Licenses shall be obtained
and they shall be in full force and effect.
7.4 REAL PROPERTY. Buyer shall have approved title to the Real Property, and
the Title Company shall have irrevocably committed to issue the Title Policy
pursuant to the following procedure:
7.4.1 BUYER'S OBJECTIONS TO TITLE. Within fifteen (15) days (the
"Approval Period") after actual receipt by Buyer of the Survey, Buyer shall
notify Seller in writing of any exceptions disclosed in the PTR or the Survey
other than the Permitted Encumbrances described in paragraph 7.4.6(i) and (iii),
of which Buyer disapproves. If Buyer fails so to notify Seller of its
disapproval during the Approval Period, Buyer shall be conclusively deemed to
have approved the condition of title to the Real Property.
7.4.2 SELLER'S OPTIONS. In case of any disapproval by Buyer pursuant to
paragraph 7.4.1, Seller shall have five (5) business days from receipt of
Buyer's notice of disapproval to inform Buyer in writing whether Seller will
cure the disapproved item to Buyer's reasonable satisfaction prior to the
Closing Date. The term, "to Buyer's reasonable satisfaction" shall mean, and be
satisfied by, the deletion of or endorsement over any exception with respect to
such matter in the Title Policy.
(a) CURE. If Seller agrees that the disapproved item will be so
cured or fails so to notify Buyer within the requisite five (5) business-day
period, such cure shall be an obligation of Seller and a condition to the
Closing for the benefit of, and at no cost to, Buyer.
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(b) NO CURE. If Seller does not agree so to cure any disapproved
item, Buyer shall have five (5) business days from the expiration of Seller's
five (5) business-day notice period, to inform Seller in writing whether buyer
will waive its disapproval of such disapproved item. If Buyer does not so
notify Seller, such item shall be deemed disapproved and this Agreement may be
terminated pursuant to paragraph 7.4.5.
7.4.3 SUPPLEMENTAL EXCEPTIONS. The procedure described in paragraph
7.4.2 shall apply if exceptions to title are disclosed in supplements to the
PTR, the Survey or otherwise become known to Buyer following the date of this
Agreement (each, a "Supplemental Exception"), except that the Approval Period
shall be five (5) business days from Buyer's receipt of the documents evidencing
and underlying the Supplemental Exception.
7.4.4 MONETARY LIENS. Paragraphs 7.4.1 and 7.4.3 to the contrary
notwithstanding, any exceptions to title shown in the PTR, other than taxes and
assessments not yet due and payable, representing monetary liens or encumbrances
are hereby disapproved and, unless Seller delivers to Escrow Holder evidence of
prior payment thereof, Escrow Holder is hereby authorized and directed at the
Closing to pay in full from funds otherwise payable to Seller on the Closing
Date the obligations underlying such monetary exceptions to title. Nothing in
this paragraph 7.4.4 releases Seller of its obligations pursuant to paragraph
5.2.
7.4.5 EFFECTS OF DISAPPROVALS. If (i) Buyer disapproves any items in
accordance with paragraphs 7.4.1 or 7.4.3, (ii) Seller does not agree and is
not deemed to have agreed to cure them and (iii) Buyer does not waive them,
Buyer or Seller may terminate this Agreement by written notice to the other and
the Escrow Holder, in which event (a) Buyer shall be entitled to the Deposit and
(b) except as otherwise provided in this Agreement, such termination shall be
without prejudice to the rights of the parties as they may appear.
7.4.6 PERMITTED ENCUMBRANCES. "Permitted Encumbrances" means (i) ad
valorem real property taxes which are a lien not yet due and payable, (ii) the
exceptions to title which are approved or deemed approved pursuant to paragraphs
7.4.1 and 7.4.3, and (iii) matters caused, created or expressly approved in
writing by Buyer.
7.4.7 TITLE POLICY. Buyer's title to the Realty shall be insurable
by the Title Policy with liability not less than the value of the
consideration allocated to the Real Property set forth in Schedule 2, free and
clear of all covenants, conditions, restrictions, rights, rights of way,
easements, liens, encumbrances or any other matters affecting title to or use of
the Real Property, except the Permitted Encumbrances. Escrow Holder shall have
delivered a marked up PTR to Buyer at the closing.
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7.5 REIMBURSEMENT. The Hospital shall have been designated as a long-term
care hospital (as defined in section 412.23(e) of Subpart B of Part 412 of
Subchapter B of Chapter IV of Title 42 of the Code of Federal Regulations) and
there shall have been no material change in the manner in which such hospitals
are reimbursed under the Medicare program as of the date of this Agreement;
provided, however, that if this condition is not satisfied, concurrently with
return of the Deposit to Buyer pursuant to paragraph 2.1.1(b), Buyer shall pay
to Seller as full and complete liquidated damages, the sum of Three Hundred
Fifty Thousand Dollars ($350,000), and Seller shall have no further rights or
remedies against Buyer.
7.6 ASSUMPTION AGREEMENT. Buyer and Seller shall have executed an assumption
agreement whereby, as of the Management Commencement Date, Buyer shall assume
all of Seller's rights and obligations under the Assumed Contracts,
substantially in the form of Schedule 7.6 (the "Assumption Agreement").
7.7 DAMAGE OR DESTRUCTION; TAKING. No material portion of the Assets shall
have been destroyed or taken by eminent domain; provided, however, that Buyer
may exercise its option set forth in paragraph 12.7.
8. SELLER'S CONDITIONS PRECEDENT TO CLOSING. Seller's obligation to sell the
Assets is subject to payment at the Closing of the Balance (as adjusted pursuant
to paragraph 2.1.2) and the occurrence of or compliance with each of the
following conditions, all of which are for the sole benefit of Seller and may be
waived by Seller in its absolute discretion:
8.1 WARRANTIES TRUE AND CORRECT; PERFORMANCE OF COVENANTS. Each of the
representations and warranties of Buyer set forth in this Agreement shall be
true and correct in all material respects at and as of the Closing Date, and the
covenants, agreements, and conditions required by this Agreement to be performed
and complied with by Buyer and CPC shall have been performed and complied with
in all material respects.
8.2 ASSUMPTION AGREEMENT. Buyer and Seller shall have executed the
Assumption Agreement.
8.3 LITIGATION. No litigation or governmental investigation, proposed or
pending, shall have been commenced or threatened by persons other than Seller,
BHI or their affiliates with regard to the transactions described in this
Agreement, which if successful, would have a material adverse effect on Buyer's
ability to consummate the transactions contemplated by this Agreement or CPC's
guaranty hereunder.
9. CLOSING. "Closing" means the transfer of all of the Assets from Seller to
Buyer, the payment of the Purchase Price to Seller and assumption of the Assumed
Contracts by Buyer. The Closing
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shall occur at the offices of Riddell, Williams, Bullitt & Walkinshaw, 1001
Fourth Avenue Plaza, Suite 4500, Seattle, Washington 98154 within five (5)
business days after all conditions to Closing have been satisfied or waived by
the appropriate party (the "Closing Date"), unless extended by mutual agreement
of the parties.
9.1 OBLIGATIONS OF SELLER AT CLOSING. At Closing, Seller shall deliver to
Buyer (unless otherwise indicated) all of the following documents and
instruments, in form and substance reasonably satisfactory to THC and its
counsel, against delivery of the items specified in paragraph 9.2;
9.1.1 WARRANTY DEED. To Escrow Holder, a statutory warranty deed in the
form of Schedule 9.1.1 (the "Warranty Deed"), properly executed by Brim and in
recordable form, conveying to Buyer fee simple title to the Real Property in the
condition contemplated by paragraph 3.4.4;
9.1.2 ADDITIONAL DOCUMENTS. To Escrow Holder, such instruments and
documents as are deemed reasonably necessary by the Title Company to deliver the
Title Policy;
9.1.3 BILL OF SALE. A Bill of Sale for the Personal Property in
substantially the form of Schedule 9.1.3, together with such other documents,
duly executed as may be necessary to effect their transfer at Closing;
9.1.4 SELLER'S CERTIFICATE. A duly executed Seller's Certificate;
9.1.5 FIRPTA CERTIFICATE. An Affidavit of Non-Foreign Status duly
executed by Brim pursuant to Section 1445 of the Internal Revenue Code of 1986,
as amended, in the form of attached Schedule 9.1.5 (the "FIRPTA Certificate");
9.1.6 RESOLUTIONS. Copies of the resolutions of the Board of Directors
and shareholders of Brim and the Board of Directors of BHI, duly certified by
their respective secretaries in form reasonably satisfactory to THC's counsel,
authorizing the execution, delivery and performance of this Agreement and all
actions to be taken by Seller and BHI hereunder;
9.1.7 ASSUMPTION AGREEMENT. The Assumption Agreement, duly executed by
Seller;
9.1.8 SELLER'S CLOSING COSTS. Such sums as are necessary to pay the
costs, fees and prorations, if any, owing by Seller pursuant to paragraphs 9.3
and 9.4 (collectively, "Seller's Closing Costs") will be deducted by Escrow
Holder from the Balance and used for immediate distribution to the appropriate
parties on the Closing Date. Seller shall provide or cause the Title Company
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to provide Buyer with a closing statement in customary form at least one (1)
day prior to Closing; and
9.1.9 INSTRUCTIONS TO ESCROW HOLDER. To the Escrow Holder, written
instructions, duly executed by Seller, instructing Escrow Holder to disburse the
Deposit to Seller.
9.2 OBLIGATIONS AT CLOSING. Buyer shall deliver to Seller (unless otherwise
indicated) all of the following against delivery of the items specified in
paragraph 9.1:
9.2.1 BALANCE OF PURCHASE PRICE. To Escrow Holder, the Balance (as
adjusted pursuant to paragraph 2.1.2) in funds immediately available in Seattle,
Washington;
9.2.2 BUYER'S CERTIFICATE. A duly executed Buyer's Certificate;
9.2.3 RESOLUTIONS. Copies of resolutions of the Boards of Directors of
Buyer and CPC, duly certified by their respective Secretaries in form reasonably
satisfactory to counsel for Seller, authorizing the execution, delivery and
performance of this Agreement and all actions to be taken by Buyer and CPC
hereunder;
9.2.4 ASSUMPTION AGREEMENT. The Assumption Agreement, duly executed by
Buyer;
9.2.5 BUYER'S CLOSING COSTS. To Escrow Holder, such sums as are
necessary to pay the costs, fees and prorations, if any, owing by Buyer pursuant
to paragraphs 6.8, 9.3 and 9.4 (collectively, "Buyer's Closing Costs") for
immediate distribution to the appropriate parties on the Closing Date. Buyer
shall provide or cause the Title Company to provide Seller with a closing
statement in customary form at least one (1) day prior to Closing; and
9.2.6 INSTRUCTIONS TO ESCROW HOLDER. To the Escrow Holder, written
instructions, duly executed by Buyer, instructing Escrow Holder to disburse the
Deposit to Seller.
9.3 COSTS AND EXPENSES. All costs and expenses with respect to the
transactions described in this Agreement shall be borne as follows and paid on
or before Closing:
9.3.1 TRANSFER, EXCISE AND SALES TAX. Seller shall pay the cost of any
documentary stamp, transfer or excise tax imposed on the conveyance of the Real
Property and Buyer shall pay any sales tax imposed on the conveyance of the
Personal Property, in each case based on the value of the consideration
allocated to the Real Property and the Personal Property, respectively, as set
forth in Schedule 2.
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9.3.2 PTR AND TITLE POLICY COSTS. Seller shall pay any costs to issue
the PTR and the Title Policy. Buyer shall pay the additional cost of
extended coverage, if it desires such extended coverage.
9.3.3 RECORDING COSTS. Buyer shall pay the cost of recording the
Warranty Deed and any other instrument or document required to be recorded.
9.3.4 OTHER COSTS. Any other costs shall be allocated in accordance with
customary procedures in King County, Washington.
9.4 PRORATIONS. All nondelinquent real property taxes on the Real
Property and personal property taxes shall be prorated on the Closing Date as of
the Management Commencement Date. Seller shall pay any assessments on the Real
Property arising or relating to the period prior to the Management Commencement
Date. Buyer shall pay any assessments on the Real Property arising or relating
to the period on or after the Management Commencement Date. All delinquent real
property taxes and assessments on the Real Property as of the Management
Commencement Date shall be paid by Seller prior to the Closing Date.
9.5 OBLIGATIONS OF ESCROW HOLDER AT CLOSING. At the Closing, Buyer and
Seller shall cause Escrow Holder to do all of the following:
9.5.1 RECORDATION OF DOCUMENTS. Record the Warranty Deed and any
other documents required to be recorded in the Official Records of King County,
Washington.
9.5.2 DELIVERIES TO SELLER. Deliver to Seller (i) the Deposit and the
Balance (less Seller's Closing Costs and less such sums as are necessary to pay
in full all obligations underlying the monetary exceptions to title described in
paragraph 7.4.4 and all Seller's Liabilities described in paragraph 5.2) by
confirmed wire transfer or cashier's check drawn on a bank reasonably acceptable
to Seller.
9.5.3 DELIVERIES TO BUYER. Deliver to Buyer (i) any remaining funds
(less Buyer's Closing Costs), (ii) the marked up PTR, (iii) a photocopy of the
Warranty Deed, and (iv) copies of any other documents to be recorded.
9.5.4 PAYMENTS TO THIRD PARTIES. Pay to the appropriate third parties
prorated payments, as applicable and payments described in paragraphs 5.2 and
7.4.4.
9.6 DUTIES OF ESCROW HOLDER. The parties agree that Escrow Holder shall
act in such capacity, subject to the following terms and conditions:
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9.6.1 DISBURSEMENT. In the event of an occurrence wherein either party
is entitled to the Deposit, then upon written demand by that party for
disbursement (the "Disbursement Demand"), Escrow Holder shall, within five
(5) business days thereafter, cause to be delivered to the other party such
Disbursement Demand. In the event that Escrow Holder does not receive an
objection to disbursement from the other party within five (5) business days
after such party's receipt of the Disbursement Demand, then Escrow Holder is
authorized to disburse the Deposit to the party making the Disbursement Demand.
In the event Escrow Holder receives conflicting instructions, or in the event
of any dispute under this Agreement between the parties concerning the Deposit,
Escrow Holder may either (i) bring an interpleader action in the Superior Court
of King County, Washington or (ii) retain the Deposit in the Escrow pending
settlement of the dispute between the parties; provided, however, that if any
such dispute has not been resolved within ten (10) days of Escrow Holder's
receipt of a Disbursement Demand, Escrow Holder must file its interpleader
action within five (5) business days thereafter unless Escrow Holder receives
written instructions from Buyer and Seller to retain the Deposit in the Escrow,
which instructions may specify a period of time during which Escrow Holder shall
continue to hold the Deposit in the Escrow. Either Buyer or Seller subsequently
may give written instructions to Escrow Holder to file its interpleader action
so long as any time period specified in prior written instructions has expired.
The interpleading of the Deposit into the registry of the Superior Court shall
release Escrow Holder from any further or continuing liability with respect to
the disposition of the Deposit.
9.6.2 INDEMNIFICATION. Seller and Buyer, jointly and severally, agree to
defend, indemnify and hold Escrow Holder harmless from and against any and all
damages, liabilities and expenses, including court costs and attorneys' fees,
incurred by Escrow Holder as a result of the exercise of its duties as Escrow
Holder, unless such damages, liabilities and expenses arise out of Escrow
Holder's gross negligence or willful misconduct.
9.6.3 INVESTMENT. Escrow Holder is authorized and directed to invest the
Deposit as instructed by Buyer. Seller and Buyer agree that Escrow Holder is not
liable or responsible for any loss of the Deposit, in whole or in part, whether
principal or interest, which occurs due to a failure of the institution in which
Escrow Holder is directed to invest the Deposit, a decline in the market value
of the investment Escrow Holder is directed to make, the failure of the
Federal Deposit Insurance Corporation, or any other insuring governmental
entity, or its inability or refusal to replace the Deposit pursuant to
applicable regulations, or the misappropriation or defalcation of the Deposit by
any person who is not an employee of Escrow Holder.
9.6.4 ESCROW FEE. Escrow Holder's fee will be paid by Buyer and Seller
in equal shares.
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9.6.5 AUTHORIZED DISCLOSURE. Escrow Holder may disclose the respective
interests of Buyer and Seller in the Deposit to persons authorized by state or
federal law to obtain such information.
9.7 "DROP DEAD" DATE. Notwithstanding anything to the contrary
contained herein, this Agreement shall terminate in the event that Closing has
not occurred on or before May 1, 1996 (the "Drop Dead Date"); provided,
however, that the parties shall extend the Drop Dead Date for a reasonable
period of time if THC is then involved in litigation or other proceedings with
respect to obtaining the Certificate of Need Letter or the Licensure Letter or
if THC otherwise is actively engaged in the Certificate of Need or licensure
approval process; and provided further that the Drop Dead Date may, in any
event, be extended by mutual agreement.
10. INDEMNIFICATION.
10.1 INDEMNIFICATION.
10.1.1 BY SELLER. Seller shall, on demand in accordance with this
paragraph 10, indemnify, defend and hold Buyer, CPC and their respective
employees, agents, representatives, successors and assigns, harmless from,
against and in respect of any and all claims, losses, costs, expenses,
liabilities and damages, including without limitation interest, penalties,
reasonable attorneys' fees and costs of suit (the "Claims" and each a "Claim"),
that any of them shall incur or suffer in connection with (i) the claims of
any third party, including but not limited to Seller's employees, against any of
them for Seller's Liabilities, including without limitation those described in
paragraphs 3.3.1 through 3.3.6; (ii) the termination by Seller of employment,
employment contracts and employment benefit plans pursuant to paragraph 5.8 and
any other employment termination claim, and (iii) the material breach by Seller
or BHI of any warranty, covenant or agreement or the untruth in any material
respect of any representation made by Seller in this Agreement.
10.1.2 BY BUYER. THC shall, on demand in accordance with this
paragraph 10, indemnify, defend and hold Seller, BHI and their respective
employees, agents, representatives, successors and assigns, harmless from,
against and in respect of any and all Claims that any of them shall incur or
suffer in connection with (i) the claims of any third party for alleged
liabilities or obligations of Seller arising out of Buyer's operation of the
Hospital on or after the Management Commencement Date and not attributable to
any act or omission of Seller; (ii) any liability for salary, severance pay or
other benefits arising from the employment by THC of any former employee of
Seller and attributable to any period following the Management Commencement Date
and not attributable to any act or omission of Seller; (iii) the material breach
by Buyer or CPC of any covenant, agreement or warranty or
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the untruth in any material respect of any representation made by THC herein;
or (iv) any liabilities of Buyer arising after the Management Commencement and
not attributable to any act or omission of Seller.
10.2 LIABILITY LIMITATION. The indemnities contained in paragraphs
10.1.1 and 10.1.2 shall be limited, however, to the amount in excess of
insurance coverage for the respective claim so that neither Seller nor Buyer
shall have liability or responsibility for amounts that are covered by any
insurance policy. Nothing in this Agreement shall be construed to limit the
liability of Buyer and Seller under the Management Agreement or the Management
Subcontract.
10.3 NO LIMITATION OF OTHER REMEDIES. The indemnities in paragraphs 10.1.1
and 10.1.2 shall not foreclose or prejudice any other rights or remedies the
parties may have to enforce the provisions of this Agreement, subject to the
monetary limitation set out in paragraph 10.2.
10.4 NOTICE AND RIGHT TO DEFEND. If any claim arises with respect to which
Buyer or Seller may be liable under paragraphs 10.1.1 or 10.1.2, the indemnitee
shall notify the indemnitor within a reasonable time after the indemnitee
receives written notice of such Claim, and shall give the indemnitor a
reasonable opportunity to settle or defend the Claim; provided, however, that
the indemnitee's failure to give such notice or opportunity shall not impair or
otherwise affect the indemnitor's obligation to indemnify against such Claim
except to the extent that the indemnitor demonstrates actual damage caused by
such failure; and provided further that the indemnitee may commence to settle or
defend the Claim as circumstances warrant, but any settlement shall require the
prior written consent of the indemnitor. The expenses of all proceedings,
contests or lawsuits with respect to Claims shall be borne by the indemnitor. If
an indemnitor wishes to assume the defense of a Claim, it shall give written
notice to the indemnitee within five (5) days after notice from the indemnitee
of such Claim, and the indemnitor shall thereafter defend the Claim, employing
counsel reasonably satisfactory to the indemnitee, provided that the indemnitee
may thereafter participate in the defense at its own expense.
If the indemnitor does not assume the defense of, or if after so
assuming it fails to defend, any such Claim, the indemnitee may continue to
defend the Claim in such manner as it may reasonably deem appropriate, and the
indemnitee may settle such Claim on such terms as it may reasonably deem
appropriate. The indemnitor shall promptly pay or reimburse the indemnitee for
all reasonable expenses, legal and otherwise, and all amounts paid in
settlement of or in satisfaction of judgments on Claims as such costs and
amounts are incurred by the indemnitee in the defense, appeal, settlement or
satisfaction of Claims. If no settlement of such a
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Claim is made, the indemnitor shall satisfy any judgment rendered with respect
to it before the indemnitee is required to do so.
If a judgment is rendered against the indemnitee on any Claim, or any lien
attaches to any of the assets of any indemnitee, the indemnitor shall
immediately upon such entry or attachment pay such judgment in full or discharge
such lien unless, at the expense and direction of the indemnitor, an appeal is
taken under which the execution of the judgment or satisfaction of the lien is
stayed. If and when a final judgment is rendered in any such action, the
indemnitor shall forthwith pay such judgment or discharge such lien before any
indemnitee is compelled to do so.
11. GUARANTEES.
11.1 BY CPC. CPC hereby irrevocably and unconditionally guarantees to Seller
the due and prompt performance by THC of all of its obligations and duties under
this Agreement. CPC waives any requirement that Seller institute any action or
proceeding at law or in equity against THC or against any other party as a
condition precedent to bringing any action against CPC under this Guaranty. CPC
agrees that it shall not be released from its obligations of Guaranty by reason
of any amendment or alteration of the terms and conditions of this Agreement or
by any delay or waiver by Seller in enforcing the terms of this Agreement or by
virtue of any other defense which may be available to it as a guarantor.
11.2 BY BHI. BHI hereby irrevocably and unconditionally guarantees to Buyer
the due and prompt performance by Brim of all of its obligations and duties
under this Agreement. BHI waives any requirement that Buyer institute any action
or proceeding at law or in equity against Brim or against any other party as a
condition precedent to bringing any action against BHI under this Guaranty. BHI
agrees that it shall not be released from its obligations of Guaranty by reason
of any amendment or alteration of the terms and conditions of this Agreement or
by any delay or waiver by Buyer in enforcing the terms of this Agreement or by
virtue of any other defense which may be available to it as a guarantor.
12. MISCELLANEOUS.
12.1 NOTICES. Any notice provided for in this Agreement and any other
notice, demand or communication required or permitted to be given hereunder or
which any party may wish to send to another ("Notice" or "Notices") shall be in
writing and shall be deemed to have been properly given if served by (i)
personal delivery or (ii) registered or certified U.S. mail, or by comparable
private carrier, First Class, return receipt requested in a sealed envelope,
postage or other charges prepaid, or (iii) telegram, telecopy, facsimile, telex
or other similar form of communication, addressed to the party for whom the
Notice is intended as follows:
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If to Buyer or CPC:
James R. Laughlin, President
c/o Transitional Hospitals Corporation
7000 Central Parkway, Suite 1020
Atlanta, GA 30328
FAX: (404) 913-0015
with a copy to:
Hartly Fleischmann, Esq.
Fleischmann & Fleischmann
650 California Street, Suite 2550
San Francisco, CA 94108-2606
FAX: (415) 788-6234
If to Seller:
John R. Miller, President
Brim Hospitals, Inc.
305 N.E. 102nd Avenue
Portland, OR 97220-4199
FAX: (503) 254-7619
with a copy to:
Randi Nathanson, Esq.
The Nathanson Group
1411 Fourth Avenue, Suite 1001
Seattle, WA 98101
FAX: (206) 623-1738
or such other address as any person may request by notice given as aforesaid.
12.1.1 CHANGE OF ADDRESS. Any party to this Agreement may change its
address for Notice from time to time by notice given in accordance with the
foregoing provisions.
12.1.2 EFFECTIVE TIME. All notice given as pursuant to this paragraph
shall be deemed given and effective when received if personally delivered or
sent by telegram, telecopy, telex or similar form of communication or, if
mailed on the date shown on the return receipt or if a receipt has not then been
received, five (5) days after mailing.
12.2 PAYMENT OF EXPENSES. Except as specifically provided for herein,
each of the parties shall pay its own expenses, including without limitation,
the disbursements and fees of all its attorneys, accountants, advisors, agents
and other representatives, incidental to the preparation and carrying out of
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this Agreement, whether or not the transactions contemplated hereby are
consummated.
12.3 TAX REPORTING AND CHALLENGES The Purchase Price shall be allocated
among the Assets and the Covenants in compliance with applicable federal tax
laws and as provided in Schedule 2. If any of the parties' tax reporting or
treatment of the transactions described in this Agreement is challenged or
questioned by any taxing authority, such party shall immediately give written
notice to the others, describing the nature of such challenge or question,
whereupon any party may file such protective or other return amendments as it or
they deem appropriate. The parties agree to cooperate in providing information
necessary or appropriate to preparation and filing of their respective tax
returns.
12.4 SCHEDULES. Seller agrees to provide at Closing such materials,
documents, and information as may be necessary to update the information
contained in any Schedule attached to this Agreement, but Seller's obligations
under this Agreement shall not be mitigated or eliminated thereby.
12.5 CONFIDENTIALITY. The parties recognize and agree that all information,
instruments, documents and details concerning the business of Buyer and Seller
are strictly confidential, and Seller and Buyer expressly covenant and agree
with each other that they will use their best efforts to prevent any of their
respective officers, directors, employees or agents from disclosing any matters
relating to the business of the other or to this Agreement, its negotiation,
terms, provisions or conditions, including the Purchase Price except as may be
reasonably necessary to effectuate the transactions contemplated hereby;
provided, however, neither party shall be prohibited from making any legally
required public announcement or other disclosure of the sale and purchase of the
Assets, including such details as to price, terms and the like as may be
required. Seller and Buyer shall consult with each other prior to any public
announcement to discuss the content of any such announcement.
12.6 RETURN OF PAPERS, ETC. If the Closing should fail to occur, Buyer
will return to Seller, and Seller will return to Buyer, upon request, the
respective materials, information, documents, instruments and records supplied
by the other party in respect of such party's business operations and shall keep
confidential all information which that party has gathered with respect to the
business of the other.
12.7 RISK OF LOSS. Risk of loss or damage by fire or other casualty to the
Assets or their taking by eminent domain before Closing is assumed by Seller. In
the event of a material loss, damage to or taking of the Assets, Buyer shall
have the option of either (i) terminating this Agreement or (ii) closing on the
purchase of the Assets, in which event Seller shall assign to Buyer all of
Seller's rights against third persons and under any
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applicable insurance policy and any condemnation awards and pay over to Buyer
any sums received as a result of such loss, damage or taking.
12.8 WAIVER. The failure of any party to insist, in any one or more
instances, on performances of any of the terms and conditions of this Agreement
shall not be construed as a waiver or relinquishment of any rights granted
hereunder or of the future performance of any such term, covenant or condition,
but the obligations of the parties with respect thereto shall continue in full
force and effect.
12.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.10 ENTIRE AGREEMENT. This Agreement (including the Schedules hereto) and
all other documents executed in connection herewith constitute the entire
agreement between the parties hereto with respect to the subject hereof and
supersede all prior agreements, understandings, negotiations and discussions of
the parties, whether oral or written, and there are no warranties,
representations or other agreements between the parties in connection with the
subject matter hereof, except as specifically set forth herein or therein. No
amendment, alteration or modification of this Agreement shall be valid unless in
each instance such amendment, alteration or modification is expressed in a
written instrument duly executed by the parties.
12.11 ATTORNEYS' FEES. If any action at law or in equity shall be brought on
account of any breach of, or to enforce or interpret, any of the covenants,
terms or conditions of this Agreement or arising out of the untruth of any
representation or warranty contained in this Agreement, the prevailing party, or
the party against whom a dismissal is not granted, shall be entitled to recover
from the other party as part of the prevailing party's costs, reasonable
attorneys' fees, the amount of which shall be fixed by the court rendering the
decision and shall be made a part of any judgment or decree rendered.
12.12 ASSIGNMENT. THC shall not have the right to assign this Agreement,
except that THC shall have the right to assign this Agreement to any entity
controlling, controlled by or under common control with THC (an "Affiliate")
with the prior written consent of Brim, which shall not be unreasonably withheld
or delayed; provided that any such assignment to an Affiliate shall have no
effect on the guaranty by CPC pursuant to paragraph 11.1.
12.13 SUCCESSORS AND ASSIGNS. Subject to the restrictions on assignment set
forth in this Agreement, all the terms and provisions of this Agreement shall be
binding upon and inure to
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the benefit of and be enforceable by the respective successors and assigns of
the parties hereto.
12.14 FURTHER ASSURANCES. Both before and after the Closing Date, the
parties will exercise good faith with the others and will take all appropriate
action and execute any documents, instruments or conveyances of any kind which
may be reasonably necessary or advisable to carry out any of the transactions
contemplated hereunder.
12.15 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the representations
and warranties contained in this Agreement and in any certificate delivered
pursuant hereto shall survive the Closing for a period of one (1) year. All
covenants and agreements of both parties to be performed after Closing shall
survive the Closing.
12.16 INTERPRETATION. Unless the context requires otherwise, all words used
in this Agreement in the singular number shall extend to and include the plural,
all words in the plural number shall extend to and include the singular and all
words in any gender shall extend to and include all genders.
12.17 SEVERABILITY. If any provision, clause or part of this Agreement, or
the application thereof under certain circumstances, is held invalid, the
remainder of this Agreement, or the application of such provision, clause or
part under other circumstances, shall not be affected thereby.
12.18 GOVERNING LAW; VENUE. This Agreement is to be governed by, and
interpreted under, the laws of the State of Washington. Any litigation arising
from this Agreement shall be brought in King County, Washington.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed as of the date first above written.
THC-SEATTLE, INC., a Washington
corporation
By: /s/ James R. Laughlin
----------------------------------
James R. Laughlin, President
BRIM FIFTH AVENUE, INC., an Oregon
corporation
By: /s/ John R. Miller
-----------------------------------
-----------------------------------
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Brim, Inc. hereby agrees to be bound by paragraphs 5.12 and ll.2 of this
Agreement.
BRIM HOSPITALS, INC., an Oregon
corporation
By: /s/ John R. Miller
-----------------------------------
-----------------------------------
CPC hereby agrees to be bound by paragraph 11.1 of this Agreement.
COMMUNITY PSYCHIATRIC CENTERS, a
Nevada corporation
By: /s/ Richard L. Conte
---------------------------------
Richard L. Conte, Chief Executive
Officer
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Exhibit 10.33
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (hereinafter "Agreement") is dated as of
March 22, 1994 by and between BRIM FIFTH AVENUE, INC., an Oregon corporation
("Brim"), and THC-SEATTLE, INC., a Washington corporation ("THC").
RECITALS
A. Brim is the owner and operator of that 80 bed acute care hospital
commonly known as Fifth Avenue Hospital and located at 10560 Fifth
Avenue, N.E., Seattle, WA 98125 (the "Hospital").
B. By Asset Acquisition Agreement and Escrow Instructions of even date
herewith (the "Asset Agreement"), Brim has agreed to sell to THC and
THC has agreed to acquire from Brim substantially all of the assets
related to the operation of the Hospital subject to the satisfaction or
waiver of various conditions to closing set forth in the Asset
Agreement.
C. Pending closing of the transaction provided for in the Asset Agreement,
THC has assumed operational responsibility for the Hospital pursuant to
that Management and Transfer of Operations Agreement of even date
herewith between THC and Brim (the "Master Management Agreement").
All capitalized terms not defined in this Agreement shall have the
meanings given to them in the Asset Agreement or in the Master
Management Agreement.
D. Notwithstanding the foregoing, from and after the Commencement
Date, including the period after the closing of the transaction
provided for in the Asset Agreement THC has agreed to delegate to Brim
responsibility for the surgical program (the "Program"), the physician
clinic (the "Clinic"), the immediate care center (the "ICC") and the
central sterile supply (the "CSS") located at the Hospital and Brim
has agreed to assume responsibility therefor.
E. Section E.5 of the Master Management Agreement authorizes THC to
delegate certain of its rights and responsibilities thereunder to Brim.
F. THC and Brim have agreed to document the terms and conditions under
which said delegation of rights and responsibility will occur.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, THC and Brim hereby agree as follows:
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AGREEMENT
A. MANAGEMENT
1. Term.
1.1. The initial term of this Agreement (the "Initial Term") shall
commence as of 12:01 AM on May 1, 1994 (the "Commencement Date") and
(unless terminated earlier as herein provided) shall terminate on (i)
April 30, 1997 or (ii) the date on which THC advises Brim it is unable
to secure the LTAC Designation as a result of a change after the
Commencement Date in the laws or rules governing the same as of the
Commencement Date (the "Termination Date").
1.2. Brim shall have the right to extend the term of this Agreement
beyond the Initial Term for successive three (3) year terms (each, a
"Renewal Term" and collectively, the "Renewal Terms") upon written
notice to THC delivered no less than sixty (60) days prior to the
expiration of the Initial Term or the applicable Renewal Term.
Hereinafter the Initial Term and the Renewal Terms will be collectively
referred to as the Term.
1.3. Except as otherwise provided below, in the event Brim fails to
exercise any renewal option provided for herein, THC shall have all
right, title and interest in and to the Program, the ICC, the CSS and
the Clinic from and after the last day of the Initial Term or the
applicable Renewal Term and Brim agrees that it will not, and will not
permit any person or entity controlling, controlled by or under common
control with it, either jointly or individually, directly or
indirectly, to own or to operate a podiatric surgical program within a
twenty five (25) mile radius of the Hospital for a period of five (5)
years after the termination of this Agreement as a result thereof (the
"Non-Competition Covenant").
1.4. THC and Brim specifically acknowledge and agree that the
Non-Competition Covenant provided for in Section A.1.3. shall be null
and void in the event Brim elects not to exercise its renewal options
subsequent to the sale by THC after the Closing Date of the Hospital
or the sale after the Closing Date of all or substantially all of the
stock or assets of THC or its parent corporation, Transitional
Hospitals Corporation.
1.5. This Agreement may be terminated for cause by THC upon sixty (60)
days' written notice, specifying in detail the events upon which the
termination is based, if such cause has not been remedied within such
sixty (60) days or substantial steps taken and diligently pursued
toward the remedying of such default within said sixty (60) day period
to the extent
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the default cannot be fully cured within said period. For purposes of this
Section A.1.5., "cause" shall mean a material breach by Brim of its
obligations under this Agreement or under the Asset Agreement.
1.6. This Agreement may be terminated by Brim for cause upon sixty (60)
days' written notice to THC, specifying in detail the events upon which the
termination is based, if such cause has not been remedied within such sixty
(60) days or substantial steps taken and diligently pursued toward the
remedying of such default within said sixty (60) day period to the extent
the default cannot be fully cured within said period. For purposes of this
Section A.1.6, "cause" shall mean a material interference by THC with the
operation by Brim of the Program, the Clinic, the CSS and the ICC;
provided, however, that THC shall not be deemed to have materially
interfered with Brim's operations by virtue of its implementation of such
policies and procedures as it may reasonably deem to be necessary in order
to effectively operate an LTAC program at the Hospital.
1.7. The termination of this Agreement by THC or by Brim for cause prior to
the Closing Date shall result in a termination of the Asset Agreement and,
(i) in the case of a termination by THC, THC shall have the right to demand
the return of the Deposit provided for therein as liquidated damages and to
pursue such remedies as may be available to it at law or in equity to
redress Brim's breach and (ii) in the case of a termination by Brim, Brim
shall have the right to pursue such remedies as may be available to it at
law or in equity and THC shall be required to leave the Deposit in escrow
pending resolution of any such action and a determination of any damages
suffered by Brim as a result thereof. The termination of this Agreement by
either party for cause after the Closing Date shall entitle the terminating
party to pursue such remedies as may be available to it at law or in equity
to seek compensation for any damages suffered as a result thereof.
1.8. Within ninety (90) days after either the termination of this Agreement
other than a termination by Brim for cause, (i) to the extent not earlier
provided, Brim will provide THC with a complete accounting and report of
its activities during the entire Term hereof and (ii) Brim will cooperate
with THC in an orderly transfer of the operations of the Program, the
Clinic, the ICC and the CSS to THC or to a successor manager designated by
THC.
1.9. A termination of this Agreement for any of the reasons provided for in
this Section A.1, shall not terminate the rights and obligations of each of
the parties hereunder to remit payments belonging to the other party in
accordance with Section A.4 hereof or to pay the expenses for which it is
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responsible under Sections A.3.2 or A.3.6.
2. Responsibilities of Brim. Throughout the Term, Brim shall be
responsible for the operation of the Program, the Clinic, the ICC and the CSS in
accordance with the terms of this Agreement. In furtherance thereof, THC
covenants and agrees that throughout the Term hereof it shall not unreasonably
interfere with Brim's operation thereof.
3. Covenants of Brim. In conjunction with the management of the Program
and the ICC, throughout the Term hereof Brim covenants and agrees as follows:
3.1. To operate the Program, the Clinic, the CSS and the ICC in a
manner that maintains in good standing and full force all applicable
state and federal licenses and provider agreements and preserves any
accreditation which may be granted to the Hospital during the Term by
the Joint Commission on Accreditation of Healthcare Organizations
("JCAHO").
3.2. To reimburse THC within forty five (45) days after receipt of a
written request therefor for any and all expenses incurred by THC on or
after Commencement Date in the operation of the Hospital which are
allocable to the operation of the Program, the Clinic, the CSS and the
ICC, including, without limitation, payroll (and all local, state and
federal taxes and assessments incidental thereto and all fringe
benefits payable in accordance with Brim's personnel policies),
insurance, utilities, the Surgical Inventory and Common Inventory (as
defined in Section A.9.3.) used by Brim, rent, equipment leases,
equipment expenditures, real and personal property taxes and
maintenance, but specifically excluding debt service payments;
provided, however, that said reimbursement request shall be in
sufficient detail and shall contain sufficient supporting documentation
to enable Brim to verify the accuracy of the expenses for which it is
being held accountable.
3.4. To maintain complete and accurate records of all transactions
relating to the operation of the Program, the CSS, the Clinic and the
ICC and to make such records available for inspection by THC or any of
its representatives at all reasonable times upon reasonable notice from
THC to Brim.
3.5. To comply with all applicable federal, state and local government
laws, rules and regulations with respect to the operation and
maintenance of the Program, the CSS, the Clinic and the ICC and the
performance by Brim under this Agreement.
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3.6 In consideration for the right to operate the Program, the ICC, the
CSS and the Clinic, to pay to THC the following amounts (the "License
Fee"):
3.6.1. From and after the Closing Date, an amount equal to $10.80 per
annum per square foot of space in the Hospital occupied by Brim in
connection with the operation of the Program as described more fully
in Exhibit A (the "Space"), which shall be due and payable by no
later than the 10th day of each month;
3.6.2. In the event THC finances the remodeling project described in
Exhibit B (the "Renovations"), Brim shall pay to THC an amount equal
to 40% of the "Annual Net Profits" of the Program in excess of
$100,000. For purposes hereof, the term "Annual Net Profits" shall be
defined as (a) all revenues earned by Brim in connection with the
operation of the Program and the ICC less (b) all expenses incurred
by Brim in connection with the operation of the Program and the ICC
(calculated on an accrual basis) during each calendar year or portion
thereof occurring during the Term hereof. The amount, if any, due to
THC shall be payable by Brim within ninety (90) days after the end of
each calendar year, with the first such payment to be made by no
later than April 1, 1995, and shall be accompanied by a detailed
income statement prepared by Brim and certified as to accuracy by
Brim's independent auditors or Chief Financial Officer.
3.6.3 Throughout the Term hereof, an amount equal to 50% of the
amounts charged by THC to the patients served by Brim in the Program
and the ICC for services provided by THC, including, but not limited
to, laboratory, radiology and respiratory therapy services, which
payment shall be due within forty five (45) days after Brim's receipt
of a written request for payment thereof, which request shall be in
sufficient detail and shall contain sufficient supporting
documentation to enable Brim to verify the accuracy of the amounts
reflected therein.
3.7. Any payments due from Brim to THC hereunder which are not paid when
due shall bear interest from the date due until the date paid at the lower
of 1% per month or the highest rate then permitted by law.
3.8. To provide THC with access to the Program and the CSS for patients
served by the LTAC program; provided, however, that in consideration
therefor, THC shall deposit into the account designated by Brim pursuant to
Section A.4.2, 50% of all charges for services rendered by the Program and
in the CSS to such patients.
5
<PAGE> 6
3.9. Upon request of, THC to request a change in the cost reporting
year for the Hospital from one which ends on December 31 to one
which ends on October 31 of each year.
4. Billing for and Collection of Revenues.
4.1. Brim shall have all right, title and interest in and to the
revenues pertaining to the operation of the Program, the ICC, the
Clinic and the CSS for the period from and after the Commencement
Date.
4.2. In accordance with the provisions of the Master Management
Agreement, THC shall bill for and collect such revenues on Brim's
behalf and, promptly upon the receipt thereof, deposit the same in an
account designated by Brim. Prior to the Closing Date, all such
revenues shall be billed and collected under Brim's Medicare,
Medicaid, VA or other third party payor provider numbers; from and
after the Closing Date, all such revenues shall be billed and
collected under THC's Medicare, Medicaid, VA or other third party
payor provider numbers.
4.3. Brim shall reimburse THC within forty five (45) days after its
receipt of a written request therefor, for all out of pocket costs
incurred by THC in billing for and collecting such revenues, which
costs shall include a pro rata portion of any salary and benefits
payable to administrative personnel responsible for said billings and
collections. Said request shall be in sufficient detail and contain
sufficient supporting documentation to enable Brim to verify the
accuracy of the amounts requested therein.
4.4. Any payments due from Brim to THC hereunder which are not paid
when due shall bear interest from the date due until the date paid at
the lower of 1% per month or the highest rate then permitted by law.
4.5. From and after the Closing Date, THC shall assume responsibility
for the preparation and filing of all Medicare, Medicaid, VA and
other third party payor cost reports and billings for the period
prior to the Closing Date; provided, however, that no such cost
reports shall be filed without the prior review and approval of Brim;
and provided, further, that Brim shall provide THC with such
financial information as it may reasonably require in order to ensure
the timely and accurate completion and filing thereof.
5. Employees. In accordance with the terms of the Asset Agreement, prior
to the Closing Date all of the employees of the Hospital shall be Brim's
employees and on the Closing Date Brim shall terminate all such employees and
THC shall rehire such employees effective as of the Closing Date. Throughout
the Term
6
<PAGE> 7
hereof, Brim shall have full authority and legal and financial responsibility
with respect to the compensation, supervision and disciplining, including, but
not limited to, the termination, of the employees associated with the Program,
the CSS, the Clinic and the ICC and THC shall have no such authority or
responsibility.
6. Closure of the ICC. Nothing herein shall be construed as precluding Brim from
closing the ICC at anytime during the Term hereof; provided, however, that in
the event Brim advises THC of its intention to close the ICC, THC shall have the
right to prevent such closure by assuming financial and operational
responsibility therefor. THC shall have a right to instruct Brim to close the
ICC at anytime during the Term. Brim shall comply with said instruction within
no more than sixty (60) days after its receipt thereof, provided that such
closure does not result in any increase in the amounts charged to Brim for lab
and radiology pursuant to Section A.3.6.3. In the event of the closure of the
ICC or the transfer of operational and financial responsibility therefor to THC,
any and all references to the ICC set forth in this Agreement shall be deemed to
be inapplicable to the rights and obligations of Brim hereunder. Nothing herein
shall be construed as precluding THC from increasing the amounts charged to Brim
for lab and radiology services for reasons unrelated to the closure of the ICC.
7. Closure of the Clinic. Nothing herein shall be construed as precluding Brim
from closing any portion of the Clinic at anytime during the Term hereof, in
which case the provisions of this Agreement applicable to the Clinic shall only
apply to the extent that the same is operational.
8. Budgets.
8.1. Throughout the Term hereof, on or before January 1 of each year,
Brim shall provide to THC an operating budget. THC acknowledges and
agrees that Brim is solely responsible for all costs and expenses
reflected therein and accordingly that the same shall be provided for
informational purposes only and shall not be subject to the review and
approval of THC.
8.2. Brim acknowledges and agrees that from and after the Closing Date,
unless otherwise agreed by Brim and THC, any and all capital
expenditures relating to the operation of the Program or the ICC shall,
subject to the provisions of Section A.8.3, be the responsibility of
THC. Accordingly, Brim agrees that on or before January 1 of each year
during the Term hereof it shall submit to THC for its approval a
capital expenditure budget and, once the same has been approved by
Owner, it shall not incur any capital expenditures other than as
provided therein or as approved by THC on Brim's written request
therefor, which approval shall not be unreasonably withheld or delayed
and which approval may not be withheld if Brim demonstrates to the
reasonable satisfaction of THC that
7
<PAGE> 8
Such expenditures are required for the continued licensure,
certification or accreditation of the Hospital.
8.3. Unless THC and Brim agree otherwise, any capital expenditures
incurred by Brim prior to the Closing Date, shall be the
responsibility of Brim but may be financed through lease or other
financing arrangements, in which case any such contracts shall be
included within the Assumed Contracts assigned to and assumed by THC
on the Closing Date under the terms of the Asset Agreement and any
payments by THC with respect to such leases or other financing
arrangements after the Closing Date shall be subject to reimbursement
by Brim pursuant to Section A.3.2.
8.4. Any capital expenditures incurred by THC on behalf of Brim after
the Closing Date shall either serve to increase the monthly payments
due from Brim to THC under the terms of Section A.3.6 hereof by the
amount thereof multiplied by 9.333% and divided first by the number
of square feet in the Space and then by 12 or shall be included in
the expenses billed to Brim under Section A.3.2 hereof, in the event
of capital expenditures financed by THC under a lease or other
financing arrangement. Brim and THC shall agree prior to the
incurrence of the capital expenditure how the same will be paid by
Brim under the terms hereof.
9. Non-Competition Provisions. During the Term hereof, Brim agrees to be
bound by the Non-Competition provisions of the Asset Agreement as though fully
set forth herein.
10. Covenants of THC. From and after the Closing Date, THC shall:
10.1. Fully cooperate in Brim's efforts to ensure that the physicians
associated with the Surgical Program are able to secure and/or maintain
their staff privileges at the Hospital, subject to their compliance
with applicable requirements of the Medical Staff Bylaws.
10.2. Cause one representative of Brim to be appointed to the Board
of the Hospital.
10.3. Within ten (10) days after the Commencement Date to purchase from
Brim all of the consumable inventory located at the Hospital as of the
close of business on the day prior to the Commencement Date (the
"Consummables") as determined pursuant to a joint inventory conducted
by Brim and THC (the "Inventory"). The Inventory shall be divided into
three categories: (i) the inventory which will be used solely by Brim
after the Commencement Date (the "Surgical Inventory"), the inventory
which will be used solely by THC after the Commencement Date (the
"Non-Surgical Inventory"), and the inventory which will be used by
both Brim and THC after the
8
<PAGE> 9
Commencement Date (the "Common Inventory"). The purchase price for
the Consummables shall be equal to Brim's cost thereof as reflected
on Brim's books and records. On the Closing Date, THC shall receive
a credit against the Balance to be paid by THC for an amount equal
to 100% of the purchase price paid by THC for the Non-Surgical
Inventory and 50% of the purchase price paid by THC for the Common
Inventory.
B. INDEMNIFICATION
1. By Brim. Brim hereby agrees to indemnify, defend and hold harmless, THC,
its employees, agents, and affiliates from all claims, demands, liabilities,
suits, costs and expenses (including reasonable attorneys' fees) (the
"Liabilities") arising out of either a material breach by Brim of its
obligations hereunder or Brim's operation of the Program, the ICC, the Clinic
and/or the CSS from and after the Commencement Date, including, but not
limited to, any actions affecting the licensure, certification or JCAHO
accreditation of the Program or the ICC during the Term hereof; provided,
however, that Brim shall have no liability hereunder in the event said
Liabilities relate to THC's performance of, or failure to perform, its
obligations under the Master Management Agreement. For purposes of this
Agreement, the term "affiliates" shall mean any parent, sister or subsidiary
corporation of Brim or any director, officer, agent or shareholder of any such
corporation.
2. By THC. THC agrees to indemnify, defend and hold harmless Brim, its
employees, agents and affiliates, from all claims, demands, liabilities,
suits, costs and expenses (including reasonable attorneys' fees) arising out
of a material breach by THC of its obligations hereunder. For purposes of this
Agreement, the term "affiliates" shall mean any parent, sister or subsidiary
corporation of THC or any director, officer, agent or shareholder of any such
corporation.
C. REPRESENTATIONS AND WARRANTIES
1. By Brim. Brim hereby represents and warrants as follows:
1.1. Brim has, or as of the Commencement Date will have, all necessary
corporate power and authority to operate the Hospital and to carry on
its business as it is now being conducted, to enter into this Agreement
and to execute all documents and instruments referred to herein or
contemplated hereby and all necessary action has been taken to
authorize the individual executing this Agreement to do so. This
Agreement has been duly and validly executed and delivered by Brim and
is enforceable against Brim in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws,
regulations and authorities affecting
9
<PAGE> 10
the rights of creditors generally and by general principles of
equity, and does not require the consent or approval by any
governmental authority.
1.2. The foregoing representations and warranties of Brim
hereunder shall be true, complete and correct in all material
respects as of the Commencement Date with the same force and effect
as though such representations and warranties were made on such
date, and all such representations and warranties shall survive the
Commencement Date for the period of one (1) year; provided, however,
that if THC notifies Brim in writing of a claim prior to the
expiration of such one (1) year period such representations or
warranties shall survive until the resolution of such claim.
2. By THC. THC hereby represents and warrants as follows:
2.1. THC has, or as of the Commencement Date will have, all corporate
necessary power and authority to enter into this Agreement and to
execute all documents and instruments referred to herein or
contemplated hereby and all necessary action has been taken to
authorize the individual executing this Agreement to do so. This
Agreement has been duly and validly executed and delivered by THC and
is enforceable against THC and its affiliates in accordance with its
terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar
laws, regulations and authorities affecting the rights of creditors
generally and by general principles of equity.
2.2. The foregoing representations and warranties of THC hereunder
shall be true, complete and correct in all material respects as of
the date hereof and as of the Commencement Date with the same force
and effect as though such representation or warranty made on such
date, and all representations and warranties shall survive the
Commencement Date for a period of one (1) year; provided, however,
that if Brim notifies THC in writing of a claim prior to the
expiration of such one (1) year period such representations or
warranties shall survive until the resolution of such claim.
E. GENERAL PROVISIONS
1. Further Assurances. Each of the parties hereto agrees to execute and deliver
any and all further agreements, documents or instruments reasonably necessary to
effectuate this Agreement and the transactions referred to herein or
contemplated hereby or reasonably requested by the other party to perfect or
evidence their rights hereunder.
10
<PAGE> 11
2. Notices. All notices to be given by either party to this Agreement to the
other party hereto shall be in writing, and shall be given and received in the
manner and at the addresses provided for in the Asset Agreement.
3. Payment of Expenses. Each party hereto shall bear its own legal, accounting
and other expenses incurred in connection with the preparation and negotiation
of this Agreement and the consummation of the transaction contemplated hereby,
whether or not the transaction is consummated.
4. Entire Agreement; Amendment; Waiver. This Agreement, together with the Asset
Agreement and the Master Management Agreement referred to herein, constitutes
the entire understanding between the parties with respect to the subject matter
hereof, superseding all negotiations, prior discussions and preliminary
agreements. In the event of any conflict between the terms of this Agreement and
any of the terms of the Asset Agreement, the terms of this Agreement will
control. This Agreement may not be modified or amended except in writing signed
by the parties hereto. No waiver of any term, provision or condition of this
Agreement in any one or more instances, shall be deemed to be or be construed as
a further or continuing waiver of any such term, provision or condition of this
Agreement. No failure to act shall be construed as a waiver of any term,
provision, condition or rights granted hereunder.
5. Assignment/Successors. Neither this Agreement nor the rights, duties or
obligations arising hereunder shall be assignable or delegable by either party
hereto without the prior written consent of the other party, which consent shall
not be unreasonably withheld or delayed; provided, however, that in the event
that after the Closing Date THC receives a bona fide written offer from an
unrelated third party to acquire the Hospital (the "Offer") , THC shall provide
Brim with a written copy thereof and Brim shall have thirty (30) days after the
receipt thereof to advise THC of its intention to purchase the Hospital on the
same terms and conditions as set forth in the Offer. In the event Brim fails to
exercise its right of first refusal within said thirty day period, then THC
shall be free to sell the Hospital pursuant to the terms of the Offer; provided,
however, that in the event closing fails to occur in accordance with the terms
of the Offer, then THC shall thereafter be required to re-offer the Hospital to
Brim in accordance with the term of the Offer or any subsequent Offer which THC
may receive. Subject to the limitations on assignment set forth herein, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their successors and permitted assigns.
11
<PAGE> 12
6. Joint Venture; Third Party Beneficiaries. Nothing contained herein shall be
construed as forming a joint venture or partnership between the parties hereto
with respect to the subject matter hereof. The parties hereto do not intend that
any third party shall have any rights under this Agreement. Brim is an
independent contractor and is not to be considered a principal with respect to
ownership of any portion of or interest in the Hospital. Brim shall act in good
faith in the performance of its obligations hereunder and shall meet the
standards of care established by THC in the operation of the Hospital and by
Brim in the operation of its business.
7. Captions. The section headings contained herein are for convenience only and
shall not be considered or referred to in resolving questions of interpretation.
8. Counterparts. This Agreement may be executed in one or more counterparts and
all such counterparts taken together shall constitute a single original
Agreement.
9. Governing Law. This Agreement shall be governed in accordance with the laws
of the state of Washington.
IN WITNESS WHEREOF, the parties hereby execute this Agreement as of the day
and year first above written.
BRIM FIFTH AVENUE, INC.
By: /s/ John Mullin
--------------------------------
Its: President
--------------------------------
THC-SEATTLE, INC.
By: /s/ Rod Laughlin
--------------------------------
Its: President
--------------------------------
12
<PAGE> 1
EXHIBIT 10.34
BILL OF SALE AND ASSIGNMENT
THIS BILL OF SALE AND ASSIGNMENT is made as of July 9, 1997, by NATIONWIDE
HEALTH PROPERTIES, INC., a Maryland corporation ("SELLER"), in favor of BRIM
HOSPITALS, INC., an Oregon corporation ("BUYER"). Buyer is reacquiring from
Seller certain real property originally transferred by Buyer to Seller pursuant
to that certain Purchase and Sale Agreement dated as of April 11, 1994, by and
between Buyer and Seller (the "PURCHASE AGREEMENT"). All initially-capitalized
terms used herein and not otherwise defined herein shall have the same meaning
given such terms in the Purchase Agreement.
FOR VALUE RECEIVED, receipt of which is hereby acknowledged, Seller does
hereby grant, bargain, sell, convey, assign, transfer, set over, deliver to and
vest in Buyer, its successors and assigns forever, all of Seller's right, title
and interest in and to all of the following property, whether now existing or
hereafter arising:
(a) All fixtures, furniture, equipment, furnishings, and other
personal property which relate in any way to the construction,
use, occupancy, operation, development or marketing of the Land,
which real property is more particularly described on Exhibit A
attached hereto, or the improvements or the Fixtures
(collectively, the "REAL PROPERTY") wherever the same may be
located, on the Land or otherwise, including without limitation,
the personal property and equipment described on Exhibit B
attached hereto;
(b) All of the Personal Property;
(c) All of the Intangible Property;
(d) All of the Permits;
(e) All Warranties;
(f) All utility deposits made (and any refunds thereof) and any and
all other funds deposited as security for the fulfillment of any
of the obligations of Seller in connection with the Property or
any portion thereof;
(g) All deposits and bonds of Seller relating to the Property or any
portion thereof, including, without limitation, deposits and
bonds provided to any governmental agency for construction, use
or operation of the Property;
(h) All original reports, drawings, plans, blueprints, studies,
specifications, certificates of occupancy, building permits and
grading permits relating to or any part of the Real Property and
all amendments, modifications, supplements, general conditions
and addenda thereto. In the event Seller
1
<PAGE> 2
reasonably requires copies thereof, Seller hereby covenants and
agrees that it shall cooperate and comply in a timely manner with
Buyer's reasonable requests for delivery of copies of all
financial documents, instruments, bills, checks, invoices and
other books and records relating to all or any part of the
Property;
(i) All warranties and guaranties, whether oral or written, of
manufacturers, vendors, contractors and subcontractors relating
to the construction, development or work performed or to be
performed in connection with the Property;
(j) All of Seller's legal and equitable claims, causes of action,
and rights against the architects, engineers, designers,
contractors, subcontractors, suppliers and materialmen and any
other party who has supplied labor, services, materials or
equipment, directly or indirectly, in connection with the design,
planning, marketing, construction, manufacturing or operation of
all or any part of the Property;
(k) All contracts of sale, if any, affecting the Property or any
portion thereof;
(l) All deposits under any contracts of sale referred to in
subparagraph (k) above;
(m) Any interest which Seller has in any tradenames including,
without limitation the name "Ojai Valley Community Hospital",
tradestyles, service marks, logos, letterheads, advertising
symbols, goodwill, advertising rights and all media items used in
connection with the operation of the Property or any portion
thereof, other than the general corporate trademarks, service
marks, logos or insignia of Seller; and
(n) All general intangibles and other intangible property used in
connection with the construction, use, operation, occupancy,
development or marketing of the Property or any portion thereof.
Seller hereby represents and warrants to Buyer that Seller is the
owner of all right, title and interest in and to the above property, that said
property is free and clear of all liens, charges and encumbrances created by or
imposed against Seller and that Seller has full right, power and authority to
sell said property and to make this Bill of Sale and Assignment. Seller
shall warrant and forever defend title to said property unto Buyer.
2
<PAGE> 3
IN WITNESS WHEREOF, Seller has executed this Bill of Sale and Assignment
as of the day and year first above written.
"SELLER"
--------
NATIONWIDE HEALTH PROPERTIES, INC.,
a Maryland corporation
By: /S/ Gary E. Stark
--------------------------------
Gary E. Stark, Vice President
3
<PAGE> 4
EXHIBIT A
DESCRIPTION OF PROPERTY
PARCEL 1:
A part of Tract No. 8 of the Bard Subdivision of the Rancho Ojai, in the City
of Ojai, County of Ventura, State of California, as per map thereof recorded in
Book 5, Page 25 1/2 of Maps, in the office of the County Recorder of said
County, described as follows:
Beginning at a 1-inch iron pipe set in the Southerly line of Meiners Road
(formerly Matilija Road) at the Northeast corner of that certain parcel of land
as conveyed to Hattie McDonnell Russell by deed recorded in Book 29, Page 262 of
Official Records; thence from said point of beginning,
1st: South 73 degrees 24' East 139.24 feet along the Southerly line of said
Meiners Road to a ford axle set at the Northwest corner of that certain parcel
of land as conveyed to Clara R. Barlow by deed recorded in Book 67, Page 181 of
Official Records; thence,
2nd: South 18 degrees 36' West 749.59 feet along the Westerly line of said
lands of Clara R. Barlow and the Southwesterly prolongation of same; at 175.00
feet a ford axle set at the Southwest corner of said lands of Clara R. Barlow;
at 749.59 feet a 1-inch iron pipe; thence,
3rd: North 73 degrees 24' West 146.88 feet to a 1-inch pipe set at the
Southeast corner of said lands of Hattie McDonnell Russell; thence,
4th North 19 degrees 11' East 749.90 feet along the Easterly line of said lands
of Hattie McDonnell Russell to the point of beginning.
PARCEL 2:
A portion of Tract No. 8 of the Bard Subdivision of Rancho Ojai, in the city of
Ojai, County of Ventura, State of California, according to the map recorded in
Book 5, Page 25 1/2 of Maps, in the office of the County Recorder of said
County, described as follows:
Beginning at the Northeast corner of the land described in deed to Edward R.
Lambert and wife, recorded July 1, 1953 in Book 1142, Page 222, Official
Records; thence along the East line of said land,
1st: South 19 degrees 11' West 751.50 feet to an angle point therein; thence,
2nd: South 73 degrees 24' East 219 feet, more or less to the most Westerly
corner of the land conveyed to
A-1
<PAGE> 5
Adam Rodriguez and wife by deed recorded in Book 680, Page 483 of Official
Records; thence along the West line of said land of Rodriguez,
3rd: North 19 degrees 11' 749.90 feet to a point on the South line of Cuyama
Road (formerly Matilija Road) 40 feet wide; thence along the Southerly line of
said land,
4th: North 73 degrees 24' West 218.96 feet to the point of beginning.
EXCEPT from the Northerly 1.885 acres of said land an undivided 60% of all oil,
gas and other hydrocarbon substances, without the right of entry above a depth
of 500 feet from the surface of said land for the development of said oils and
minerals, as reserved by George S. Biggers, et ux., in deed recorded February
19, 1959 in Book 1704, Page 278, Official Records.
PARCEL 3:
A portion of Tract No. 8 of the Bard Subdivision of Rancho Ojai, in the City of
Ojai, County of Ventura, State of California, according to the map recorded in
Book 5, Page 25-1/2 of Maps, in the office of the County Recorder of said
County, described as follows:
Commencing at the Northeast corner of the land described in deed to Edward R.
Lambert and wife, recorded July 1, 1953 in Book 1142, Page 222 of Official
Records; thence along the East line of said land, South 19 degrees 11' West
751.50 feet to an angle point therein, said point being to the true point of
beginning; thence continuing along said East line,
1st: South 16 degrees 11' West 362.25 feet to a point in the Northerly line of
that certain strip of land conveyed to Ventura County by deed recorded in Book
384, Page 436 of Official Records; thence,
2nd: South 74 degrees 55' East 205.80 feet to the Southwest corner of the land
described in Parcel 1 deeded to William E. Weidermann, et al., recorded
September 17, 1958 in Book 1654, Page 451 of Official Records; thence along the
West line of the land last referred to,
3rd: Northerly in a direct line to the Northwest corner of said land, at the
most Westerly corner of the land conveyed to Adam Rodriguez and wife by deed
recorded in Book 680, Page 483, Official Records; thence,
4th: North 73 degrees 24' West 219 feet, more or less to the point of beginning.
A-2
<PAGE> 6
EXHIBIT B
PERSONAL PROPERTY
B-1
<PAGE> 7
Page 1
LANDLORD PERSONAL PROPERTY
<TABLE>
<CAPTION>
C ASSET DATE
L NUMBER DESCRIPTION LOCATN Co ACORD
<S> <C> <C> <C> <C>
A 00001 LAMINAR AIR FL 7021 06/87
A 00004 FACSIMILE MACH 8510 06/87
A 00005 REFURB AIR CON 06/87
A 00013 POWER GENERATO 8480 08/87
A 00015 MEDICATION CAR 7050 09/87
A 00016 WATER SOFTENER 8480 09/87
A 00017 OPERATING ROOM 7021 09/87
A 00018 DIETARY EQUIPM 8340 10/87
A 00019 PEDIATRIC SCAL 6170 10/87
A 00020 LAB DICTATION 7060 10/87
A 00021 CHILD BEARING 6160 11/87
A 00022 2 ROTARY VANE 8480 11/87
A 00023 MINOR SURGERY 7021 11/87
A 00024 ICEMAKER 8340 10/88
A 00029 COULTER COUNTE 7010 06/88
A 00030 WATER HEATER 6202 07/88
A 00031 HEAT EXCHANGE/ 7021 07/88
A 00032 INTERCOM SYSTE 7030 07/88
A 00033 BEAR VENTILATO 7180 08/88
A 00034 INTERCOM CONV 7030 10/88
A 00035 EMPLOYEE NAME 8650 10/88
A 00036 PHYSICAL THERA 7200 10/88
A 00037 PC & PRINTER 8610 11/88
A 00038 ULTRASOUND PRO 7165 01/89
A 00039 COAG ANALYZER 7060 01/89
A 00041 FETAL HEART MO 6160 04/89
A 00042 BOILER 8480 02/89
A 00043 TRACTION TABLE 7200 04/89
A 00044 STRETCHER BEDS 7030 05/89
A 00045 PHONE RELOCATE 8550 02/90
A 00046 HYPO/HYPERTHER 6010 12/89
A 00047 INFANT WARMER 6170 09/89
A 00048 MONITOR CABLE 6160 04/90
A 00049 BP MONITOR 7230 04/90
A 00050 WORD PROCESSIN 8610 04/90
A 00051 SHU A/C ARCHIT 6202 01/90
A 00055 SHU A/C ARCHIT 6202 09/89
A 00056 SHU A/C ARCHIT 6202 12/89
A 00062 LASER JET PRIN 8510 05/90
A 00063 ARTHROSCOPE 7021 07/90
A 00064 BRONCHOSCOPE 7021 07/90
A 00068 PORTABLE WHIRL 7200 10/90
</TABLE>
<PAGE> 8
Page 2
<TABLE>
<CAPTION>
C ASSET DATE
L NUMBER DESCRIPTION LOCATN Co ACORD
<S> <C> <C> <C> <C>
A 00069 FOOD MAINTENAN 8340 10/90
A 00071 CABLE/TERMINAL 8540 10/90
A 00072 PT EXAM TABLE 7200 10/90
A 00073 WATER SYSTEM 8480 10/90
A 00074 WATER SYSTEM 8480 11/90
A 00075 FACSIMILE MACH 8530 11/90
A 00078 CHOLECYSTO MAC 7021 12/90
A 00083 CONV OUTLETS - 6202 03/91
A 00084 SPIROMETER 7080 03/91
A 00085 U.S. STIM UNIT 7165 03/91
A 00086 REFRIGERATOR 8340 04/91
A 00087 REFRIGERATOR 8340 04/91
A 00088 VENTILATOR 7180 04/91
A 00089 AUTOCLAVE 7420 04/91
A 00091 AUTOCLAVE INST 7120 05/91
A 00092 COMPUTERS - 2 8510 05/91
A 00093 COMPUTER - LAB 7060 05/91
A 00094 MODEMS - MED R 8700 05/91
A 00095 GI COAGULATOR 7420 06/91
A 00096 GI COAGULATOR 7420 06/91
A 00098 SKU WATER HEAT 6202 07/91
A 00104 GENERATOR FUEL 8480 09/91
A 00105 NIT OXIDE TANK 7010 09/91
A 00109 DRAPES-ACUTE R 6080 09/91
A 00115 CABINETS - PHA 7170 12/91
A 00119 CURTAINS - ER 7021 01/92
A 00123 REFRIGERATOR-B 7060 01/92
A 00124 MICRO 100 WIRE 7021 01/92
A 00125 FLOOR CARE MAC 8460 01/92
A 00126 DEFIB MONITOR 6010 01/92
A 00128 BLOOD PRESSURE 6160 01/92
A 00129 WIRE SHELVING 8420 01/92
A 00153 HEALTH PROMO C 8480 11/87
A 00154 M/S REMOV-DRS 7021 11/87
A 00155 SMF/COU REMOV- 6202 10/87
A 00156 SMF/COU FURNIT 6202 10/87
A 00157 DIET FOOD STA 8340 10/87
A 00159 C-ARM SURGERY 7021 01/88
A 00160 PORTABLE X-RAY 7170 01/88
A 00161 FURNITURE-MED/ 6080 03/88
A 00163 FURNITURE-MED/ 6080 04/88
A 00164 PHONE SYSTEM 8480 04/88
</TABLE>
<PAGE> 9
Page 3
<TABLE>
<CAPTION>
C FAS ASSET DATE
L NUMBER DESCRIPTION LOCATN Co ACORD
<S> <C> <C> <C> <C>
A 00171 ZIMMER O/R SAW 7021 09/89
A 00173 A/C UNIT - DP 8540 02/90
A 00175 SKU A/C UNITS 6202 09/89
A 00178 O.R. CABINETS 7021 02/89
A 00276 HEAT,VENTILATI 6015 06/87
A 00279 A/C 5 TONE LEN 6080 06/87
A 00281 A/C MPNCA-024 7010 06/87
A 00283 A/C UNIT INSTA 7021 06/87
A 00285 LIGHTING-NEW L 7060 06/87
A 00286 AIR CONDITIONI 7060 06/87
A 00288 FUME HOOD, VAC 7060 06/87
A 00291 GENERATOR SET 7140 06/87
A 00292 ELEC WIRING/CT 7145 06/87
A 00293 ELEC FEED/WIRI 7145 06/87
A 00294 INSTALL CABS/C 7230 06/87
A 00296 EXHAUST FAN 87 8470 06/87
A 00297 A/C ECONIZER,V 8470 06/87
A 00299 LIGHTS & FLORE 8470 06/87
A 00301 GAS TANK OVERF 8470 06/87
A 00302 PIPE INSULATIO 8470 06/87
A 00304 INSTALL GENERA 8480 06/87
A 00306 INSTALL HAND R 8480 06/87
A 00307 WATER HEATER 1 8480 06/87
A 00308 A/C CONDENSOR 8480 06/87
A 00309 A/C CONDENSOR 8480 06/87
A 00310 A/C CONDENSOR 8480 06/87
A 00311 BOILER STEAM F 8480 06/87
A 00312 INSTALL BOILER 8480 06/87
A 00314 FIXED EQUIP AD 8610 06/87
A 00315 BAL FED FIXED 8610 06/87
A 00316 FIXED EQUIP AD 8610 06/87
A 00317 FIXED EQUIP AD 8610 06/87
A 00318 FIXED EQUIP AD 8610 06/87
A 00323 FIRE SUPPRESSI 8610 06/87
A 00324 AIR DUCTS THER 8610 06/87
A 00325 INSTL HANDRAIL 8610 06/87
A 00333 BED HOSP ELEC 6015 06/87
A 00335 BED HOSP ELEC 6015 06/87
A 00336 BED HOSP ELEC 6015 06/87
A 00337 BED HOSP ELEC 6015 06/87
A 00338 BED HOSP ELEC 6015 06/87
A 00339 LIFT/SCALE-2 6015 06/87
</TABLE>
<PAGE> 10
Page 4
<TABLE>
<CAPTION>
C FAS ASSET DATE
L NUMBER DESCRIPTION LOCATN Co ACORD
<S> <C> <C> <C> <C>
A 00341 MEDI PREP 6015 06/87
A 00392 MISC. CABS,TAB 6081 06/87
A 00393 BED HOSP ELEC 6081 06/87
A 00403 ICE MACHINE 6081 06/87
A 00428 BED HOSP ELEC 6081 06/87
A 00429 BED HOSP ELEC 6081 06/87
A 00430 BED HOSP ELEC 6081 06/87
A 00431 BED HOSP ELEC 6081 06/87
A 00432 BED HOSP ELEC 6081 06/87
A 00433 BED HOSP ELEC 6081 06/87
A 00434 BED HOSP ELEC 6081 06/87
A 00435 BED HOSP ELEC 6081 06/87
A 00439 MEDICATION CAR 6081 06/87
A 00450 BED HOSP ELEC 6160 06/87
A 00451 BED HOSP ELEC 6160 06/87
A 00452 BED HOSP ELEC 6160 06/87
A 00453 BED HOSP ELEC 6160 06/87
A 00455 BED HOSP ELEC 6160 06/87
A 00458 VACUUM EXTRACT 6160 06/87
A 00478 INCUBATOR OHIO 6170 06/87
A 00479 INCUBATOR INFA 6170 06/87
A 00483 LIGHT, WARNING 6170 06/87
A 00534 MISC CABS, TAB 6181 06/87
A 00535 IMPRINTER-FARR 6181 06/87
A 00576 COUCH - FABRIC 6181 06/87
A 00582 MISC TABLES & 6202 06/87
A 00675 FIBERGLASS BAT 6202 06/87
A 00684 12 DINING ROOM 6202 06/87
A 00687 OB TABLE 7010 06/87
A 00691 INFANT INCUBAT 7010 06/87
A 00697 BIRTHING BED 7010 06/87
A 00707 SURG INSTR - C 7021 06/87
A 00708 TABLE OR AFFIL 7021 06/87
A 00709 LIGHT OR ORBIT 7021 06/87
A 00720 MICROSCOPE O/R 7021 06/87
A 00734 ENT BINOC VIEW 7021 06/87
A 00736 LARYNGOSCOPE 7021 06/87
A 00740 COLONFIBERSCOP 7021 06/87
A 00741 ORTHOPEDIC TAB 7021 06/87
A 00742 SURGICAL LIGHT 7021 06/87
A 00746 SAW, SAGITTAL 7021 06/87
A 00747 OEPRATING TABL 7021 06/87
</TABLE>
<PAGE> 11
Page 5
<TABLE>
<CAPTION>
C PAS ASSET DATE
L NUMBER DESCRIPTION LOCATION CO. ACORD
<S> <C> <C> <C>
A 00763 STERILIZER CAS 7050 06/87
A 00764 STERILIZER 7050 06/87
A 00765 AERATOR 7050 06/87
A 00766 PRINTER 7050 06/87
A 00796 CERTRIFUGE - S 7060 06/87
A 00800 CENTRIFUGE REF 7060 06/87
A 00801 CHEMISTRY ANAL 7060 06/87
A 00803 CELL WASHER 7060 06/87
A 00829 CRYOSTAT 7070 06/87
A 00830 TISSUE PROCESS 7070 06/87
A 00831 MICROSCOPE A/O 7070 06/87
A 00836 PULMONARY FUNC 7080 06/87
A 00837 HOSP BED 3 CR 7080 06/87
A 00840 MOBILE X-RAY U 7140 06/87
A 00841 MOBILE C-ARM 7140 06/87
A 00844 X-RAY SYSTEM 7140 06/87
A 00845 X-RAY SYSTEM 7140 06/87
A 00863 MOBILE X-RAY U 7140 06/87
A 00892 VENTILATOR 7180 06/87
A 00899 BED-POSTURAL O 7180 06/87
A 00931 STRETCHER - 62 7230 06/87
A 00932 STRETCHER - M 7230 06/87
A 00933 STRETCHER - TR 7230 06/87
A 00944 POTS, PANS, 01 8340 06/87
A 00945 DIMING RM TABL 8340 06/87
A 00949 FREEZER - TRAU 8340 06/87
A 00955 MEAT SLICER 8340 06/87
A 00972 UTILITY REFRIG 8340 06/87
A 00974 FOOD SERVICE T 8340 06/87
A 00975 FOOD SERVICE T 8340 06/87
A 00976 FOOD SERVICE T 8340 06/87
A 00981 15' SERVING CO 8340 06/87
A 00983 HOOD EXHAUST 8340 06/87
A 00995 DISHWASHER, ST. 8340 06/87
A 00998 OVEN/RANGE - D 8340 06/87
A 01015 MISC EQUIP-CHA 8460 06/87
A 01016 MISC EQUIP-CHA 8460 06/87
A 01023 FLOOR MACH ISS 8460 06/87
A 01065 CABINET 8510 06/87
A 01120 PERFORATOR 8540 06/87
A 01191 TABLE, RITTER 8610 06/87
</TABLE>
<PAGE> 12
PAGE 6
<TABLE>
<CAPTION>
C PAS ASSET DATE
L NUMBR DESCRIPTION LOCATN CO ACORD
<S> <C> <C> <C>
A 01205 WOOD CABINETS 8610 06/87
A 01273 MONITOR PAT M/ 6015 06/87
A 01274 MONITOR PAT M/ 6015 06/87
A 01275 MONITOR PAT M/ 6015 06/87
A 01276 MONITOR PAT M/ 6015 06/87
A 01277 MONITOR PAT M/ 6015 06/87
A 01278 RECEIVER TELEX 6015 06/87
A 01279 RECEIVER TELEX 6015 06/87
A 01283 MONITOR PAT M/ 6015 06/87
A 01284 DEFRIBILLATOR 6015 06/87
A 01288 MONITOR, DIMAN 6015 06/87
A 01289 PACEMAKER, TEM 6015 06/87
A 01298 CURTAINS 6080 06/87
A 01299 MATTRESS MAXIF 6080 06/87
A 01317 DEFIBRILLATOR 6081 06/87
A 01326 CARPETING 6081 06/87
A 01326 MATTRESSES 6081 06/87
A 01334 MONITOR, INFANT 6160 06/87
A 01336 MONITOR, EGG/RE 6170 06/87
A 01344 CARPET CDU MAL 6181 06/87
A 01346 CHAIR SCALE 6202 06/87
A 01350 MONITOR FETAL 7010 06/87
A 01352 LECTURESCOPE L 7021 06/87
A 01353 OSTEO COMPRESS 7021 06/87
A 01369 VIDEO STS MICR 7021 06/87
A 01370 PROJECTOR CIME 7021 06/87
A 01373 PROJECTOR 7021 06/87
A 01373 CAMERA - ARTHA 7021 06/87
A 01377 LANINECTONY 7021 06/87
A 01378 OSTEO COMPRESS 7021 06/87
A 01379 FIBEROPTIC EQU 7021 06/87
A 01381 MONITOR FOR PA 7021 06/87
A 01382 DRILL MICRO 50 7021 06/87
A 01383 ARTHROSCOPIC S 7021 06/87
A 01384 OXIMETER, OXYGE 7021 06/87
A 01385 ARTHROSCOPIC R 7021 06/87
A 01387 DRILL MAXI AIR 7021 06/87
A 01388 LAPAROSCOPE 7021 06/87
A 01391 AMES UNIT-OMIO 7040 06/87
A 01393 MONITOR-BLOOD 7040 06/87
A 01394 MONITOR-VITAL 7040 06/87
A 01395 MCM VITAL SIGN 7040 06/87
</TABLE>
<PAGE> 13
Page 7
<TABLE>
<CAPTION>
C ASSET DATE
L NUMBER DESCRIPTION LOCATN Co ACORD
<S> <C> <C> <C> <C>
A 01398 AMES MACHINE M 7040 06/87
A 01410 COUNTER-MUC ME 7060 06/87
A 01412 CHEMISTRY ANAL 7060 06/87
A 01414 URINOMETER 7060 06/87
A 01415 CONSOLE TISSUE 7060 06/87
A 01418 CULTURE & SENS 7060 06/87
A 01421 ANALYZER-PH/BL 7080 06/87
A 01422 BLOOD GAS ANAL 7080 06/87
A 01423 ABG INTERPRETA 7080 06/87
A 01424 EKG MACHINE 7110 06/87
A 01429 IMAGE INTENSIF 7140 06/87
A 01430 CHEST GRID PIC 7140 06/87
A 01433 PROCESSOR X-RA 7140 06/87
A 01435 ILLUMINATOR X- 7140 06/87
A 01438 CONSOLE-ULTRAS 7140 06/87
A 01440 LINEAR RAY MOD 7146 06/87
A 01441 ULTRASOUND UNI 7146 06/87
A 01442 CAMERA - DUNN 7146 06/87
A 01443 COMPAQ COMPUTE 7170 06/87
A 01445 WHEELWRITER 5' 7170 06/87
A 01451 SENSOR CABLE 7 7180 06/87
A 01457 DEFIBRILLATOR 7230 06/87
A 01460 BLOOD PRESSURE 7230 06/87
A 01461 RADIO ANTENNA 7230 06/87
A 01470 CARPETING 8460 06/87
A 01471 DRAPE/CUBE/CUR 8460 06/87
A 01479 CARPET 75 SQ Y 8470 06/87
A 01481 PLUMBERS SNAKE 8470 06/87
A 01491 CARPETING-2ND 8480 06/87
A 01494 PAPER SHREDDER 8510 06/87
A 01495 PHOTOCOPIER 8510 06/87
A 01497 PERSONAL COMPU 8510 06/87
A 01508 MICROFICHE REA 8540 06/87
A 01511 PHOTOCOPIER - 8560 06/87
A 01512 EQUIP ADDITION 8610 06/87
A 01518 TYPEWRITER-QUI 8610 06/87
A 01519 WHEELWRITER - 8610 06/87
A 01522 COPIER MSC 8610 06/87
A 01524 STIMULATION EQ 8610 06/87
A 01536 WHEELWRITER 40 8700 06/87
A 01540 RHYTHM SIMULAT 8740 06/87
</TABLE>
<PAGE> 14
Page 8
<TABLE>
<CAPTION>
C ASSET DATE
L NUMBER DESCRIPTION LOCATN Co ACORD
<S> <C> <C> <C> <C>
A 01552 Dr. Lounge Fur 8610 05/88
A 01553 Health Promo F 8740 05/88
A 01559 PATIENT TVS 03/92
A 01560 H/R LASER PRIN 04/92
A 01561 FRAMED PRINTS 03/92
A 01562 ICEMAKER 03/92
A 01577 MICROTONE 03/92
A 01578 PT RM CURTAINS 6160 01/92
A 01579 FLOOR CARE EQ. 8460 01/92
A 01580 OR PULSE OXIME 01/92
A 01581 STERILIZER BAS 7420 01/92
A 01585 LAP CHOLI 7021 07/92
A 01586 IBM SYSTEM/36 8540 07/92
A 01587 VIP-RX COMPUTE 7170 07/92
A 01589 FURNITURE-MULT 9310 07/92
A 01590 LOBBY FURN-MUL 9310 07/92
A 01591 MISC FRAMED PR 8610 07/92
A 01592 MISC FRAMED PR 8610 07/92
A 01594 COMPUTER TERMI 9310 07/92
A 01595 DRAPES-PATIENT 6080 07/92
A 01596 MEDICAL CLINIC 9312 07/92
A 01597 BIOHAZARD HAMP 8460 07/92
A 01600 DRAPES-MULTI S 9310 07/92
A 01607 FIBROSCOPE REP 7021 07/92
A 01609 RX CABINETS 7170 07/92
A 01611 ADMITTING EMBO 09/92
A 01612 AG PROCESSOR R 12/92
A 01614 OR JV EQUIP 10/92
A 01615 FIBERSCOPE REP 07/93
A 01616 OR VIDEO EQUIP 02/93
A 01618 PURCH. COMPUTE 10/92
A 01619 P.T. EXER EQPT 03/93
A 01636 M/SPEC TERMINA 07/92
A 01638 ACCUTEMP/OS AI 05/93
A 01640 ACCUTEMP AIR C 06/93
</TABLE>
<PAGE> 1
EXHIBIT 10.35
- -----------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
- -----------------------------------------------------------------------------
PALESTINE PRINCIPAL HEATLHCARE LIMITED PARTNERSHIP
AND
MEMORIAL HOSPITAL FOUNDATION-PALESTINE, INC.
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
JULY 12, 1996
- -----------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 SALE AND TRANSFER OF ASSETS: CONSIDERATION; CLOSING..............................1
1.1 Sale of Hospital Assets to PHC...................................................1
1.2 Purchase Price...................................................................2
1.3 Deliveries by PHC at Closing.....................................................3
1.4 Liabilities Excluded.............................................................5
1.5 Excluded Assets..................................................................6
1.6 Assets Free and Clear; Undertaking...............................................6
1.7 Allocation of Purchase Price.....................................................7
1.8 Inventory Adjustment.............................................................7
1.9 Payment for Missing Equipment....................................................8
1.10 Procedure with Respect to Patients in the Hospital at the Effective Time.........8
1.11 Definitive Closing Balance Sheets................................................9
1.12 Closing.........................................................................10
1.13 Further Acts and Assurances.....................................................11
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF MHI...........................................11
2.1 Organization, Corporate Power and Qualification.................................11
2.2 Subsidiaries, Affiliates, Affiliated Companies and Joint Venture................11
2.3 Financial Statements............................................................11
2.4 Absence of Undisclosed Liabilities..............................................12
2.5 Letters of Credit...............................................................12
2.6 Absence of Certain Recent Changes...............................................12
2.7 Title to Assets.................................................................14
2.8 Real Property...................................................................15
2.9 Contracts.......................................................................16
2.10 Burdensome Agreements...........................................................17
2.11 Absence of Related Party Transactions...........................................17
2.12 Defaults........................................................................18
2.13 Inventory.......................................................................18
2.14 Equipment.......................................................................18
2.15 Investments.....................................................................19
2.16 Powers of Attorney..............................................................19
2.17 Guarantees......................................................................19
2.18 Permits and Licenses............................................................19
2.19 Assets Necessary to Business....................................................19
2.20 Litigation, etc.................................................................19
2.21 Court Orders, Decrees and Laws..................................................20
2.22 Taxes...........................................................................20
2.23 Immigration Act ................................................................20
</TABLE>
<PAGE> 3
-ii-
<TABLE>
<S> <C> <C>
2.24 Program Compliance........................................ 21
2.25 Reimbursement Matters..................................... 21
2.26 Environmental Matters..................................... 21
2.27 ERISA..................................................... 22
2.28 Pension, etc.............................................. 23
2.29 Welfare Plan Matters...................................... 23
2.30 Employee Matters.......................................... 24
2.31 Insurance; Malpractice.................................... 25
2.32 Labor Matters............................................. 25
2.33 Improper Payments......................................... 26
2.34 Certain Representations With Respect to the Hospital...... 26
2.35 Books of Account; Reports................................. 27
2.36 No Finders or Brokers..................................... 27
2.37 HSR Filing................................................ 28
2.38 Authority; Binding Effect................................. 28
2.39 Consents and Approvals of Governmental Authorities........ 28
2.40 Disclosure................................................ 28
2.41 LIMITATION ON REPRESENTATIONS............................. 28
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PHC..................... 29
3.1 Organization and Standing of PHC.......................... 29
3.2 Authority; Binding Effect................................. 29
3.3 No Finders or Brokers..................................... 29
3.4 HSR Filing................................................ 29
3.5 Financial Commitment...................................... 29
3.6 Environmental Report...................................... 29
3.7 Consents and Approvals of Governmental Authorities........ 29
ARTICLE 4 COVENANTS OF PHC.......................................... 30
4.1 Best Efforts to Secure Consents........................... 30
4.2 WARN Act.................................................. 30
4.3 Corporate Action.......................................... 30
4.4 Handling of Documents..................................... 30
4.5 Preservation of HSR Status................................ 30
ARTICLE 5 COVENANTS OF MHI.......................................... 31
5.1 Title Insurance Matters................................... 31
5.2 Access and Information.................................... 32
5.3 Conduct of Business....................................... 32
5.4 Personnel Matters......................................... 33
</TABLE>
<PAGE> 4
-iii-
<TABLE>
<S> <C> <C>
5.5 Compliance with Agreement............................................... 33
5.6 Best Efforts to Secure Consents......................................... 33
5.7 Unusual Events.......................................................... 33
5.8 Interim Financial Statements............................................ 33
5.9 Departmental Violations................................................. 34
5.10 Assessments............................................................. 34
5.11 Insurance Ratings....................................................... 34
5.12 Maintain Insurance Coverage............................................. 34
5.13 1995 and 1996 Annual Audit Reports...................................... 34
5.14 Preservation of HSR Status.............................................. 35
ARTICLE 6 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF MHI.......................... 35
6.1 Representations and Warranties True..................................... 35
6.2 Opinion of Counsel...................................................... 35
6.3 Authority............................................................... 35
6.4 No Obstructive Proceeding............................................... 35
6.5 Delivery of Certain Certified Documents................................. 36
6.6 Proceedings and Documents Satisfactory.................................. 36
6.7 Hart-Scott-Rodino Filings............................................... 36
6.8 Escrow Agreement........................................................ 36
6.9 No Agency Proceedings................................................... 36
ARTICLE 7 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PHC.......................... 36
7.1 Representations and Warranties True..................................... 36
7.2 No Obstructive Proceeding............................................... 37
7.3 General Warranty Deed; Release of Indenture; Title Insurance Policy..... 37
7.4 Sale of West Oak Medical Plaza.......................................... 37
7.5 Escrow Agreement........................................................ 37
7.6 Environmental Report.................................................... 37
7.7 Opinion of MHI Counsel.................................................. 37
7.8 Non-Assignable Property Interests....................................... 37
7.9 EMS Franchise........................................................... 38
7.10 Consents and Approvals.................................................. 38
7.11 Proceedings and Documents Satisfactory.................................. 38
7.12 Federal and State Approvals; Licensing.................................. 38
7.13 Delivery of Certain Documents........................................... 38
7.14 Hart-Scott-Rodino Filings............................................... 38
ARTICLE 8 TERMINATION............................................................. 39
8.1 Optional Termination.................................................... 39
</TABLE>
<PAGE> 5
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<TABLE>
<S> <C> <C>
8.2 Notice of Abandonment................................................... 39
8.3 Mandatory Termination................................................... 39
8.4 Termination............................................................. 39
ARTICLE 9 INDEMNIFICATION......................................................... 40
9.1 By MHI.................................................................. 40
9.2 Indemnification by PHC.................................................. 40
9.3 Special Indemnification Provisions Regarding Environmental Matters...... 41
9.4 Representation, Cooperation and Settlement.............................. 42
9.5 Remedies Cumulative..................................................... 43
ARTICLE 10 DEFINITIONS............................................................ 43
Affiliate.................................................................... 43
Appraisal.................................................................... 43
Assets....................................................................... 43
Assumed Liabilities.......................................................... 43
Bonds........................................................................ 43
Bondholder(s)................................................................ 43
Closing...................................................................... 43
Closing Date................................................................. 43
Code......................................................................... 43
Contracts.................................................................... 44
Credit Agreement............................................................. 44
Definitive Closing Statements................................................ 44
Discharge Amount............................................................. 44
Effective Time............................................................... 44
Equipment and Furnishings.................................................... 44
ERISA........................................................................ 44
Escrow Agreement............................................................. 44
E&Y.......................................................................... 44
Escrow Deposit............................................................... 44
Excluded Assets.............................................................. 44
Exhibit Volume............................................................... 44
Final Closing Statement...................................................... 44
Hospital..................................................................... 44
HSR Act...................................................................... 44
Indemnified Party............................................................ 44
Indemnifying Party........................................................... 44
Indenture.................................................................... 45
Inventory.................................................................... 45
</TABLE>
<PAGE> 6
-v-
<TABLE>
<S> <C>
Letter of Intent............................................................ 45
MHI......................................................................... 45
MHI Appraisal............................................................... 45
MHI Financial Statements.................................................... 45
Missing Equipment........................................................... 45
Owner's Policy.............................................................. 45
Pension Plan................................................................ 45
PHC......................................................................... 45
Prepaids.................................................................... 45
Purchase Price.............................................................. 45
Purchaser Appraisal......................................................... 45
Real Property............................................................... 45
Undertaking................................................................. 45
WARN ACT.................................................................... 45
West Oak Medical Plaza...................................................... 45
ARTICLE 11 MISCELLANEOUS......................................................... 46
11.1 Expenses.............................................................. 46
11.2 Prohibition on Use of Name; Consent................................... 46
11.3 Non-Competition....................................................... 46
11.4 Cooperation by PHC.................................................... 47
11.5 Cooperation by MHI.................................................... 47
11.6 Cost Reports.......................................................... 47
11.7 Notices............................................................... 48
11.8 Entire Agreement...................................................... 48
11.9 GOVERNING LAW......................................................... 49
11.10 WAIVER OF TRIAL BY JURY............................................... 49
11.11 Arbitration........................................................... 49
11.12 Legal Fees and Costs.................................................. 49
11.13 Rights Against Shareholders, Officers, Directors and Other Parties.... 50
11.14 Time.................................................................. 50
11.15 Section Headings...................................................... 50
11.16 Waiver................................................................ 50
11.17 Nature and Survival of Representations................................ 50
11.18 Exhibits.............................................................. 50
11.19 Assignments........................................................... 50
11.20 Binding on Successors and Assigns..................................... 51
11.21 Parties in Interest................................................... 51
11.22 Amendments............................................................ 51
11.23 Drafting Party........................................................ 51
</TABLE>
<PAGE> 7
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<TABLE>
<S> <C>
11.24 Counterparts............................................ 51
11.25 Reproduction of Documents............................... 51
11.26 Press Releases.......................................... 51
APPENDIX 1.1A REAL PROPERTY INTERESTS INCLUDED IN THE ASSETS....... 56
APPENDIX 1.1B EQUIPMENT AND FURNISHINGS INCLUDED IN THE ASSETS..... 57
APPENDIX 1.3A FORM OF ESCROW NOTE.................................. 58
APPENDIX 1.3B INDEMNITY, PLEDGE AND ESCROW AGREEMENT............... 60
APPENDIX 1.3C UNDERTAKING.......................................... 68
APPENDIX 6.2 OPINION OF COUNSEL TO PHC............................ 89
APPENDIX 7.5 OPINION OF COUNSEL TO MHI............................ 91
</TABLE>
<PAGE> 8
Exhibit 10.35
ASSET PURCHASE AGREEMENT
Asset Purchase Agreement dated as of July 12, 1996 between Memorial
Hospital Foundation-Palestine, Inc., a Texas not-for-profit corporation ("MHI"),
and Palestine Principal Healthcare Limited Partnership, a Texas limited
partnership ("PHC").
RECITAL:
MHI owns and operates the business constituting the Assets described in
ss. 1.1 below. MHI desires to sell the Assets to PHC and PHC is ready, willing
and able to take such actions so it will be able to purchase the Assets in
conformity with the terms hereof. To evidence its good faith pursuant to the
Letter of Intent, PHC has paid an Escrow Deposit of $500,000 to, and has entered
into the Credit Agreement with, MHI. Various capitalized terms used herein are
defined in Article 10 hereof.
The parties hereby agree as follows:
ARTICLE I SALE AND TRANSFER OF ASSETS: CONSIDERATION; CLOSING
1.1 Sale of Hospital Assets to PHC. At the Closing (as defined in
ss. 1.12 hereunder), MHI shall convey, and cause its subsidiaries to convey, the
following assets to PHC (such assets being sometimes hereinafter called the
"Assets"):
(a) Fee simple, insurable right, title and interest in the real
property, as described in Appendix 1.1A, and to all
improvements, structures, fixed assets, and fixtures including
fixed machinery and fixed equipment situated thereon or
forming a part thereof and all appurtenances, easements and
rights-of-way related thereto (collectively the "Real
Property");
(b) Such contracts, leases of real estate and equipment and other
agreements listed in Exhibit 2.9 as PHC agrees to assume under
the Undertaking described in ss. 1.3 hereof.
(c) All of the following related to the operation of Hospital:
(i) inventory of goods and supplies used or maintained in
connection with or located in Hospital including, but not
limited to, food, cleaning materials, disposables, linens,
consumables, office supplies, drugs and medical supplies
inventories (the "Inventory"); and (ii) prepaid expenses
(collectively the "the Prepaids");
(d) All tangible personal property, medical and other equipment,
machinery, furniture, furnishings, appliances, vehicles and
other tangible personal property of every description and kind
and all replacement parts therefor which are either owned by
MHI or used or maintained or operated by MHI in connection
with Hospital listed in Appendix 1.1B (collectively the
"Equipment and Furnishings");
<PAGE> 9
-2-
(e) All patient, medical, personnel and other records of Hospital
(on all forms of paper, electronic and other media), and all
manuals, books and records used in operating Hospital, including
personnel policies and manuals, but excluding all proprietary
manuals listed in Appendix 1.5;
(f) To the extent transferable, all licenses, permits,
registrations, certificates, consents, accreditations, approvals
and franchises necessary to operate and conduct the business of
Hospital as currently conducted together with assignments
thereof, if required, and all waivers which MHI currently has,
if any, of any requirements pertaining to such licenses,
permits, registrations, certificates, consents, accreditations,
approvals and franchises;
(g) All plans and surveys, including "as-built" plans, all plats,
specifications, engineers' drawings, and architectural
renderings and similar items, relating to Assets, in MHI's
possession, including, without limitation, those relating to
utilities, easements and roads;
(h) All goodwill, and, to the extent assignable by MHI all contract
rights, warranties (express or implied) and rights and claims
related to the operation of Hospital; and
(i) All of MHI's rights in the name "Memorial Hospital of Palestine"
and all associated trademarks, tradenames, servicemarks and
associated d/b/a's.
in exchange for delivery to MHI of the Purchase Price.
1.2 PURCHASE PRICE. For the purposes of this Agreement the
"Purchase Price" shall mean $21,900,000 adjusted to reflect the net effect of
the following debits and credits as of the Closing Date:
DEBITS (additions to the Purchase Price)
(i) Inventory of the Hospital valued pursuant to ss. 1.8 hereof,
(ii) Prepaids to the extent they are transferrable and assumable
by PHC;
CREDITS (deductions from the Purchase Price)
(iii) Accrued current liabilities of the Hospital applicable to
employees of the Hospital hired by PHC immediately after the
Closing relating to accrued paid vacation pay, paid time off
and sick leave or their equivalents, along with taxes
applicable to such accruals; and
<PAGE> 10
-3-
(iv) The book balance of capitalized lease obligations, net of
any related cash deposits, to be assumed by PHC.
The Purchase Price shall be estimated based on the most recent balance sheet of
Hospital available at the Closing. The Purchase Price is subject to adjustment
based on the updated adjusted balance sheet of Hospital as of the Closing Date
reflected in the Definitive Closing Statements.
1.3 Deliveries by PHC at Closing. At Closing PHC shall deliver
the following items to MHI in payment of the estimated Hospital purchase price:
(A) a one year note in the form attached hereto as Appendix
1.3A (the "Escrow Note") in a principal amount of
$150,000;
(B) cash in the amount of $20,137,000(1) (which includes the
Escrow Deposit) paid as follows:
- ------------------
(1) Based on a purchase price for Hospital of $21,900,000 and the
following adjustments based on the 4/30/96 Hospital balance sheet:
Calculation of Purchase Price
Purchase Price before adjustments $21,900,000
Inventories 527,000
Prepaid Expenses 100,000
PHC Share of Closing Costs (See ss. 11.1) 250,000
-----------
$22,777,000
===========
Summary of Payment of Purchase Price
Liabilities assumed by PHC
Accrued paid vacation and sick leave $ 281,000
(estimate based on Hospital's benefits
policy)
Capital Leases, net 2,209,000
-----------
Total Assumed Liabilities $ 2,490,000
Amount of Escrow Note 150,000
Deposit with Escrow Agent 3,549,000
Escrow Deposit 500,000
Other Cash at Closing 16,088,000
-----------
Total Cash at Closing 20,137,000
-----------
Total Consideration $22,777,000
===========
These amounts will be adjusted subsequent to the Closing Date based on
the figures as of the Closing Date as set forth in the Definitive Closing
Balance Sheet described in ss. 1.11 hereof.
<PAGE> 11
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(1) The Discharge Amount net of amounts held by the
trustee (including amounts in the debt service
reserve fund and the bond fund) which can and
will be applied to discharge Seller's 1993
Bonds, will be paid directly to the trustee of
the Bonds in immediately available funds;
(2) $3,549,000 shall be paid to First Union Bank as
Escrow Agent to be held in escrow pursuant to an
escrow agreement in the form attached hereto as
Appendix 1.3B (the "Escrow Agreement");
(3) The balance if any, including amounts payable
pursuant to ss. 11.1, shall be paid to MHI by
wire transfer (the Escrow Deposit, and any
interest earned thereon and any unpaid loans
under the Credit Agreement, together with
interest accrued thereon, shall be credits
against the balance, if any, paid to MHI);
(C) Undertaking in the form attached hereto as Appendix 1.3C
(the "Undertaking") assuming, the following liabilities
of MHI:
(1) Accrued current liabilities of the Hospital
applicable to employees of the Hospital hired
by PHC immediately after the Closing relating
to accrued paid vacation pay, paid time off
and sick leave or their equivalents, along
with taxes applicable to such accruals and
excluding third party payor liability and any
accrued tax liability through the Effective
Date;
(2) The book balance of capitalized lease
obligations to be assumed by PHC;
(3) The contracts, leases and capital expenditure
commitments listed therein from the list in
Exhibit 2.9 of the Exhibit Volume;
(4) All other liabilities explicitly assumed by
PHC under this Agreement,
and no others.
For the purposes of the Closing, the estimated Purchase Price shall be
used, and shall be adjusted post-Closing based upon the adjusted balance sheet
as of the Closing Date as reflected in the Definitive Closing Statements, and
the parties shall make such cash payments as are necessary to reflect the
adjusted Purchase Price in accordance with ss. 1.11 hereof
<PAGE> 12
-5-
1.4 Liabilities Excluded. PHC shall have no obligation or liability in
connection with the debts, obligations, and liabilities of MHI or the Hospital
other than the liabilities specifically assumed in the Undertaking (the "Assumed
Liabilities"). Other than the Assumed Liabilities, MHI shall be obligated to
pay, perform, and discharge, such debts, obligations, and liabilities, including
without limitation, the following:
(a) All liabilities and obligations which become due and payable
through the Effective Time under any contracts and leases of
MHI or the Hospital, including without limitation any current
liabilities of the Hospital not specifically assumed pursuant
to the Undertaking;
(b) All claims of the United States Government under the Medicare
program, of the State of Texas under the Medicaid program, or
of any other third-party payor, arising out of the operations
of the Hospital through the Effective Time;
(c) Any and all tax liabilities payable with respect to any
activity of MHI through and including the Effective Time,
including but not limited to income and pro-rated taxes
arising in connection with the transactions contemplated
herein;
(d) Except as provided in ss. 1.10(e), all suits, claims,
judgments, indemnities, contingent liabilities and other
obligations of MHI or the Hospital arising from acts or
omissions prior to the Effective Time;
(e) Any employee wages, salaries and benefits, including without
limitation retirement payments, COBRA obligations and other
employee benefits not expressly assumed by PHC;
(f) Any liabilities associated with the following matters:
- MHI's liability, if any, resulting from the litigation
styled Hightower, et al. v. Memorial Hospital
Foundation of Palestine, et al., Civil Action No.
6:93CV94;
- MHI's liability, if any, for ad valorem taxes and
related penalties, interest and attorneys fees for all
periods until the Closing Date, including, but not
limited to liabilities resulting from the following
litigation: Memorial Hospital Foundation of Palestine,
Inc. v. Anderson County Appraisal District and Clifford
Wooton, District Court of Anderson County, 87th
Judicial District, Cause No. 8397; and Memorial
Hospital Foundation of Palestine, Inc. v. Anderson
County Appraisal District, District Court of Anderson
County, 87th Judicial District, Cause No. 7933; on
appeal to the Court of Appeals, 12th Supreme Judicial
District, Tyler, Texas, as Cause No. 12-95-00041-CV.
<PAGE> 13
-6-
- MHI's liability, if any, resulting from the litigation
styled Anderson County v. Memorial Hospital Foundation
of Palestine, Inc., Cause No. 8132, District Court,
Anderson County, Texas;
- Any costs or liabilities relating to the termination of
three professional services agreements for
anesthesiology between Indemnitor and Dr. Richard
Cooper;
- Debt associated with West Oak Medical Plaza;
- Any liability to Robert Charron, the former CEO of MHI
all of which liabilities are provided for in the Escrow
Agreement.
(g) Any liabilities with respect to any plans set forth in
Exhibits 2.27 and 2.28 hereof; and
(h) All liabilities not expressly specified as Assumed Liabilities
on Schedule 1 to the Undertaking.
MHI shall indemnify and hold PHC harmless from all such debts, obligations and
liabilities of MHI not assumed by PHC.
1.5 Excluded Assets. MHI is not selling and PHC is not purchasing
or assuming obligations with respect to the following (collectively the
"Excluded Assets"):
(a) The Hospitals' cash, receivables, cash deposits (except for
deposits relating to capital leases) and escrows, and all
other cash equivalent items;
(b) MHI's corporate and fiscal records and other records
pertaining to the operations of the Hospital which MHI is
required by law to retain in its possession;
(c) West Oak Medical Plaza;
(d) Any trademarks or tradenames or copyrights of MHI not
specifically included in the Assets, and any proprietary
manuals.
1.6 Assets Free and Clear; Undertaking. The Assets shall be sold free
and clear of all liabilities, liens and encumbrances except those liabilities of
MHI expressly assumed or agreed to be discharged by PHC in the Undertaking.
Except as provided in the Undertaking, PHC shall not assume any other liability
or obligation of MHI fixed or contingent, disclosed or undisclosed, at the
Closing, or otherwise. MHI agrees to satisfy, when due, all of its liabilities,
indebtedness and obligations not assumed by PHC pursuant to this Agreement and
the Undertaking; provided, however, that MHI shall be entitled to contest in
good faith any of such liabilities, indebtedness or obligations by appropriate
legal proceedings. PHC will pay, perform and discharge in due course in
accordance with their terms all obligations, indebtedness and liabilities of
the Hospital or MHI
<PAGE> 14
-7-
assumed by them pursuant to the Undertaking; provided, however, that PHC shall
be entitled to contest in good faith any of such obligations, indebtedness or
liabilities by appropriate legal proceedings.
1.7 Allocation of Purchase Price. The parties acknowledge that PHC will
obtain a fair market valuation of the tangible assets (the "Purchaser
Appraisal") from an independent MAI appraisal firm, prepared at the expense of
PHC by an appraiser selected by PHC. Upon receipt of the Purchaser Appraisal
within 90 days of the Closing, PHC shall deliver a copy to MHI who shall have 10
business days to accept or object thereto. If MHI accepts the Purchaser
Appraisal or fails to object thereto within such 10 day period, the Purchaser
Appraisal shall be deemed the "Appraisal" hereunder. If MHI timely objects to
the Purchaser Appraisal, MHI shall have the right, at its expense, to appoint
its independent MAI appraiser to prepare an appraisal (the "MHI Appraisal") of
the tangible Assets to be delivered within 130 days of the Closing (failure to
deliver the MHI Appraisal by such date shall be deemed acceptance of the
Purchaser Appraisal. Upon receipt of the MHI Appraisal, MHI shall deliver a copy
thereof to PHC which shall have 10 business days to accept or object thereto. If
PHC accepts the MHI Appraisal or fails to object thereto within such 10 day
period, the MHI Appraisal shall be deemed the "Appraisal" hereunder. If PHC
timely objects to the MHI Appraisal, the two appraisal firms previously
appointed shall choose a third independent MHI appraisal firm to appraise the
tangible Assets, with the expense shared one-half by MHI and one-half by PHC,
and the appraisal made by such firm shall be binding on the parties and shall
constitute the "Appraisal" hereunder. The parties agree that the portion of the
purchase price attributable to the purchase of property, plant and equipment
shall be allocated in accordance with the appraised values set forth in the
Appraisal. The parties agree not to take a federal income tax reporting position
inconsistent with the appraised values set forth in the Appraisal. The parties
acknowledge that they have reached no agreement regarding the allocation of the
remainder of the purchase price among the other assets to be purchased
hereunder. Each party agrees to cooperate with the other so that the information
shown on Form 8594 filed with the Internal Revenue Service by such party will be
consistent with the information on the other party's Form 8594.
1.8 Inventory Adjustment. MHI shall cause a physical count of the
Inventory to be taken on a date not more than five business days prior to the
Closing. MHI shall afford PHC the opportunity to participate in and observe the
physical count of the Inventory to the extent it desire. At or prior to Closing,
PHC and MHI shall mutually approve a schedule showing the physical count of the
Inventory. Thereafter, prior to delivery of the Final Closing Statements, PHC
and MHI shall mutually adjust such schedule to reflect all additions to and
deletions from the Inventory which occur between the date of the physical count
and the Effective Time. For purposes of determining the valuation of the
Inventory under ss. 1.11 hereof, the physical count of the Inventory, as so
adjusted, shall be priced based on lower of market or the actual cost thereof to
MHI as shown on the books and records of the Hospital which PHC shall have the
right to inspect and examine for the purposes of confirming such costs. Such
valuation shall thereafter be used for purposes of ss. 1.11 hereof.
<PAGE> 15
-8-
1.9 Payment for Missing Equipment. MHI shall permit PHC to cause a
physical count of all equipment at the Hospital to be taken on a date not more
than ten business days prior to the Closing. Except for Equipment listed in
Appendix 1.1B as may have been disposed of by MHI in the ordinary course of
business consistent with past practices and replaced with similar items of the
same quality included in the Assets conveyed to PHC, MHI shall reimburse PHC for
any Equipment reflected in Appendix 1.1B which is not located at the Hospital
and conveyed to them hereunder as part of the Equipment on the Closing Date (the
"Missing Equipment"); provided, however, that such reimbursement shall be
payable only with respect to Missing Equipment, if any, reflected on a schedule
to be prepared by PHC and MHI on or prior to the Closing Date, and only to the
extent the aggregate book value of all such Missing Equipment exceeds $50,000.
Any such reimbursement shall be based on the depreciated replacement cost of the
Missing Equipment.
1.10 Procedure with Respect to Patients in the Hospital at the
Effective Time. To ensure an equitable sharing of the revenues arising from
treatment of patients in the Hospital at the Effective Time, the following
procedures shall be followed:
(a) Non-Cost-Based-Patients. MHI shall prepare a cut-off statement
as of the Effective Time for all patients whose medical care
is paid for by third party payors who (i) are not the Medicare
or Medicaid programs, and (ii) pay on the basis of criteria
other than the provision of Diagnostic Related Groups
("DRGs"). All payments received by PHC from such payors with
respect to such patients shall be pro-rated between the
parties on the basis if the number of days before and after
the Effective Date such patients were in the Hospital.
(b) Cost-Based Patients. MHI shall prepare a cut-off statement as
of the Effective Time for all patients whose medical care is
paid for, in whole or in part, by a cost based program
including the Medicare and Medicaid programs, to the extent
applicable. All payments received by PHC after the Closing in
respect to medical services rendered to such patients prior to
the Effective Time from such cost-based programs, including
any periodic interim payments or portions thereof, shall be
paid to MHI and all other payments shall be retained by PHC.
(c) Medicare and Medicaid DRG Patients. PHC shall submit one bill
to the Medicare program for all patients whose medical care is
paid for by Medicare on the basis of DRGs and one bill to the
Medicaid program for all patients whose medical care is paid
for the Medicaid Program on the basis of DRGs. These in-house
patient bills will be pro-rated between the parties on the
number of days spent in the Hospital by such patients before
and after the Effective Date. All deductibles and co-insurance
applicable to such payments shall be pro-rated on the same
basis.
<PAGE> 16
-9-
(d) Other DRG Patients. All payments from other third party payors
other than the Medicare and Medicaid programs which reimburse on
the basis of DRG's or similar reimbursement mechanisms for all
patients whose hospital stay commences prior to the Effective
Time and ends thereafter shall be pro-rated between the parties
on the number of days spent in the Hospital by such patients
before and after the Effective Date.
(e) Payment Procedures. As soon as practicable after the end of each
of the first three months after the Closing, PHC shall provide
MHI with statements calculating the amount due MHI with respect
to cost-based and Medicare and Medicaid DRG patients in
sufficient detail for MHI to verify the accuracy of the
statements and shall provide MHI and its representatives access
to the books and records of the Hospital as reasonably necessary
for such verification. Any amounts received by PHC thereafter
that belong to MHI will be paid to MHI within ten business days
of receipt. If MHI disputes the calculation, the report in
question shall be submitted to Ernst & Young, LLP ("E&Y") for
adjustment, with MHI and PHC each bearing 50% of the cost. PHC
shall pay the amount due MHI within ten business days of the
earlier of (i) delivery of the E&Y calculation, or (ii) the
parties' agreement respecting the amount due.
(f) Malpractice Claims. Consistent with the foregoing, any claim by
a patient relating to professional negligence or similar matters
involving a patient admitted to the Hospital prior to the
Effective Time and discharged subsequent to the Effective Time
will be the responsibility of either PHC or MHI in accordance
with the following: (i) if it is a claim in which clearly the
incident giving rise to liability arose prior to the Effective
Time, MHI shall respond to the loss and defense expenses; (ii)
if it is a claim in which clearly the incident giving rise to
liability arose subsequent to the Effective Time, PHC shall
respond to the loss and defense expenses; and (iii) in the event
that the incident giving rise to liability as to time is not
clear, MHI and PHC will jointly defend the case, shall share the
cost of the defense equally and shall equally share or cost of
settlement or judgment unless the court determines liability in
different proportions in which case the judgment shall be
allocated in such proportions.
(g) Cooperation. PHC shall cooperate with MHI and shall provide
access to records, both medical and financial, to assist MHI in
the collection, rebilling and auditing of accounts receivable
retained by MHI. PHC shall provide such service free of charge
(except for out-of-pocket expenses, such as copying, etc. for
which MHI will reimburse PHC) for a period of 180 days following
the Closing Date.
1.11 Definitive Closing Balance Sheets. By the 45th day after the Closing, PHC
shall prepare and deliver to MHI final closing statements ("Final Closing
Statements") of the Hospital as
<PAGE> 17
-10-
of the Closing Date, accompanied by the work papers pertaining thereto. PHC
covenants that the Final Closing Statements shall be true, complete and accurate
and will present fairly the items set forth in ss. 1.2(i) through (iv) hereof as
at the Closing, calculated in a manner consistent with the Financial Statements
(as hereinafter defined), the requirements of this Agreement and the benefit
policies of the Hospital relating to sick leave and paid time off. MHI and its
representatives shall be provided access to the books and records of PHC as
necessary to verify the accuracy of such calculations. If within 30 business
days, or such longer period as the parties may agree upon, of receipt of the
Final Closing Statements, MHI fails to deliver to PHC written notice specifying
any unacceptable entries on the Final Closing Statements and the reasons
therefor, then such Final Closing Statements shall constitute the Definitive
Closing Statements. If MHI timely and duly delivers such notice within 30
business days of receipt thereof, or such longer period as the parties may agree
upon, the parties shall attempt in good faith to resolve the differences, and if
they are unable to do so within 20 business days thereafter, or such longer
period as the parties may agree upon, either party may deliver the Final Closing
Statements to E&Y who shall have 20 business days, or such longer period as the
parties may agree upon, to review the Final Closing Statements and make such
adjustments thereto as it deems necessary to ensure that the Final Closing
Statements have been prepared in a manner consistent with the PHC Financial
Statements and the requirements of this Agreement and conform to consistently
applied generally accepted accounting principles. The Final Closing Statements
as so adjusted shall constitute the Definitive Closing Statements and shall be
binding on the parties hereto. PHC and MHI shall each bear 50% of the fees and
expenses of E&Y. Any cash payments owed by any party hereto, as determined in
accordance with the Definitive Closing Statements, shall be paid within five
days following the date the Final Closing Statements constitute the Definitive
Closing Statements PHC shall have the right to off-set any amounts due it
against the Escrow Note.
MHI shall provide reasonable assistance to employees of PHC in preparing
the Final Closing Statements and any closing financial statements per normal
fiscal period closing procedures.
1.12 Closing. The sale, purchase, and other activities provided for
herein (the "Closing") shall take place on July 22, 1996 (the "Closing Date"),
at the offices of Fulbright & Jaworski, Dallas, Texas or at such other place as
shall be agreeable to the parties. In case the Closing does not take place on
the Closing Date, the Closing Date shall be set by mutual agreement between PHC
and MHI; provided, however, that in no event shall the Closing take place later
than July 31, 1996, unless extended by mutual agreement of the parties. The
Closing and the risk of loss with respect to the Assets, and the legal transfer
of the operation of the Hospital, shall take place effective as of 12:01 am on
the day after the Closing Date (such effective time is herein referred to as the
"Effective Time"), and except as otherwise stated herein, all income and expense
attributable to the ownership of the Assets and under Contracts and Assumed
Liabilities (measured on an accrual basis) to the Effective Time shall be for
the account of MHI and thereafter for the account of PHC as appropriate.
<PAGE> 18
-11-
1.13 Further Acts and Assurances. MHI shall, at any time and from time
to time at and after the Closing, upon request of PHC, take any and all steps
necessary to place PHC, as appropriate, in possession and operating control of
the Assets and the business to be transferred hereunder and will do, execute,
acknowledge and deliver, or will cause to be done, executed, acknowledged and
delivered, all such further acts, deeds, assignments, transfers, conveyances,
and assurances as may be required for the better transferring and confirming to
PHC or to their successors or assigns, or for reducing to possession, any or all
of the Assets.
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF MHI
MHI hereby represents and warrants to PHC as follows:
2.1 Organization, Corporate Power and Qualification. MHI is a
not-for-profit corporation duly organized, validly existing and in good standing
under the laws of the State of Texas and has full corporate power and authority
and all authorizations, licenses and permits necessary to own, lease and operate
its properties and assets and to carry on its business as and where it is now
being conducted, to enter into this Agreement, and to consummate the
transactions contemplated hereby. MHI is duly qualified to do business and is in
good standing in each jurisdiction in which the character of the properties
owned or leased by it or the nature of the business transacted by it makes such
qualification necessary. MHI is qualified to do business in the states and
foreign countries listed in Exhibit 2.1A of the Exhibit Volume which is a
volume of all Exhibits referred to in this Agreement (the "Exhibit Volume"). No
jurisdiction where MHI is not presently qualified as a foreign corporation has
made any assertion that MHI's business or ownership of property makes
qualification as a foreign corporation in such jurisdiction necessary. A copy of
MHI's Articles of Incorporation and all amendments thereto as of the date hereof
and a copy of MHI's by-laws, as amended to the date hereof (both certified by
the Secretary of MHI), are included as Exhibit 2.1B of the Exhibit Volume and
are true, accurate and complete as of the date hereof. MHI is not in default
under or in violation of any provision of its Articles of Incorporation or
bylaws.
2.2 Subsidiaries, Affiliates, Affiliated Companies and Joint Venture.
Except as set forth in Exhibit 2.2. MHI has no direct or indirect ownership
interest in, by way of stock ownership or otherwise, any corporation,
association or business enterprise.
2.3 Financial Statements. Exhibit 2.3 consists of the following
financial statements of MHI: (i) consolidated balance sheets of MHI of at May
31, 1993, and May 31, 1994 and the related consolidated statements of revenues
and expenses and cash flow for the years then ended and the notes related
thereto, together with the unqualified opinions thereon of Harrell, Rader,
Bonner & Bolton, LLP, certified public accountants; and (ii) the unaudited
consolidated balance sheets of MHI as of May 31, 1995 and March 31, 1996 and
unaudited consolidated statement of revenues and expenses of MHI for the year
and ten months, respectively, then ended (the audited and unaudited financial
statements and the related notes being herein called the "MHI Financial
Statements").
<PAGE> 19
-12-
The MHI Financial Statements are true, complete and accurate, have been
based upon the information contained in the books and records of MHI and present
fairly the assets, liabilities and financial condition of MHI as at the
respective dates thereof and the results of its operations for the periods ended
at the respective dates thereof, in each case prepared in conformity with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved and with prior periods, except that the
unaudited portion of the MHI Financial Statements (iii) are subject to cost
report and other year-end audit adjustments and (iv) do not contain footnotes.
As of the dates thereof, the MHI Financial Statements do not contain any
material inaccuracy and do not suffer from any material omissions.
2.4 Absence of Undisclosed Liabilities. Except as set forth in
Exhibit 2.4, and except to the extent reflected or reserved against in the MHI
Financial Statements and except for commitments and obligations incurred in the
ordinary course of business accruing after March 31, 1996, MHI as of March 31,
1996, had, or will have at Closing, no material liabilities, claims or
obligations (whether accrued, absolute, contingent, unliquidated or otherwise,
whether or not known to MHI or any directors, officers or employees of MHI,
whether due to become payable and regardless of when or by whom asserted).
2.5 Letters of Credit. Except as disclosed in Exhibit 2.5 hereto,
there are no outstanding letters of credit issued at the request of MHI to any
suppliers or obligees of MHI with respect to the operations of MHI.
2.6 Absence of Certain Recent Changes. Except as expressly provided
in this Agreement or as set forth on Exhibit 2.6 in alphabetical order
corresponding to the following subsections, since March 31, 1996, MHI has not:
(a) except in the usual and ordinary course of its business,
consistent with past practice, and in an amount which is usual
and normal, incurred any indebtedness or other liabilities
(whether accrued, absolute, contingent or otherwise),
guaranteed any indebtedness or sold any of its assets;
(b) suffered any damage, destruction or loss, whether or not
covered by insurance, in excess of $10,000;
(c) the resignation or other termination of any management
personnel of MHI, or the loss of or other termination of a
business relationship with any material customers or suppliers
of MHI's business;
(d) increased the regular rate of compensation payable by it to
any employee or any physician other than normal merit and cost
of living increases granted in the ordinary course of
business; or increased such compensation by bonus, percentage,
<PAGE> 20
-13-
compensation service award or similar arrangement theretofore in
effect for the benefit of any of its employees, and no such
increase is required;
(e) established or agreed to establish, amended or terminated any
pension, retirement or welfare plan or arrangement for the
benefit of its employees not theretofore in effect;
(f) suffered any material loss of physicians from its Medical Staff
through the date hereof or suffered any change in its financial
condition, assets, liabilities, operations, prospects or business
through the date hereof or suffered any other event or condition
through the date hereof of any character which individually or in
the aggregate has or might reasonably have a material adverse
effect on MHI (the facts set forth in this representation need
not be true as of the Closing Date);
(g) experienced any labor organizational efforts, strikes or
complaints other than grievance procedures in the ordinary course
of business or entered into any collective bargaining agreements
with any union;
(h) made any single capital expenditure which exceeded $10,000 or
made aggregate capital expenditures which exceeded $25,000;
(i) except with respect to liens or encumbrances arising by operation
of law, permitted or allowed any of the Assets to be subjected to
any mortgage, pledge, lien, security interest, encumbrance,
restriction or charge of any kind;
(j) written down the value of any of the Assets, or written off as
uncollectible any notes or accounts receivable, except for
write-downs and write-offs in the ordinary course of business and
consistent with past practice, none of which are material, or
revalued any of the Assets;
(k) paid, discharged or satisfied any claims, liabilities or
obligations (absolute, accrued, contingent or otherwise) other
than in the usual and ordinary course of business;
(1) suffered any extraordinary losses, canceled any debts or waived
any claims or rights of substantial value, whether or not in the
usual and ordinary course of business;
(m) paid, lent or advanced any amount to, or sold, transferred or
leased any properties or assets (real, personal or mixed,
tangible or intangible) to, or entered into any agreement or
arrangement with, any of the officers or directors of MHI or of
any Affiliate of any of its officers or directors, except for
reimbursement of ordinary and reasonable business expenses
related to the business of MHI and compensation to officers at
rates not exceeding the rates of compensation at March 31, 1996;
<PAGE> 21
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(n) amended, terminated or otherwise altered (whether by action or
inaction) any contract, agreement or license of significant value
to which MHI is a party, except in the ordinary course of
business;
(o) entered into a material transaction other than in the ordinary
course of business or made any change in any method of accounting
or accounting practice;
(p) canceled, or failed to continue, insurance coverages; or
(q) agreed, whether in writing or otherwise, to take any action
described in this ss. 2.6.
2.7 Title to Assets. Except as disclosed in Exhibit 2.7A of the
Exhibit Volume which is a recent title report on each parcel of real estate
owned or leased by MHI or Exhibit 2.7B of the Exhibit Volume described below,
has, or will have at Closing, good title to all of the Assets subject to no
mortgage, pledge, lien, lease, conditional sales agreement, option, right of
first refusal or to any other encumbrance or charge, including taxes, except:
(a) assets sold or otherwise disposed of subsequent to the date
hereof in the ordinary course of business;
(b) liens in respect of taxes not yet due and payable or being
contested in good faith by appropriate proceedings;
(c) liens in respect of pledges or deposits under worker's
compensation, unemployment insurance, social security and public
liability laws and other similar legislation;
(d) such imperfections of title and other encumbrances, if any, which
do not in the aggregate materially detract from the value or
interfere with the use of the Assets or otherwise materially
impair the Hospital's business operations.
None of the encumbrances set forth in Exhibit 2.7A of the Exhibit Volume impairs
or materially interferes with the use or value of the Assets. None of the Assets
consisting of owned real property is subject to any mortgage or other
encumbrance or charge other than those encumbrances described in Exhibit 2.7A of
the Exhibit Volume which is a copy of a recent title report relating thereto.
The Assets consisting of owned personal property are subject to no liens or
encumbrances except the security interests of record set forth on Exhibit 2.7B
of the Exhibit Volume, which Exhibit is a copy of a Uniform Commercial Code
search as of a recent date duly obtained by MHI and which search shows security
interests of record relating to such assets in every place where such security
interests are legally required to be filed and includes copies of all such
financing statements. MHI agrees to remove all security interests reflected on
such UCC search, if any, prior to the Closing (except those approved by PHC in
writing) and to remove any other security interests filed with respect to such
<PAGE> 22
-15-
assets between the date of such UCC search and the Closing Date. The bills of
sale, warranty deed and the assignments and other instruments to be executed and
delivered by MHI at the Closing will be valid and binding and enforceable in
accordance with their respective terms, and will effectively vest in PHC good
and marketable title to all the Assets.
2.8 Real Property. Except as disclosed on Exhibit 2.8:
(a) MHI enjoys peaceful and undisturbed possession of the real
property described in Appendix 1.1A. MHI's use of the Real
Property does not currently, and did not in the past, violate any
existing zoning, building or use statutes, rules, ordinances or
regulations of any federal, state, county or local entity,
authority or agency the violation of which would have a material
adverse effect on the Assets or the business of MHI as it is
presently conducted. MHI has not received any notice of any
violation of any law, zoning ordinance or regulation affecting
the Real Property and neither has received any notice of nor has
any knowledge of or information as to any existing or threatened
condemnation or other legal action of any kind involving the Real
Property which may affect the value of the Real Property. The use
of the Real Property, and the activities conducted thereon, have
been, and are proper and in compliance with all material
applicable laws, rules and regulations with proper permits and
licenses.
(b) There are no contracts, leases or agreements in effect with
respect to the Real Property of any kind or nature whatsoever,
whether or not of record.
(c) There are no building, use or deed restrictions relating to the
Real Property that are not of public record. There are no latent
structural defects in any buildings or improvements located on
the Real Property.
(d) There are no unrecorded easements relating to the Real Property,
or special assessments or proposed special assessments relating
to the Real Property, and no federal, state or local taxing
authority has asserted any tax deficiency, lien or assessment
against the Real Property which has not been paid.
(e) There are no outstanding accounts payable or choate or inchoate
mechanics' liens or rights to claim a mechanic's lien in favor of
any contractor, materialman, laborer or any other Person in
connection with any portion of the Real Property.
(f) The land adjacent, abutting or contiguous to the Real Property is
not used for the benefit of the Real Property for any purpose,
including but not limited to, storm drainage, utility service or
access to the Real Property and such land is not in any way
necessary for the operation or use of the Real Property. MHI has
rights of ingress and egress from the Real Property which are
adequate for the purposes for which the
<PAGE> 23
-16-
Real Property currently is used. All service utilities, including
gas, water, electricity, telephone and sewer, are presently
available and serving the Real Property in an adequate manner for
its current use.
2.9 Contracts. Exhibit 2.9 of the Exhibit Volume contains a description of
certain contracts, leases, agreements and other instruments to which MHI is a
party or is bound including each such contract, lease, agreement and other
instrument which involves an unperformed commitment or obligation (contingent or
otherwise) of more than $25,000 in the aggregate. Except as noted in such
Exhibit, all such contracts, leases and agreements are in full force and effect,
there has been no threatened cancellation thereof, there are no outstanding
disputes thereunder, each is with unrelated third parties and was entered into
on an arms-length basis in the ordinary course of business and all will continue
to be binding in accordance with their terms after consummation of the
transactions contemplated hereby. Additionally, no purchase commitment of MHI is
in excess of ordinary requirements of its business or is at an excessive price.
There are no contracts, leases, agreements or other instruments to which MHI is
a party or is bound (other than insurance policies) which could either
singularly or in the aggregate have a material adverse effect on the value of
the Assets to PHC. There are no employment agreements or other agreements to
which MHI is a party or by which MHI is bound that contain any severance or
termination pay liabilities or obligations.
Except as described in Exhibit 2.9 or the other Schedules hereto (and
except for purchase contracts and orders for inventory in the ordinary course of
business consistent with past practice), MHI is not, as of the date of this
Agreement, a party to or bound by any:
(a) material agreement or contract not made in the ordinary course of
business;
(b) employee collective bargaining agreement or other contract with any
labor union;
(c) covenant not to compete;
(d) lease or similar agreement under which MHI is a lessor or sublessor of
any material real property owned or leased by MHI or any portion of
premises otherwise occupied by MHI;
(e) (i) lease or similar agreement under which (A) MHI is lessee of, or
holds or uses, any machinery, equipment, vehicle or other tangible
personal property owned by a third party or (B) MHI is a lessor or
sublessor of any tangible personal property owned by MHI,
(ii) continuing contract for the future purchase of materials,
supplies or equipment or (iii) management, service, consulting or
other similar type of contract, in any such case which has a future
liability in excess of $25,000, and which is not terminable by MHI for
a cost of less than $10,000;
<PAGE> 24
-17-
(f) license or other agreement relating in whole or in part to, trademarks
(including, but not limited to, any license or other agreement under
which MHI has the right to use any of the same owned or held by a
third party);
(g) agreement or contract under which MHI has borrowed or lent any money
or issued any note, bond, indenture or other evidence of indebtedness
or directly or indirectly guaranteed indebtedness, liabilities or
obligations of others for an amount in excess of $100,000 (other than
(i) endorsements for the purpose of collection in the ordinary course
of business, and (ii) advances to employees of MHI in the ordinary
course of business);
(h) mortgage, pledge, security agreement, deed of trust or other document
granting a lien against the Assets (including liens upon properties
acquired under conditional sales, capital leases or other title
retention or security devices but excluding operating leases) other
than Permitted Liens; or
(i) other agreement, contract, lease, license, commitment or instrument to
which MHI is a party or by or to which MHI or any of it assets or
businesses are bound or subject, which has an aggregate future
liability in excess of $10,000 and is not terminable by MHI for a cost
of less than $10,000.
(j) any agreement, contract, understanding or business venture with any
physician, other provider or any other Person which violates the
Medicare/Medicaid Fraud and Abuse amendments or any regulations
thereunder adopted by the U.S. Department of Health and Human
Services.
2.10 Burdensome Agreements. Except as is set forth in Exhibit 2.10 of the
Exhibit Volume, MHI is not a party to, nor are the Assets subject to or bound or
affected by, any provision of any order of any court or other agency of
government or any indenture, agreement or other instrument or commitment which
materially and adversely affects the operations, earnings, assets, properties,
liabilities, business or prospects of MHI or its condition, financial or
otherwise.
2.11 Absence of Related Party Transactions. Except as disclosed on Exhibit
2.11, neither MHI nor any officer, director or Affiliate of MHI, has any
material direct or indirect financial or economic interest in any competitor or
supplier of MHI. MHI is not a party to any transaction or proposed transaction,
including without limitation the leasing of property, the purchase or sale of
materials or goods (except with respect to MHI's retail business) or the
furnishing of its services (except as employees of MHI), with MHI, or any person
or entity affiliated with either MHI, including (without limitation) any family
member thereof, and MHI has not directly or indirectly entered into any
agreement or commitment which could result in MHI becoming obligated to provide
funds in respect of or to assume any obligation of any such affiliated person or
entity. Except as set
<PAGE> 25
-18-
forth on Exhibit 2.11, there are no debts owing to MHI by, or any contractual
agreements or understandings between MHI and, any director or officer of MHI,
any member of their respective families, or any Affiliate of any of the
foregoing individuals, and none of the foregoing individuals or any Affiliate of
them owns any property or rights, tangible or intangible (other than an
equitable interest), used in or related to MHI's business. MHI is not indebted
to any officer, director or employee of MHI, or to any member of their
respective families, or to any Affiliate of any of the foregoing individuals, in
any amount whatsoever, other than for payment of salaries and compensation for
services actually rendered to MHI in the ordinary course of their businesses.
2.12 Defaults. Except as disclosed in Exhibit 2.12, MHI is not in default
under, nor has any event occurred which, with the lapse of time or action by a
third party, could result in a default by MHI under any outstanding indenture,
mortgage, contract, instrument or agreement to which MHI is a party or by which
MHI may be bound or under any provision of the Articles of Incorporation or
by-laws of MHI. The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated by this Agreement will not
violate any provision of, or result in the breach of, or constitute a default
under, any law the violation of which would result in a significant liability to
MHI, or any order, writ, injunction or decree of any court, governmental agency
or arbitration tribunal; constitute a violation of or a default under, or a
conflict with, any term or provision of the Articles of Incorporation or by-laws
of MHI or any contract, commitment, indenture, lease, instrument or other
agreement, or any other restriction of any kind to which MHI is a party or is
bound; or cause, or give any party grounds to cause (with or without notice, the
passage of time or both) the maturity of any liability or obligation of MHI, to
be accelerated, or increase any such liability or obligation.
2.13 Inventory. The Inventory consists of a quality and quantity usable and
saleable in the ordinary course of business and is carried on the balance sheet
included in the MHI Financial Statements at the lower of cost or market, except
for items of obsolete materials and materials of below standard quality, all of
which have been written down in the balance sheet included in the MHI Financial
Statements to net realizable market value or for which adequate reserves have
been provided in the balance sheet included in the MHI Financial Statements. The
present quantity of the Inventory of MHI is reasonable and warranted in the
present circumstances of the business conducted by MHI. The only transactions
related thereto since March 31, 1996 have been additions or sales in the
ordinary course of business.
2.14 Equipment. All Assets consisting of equipment are well maintained and
in good operating condition, except for reasonable wear and tear and except for
items which have been written down in the MHI Financial Statements to a
realizable market value or for which adequate reserves have been provided in the
MHI Financial Statements. The present quantity of all such equipment of MHI is
reasonable and warranted in the present course of the business conducted by MHI.
The only transactions related thereto since March 31, 1996, have been additions
thereto in the ordinary course of business.
<PAGE> 26
-19-
2.15 Investments. Except as reflected Exhibit 2.15 or in the MHI Financial
Statements, MHI does not have any investments in, and does not have outstanding
any advances to, any other firms, persons or corporations.
2.16 Powers of Attorney. Exhibit 2.16 lists any outstanding powers of
attorney related to MHI and a summary statement of the terms thereof.
2.17 Guarantees. Included as Exhibit 2.17 in the Exhibit Volume is a list
and brief description of all guarantees, matters of suretyship and contingent
liabilities of MHI.
2.18 Permits and Licenses. Included as Exhibit 2.18 in the Exhibit Volume
is a schedule of all material permits and licenses known to MHI, listing and
briefly describing each permit, license or similar authorization from each
governmental authority issued with respect to the operation or ownership of
properties by MHI together with the designation of the respective expiration
dates of each, and also listing and briefly describing each association in which
MHI is a member and each association or governmental authority by which MHI is
accredited or otherwise recognized. MHI is not required to obtain any additional
permits, licenses or similar authorizations (including, without limitation, any
additional certificates of need) from any governmental authority for the proper
conduct of its business or to become a member of or accredited by any
association or governmental authority other than those listed on Exhibit 2.18 in
the Exhibit Volume. All of such permits, licenses and authorizations will
continue to be valid and in full force and effect in accordance with their
respective terms after the consummation of the transactions contemplated hereby.
2.19 Assets Necessary to Business. MHI presently has and at Closing will
have and transfer to PHC title to all property and assets, real, personal and
mixed, tangible and intangible, and all leases, licenses and other agreements,
necessary to permit PHC to carry on the business of MHI as presently conducted.
Since March 31, 1996, neither MHI nor the Hospital has sold any of the
Hospital's assets except sales of inventory in the ordinary course of business.
2.20 Litigation, etc. Except as set forth in Exhibit 2.20 of the Exhibit
Volume, there is no litigation, arbitration, governmental claim, investigation
or proceeding pending or threatened against MHI at law or in equity, before any
court, arbitration tribunal or governmental agency. No such proceeding set forth
in Exhibit 2.20 concerns the ownership or other rights with respect to the
Assets. There are no facts based on which material claims may be hereafter made
against MHI. Except as provided in ss. 1.10(e), any and all claims arising from
incidents on or before the Effective Time shall be the sole responsibility of
MHI and are specifically excluded from the liabilities to be assumed by PHC
hereunder. All claims and litigations against MHI are fully covered by
insurance. MHI shall unconditionally indemnify and hold PHC harmless against any
loss or liability including, without limitation, attorney's fees, resulting from
any claims or litigation arising out of incidents which occurred prior to the
Effective Time, to the extent such loss or liability is not covered by
insurance.
<PAGE> 27
-20-
2.21 Court Orders, Decrees and Laws. Except as set forth in Exhibit 2.21:
(i) there is not outstanding or threatened any order, writ, injunction or decree
of any court, governmental agency or arbitration tribunal against or affecting
MHI or the Assets; (ii) MHI is in compliance with all applicable federal, state
and local laws, regulations and administrative orders which are material to the
business of MHI and MHI has received no notices of alleged violations thereof
except as disclosed in Exhibits to ss. 2.34 hereof, and (iii) no governmental
authorities are presently conducting proceedings against MHI and no such
investigation or proceeding is pending or being threatened.
2.22 Taxes. Except as set forth in Exhibit 2.22: (i) all federal, state and
other tax returns of MHI required by law to be filed have been timely filed, and
MHI has paid or provided for all taxes (including taxes on properties, income,
franchises, licenses, sales and payrolls) which have become due pursuant to such
returns or pursuant to any assessment, except for any taxes and assessments of
which the amount, applicability or validity is currently being contested in good
faith by appropriate proceedings and with respect to which MHI has set aside on
its books adequate reserves; (ii) all such tax returns have been prepared in
compliance with all applicable laws and regulations and are true and accurate in
all respects; (iii) the amounts set up as provisions for taxes (including
provision for deferred income taxes) on the MHI Financial Statements are
sufficient for the payment of all unpaid federal, state, county and local taxes
accrued for or applicable to all periods (or portions thereof) ending on or
before the Closing Date; (iv) there are no tax liens on any of the Assets except
those with respect to taxes not yet due and payable and except for any taxes and
assessments of which the amount, applicability or validity is currently being
contested in good faith by appropriate proceedings and with respect to which MHI
has set aside on its books adequate reserves; (v) there are no pending tax
examinations nor has MHI received a revenue agent's report asserting a tax
deficiency; (vi) MHI does not expect any taxing authority to claim or assess any
amount of additional taxes against it; and (vii) no claim has ever been made by
a taxing authority in a jurisdiction where MHI does not file tax returns that
MHI is or may be subject to taxes assessed by such jurisdiction.
MHI has withheld from each payment made to employees of MHI the amount of
all taxes (including, but not limited to, federal, state and local income taxes
and Federal Insurance Contribution Act taxes) required to be withheld therefrom
and all amounts customarily withheld therefrom, and have set aside all other
employee contributions or payments customarily set aside with respect to such
wages and have paid or will pay the same to, or have deposited or will deposit
such payment with, the proper tax receiving officers or other appropriate
authorities.
2.23 Immigration Act. MHI is in compliance with the terms and provisions of
the Immigration Act in all material respects. For each employee (as defined in
8 C.F.R. 274a.l(f)) of MHI for whom compliance with the Immigration Act by MHI
is required, MHI has obtained and retained a complete and true copy of each such
employee's Form I-9 (Employment Eligibility Verification Form) and all other
records or documents prepared, procured or retained by MHI pursuant to the
Immigration Act. There are no violations or potential violations of the
Immigration Act by MHI. MHI has not been cited, fined, served with a Notice of
Intent to Fine or with a Cease
<PAGE> 28
-21-
and Desist Order, nor, to MHI's knowledge, has any action or administrative
proceeding been initiated or threatened against MHI, by reason of any actual
or alleged failure to comply with the Immigration Act.
2.24 Program Compliance. MHI is not a party to, or the beneficiary of, any
agreement, contract, understanding or business venture with any provider or
referral source which violates the Medicare/Medicaid Fraud and Abuse amendments
or any regulations thereunder adopted by the U.S. Department of Health and Human
Services or any regulations adopted by any other federal or state agency or
which results in overutilization of health care services by patients.
2.25 Reimbursement Matters. Copies of all Medicare and Medicaid Cost
Reports filed by MHI either not audited by the fiscal intermediary or audited
and not formally settled are included as Exhibit 2.25A of the Exhibit Volume.
A schedule setting forth the audit status of such Medicare Cost Reports is set
forth in Exhibit 2.25B of the Exhibit Volume. The amounts set up as provisions
for Medicare and Medicaid adjustments and adjustments by any other third party
payors on the MHI Financial Statements are sufficient to pay any amounts for
which MHI may be liable. MHI is aware of no basis for any claims against MHI by
any third party payors other than routine Medicare and Medicaid audit
adjustments. Exhibit 2.25C of the Exhibit Volume sets forth the cost and
accumulated depreciation for land, land improvements, buildings, fixed equipment
and major movable equipment reflected on the last Medicare and Medicaid Cost
Report filed by the Hospital. Any liabilities to Medicare, Medicaid or other
third party payors shall be excluded from the liabilities assumed by PHC in the
Undertaking.
2.26 Environmental Matters. Except as disclosed on Exhibit 2.26:
(a) All federal, state and local permits, licenses and authorizations
required for the use and operation of the Real Property have been
obtained and are presently in effect.
(b) None of the Real Property has been used by MHI (and to the best of
MHI's knowledge, by any other Person at any time) to handle, treat,
store or dispose of any hazardous or toxic waste or substance, nor is
any of the Real Property, including all soils, groundwaters and
surface waters located on, in or under the Real Property, contaminated
with pollutants or other substances which contamination may give rise
to a clean-up obligation under any federal, state or local law, rule,
regulation or ordinance, including, but not limited to, the federal
Comprehensive Environmental Response, Compensation and Liability Act,
42 USC 9601 et seq, and the common law.
(c) A11 underground tanks located in, on or under any Real Property are
in a state of good condition and repair and have not leaked nor are
they presently leaking any of the contents which they have held or
presently hold.
<PAGE> 29
-22-
(d) There are no outstanding violations or any consent decrees entered
against MHI regarding environmental and land use matters, including,
but not limited to, matters affecting the emission of air pollutants,
the discharge of water pollutants, the management of hazardous or
toxic substances or wastes, or noise.
(e) There are no claimed, threatened or alleged violations with respect to
any federal, state or local environmental law, rule, regulation,
ordinance, permit, license or authorization, and there are no present
discussions with any federal, state or local governmental agency
concerning any alleged violation of environmental laws, rules,
regulations, ordinances, permits, licenses or authorizations.
(f) All operations conducted by MHI on the Real Property have been and
are in compliance with all federal, state and local statutes, rules,
regulations, ordinances, permits, licenses and authorizations
relating to environmental compliance and control.
2.27 ERISA.
(a) Except as listed in Exhibit 2.27 of the Exhibit Volume, MHI has no
"employee benefit plans", as such term is defined under Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or any other plan or similar arrangement, written or
otherwise, which provides any type of pension or welfare benefit to
any of its directors, employees, or former employees.
(b) With respect to all of the plans listed in Exhibit 2.27, MHI has
delivered to PHC true and exact copies of (i) all plan documents
embodying the provisions of such plans, together with all amendments
thereto, (ii) all summary plan descriptions and summaries of material
modifications pertaining thereto, (iii) copies of the most recent
Internal Revenue Service determination letters, if any, relating to
such plans, (iv) copies of the last three (3) years' Annual Report
(Form 5500 series), as filed with respect to such plans with the
Internal Revenue Service, together with all Schedules and attachments
thereto, including, without limitation, copies of the plan audits
and/or actuarial valuations, (v) copies of all contract administration
agreements between MHI and third party administrators, (vi) copies of
all participant-related forms currently in use in connection with such
plans including, without limitation, salary reduction agreements and
beneficiary designations and (vii) participant-specific claims history
for any "welfare benefit plan" (within the meaning of Section 3(l) of
ERISA) that has been in existence during any part of the last three
years.
(c) No "prohibited transaction", as such term is defined under Section
4975(c) of the Code or under Section 406 of ERISA, and the respective
regulations thereunder, has
<PAGE> 30
-23-
occurred or is occurring with respect to any "employee benefit plan"
maintained by MHI or with respect to any trustee or administrator
thereof.
2.28 Pension, etc. Except as set forth in Exhibit 2.28:
(a) No "unfunded accrued liability", as such term is defined under Section
3(30) of ERISA, exists with respect to any "employee pension benefit
plan" listed in Exhibit 2.27 (each a "Pension Plan" and collectively
the "Pension Plans").
(b) None of the Pension Plans or any related trusts have been partially or
fully terminated (through the complete cessation of contributions
thereto or otherwise). In addition there has not occurred any
"reportable events", as such term is defined under Section 4043 of
ERISA, which could have a material adverse effect on the condition,
financial or otherwise, of MHI.
(c) Neither any of the Pension Plans nor any related trusts have incurred
any "accumulated funding deficiency", as such term is defined under
Section 302(a)(2) of ERISA or Section 412(a) of the Code (whether or
not waived), since the effective date of ERISA.
(d) With respect to each Pension Plan, there are not in existence any
liabilities other than those liabilities shown on the Annual Reports
(Form 5500 series) delivered to PHC in connection herewith. No
material change with respect to the matters covered by the most recent
Annual Report for each Pension Plan has occurred since the filing date
thereof. The terms and operation of each Pension Plan have complied,
and are in compliance, with the applicable provisions of ERISA and the
Code. All Pension Plans have at all times been and are qualified under
Section 401(a) of the Code. None of the Pension Plans listed in
Exhibit 2.27 is unfunded.
(e) Simultaneously with the Closing, MHI will terminate each of the
Pension Plans and take all steps necessary to distribute all of the
assets in such Pension Plans as soon as administratively practicable.
Further, MHI shall keep PHC and the Participants and Beneficiaries of
the Pension Plans appraised of the status of such termination and
distribution efforts, on at least a quarterly basis.
2.29 Welfare Plan Matters.
(a) All "Welfare Plans", as such term is defined below, listed in Exhibit
2.27 may be amended and/or terminated after no more than 30 days
notice to plan participants. MHI has made no commitments to provide
lifetime benefits under any such Welfare Plans to any of its current
or former employees, and none of such persons has a vested
<PAGE> 31
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right to any benefits under any such Welfare Plans. MHI has no Welfare
Plans for the benefit of its former employees, except as provided in
Exhibit 2.29A of the Exhibit Volume. For purposes of this Paragraph, a
"Welfare Plan" is any employee benefit plan listed in Exhibit 2.28
which is not a Pension Plan.
(b) With respect to any Welfare Plan of MHI which provides accident and
health coverage through insurance policies issued by third party
insurors, MHI has delivered a copy of such policies to PHC, together
with all amendments and/or riders thereto. Such policies are currently
in force and all premiums for such policies have been paid or shall be
paid by MHI for all periods ending prior to and up to the Closing
Date.
(c) With respect to any Welfare Plan providing accident and health
coverage through self-insurance, MHI has purchased the stop-loss
insurance policies attached in Exhibit 2.29B of the Exhibit Volume for
protection against large losses or poor claims experience. All such
stop-loss insurance policies are currently in force and all premiums
charged therefor have been paid through and up to the Closing Date.
MHI shall pay all claims under each such accident and health plan
arising out of occurrences prior to the Closing Date.
(d) Exhibit 2.29C of the Exhibit Volume contains a list of all employees
and former employees of MHI who are eligible to receive or who are
receiving continuation coverage or who have conversion rights pursuant
to applicable state law and/or ERISA, the type of coverage elected,
the amount of premiums to be charged, the beginning and ending dates
within which such continuation coverage and/or conversion election
must be made, and the latest date on which such continuation coverage
will terminate. MHI has complied with all applicable laws regarding
notice and provision of such continuation coverage.
(e) All Welfare Plans have been operated in compliance with the terms of
such plans and in accordance with the applicable provisions of ERISA
and the Code.
2.30 Employee Matters. Included as Exhibit 2.30A of the Exhibit Volume is a
list of all employees of MHI, together with their annual rates of compensation
and a list of all people who were paid bonuses in the last twelve months plus
the amount thereof. No written employment agreement to which MHI is a party
requires longer than a four-week notice before termination or agreement to lend,
or guarantee any loan, to an employee or an agreement relating to a bonus,
severance pay or similar plan, agreement, arrangement or understanding. Exhibit
2.30B of the Exhibit Volume is a brief description of employee benefits of MHI.
MHI agrees that it shall terminate all employees as of the Effective Time, and
it shall be solely liable and responsible for any and all severance payments,
accrued wages, salary, overtime, paid vacation and sick leave and their
equivalents, pension and other employee benefits or compensation, of any nature,
relating to the employees of MHI not hired by
<PAGE> 32
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PHC immediately after the Closing Date. MHI has not committed and shall not
commit to any of such employees that said employees shall be employed by PHC
after the Closing Date; provided, however, that PHC, in its own sole discretion,
may decide to offer employment to certain of MHI's employees.
2.31 Insurance; Malpractice. Exhibit 2.31A of the Exhibit Volume is a
list of all policies of fire, general liability, professional liability, product
liability, environmental impairment liability, professional liability, worker's
compensation, health and other forms of insurance policies or binders currently
in force insuring against risks of the Hospital. All such insurance policies or
binders are in force and will continue to be in force through the Effective
Time. Exhibit 2.31B is a list of the incident reports to the risk manager of
MHI pertaining to the Hospital with respect to incidents which have occurred
since January 1, 1994 in which the actions of the Hospital, any employees of the
Hospital or any members of the medical staff of the Hospital, may, or are
alleged to, have caused, any of the following:
(i) Death of a patient, including suicides;
(ii) Extreme brain damage, nerve or neurological injury;
(iii) Paraplegia or quadriplegia;
(iv) Permanent paralysis or spinal cord injury;
(v) Permanent blindness;
(vi) Loss of, or permanent loss of function in, one or more limbs;
(vii) Severe burns;
(viii) Severe cosmetic deformities or severe disfigurement; or
(ix) Sexual abuse;
irrespective of whether a lawsuit has been instituted or a claim asserted by or
on behalf of a patient. Exhibit 2.31C is a summary of each claim or lawsuit
relating to the Hospital involving alleged actions during the same period with
respect to which the risk manager or insurer instituted a reserve of $25,000 or
more.
2.32 Labor Matters. There are no collective bargaining agreements with any
labor union to which MHI is a party or by which MHI is bound, and it is not
currently negotiating with a labor union. No employees of MHI have ever
petitioned for a representation election. MHI is in compliance with all
applicable laws respecting employment and employment practices, terms and
conditions
<PAGE> 33
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of employment and wages and hours, and is not engaged in any unfair labor
practice. There is no unfair labor practice complaint against MHI pending before
the National Labor Relations Board. There is no labor strike, dispute, slowdown
or stoppage actually pending or, to its knowledge, threatened against or
affecting MHI or the Hospital. No grievance which might have a material adverse
effect on MHI or the conduct of its business nor any such arbitration proceeding
arising out of or under collective bargaining agreements is pending and no claim
therefor exists. MHI has not experienced any employee strikes during the last
three years. MHI will advise PHC of any such labor dispute, petition for
representative election or negotiations with any labor union which shall arise
before the Closing Date. Except as may be required by ss.4980B of the Code or
applicable state health care continuation coverage statutes, MHI has no
liability under any plan or arrangement which provides welfare benefits,
including medical and life insurance, to any current or future retiree or
terminated employee.
2.33 Improper Payments. Neither MHI nor any officer or employee of MHI have
made any bribes, kickbacks or other improper payments on behalf of MHI or
received any such payments from vendors, suppliers or other persons contracting
with MHI.
2.34 Certain Representations With Respect to the Hospital.
(a) Memorial Hospital (the "Hospital") is licensed by the Texas Department
of Health as a general acute care hospital authorized to operate 103
beds in its existing facilities located in Palestine. Except as set
forth in Exhibit 2.34(a)-1 of the Exhibit Volume, the Hospital is
presently in compliance with all the terms, conditions and provisions
of such license. Exhibit 2.34(a)-2 of the Exhibit Volume is a copy of
such license.
(b) The Hospital has current contractual arrangements with Blue Cross.
A copy of its existing Blue Cross contract is included as Exhibit
2.34(b) of the Exhibit Volume; and the Hospital is presently in
compliance with all of the terms, conditions and provisions of such
contract.
(c) The Hospital is duly accredited as a general hospital by the Joint
Commission on Accreditation of Healthcare Organizations of the
American Medical and American Hospital Associations and included as
Exhibit 2.34(c) of the Exhibit Volume is a copy of the most recent
Certificate of Accreditation.
(d) The Hospital is qualified for participation in the Medicare Program.
A copy of its existing Medicare contract is included as Exhibit
2.34(d) of the Exhibit Volume; and the Hospital is presently in
compliance with all of the terms, conditions and provisions of such
contract.
<PAGE> 34
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(e) The Hospital is qualified for participation in the Medicaid program.
A copy of its existing Medicaid contract is included as Exhibit
2.34(e) of the Exhibit Volume; and the Hospital is presently in
compliance with all the terms, conditions and provisions of such
contract.
(f) The Hospital is qualified for participation in the CHAMPUS program.
A copy of its existing CHAMPUS contract is included as Exhibit 2.34(f)
of the Exhibit Volume; and the Hospital is presently in compliance
with all the terms, conditions and provisions of such contract.
(g) Included as Exhibit 2.34(g) of the Exhibit Volume is a copy of the
fire marshal reports with respect to the Hospital after January 1,
1994. MHI has no knowledge of any fire code violations at the
Hospital.
(h) Except as set forth in Exhibits 2.34(g) and 2.34(i) of the Exhibit
Volume, MHI has received no written notification that the Hospital is
in violation of local building codes, ordinances or zoning laws. The
Budding in which the Hospital is located complies with all local
building codes, ordinances and zoning codes and is in a state of good
maintenance and repair.
(i) Included as Exhibit 2.34(i) to the Exhibit Volume is a copy of the
surveys of the Hospital by the Texas Department of Health after
January 1, 1994.
(j) Included as Exhibit 2.34(j) of the Exhibit Volume are the by-laws of
the Medical Staff of the Hospital.
(k) Included as Exhibit 2.34(k) is a schedule of the current status of the
Hospital's medical staff, showing with respect to each physician, the
following information (including expiration dates thereof): state
licensure, DEA licensure and professional liability insurance
coverage.
(l) Included as Exhibit 2.34(l) is a description of the Hill-Burton
obligations of the Hospital as of the date hereof.
2.35 Books of Account; Reports. The books of account of MHI in reasonable
detail, accurately and fairly reflect its transactions and the disposition of
its assets. MHI has filed all reports and returns required by any law or
regulation to be filed by it.
2.36 No Finders or Brokers. Except as set forth in Exhibit 2.36 neither
MHI nor any officer or director of MHI has engaged any finder or broker in
connection with the transactions contemplated hereunder.
<PAGE> 35
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2.37 HSR Filing. MHI made the required antitrust filings under the HSR Act
on May 15, 1996.
2.38 Authority; Binding Effect. MHI has full power and authority to enter
into this Agreement and to carry out the transactions contemplated hereby. The
Board of Directors of MHI has taken all action required by law and by MHI's
Articles of Incorporation and by-laws, or otherwise, to authorize the execution
and delivery of this Agreement and the transactions contemplated hereby. The
execution, delivery, and performance of this Agreement constitutes the valid and
binding agreement of MHI enforceable in accordance with its terms (except as
the same may be restricted, limited or delayed by applicable bankruptcy or
other laws affecting creditors' rights generally and except as to the remedy of
specific performance which may not be available under the laws of various
jurisdictions).
2.39 Consents and Approvals of Governmental Authorities. Except for the
matters contemplated in ss. 7.12 and 7.14, no characteristic of MHI or of the
nature of its business or operations requires any consent, approval or
authorization of, or declaration, filing or registration with any governmental
or regulatory authority in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby.
2.40 Disclosure. No representations and warranties by MHI in this Agreement
and no statement in this Agreement or any document or certificate furnished or
to be furnished to PHC pursuant hereto contains or will contain any untrue
statement or omits or will omit to state a fact necessary in order to make the
statements contained therein not misleading. MHI has disclosed to PHC all facts
known to MHI material to the assets, liabilities, business, operation and
property of MHI. There are no facts known to MHI not yet disclosed which would
adversely affect the future operations of MHI. Notwithstanding any provision
herein to the contrary, MHI makes no representations or warranties to PHC
regarding West Oak Medical Plaza.
2.41 LIMITATION ON REPRESENTATIONS. PHC ACKNOWLEDGES AND AGREES THAT,
EXCEPT AS EXPRESSLY PROVIDED IN THIS ARTICLE 2, MHI HAS NOT MADE, AND HAS
SPECIFICALLY NEGATED AND DISCLAIMED ANY REPRESENTATIONS, WARRANTIES, PROMISES,
COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER
EXPRESS OR IMPLIED, ORAL OR WRITTEN, CONCERNING OR WITH RESPECT TO (A) THE
VALUE, NATURE, QUALITY OR CONDITION OF THE ASSETS, (B) THE INCOME WHICH PHC WILL
DERIVE FROM THE ASSETS, AND (C) THE SUITABILITY OR FITNESS OF THE ASSETS FOR ANY
AND ALL ACTIVITIES AND USES WHICH PHC MAY CONDUCT THEREON.
<PAGE> 36
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ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PHC
PHC hereby represents and warrants as follows:
3.1 Organization and Standing of PHC. PHC is a limited partnership duly
organized, validly existing and in good standing under the laws of the state of
Texas, has full power and authority to conduct its business as now being
conducted; and is duly qualified to do business in each jurisdiction in which
the nature of the property owned or leased or the nature of the business
conducted by it requires such qualification.
3.2 Authority; Binding Effect. PHC has corporate power to execute and
deliver this Agreement and consummate the transactions contemplated hereby and
has taken (or by the Closing Date will have taken) all action required by law,
its Articles of Incorporation, by-laws or otherwise to authorize such execution
and delivery and the consummation of the transactions contemplated hereby. The
execution, delivery, and performance of this Agreement constitutes the valid and
binding agreement of PHC enforceable in accordance with its terms (except as the
same may be restricted, limited or delayed by applicable bankruptcy or other
laws affecting creditors' rights generally and except as to the remedy of
specific performance which may not be available under the laws of various
jurisdictions) assuming that this Agreement has been duly authorized, delivered
and executed by MHI and constitutes the valid and binding obligation,
enforceable against MHI in accordance with its terms (except as enforceability
against MHI may be restricted, limited or delayed to the same extent as referred
to in the parenthetical phrase immediately above).
3.3 No Finders or Brokers. Neither PHC nor any officer or director thereof
has engaged any finder or broker in connection with the transactions
contemplated hereunder.
3.4 HSR Filing. PHC made the required antitrust filings under the HSR Act
on May 15, 1996.
3.5 Financial Commitment. PHC has commitments satisfactory to it for
sufficient funding to consummate the transactions contemplated hereby. If PHC
suffers any adverse change in its ability to finance the transactions it will
promptly notify MHI thereof.
3.6 Environmental Report. PHC has obtained a preliminary environmental
report from Veritech Integrated Technologies, Inc. with respect to its Phase I
environmental assessment of the Real Property Assets which did not identify any
material environmental deficiencies.
3.7 Consents and Approvals of Governmental Authorities. Except for the
matters contemplated in ss. 7.12 and 7.14, no characteristic of PHC or of the
nature of its business or operations requires any consent, approval or
authorization of, or declaration, filing or registration
<PAGE> 37
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with any governmental or regulatory authority in connection with the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby.
ARTICLE 4 COVENANTS OF PHC
PHC hereby covenants and agrees as follows:
4.1 Best Efforts to Secure Consents. PHC shall proceed diligently and use
its best efforts to secure before the Closing all necessary consents and
approvals needed to satisfy all the conditions precedent to the obligations of
MHI hereunder, including without limitation satisfaction of all HSR requirements
and obtaining appropriate licenses to operate the Hospital.
4.2 WARN Act. PHC shall be responsible for any and all notices required
with respect to termination of employees of the Hospital. Any liabilities or
obligations arising under the WARN Act on or after the Closing Date shall be
those of PHC and not MHI. PHC shall indemnity MHI against and hold it harmless
from any liability, loss, damage or expense arising from or out of the
involuntary termination of Hospital employees on or after the Closing Date,
which termination would constitute a "mass layoff" or a "Plant closing" within
the meaning of the WARN Act.
4.3 Corporate Action. PHC will take all necessary corporate and other
action and use its best efforts to obtain all consents, approvals and amendments
of agreements required of it to carry out the transactions contemplated by this
Agreement and to satisfy the conditions specified herein.
4.4 Handling of Documents. With respect to information provided by MHI
pursuant to this Agreement prior to the Closing, PHC shall keep, and shall cause
its bankers, advisors and Affiliates to keep all such information confidential
which is not in the public domain, except to the extent that such information
(i) becomes generally available to the public other than as a result of a
disclosure directly or indirectly by PHC, (ii) was known by PHC on a
non-confidential basis prior to disclosure to PHC by MHI pursuant to this
Agreement or (iii) becomes available to PHC on a non-confidential basis from a
source (other than MHI) which is entitled to disclose the same, and to exercise
the same care in handling such information as it would exercise with similar
information of its own.
4.5 Preservation of HSR Status. PHC will not take any steps intended to
result in withdrawal of the early termination notice received in connection with
the Hart-Scott-Rodino Act notifications previously filed.
<PAGE> 38
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ARTICLE 5 COVENANTS OF MHI
MHI hereby covenants and agrees as follows:
5.1 Title Insurance Matters.
(a) Survey. Immediately after execution of this Agreement, MHI shall cause
an as-built survey of the Real Property Assets and surveyor's
certificate, in form sufficient to remove the survey exception from
the title insurance binder as more specifically provided in ss. 5.1(b)
hereof, to be prepared by a licensed surveyor acceptable to PHC. The
survey shall be made in accordance with the Texas Surveyor's Manual
for a Class 1-A survey. Such survey shall incorporate an exact
description of the Real Property Assets, shall be dated not more than
10 days prior to the Closing Date, shall show the total area of the
Real Property Assets in square feet, easements, if any, dimensions and
locations of improvements, striped parking spaces and unlined parking
areas, driveways, location of adjoining streets and rights of way,
building setback lines, and such other details as may be required by
PHC. Once prepared, the survey description will replace Appendix 1.1
and will become a part of this Agreement identified as Appendix 1.1-A.
(b) Title Commitment. Immediately after execution of this Agreement, PHC
shall apply to a title insurance company acceptable to PHC for a title
insurance binder in the amount of $18,000,000 which shall constitute
the commitment of such company to insure the title to the Real
Property in the name of PHC with a Texas Standard Form owner's title
insurance policy (the "Owner's Policy"). The standard exceptions shall
be removed or modified as follows: (i) such policy shall have "none of
record" endorsement regarding restrictions, except for restrictions
that are approved by PHC, (ii) the exception concerning rights of
parties in possession shall be modified to refer only to the rights of
the tenant in possession pursuant to the Leases (if not previously
terminated); and (iii) the standard exception for taxes shall be
limited to the year in which the Closing occurs, marked "Not Yet Due
And Payable." The survey exceptions may be deleted at the expense of
PHC.
(c) Review of Title. PHC shall have five business days from the date it
has received all of the following: the title insurance binder; copies
of all documents referenced in title exceptions disclosed therein; the
survey; and the UCC Search; within which to review same. If any title
defects or other matters objectionable to PHC are disclosed by any of
the items listed in the previous sentence, PHC shall give MHI written
notice of same prior to the expiration of such ten business day
period. MHI shall be allowed a reasonable time, not in excess of five
days, within which to cure such defects; provided, however, that in no
event shall MHI's cure period extend beyond the Closing
<PAGE> 39
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Date without the express written consent of PHC. If the defects are
not timely cured to PHC's satisfaction, PHC may waive such defects and
proceed to close, or PHC may terminate this Contract by written notice
to MHI.
5.2 Access and Information. Between the date of this Agreement and the
Effective Date; MHI will: (i) provide to the PHC and its officers, attorneys,
accountants and other representatives, during normal business hours, or
otherwise if PHC deems necessary, free and full access to all of the properties,
assets, agreements, commitments, books, records, accounts, tax returns, and
documents of MHI and permit them to make copies thereof; (ii) furnish the PHC
and its representatives with all information concerning the business, properties
and affairs of MHI as PHC requests and certified by the officers, if requested;
(iii) cause the independent public accountants of MHI to make available to PHC
and its representatives all financial information relating to the MHI requested,
including all working papers pertaining to audits and reviews made heretofore by
such auditors; (iv) furnish PHC true and complete copies of all financial and
operating statements of MHI; (v) permit access to customers and suppliers for
consultation or verification of any information obtained by PHC and use their
best efforts to cause such customers and suppliers to cooperate with the PHC in
such consultation and in verifying, such information; and (vi) cause their
employees, accountants and attorneys to make disclosure of all material facts
known to them affecting the financial condition and business operations of MHI
and to cooperate fully with any audit, review, investigation or examination made
by PHC and its representatives, including, without limitation, with respect to:
(a) The books and records of MHI;
(b) The reports of state and federal regulatory examinations;
(c) Leases, contracts and commitments between MHI and any other person;
(d) Physical examination of the Real Property; and
(e) Physical examination of the Equipment and Furnishings.
5.3 Conduct of Business. Between the date hereof and the Effective Date,
except as otherwise expressly approved in writing by PHC, MHI shall conduct its
business only in the ordinary course thereof consistent with past practice and
in such a manner that the representations and warranties contained in Article 2
of this Agreement shall be true and correct at and as of the Effective Date
(except for changes contemplated, permitted or required by this Agreement) and
so that the conditions to be satisfied by MHI at the Closing shall have been
satisfied. MHI will, consistent with conducting its business in accordance with
reasonable business judgment, preserve the business of MHI intact; use its best
efforts to keep available to PHC the services of the present employees of MHI
and preserve for PHC the goodwill of the suppliers, patients and others having
business relations with MHI.
<PAGE> 40
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5.4 Personnel Matters. During the period from and after the date hereof
and through the Effective Date, MHI will afford to the officers, attorneys,
accountants and other authorized representatives of PHC access to all officers
and employees of MHI for the purpose of interviewing, testing and conducting
such other evaluations as PHC may reasonably require. PHC shall be permitted to
negotiate employment agreements with such officers and employees of MHI as it
may determine, such employment agreements to be with either MHI, PHC or an
Affiliate of PHC as PHC may elect; provided, however, that no such employment
agreement shall be effective until the Effective Time. In the event that PHC
informs MHI in writing that it does not intend to continue the employment of any
particular employee of MHI after the Effective Time, MHI will either promptly
notify such employee that his employment will be terminated in accordance with
MHI's normal severance procedures or terminate such employee prior to the
Effective Time.
5.5 Compliance with Agreement. MHI shall not undertake any course of action
inconsistent with satisfaction of the conditions applicable to it set forth in
this Agreement, and shall do all such acts and take all such measures as may be
reasonably necessary to comply with the representations, agreements, conditions
and other provisions of this Agreement. MHI shall give PHC prompt written notice
of any change in any information contained in the representations and warranties
made in Article 2 hereof and on the Exhibits referred to therein (provided,
however, that such notice shall not limit PHC's rights under ss. 7.1 hereof) and
of any condition or event which constitutes a default of any covenant or
agreement made in Article 5 or in any other section hereof.
5.6 Best Efforts to Secure Consents. MHI shall take the necessary corporate
and other action and shall use its best efforts to secure before the Closing
Date all necessary consents and approvals required to carry out the transactions
contemplated by the Agreement and to satisfy all other conditions precedent to
the obligations of PHC and MHI.
5.7 Unusual Events. Until the Effective Time, MHI shall supplement or amend
all relevant Exhibits in the Exhibit Volume with respect to any matter
thereafter arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in such
Exhibits; provided, however, that for the purposes of the fights and obligations
of the parties hereunder, any such supplemental disclosure shall not be deemed
to have been disclosed and shall not be deemed to amend or supplement any
Exhibits or to prevent or cure any misrepresentation, breach of warranty or
breach of covenant, unless agreed to in writing by PHC.
5.8 Interim Financial Statements. Within 20 days after the end of each
calendar month subsequent to the date of this Agreement and prior to the
Effective Date, MHI shall deliver to PHC an unaudited balance sheet of MHI as at
the end of such calendar month together with the related statement of revenues
and expenses and such statistical and other operational information as MHI
routinely includes in monthly reports to members of its Board of Directors. All
such financial statements shall fairly present the financial position, results
of operations and changes in financial condition during the periods indicated,
in accordance with generally accepted accounting principles
<PAGE> 41
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consistently applied, except that note information may be omitted in such
statements, subject to normal year-end audit adjustments, but only if such
adjustments are of a normal, recurring type and are not material in the
aggregate.
5.9 Departmental Violations. All notes or notices of violations of law or
municipal ordinances, orders or requirements noted in or issued by the
Departments of Buildings, Fire, Labor, Health, or any other State or Municipal
Department having jurisdiction against or affecting the business, property or
assets of MHI shall be complied with prior to the Closing Date. All such notes
or notices, after the date hereof and prior to the Closing Date, shall be
complied with by MHI prior to the Closing Date. Upon written request, MHI shall
furnish PHC with an authorization to make the necessary searches for such notes
or notices.
5.10 Assessments. If, on the Closing Date, the business, property or assets
of MHI are or will be subject to an assessment or assessments which are or may
become payable in annual installments, of which the first installment is then a
charge or lien, or has been paid, then for the purposes of this Agreement all
the unpaid installments of any such assessment, including those which are to
become due and payable, shall be paid and discharged by MHI prior to the Closing
Date.
5.11 Insurance Ratings. MHI shall take all action reasonably requested by
PHC to enable it to succeed to the Workers' Compensation and Unemployment
Insurance ratings, insurance policies, deposits and other interests of MHI and
other ratings for insurance or other purposes established by MHI. PHC shall not
be obligated to succeed to any such rating, insurance policy, deposit or other
interest, except as it may elect to do so.
5.12 Maintain Insurance Coverage. From the date hereof until the Closing,
MHI shall maintain and cause to be maintained in full force and effect the
existing insurance on the Assets and the operations of MHI and shall provide,
upon request by PHC, evidence satisfactory to PHC that such insurance continues
to be in effect and that all premiums due have been paid. Prior to Closing, MHI
will obtain "tail" insurance coverage, converting its existing malpractice
insurance to an "occurrence" basis policy, and covering at least five years
after Closing. If coverage for a longer period is available, PHC shall have the
option of requiring such longer coverage provided PHC pays any additional cost
relating to coverage beyond five years.
5.13 1995 and 1996 Annual Audit Reports. MHI shall obtain and promptly
deliver to PHC the consolidated balance sheets of MHI of at May 31, 1995 and May
31, 1996 the related consolidated statements of revenues and expenses and cash
flow for the years then ended and the notes related together with an unqualified
opinion of Harrell, Rader, Bonner & Bolton, LLP, notwithstanding that the
Closing shall have occurred.
<PAGE> 42
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5.14 Preservation of HSR Status. MHI will not take any steps intended to
result in withdrawal of the early termination notice received in connection with
the Hart-Scott-Rodino Act notifications previously filed.
ARTICLE 6 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF MHI
All obligations of MHI which are to be discharged under this Agreement at
the Closing are subject to the performance, at or prior to the Closing, of all
covenants and agreements contained herein which are to be performed by PHC at or
prior to the Closing and to the fulfillment at, or prior to, the Closing, of
each of the following conditions (unless expressly waived in writing by MHI at
any time at or prior to the Closing).
6.1 Representations and Warranties True. All of the representations and
warranties made by PHC contained in Article 3 of this Agreement shall be true as
of the date of this Agreement, shall be deemed to have been made again at and as
of the date of Closing (except for ss. 2.6(f)), and shall be true at and as of
the date of Closing in all material respects; PHC shall have performed and
complied in all material respects with all covenants and conditions required by
this Agreement to be performed or complied with by them prior to or at the
Closing; and MHI shall have been furnished with a certificate of the President
or any Vice President of PHC, dated the Closing Date, in such officer's
capacity, certifying to the truth of such representations and warranties as of
the Closing and to the fulfillment of such covenants and conditions.
6.2 Opinion of Counsel. MHI shall have been furnished with an opinion dated
the Closing Date of Boult, Cummings, Conners & Berry, PLC counsel to PHC, in
form and substance satisfactory to MHI, to the effect set forth as Appendix 6.2
attached hereto.
6.3 Authority. All action required to be taken by or on the part of PHC to
authorize the execution, delivery and performance of this Agreement by PHC and
the consummation of the transactions contemplated hereby shall have been duly
and validly taken by the Board of Directors of PHC.
6.4 No Obstructive Proceeding. No action or proceedings shall have been
instituted against, and no order, decree or judgment of any court, agency,
commission or governmental authority shall be subsisting against MHI, or the
officers or directors of MHI, which seeks to, or would, render it unlawful as of
the Closing to effect the transactions contemplated hereby in accordance with
the terms hereof, and no such action shall seek damages in a material amount by
reason of the transactions contemplated hereby. Also, no substantive legal
objection to the transactions contemplated by this Agreement shall have been
received from or threatened by any governmental department or agency.
<PAGE> 43
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6.5 Delivery of Certain Certified Documents. At the Closing, PHC shall
deliver to MHI copies of the Articles of Organization of PHC certified (not more
than 30 days prior to the Closing Date) by the appropriate governmental
authorities and copies of resolutions of the Board of Directors of PHC,
certified by the secretary or assistant secretary of PHC approving and
authorizing the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby.
6.6 Proceedings and Documents Satisfactory. All proceedings in connection
with the transactions contemplated hereby and all certificates and documents
delivered to MHI pursuant to this Agreement shall be satisfactory in form and
substance to MHI and its counsel acting reasonably and in good faith.
6.7 Hart-Scott-Rodino Filings. There shall be no impediments to Closing
hereunder relative HSR compliance.
6.8 Escrow Agreement. PHC shall have entered into the Escrow Agreement.
6.9 No Agency Proceedings. There shall not be pending or, to the knowledge
of PHC, threatened, any claim suit, action or other proceeding brought by a
governmental agency before any court or governmental agency, seeking to
prohibit or restrain the transactions contemplated by this Agreement or material
damages in connection therewith.
ARTICLE 7 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PHC
All obligations of PHC which are to be discharged under this Agreement at
the Closing are subject to the performance, at or prior to the Closing, of all
covenants and agreements contained herein which are to be performed by MHI at or
prior to the Closing and to the fulfillment at or prior to the Closing of each
of the following conditions (unless expressly waived in writing by PHC at any
time at or prior to the Closing):
7.1 Representations and Warranties True. All of the representations and
warranties of MHI contained in Article 2 of this Agreement shall be true as of
the date of this Agreement, shall be deemed to have been made again at and as of
the Closing, and shall be true at and as of the date of Closing in all material
respects (without taking into account any disclosures made by MHI to PHC
pursuant to ss. 5.7 hereof); MHI shall have performed or complied in all
material respects with all covenants and conditions required by this Agreement
to be performed or complied with by it prior to or at the Closing; and PHC shall
be furnished with a certificate of the President or any Vice President of MHI
dated the Closing Date, in such person's corporate capacity, certifying to the
truth of such representations and warranties as of the time of the Closing and
to the fulfillment of such covenants and conditions.
<PAGE> 44
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7.2 No Obstructive Proceeding. No action or proceedings shall have been
instituted against, and no order, decree or judgment of any court, agency,
commission or governmental authority shall be subsisting against PHC or the
officers or directors of PHC which seeks to, or would, render it unlawful as of
the Closing to effect the transactions contemplated hereby in accordance with
the terms hereof, and no such action shall seek damages in a material amount by
reason of the transaction contemplated hereby. Also, no substantive legal
objection to the transactions contemplated by this Agreement shall have been
received from or threatened by any governmental department or agency.
7.3 General Warranty Deed; Release of Indenture; Title Insurance Policy.
PHC shall have been furnished with a general warranty deed to the owned Real
Property in its name conveying fee simple title to such Real Property to PHC and
a recordable release of the deed of trust securing the lien of the Indenture on
the Hospital Assets. MHI, at its expense, shall have furnished PHC with the
Owner's Policy or title commitment in standard form insuring fee title in such
Real Property in PHC in the amount of $18,000,000. All exceptions and conditions
in such title policy or commitment shall be, in all respects, satisfactory to
PHC, both as to form and substance.
7.4 Sale of West Oak Medical Plaza. On or prior to the Closing, MHI shall
have sold the West Oak Medical Plaza to an entity associated with Trinity Mother
Frances Health System and the buyer shall have assumed all debt associated with
the property and agreed to hold MHI harmless therefrom.
7.5 Escrow Agreement. MHI shall have entered into the Escrow Agreement.
7.6 Environmental Report. The final environmental report from Veritech
Integrated Technologies, Inc. with respect to its Phase I environmental
assessment of the Real Property Assets shall not have identified environmental
deficiencies costing not more than $10,000 to cure, as determined by an
environmental engineering firm mutually acceptable to MHI and PHC.
7.7 Opinion of MHI Counsel. MHI shall have delivered to PHC at the Closing
an opinion of Small, Craig & Werkenthin, P.C. counsel to MHI, dated the Closing
Date, in form and substance satisfactory to PHC, to the effect set forth as
Appendix 7.7 attached hereto.
7.8 Non-Assignable Property Interests.
(a) To the extent that any lease, contract, permit or other property
interest which would otherwise constitute a part of the Assets is not
capable of being assigned, transferred or subleased or if such
assignment, transfer or sublease or attempted assignment, transfer or
sublease would constitute a breach thereof or a violation of any law,
decree, order, regulation or other governmental edict, neither this
Agreement nor the
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Closing shall constitute an assignment, transfer or sublease thereof,
or an attempted assignment, transfer or sublease thereof.
(b) To the extent that any lease, contract, permit or other property
interest constituting a part of the Assets is not capable of being
assigned, transferred or subleased, from and after the Closing Date,
and to the extent reasonably possible, MHI shall make all benefits of
such non-assignable interests available to PHC at no charge, cost or
expense to PHC.
7.9 EMS Franchise. The City of Palestine shall have franchised PHC to
provide emergency medical services to its citizens, and PHC shall have received
the appropriate licenses with respect thereto.
7.10 Consents and Approvals. Each of the parties to any agreement or
instrument under which the transactions contemplated hereby would constitute or
result in a default or acceleration of obligations shall have given such consent
as may be necessary to permit the consummation of the transactions contemplated
hereby without constituting or resulting in a default or acceleration under such
agreement or instrument, and any consents required from any public or regulatory
agency or organization having jurisdiction shall have been given. Also, PHC
shall have received releases, waivers of default and consents to assignment in
form satisfactory to it from all parties to contracts and agreements to be
assumed by PHC hereunder.
7.11 Proceedings and Documents Satisfactory. All proceedings in connection
with the transactions contemplated hereby and all certificates and documents
delivered to PHC pursuant to this Agreement shall be satisfactory in form and
substance to PHC and its counsel acting reasonably and in good faith.
7.12 Federal and State Approvals; Licensing. PHC shall have received such
licenses, certificates of need and other regulatory approvals as are set forth
as Exhibit 2.18 in the Exhibit Volume and as are otherwise necessary to operate
the business of MHI.
7.13 Delivery of Certain Documents. At the Closing, MHI shall have
delivered to PHC copies of the Articles of Incorporation of MHI certified (not
more than 30 days prior to the Closing Date) by the appropriate governmental
authorities and copies of resolutions of the Board of Directors of MHI,
certified by the secretary of MHI, approving and authorizing the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby.
7.14 Hart-Scott-Rodino Filings. PHC and MHI shall have made all required
antitrust filings under, and there shall be no impediment to Closing hereunder
relative to, the HSR Act. If not, MHI and PHC shall promptly proceed to take all
actions as shall be required to comply with the HSR Act.
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ARTICLE 8 TERMINATION
8.1 Optional Termination. This Agreement may be terminated and the
transactions contemplated hereby abandoned at any time prior to the Effective
Date as follows:
(a) By the mutual consent of PHC and MHI; or
(b) By MHI, if the Closing has not occurred by July 22, 1996; provided
that MHI shall not be entitled to terminate this Agreement pursuant to
this ss. 8.1(b) if MHI's willful breach of this Agreement has
prevented the consummation of the transactions contemplated hereby; or
(c) By PHC, if the Closing has not occurred by July 22, 1996, provided
that PHC shall not be entitled to terminate this Agreement pursuant to
this ss. 8.l(c) if PHC's willful breach of this Agreement has
prevented the consummation of the transactions contemplated hereby.
8.2 Notice of Abandonment. In the event of such termination by either PHC
or MHI pursuant to ss. 8.1 above, written notice shall forthwith be given to the
other party hereto.
8.3 Mandatory Termination. If the Closing has not occurred by July 31,
1996, this Agreement shall automatically terminate and no longer be of any force
or effect.
8.4 Termination. In the event this Agreement is terminated as provided
above, PHC shall deliver to MHI all documents (and copies thereof in its
possession) concerning MHI previously delivered by MHI to PHC, and none of the
parties nor any of their respective partners, shareholders, directors, or
officers shall have any liability to the other party for costs, expenses, loss
of anticipated profits, consequential damages, or otherwise, except for any
deliberate breach of any of the provisions of this Agreement. If this Agreement
is terminated for any reason other than MHI's inability or unwillingness to
deliver good title to the Assets (as reflected by a title policy showing
discharge of the disputed ad valorem tax lien on the real property of Seller and
discharge of the lien of the indenture securing the Bonds), MHI's sole remedy
shall be to retain the Escrow Deposit and all interest thereon as liquidated
damages for such termination and the parties agree that no further damages,
costs, expenses or other amounts will be payable as a result of such
termination; otherwise the Escrow Deposit and all interest thereon shall be
promptly returned to PHC as its sole remedy for such termination with no further
damages, costs, expenses or other amounts being payable as a result of such
termination.
<PAGE> 47
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ARTICLE 9 INDEMNIFICATION
9.1 By MHI. MHI agrees to indemnify, defend and hold PHC and its
Affiliates, and its and their respective employees, representatives, officers
and agents, harmless from and against any claims, losses, liability,
obligations, lawsuits, deficiencies, damages or expense of whatever nature,
whether known or unknown, accrued, absolute, contingent or otherwise including
(without limitation) interest, penalties, attorneys' fees, costs of
investigation and all amounts paid in defense or settlement of the foregoing,
suffered or incurred by PHC as a result of the occurrence of any of the
following: (i) the Assets were subject to any liabilities or obligations of any
kind, whether accrued, absolute, contingent or otherwise, which are not being
specifically assumed by PHC hereunder, including without limitation, liabilities
for federal, state, local and other applicable taxes of every kind and
description, whether or not said liabilities or obligations are disclosed in
Exhibit 2.3; (ii) MHI did not have title to any of the Assets; (iii) a breach of
any obligation, representation, warranty, covenant or agreement made by MHI in
this Agreement or any agreement referred to herein or because any representation
or warranty by MHI contained herein, in any document furnished or required to be
furnished pursuant to this Agreement by MHI to PHC or any of its
representatives, or any documents furnished to PHC in connection with the
Closing hereunder, shall be false; (iv) any litigation arising out of or based
upon events or operative facts occurring prior to the Closing Date, in
connection with the Assets, whether or not disclosed in Exhibit 2.20; (iv) any
employee benefits, including pension or retirement benefits, and any severance
payments to the employees of MHI which are or may be assessed as a result of the
transactions contemplated by this Agreement, payable to or on behalf of the
employees of MHI as of the Closing Date, or due through the consummation of this
Agreement; and (vii) costs and expenses (including reasonable attorneys' fees)
incurred by PHC in connection with any demand, action suit, proceeding,
assessment or judgment incident to any of the foregoing. Notwithstanding the
foregoing, MHI shall not be required to indemnify PHC, its affiliates or any
other party and shall not be obligated to make payments to third parties for any
of those liabilities specifically identified as Indemnified Matters in the
Escrow Agreement unless and until all funds available under the Escrow Agreement
have been used to discharge such liabilities.
9.2 Indemnification by PHC. PHC agrees to indemnify, defend and hold MHI
and its affiliates, and their respective employees, representatives, directors
officers and agents harmless from and against any Claims suffered or incurred by
MHI as a result of the occurrence of any of the following: (i) a breach of any
obligation, representation, warranty, covenant or agreement made by PHC in this
Agreement or any agreement referred to herein or because any representation or
warranty by PHC contained herein, in any document required to be furnished
pursuant to this Agreement by PHC to MHI or any of its representatives shall be
false (ii) any litigation arising out of or based upon event or operative facts
occurring subsequent to the Closing, including any failure of PHC to comply
fully with the terms of the Undertaking.
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9.3 Special Indemnification Provisions Regarding Environmental Matters.
(a) General. Except with respect to items disclosed on Exhibit 2.26, MHI
shall indemnify, protect, defend (with counsel reasonably approved by
PHC) and hold PHC, and the directors, officers, shareholders,
employees and agents of PHC, harmless from any claims (including,
without limitation, third party claims for personal injury or real or
personal property damage (direct or consequential), or damage to the
natural resources or the environment, actions, administrative
proceedings (including formal proceedings), judgments, damages
(directly or consequential), punitive damages, penalties, fines,
costs, liabilities (including sums paid in settlements of claims),
interest or losses, including reasonable attorneys' fees and expenses
(including any such fees and expenses incurred in enforcing this
agreement or collecting any sums due hereunder), consultant fees,
and expert fees, together with all other cost and expenses of any kind
or nature) (collectively, the "Costs") that arise directly or
indirectly from or in connection with the presence, storage, disposal
or release of any hazardous substance in or into the structure,
building, air, soil, surface water, groundwater or soil vapor at, on,
about, under or within the Hospital or any portion thereof, to the
extent that such Costs result from events occurring during the periods
prior to Closing and resulting from activities of MHI or any
Affiliates of MHI or prior owners or users of the Assets. Without
limiting the generality of the foregoing, the indemnification provided
by this ss. 9.3 shall specifically cover Costs, including capital,
operating and maintenance costs, incurred in connection with any
investigation or monitoring of site conditions, any clean-up,
containment, remedial, removal or restoration work required or
performed by any Federal, state or local governmental agency or
political subdivision or performed by any non-governmental entity or
person because of the presence or release of any hazardous substance
in or into the air, soil, groundwater, surface water or soil vapor at,
on, about, under or within the Hospital or Real Property Assets (or
any portion thereof), and any claims of third parties for loss or
damage due to such hazardous substance.
(b) Remedial Work. In the event any investigation or monitoring of site
conditions or any clean-up, containment, restoration, removal or other
remedial work (collectively, the "Remedial Work") is required under
any applicable Federal, state or local law or regulation, by any
judicial order, or by any governmental entity, because of, or in
connection with, any occurrence or event described in clause (a)
above, MHI shall, upon demand therefor by PHC, reimburse all Costs
associated with such Remedial Work including, without limitation, the
charges of any contractor(s) and/or consulting engineer, and PHC's
reasonable attorneys' fees and other reasonable costs incurred in
connection therewith. Notwithstanding any provision of this Agreement
to the contrary, MHI will be permitted to contest or cause to be
contested, subject to compliance with the requirements of this
Section, by appropriate action any Remedial
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Work requirement, and PHC shall not perform such requirement on its
behalf, so long as MHI has given PHC written notice that MHI is
contesting or shall contest or cause to be contested the same, and MHI
actually contests or causes to be contested the application,
interpretation or validity of the governmental law, regulation, order
or agreement pertaining to the Remedial Work by appropriate
proceedings conducted in good faith with due diligence; provided such
contest shall not subject PHC or any assignee of its interest
(including any person having a beneficial interest) in the Assets to
civil liability and does not jeopardize any such party's lien upon or
interest in the Assets. MHI shall give such security or assurances as
may be reasonably required by PHC to ensure compliance with the legal
requirements pertaining to the Remedial Work (and payment of all
costs, expenses, interest and penalties in connection therewith) and
to prevent any sale, forfeiture or loss by reason of such nonpayment
or noncompliance.
9.4 Representation, Cooperation and Settlement.
(a) Each party agrees to give prompt notice to the other(s) of any
claim against the other(s) which might give rise to a claim based
on the indemnity contained in this Article 9, stating the nature
and basis of the claim and the amount thereof.
(b) In the event any claim, action, suit or proceeding is brought
against a party (the "Indemnified Party") with respect to which
the other party (the "Indemnifying Party") may have liability
under the indemnity contained in this Article 9, the Indemnified
Party shall permit the Indemnifying Party to assume the defense
of any such claim or any litigation resulting from such claim,
provided that PHC shall not be required to permit MHI to assume
the defense of any third party claim which if not first paid,
discharged, or otherwise complied with would result in an
interruption or cessation of the conduct of MHI's business or any
material part thereof. Failure by the Indemnifying Party to
notify the Indemnified Party of its election to defend any such
claim or action by a third party within thirty (30) days after
notice thereof shall have been given by the Indemnified Party,
shall be deemed a waiver of any such election. If the
Indemnifying Party assumes the defense of such claim or
litigation resulting therefrom the obligations of the
Indemnifying Party hereunder as to such claim shall include
taking all steps reasonably necessary in the defense or
settlement of such claim or litigation resulting in the defense
or settlement of such claim or litigation resulting therefrom,
including the retention of counsel satisfactory to the
Indemnified Party, and holding the Indemnified Party harmless
from and against any and all damage resulting from, arising out
of, or incurred with respect to any settlement approved by the
Indemnifying Party or any judgment in connection with such claim
or litigation resulting therefrom. The Indemnifying Party shall
not, in the defense of such claim or litigation, consent to the
entry of any judgment (other than a judgment of dismissal
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on the merits with costs) except with the written consent of the
Indemnified Party nor enter into any settlement (except with the
written consent of the Indemnified Party) which does not include
as an unconditional term thereof the giving by the claimant or
the plaintiff to the Indemnified Party a release from all
liability in respect to such claim or litigation.
(c) If the Indemnifying Party shall not assume the defense of any
such claim by a third party or litigation resulting therefrom,
the Indemnified Party may defend against such claim or
litigation in such manner as it deems appropriate. The
Indemnifying Party shall, in accordance with the provisions
hereof, promptly reimburse the Indemnified Party for the amount
of any settlement reasonably entered into by the Indemnified
Party and for all damage incurred by the Indemnified Party
in connection with the defense against or settlement of such
claim or litigation.
9.5 Remedies Cumulative. The remedies provided herein shall be cumulative
and shall not preclude PHC from asserting any other rights or seeking any other
remedies against MHI to which PHC is entitled by law.
ARTICLE 10 DEFINITIONS
For the purposes of this Agreement, the following definitions shall apply:
"Affiliate" means with respect to any Party, any entity which controls, is
controlled by, or is under common control with such party.
"Appraisal" is defined in ss. 1.7.
"Assets" is defined in ss. 1.1.
"Assumed Liabilities" is defined in ss. 1.4.
"Bonds" means the Hospital Revenue Bonds (Memorial Hospital
Foundation-Foundation, Inc Project) Series 1993 issued pursuant to the
Indenture of Trust dated as of August 15, 1993 between the East Texas
Hospital Facilities Development Corporation and Bank One, Texas, N.A.,
Trustee.
"Bondholder(s)" means the holder(s) of the Bonds.
"Closing" and "Closing Date" are defined in ss. 1.12.
"Code" means the Internal Revenue Code of 1986, as amended.
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"Contracts" is defined in the definition of "Assets" above.
"Credit Agreement" means the Credit Agreement dated as of May 9, 1996 between
PHC and MHI pursuant to which PHC agreed to lend up to $300,000 to MHI
pending the Closing hereunder.
"Definitive Closing Statements" is defined in ss. 1.11.
"Discharge Amount" means funds equal to (i) $15,425,400 plus (ii) all accrued
and unpaid interest on the bonds from February 15, 1996 through the Closing
Date ($3510.13 per day--$547,579.50 assuming the Closing is July 22, 1996),
minus (iii) debt service and other funds held by the trustee of the Bonds
($1,619,000 at April 30, 1996).
"DRG" is defined in ss. 1.10.
"Effective Time" means 12.01 am local time on the day following the Closing
Date.
"EQUIPMENT AND Furnishings" is defined in ss. 1.1.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"Escrow Agreement" is defined in ss. 1.3(B)(2).
"E&Y" is defined in ss. 1.10.
"Escrow Deposit" means the $500,000 deposit made by PHC with MHI pursuant to the
Letter of Intent.
"Excluded Assets" is defined in ss. 1.5.
"Exhibit Volume" is defined ss. 2.1.
"Final Closing Statement" is defined in ss. 1.11.
"Hospital" means Memorial Hospital.
"HSR Act" means ss. 7A of the Clayton Act, 15 U. S. C. A. ss. 18A.
"Indemnified Party" is defined in ss. 9.4.
"Indemnifying Party" is defined in ss. 9.4.
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"Indenture" means the Trust Indenture referred to in the definition of Bonds.
"Inventory" is defined in the definition of "Assets" above.
"Letter of Intent" means the letter dated July 8, 1996 from PHC to MHI outlining
the intentions of the parties to be more fully set forth in this Agreement.
The Letter of Intent is superseded by this Agreement.
"MHI" means Memorial Hospital Foundation-Palestine, Inc., a Texas not-for-profit
corporation, and its subsidiaries listed in Exhibit 2.2.
"MHI Appraisal" is defined in ss. 1.7.
"MHI Financial Statements" is defined in ss. 2.3.
"Missing Equipment" is defined in ss. 1.9.
"Owner's Policy" is defined in ss. 5.1.
"Pension Plan" and "Pension Plans" means any "employee pension benefit plan"
listed in Exhibit 2.27.
"PHC" means Palestine Principal Healthcare Limited Partnership, a Texas limited
partnership.
"Prepaids" is defined in ss. 1.1.
"Purchase Price" is defined in ss. 1.2.
"Purchaser Appraisal" is defined in ss. 1.7.
"Real Property" means the real property described in Appendix 1.1A hereto.
"Undertaking" is defined in ss. 1.3.
"WARN ACT" means Workers Adjustment Retraining and Notification Act.
"West Oak Medical Plaza" is that certain parcel of property owned by MHI located
at 3215 West Oak Street, Palestine, TX.
<PAGE> 53
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ARTICLE 11 MISCELLANEOUS
11.1 Expenses. MHI shall pay the fees and expenses of its agents, advisers,
attorneys and accountants, of the bond trustee and its counsel, and of counsel
to the bondholders, incurred in connection with the negotiations of the Purchase
Agreement and the transactions contemplated thereby; and the expenses of
obtaining title insurance and a current "as-built" survey of the Hospital and
other improved real property, recording and transfer taxes and fees
(collectively, the "MHI Costs"). PHC shall obtain at its expense a Phase I
environmental survey of the Hospital and other improved real property as
provided in ss. 3.6. Notwithstanding the foregoing, if the transactions
contemplated by the Purchase Agreement are consummated PHC shall pay 50% of
all the MHI Costs, up to a maximum payment by PHC of $250,000 as addition to the
Purchase Price. If the transactions contemplated by the this Agreement are not
consummated, each party shall bear its own costs.
11.2 Prohibition on Use of Name; Consent. Neither MHI nor any or Affiliate
of it, shall on any date after the Closing use the words "Memorial Hospital" or
any similar name in the conduct of a trade or business competitive with or
similar to the business being sold to PHC hereunder. At the Closing, MHI will
deliver to PHC a written consent duly executed evidencing its consent without
charge to the use by PHC (and any Affiliate or successor or assignee thereby) of
the name "Memorial Hospital" and any variants thereof. MHI knows of no other
person or business using or having the right to use the foregoing name or
variants thereof, and no other person otherwise using the foregoing name or
variant thereof has ever tried to restrain MHI from using such name or variant.
11.3 Non-Competition. MHI covenants that for a period of ten years from and
after the Closing Date, it shall not compete directly or indirectly with PHC
within 50 miles of Palestine, Texas in the business of providing medical care
services to the public except to the extent MHI funds medical care, general
health care and medical education programs. MHI shall hold all data and
information obtained with respect to MHI in the same degree of confidence as MHI
maintain such data and information. For a period of five years from and after
Closing Date, MHI shall not directly or indirectly induce or solicit, or
directly or indirectly aid or assist any other person or entity to induce or
solicit, current employees, salesmen, agents, consultants, distributors,
representatives, advisors, customers or suppliers of MHI to terminate their
employment or business relations with MHI, nor for a period of one year from and
after the Closing Date, shall any of MHI employ any employees, salesmen or
agents of MHI. Nothing contained in this paragraph shall prevent MHI from
purchasing less than one percent of the issued and outstanding common stock of a
corporation which conducts such business if such stock is traded upon the floor
of the New York Stock Exchange or the American Stock Exchange. In the event of a
breach or threatened breach of this section, PHC shall be entitled to an
injunction restraining such breach; but nothing herein shall be construed as
prohibiting PHC from pursuing any other remedy available to PHC as a result of
such breach or threatened breach. PHC and MHI acknowledge and agree that since a
remedy at law for any breach or attempted breach of the provisions of this
ss. 11.3 shall be inadequate, PHC shall be entitled to specific performance and
injunctive or other equitable relief in case of any such breach or attempted
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breach, in addition to whatever other remedies may exist at law. All parties
hereto also waive any requirement for the securing or posting of any bond in
connection with the obtaining of any such injunctive or other equitable relief.
The provisions of this ss. 11.3 shall be deemed to be valid to the extent of any
lesser area and for any lesser duration permitted by law if the area and
duration set forth herein is deemed to be too broad by a court of competent
jurisdiction. The invalidity or non-enforceability of this ss. 11.3 in any
respect shall not affect the validity or enforceability of this Section in any
other respect or of any other provisions of this Agreement.
11.4 Cooperation by PHC. In the event MHI is a party to or is required to
defend against any action, suit or proceeding arising out of a claim pertaining
to the transactions contemplated hereby, the business or operations of MHI, PHC
shall provide such assistance and cooperation, including, without limitation,
witnesses and documentary or other evidence as may reasonably be requested by
MHI in connection with its defense. MHI shall reimburse PHC for its reasonable
out-of-pocket expenses incurred in providing such assistance and cooperation.
11.5 Cooperation by MHI. In the event PHC is required to defend against any
action, suit or proceeding arising out of a claim pertaining to a liability
assumed by PHC pursuant to this Agreement relating to the business or operations
of MHI, MHI shall provide such assistance and cooperation, including without
limitation, witnesses and documentary or other evidence, as may reasonably be
requested by PHC in connection with its defense. In addition, if PHC determines
that it is necessary or desirable to have an accounting firm other than Harrell,
Rader, Bonner & Bolton, LLP audit the Hospital for periods prior to the Closing
in connection with PHC or one of its Affiliates obtaining financing or preparing
for a public offering of securities, MHI shall cooperate, and shall direct
Harrell, Rader, Bonner & Bolton, LLP to cooperate, including sharing work papers
with PHC's auditors. PHC shall reimburse MHI for its reasonable out-of-pocket
expenses incurred in providing such assistance, including fees and expenses of
Harrell, Rader, Bonner & Bolton, LLP and any other accounting firm retained by
PHC.
11.6 Cost Reports. MHI shall timely file all Medicare and Medicaid cost
reports relating to periods ending prior to the Closing Date, including without
limitation termination cost reports required to be filed as a result of the
consummation of the transactions contemplated by this Agreement. MHI shall be
responsible for the accuracy of such cost reports and shall cause an appropriate
officer of MHI to execute and file such cost reports. MHI shall furnish to PHC
accurate and complete copies of all such cost reports upon the filing thereof,
including a copy of the detailed depreciation schedule and all other work papers
used to file the terminating cost report by MHI. Except as otherwise provided
herein, the proceeds and liabilities of cost reports for periods prior to the
Effective Time shall accrue to and be the responsibility of MHI. In the event
MHI receives any retroactive payments from Medicare, Medicaid or others which
payments are applicable to any period of time both before and after the
Effective Time, MHI shall promptly forward the portion thereof relating to the
period after the Effective Time to PHC. In the event Medicare, Medicaid or any
other third party payor deducts from amounts due PHC, any amounts due such
payors by MHI, MHI shall
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reimburse PHC for such amounts due PHC immediately after receiving notification
from the payor of the deduction. In the event Medicare, Medicaid or any other
third party payor deducts from amounts due MHI, any amounts due such payors by
PHC, PHC shall promptly reimburse MHI for such amounts due MHI. PHC and its
successors shall have the right, at its or their expense, to reopen or amend
previously filed or closed Medicare and Medicaid Cost Reports pertaining to the
Hospital, in which case PHC and its successors shall have the right to any
additional amounts due the Hospital from the Medicare and Medicaid programs
relating to such reopened or amended Cost Reports. PHC and its successors shall
have the right to appeal any Medicare or Medicaid determinations related to any
such reopened or amended Cost Reports. PHC shall hold MHI harmless from any
additional amounts due to such programs or any other liabilities or obligations
arising as a result of reopening or amending such Cost Reports provided such
that the existence of such liabilities or obligations does not constitute a
breach of the representations and warranties of MHI under this Agreement.
11.7 Notices. All notices, demands and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered in person
or mailed by certified mail or registered mail (postage prepaid), sent by
reputable overnight courier service (charges prepaid) or sent via facsimile:
To MHI c/o Memorial Hospital
4000 South Loop 256
Palestine, TX 75802
Attention: Chairman
with a copy to Brandon C. Janes
Small, Craig & Werkenthin, P.C.
100 Congress Ave.
Suite 1100
Austin, TX 78701-4099
To PHC c/o Principal Hospital Company
5123 Paddock Village Court
Suite A-12
Brentwood, TN 37027
Attention: Martin S. Rash
or to such other address as either MHI or PHC may designate by notice to
the other.
11.8 Entire Agreement. This Agreement and the Appendices, Exhibits,
schedules and documents delivered pursuant hereto constitute the entire contract
between the parties hereto pertaining to the subject matter hereof and supersede
all prior and contemporaneous agreements, understandings, negotiations and
discussions, whether written or oral, of the parties, and there are no
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representations, warranties or other agreements between the parties in
connection with the subject matter hereof, except as specifically set forth
herein. No supplement, modification or waiver of this Agreement shall be binding
unless executed in writing by the parties to be bound thereby.
11.9 GOVERNING LAW. THE VALIDITY AND CONSTRUCTION OF THIS AGREEMENT SHALL
BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
11.10 WAIVER OF TRIAL BY JURY. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
EACH PARTY HEREBY IRREVOCABLY WAIVES ALL RIGHT OF JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY
MATTER ARISING HEREUNDER.
11.11 Arbitration. Except with regard to any exercise of rights to
terminate this agreement pursuant to ss. 8.1, if there is a disagreement between
PHC on the one hand and MHI on the other hand as to any matter arising under
this Agreement and such parties are unable to resolve such disagreements, PHC or
MHI shall resolve the matter by binding arbitration by giving written notice to
the other party (the "Arbitration Notice") that the issue shall be determined by
binding arbitration pursuant to the Rules and Procedures of the American
Arbitration Association, which Rules and Procedures are hereby incorporated by
reference for this purpose: provided that the selection of the arbitrator(s)
shall be made as follows: within three days from the delivery of the Arbitration
Notice each of PHC and MHI shall submit to the other list of preferred
arbitrator(s) ranked in order of preference. In the event only one person is
common to both lists, such person shall be the arbitrator. If more than one
person is common to both lists, that person having the lowest numerical average
(in terms of ranking on the list) shall be the arbitrator. In the event no
persons are common to both lists, the persons listed first on each list shall be
two of the arbitrators and such persons shall meet within 14 days from the date
of their appointment to select a third arbitrator in which case all three
persons shall serve as the arbitration panel. In the event only one person
serves as arbitrator, PHC and MHI shall each pay one-half of the arbitrator's
fees and expenses. In the event a panel of three arbitrators is used each of PHC
and MHI shall pay the fees and expenses of the arbitrator appointed by it and
one-half of the fees and expenses of the arbitrator appointed by their
respective appointees. Upon resolution of the dispute by the arbitrator(s), the
arbitrator(s) shall notify PHC and MHI of the decision of the arbitrator(s). The
decision resulting from the arbitration shall be final and not appealable and
any party shall have the right to obtain an order from a court of competent
jurisdiction for enforcement of such decision. The provisions of this Section
shall be the parties' exclusive remedy for resolution of any dispute arising
under this Agreement.
11.12 Legal Fees and Costs. In the event either party elects to incur legal
expenses to enforce or interpret any provision of this Agreement, the prevailing
party will be entitled to recover such legal expenses, including, without
limitation, reasonable attorneys' fees, costs and necessary disbursements, in
addition to any other relief to which such party shall be entitled.
<PAGE> 57
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11.13 Rights Against Shareholders, Officers, Directors and Other Parties.
Notwithstanding any other provision in this Agreement to the contrary, PHC and
MHI agree and covenant that there shall be no personal liability imposed upon or
asserted against, and such parties hereby release and forever discharge any and
every current or future shareholder, officer, director or employee of the other
party for any breach, untruth, omission, inaccuracy or non-fulfillment of any
representation, warranty, covenant or other obligation of such party set forth
in this Agreement or in any certificate, schedule, instrument or document set
forth in, attached to or delivered pursuant to this Agreement except in the
event of an act of fraud or intentional misconduct on the part of any such
shareholder, officer, director or employee.
11.14 Time. Time is of the essence for purposes of each and every provision
of this Agreement.
11.15 Section Headings. The Section headings are for reference only and
shall not limit or control the meaning of any provision of this Agreement.
11.16 Waiver. No delay or omission on the part of any party hereto in
exercising any right hereunder shall operate as a waiver of such right or any
other right under this Agreement.
11.17 Nature and Survival of Representations. All representations and
warranties contained in any certificate or other instrument delivered pursuant
hereto by or on behalf of MHI or by or on behalf of PHC, shall be deemed to be
representations and warranties made pursuant to this Agreement by the delivering
party. No representations or warranties made by the parties shall survive the
Closing by more than 24 months, except for the following representations and
warranties of MHI, on the one hand, and PHC, on the other hand: (a) the
representations and warranties set forth in ss. 2.9, 2.22, 2.24, 2.25, 2.28, and
2.29 shall survive the Closing for seven years and (b) the representations and
warranties set forth in ss. 2.7, 2.8, 2.20, and 2.26 shall survive the Closing
for the applicable period of limitations for the commencement of actions.
11.18 Exhibits. All Exhibits, Appendices, schedules and documents referred
to in or attached to this Agreement are integral parts of this Agreement as if
fully set forth herein and all statements appearing therein shall be deemed to
be representations. All items disclosed hereunder shall be deemed disclosed only
in connection with the specific representation to which they are explicitly
referenced.
11.19 Assignment. No party hereto shall assign this Agreement without first
obtaining the written consent of the other party, except PHC shall have the
right to assign this Agreement to an affiliated company, and PHC or such
affiliated company shall have the right to collaterally assign the rights of PHC
respecting remedies in the event of breaches of MHI's representations,
warranties and covenants and rights of indemnification hereunder to one or more
institutional lenders providing financing for the transactions contemplated
hereby.
<PAGE> 58
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11.20 Binding on Successors and Assigns. Subject to ss. 11.19, this
Agreement shall inure to the benefit of and bind the respective heirs,
administrators, successors and assigns of the parties hereto. Nothing expressed
or referred to in this Agreement is intended or shall be construed to give any
person other than the parties to this Agreement or their respective successors
or permitted assigns any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein, it being the
intention of the parties to this Agreement that this Agreement shall be for the
sole and exclusive benefit of such parties or such successors and assigns and
not for the benefit of any other person.
11.21 Parties in Interest. Nothing in this Agreement is intended to confer
any right on any person other than the parties to it and their respective
successors and assigns, nor is anything in this Agreement intended to modify or
discharge the obligation or liability of any third person to any party to this
Agreement, nor shall any provision give any third person any right of
subrogation or action over against any party to this Agreement.
11.22 Amendments. This Agreement may be amended, but only in writing,
signed by the parties hereto.
11.23 Drafting Party. The provisions of this Agreement, and the documents
and instruments referred to herein, have been examined, negotiated, drafted and
revised by counsel for each party hereto and no implication shall be drawn nor
made against any party hereto by virtue of the drafting of this Agreement.
11.24 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall comprise one and the same instrument.
11.25 Reproduction of Documents. This Agreement and all documents relating
thereto, including without limitation, consents, waivers and modifications which
may hereafter be executed, the Exhibits and documents delivered at the Closing,
and financial statements, certificates and other information previously or
hereafter furnished to PHC may be reproduced by PHC by any photographic,
photostatic, microfilm, microcard, miniature photographic or other similar
process and PHC may destroy any original documents so reproduced. MHI agrees and
stipulates that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made by PHC in
the regular course of business) and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
11.26 Press Releases. PHC and MHI shall cooperate with each other in
releasing information concerning this Agreement and the transactions
contemplated hereby. Where practicable, each of the parties to this Agreement
shall furnish to the others drafts of all releases prior to publication.
<PAGE> 59
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Nothing contained in this Agreement shall prevent any party to this Agreement at
any time from furnishing any information to any governmental body or agency.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
PALESTINE PRINCIPAL HEALTHCARE LIMITED PARTNERSHIP
By Principal Hospital Company, general partner
By /s/ MARTIN S. RASH
--------------------------
Its President and CEO
Name Martin S. Rash
MEMORIAL HOSPITAL FOUNDATION-PALESTINE, INC.
By /s/ STEPHEN EVANS
-------------------------
Its Interim CEO
Name Stephen Evans
<PAGE> 1
Exhibit 10.36
PALESTINE PRINCIPAL HEALTHCARE LIMITED PARTNERSHIP
AGREEMENT OF LIMITED PARTNERSHIP
THIS AGREEMENT OF LIMITED PARTNERSHIP, made and entered into this
17th day of July, 1996, by and among PRINCIPAL HOSPITAL COMPANY, a Delaware
corporation with its principal place of business at 5123 Paddock Village Court,
Suite A-12, Brentwood, TN 37027, Attn: President ("Principal") as the General
Partner, and those other persons identified on Schedule A as limited partners
(the "Limited Partners"),
W I T N E S S E T H :
WHEREAS, the parties hereto desire to form a limited
partnership upon the terms and conditions set forth in this Agreement of Limited
Partnership (the "Agreement").
NOW, THEREFORE, in consideration of the mutual promises,
covenants and undertakings hereinafter contained, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto, after being duly sworn, do hereby swear to, agree and certify as
follows:
ARTICLE I
General
1.1. Formation.
The parties hereto hereby agree to form a limited partnership
under and pursuant to the Texas Revised Limited Partnership Act (the "Act"),
subject to the terms and conditions contained in this Agreement.
1.2. Name.
The name of the Partnership shall be Palestine Principal
Healthcare Limited Partnership. The business of the Partnership may be conducted
under any name or names chosen by the General Partner in its discretion from
time to time and reflected in an amendment to the Certificate of Limited
Partnership duly recorded in the Office of the Secretary of State of Texas.
<PAGE> 2
1.3. Term.
The term of the Partnership shall commence on the date of
the filing of a Certificate of Limited Partnership with the Office of the
Secretary of State of Texas, and shall continue until December 31, 2036,
unless earlier terminated in accordance with the provisions hereof or as
provided by law.
1.4. Registered Office and Registered Agent.
The registered office of the Partnership shall be located at
350 St. Paul Street, Suite 2900, Dallas, Texas 75201, and the Partnership's
registered agent for service of process at such location shall be CT
Corporation System. The location of the Partnership's registered office and
identity of the registered agent may be changed from time to time by the
General Partner, without the necessity of obtaining consent from any Limited
Partners, upon filing a statement of change with the Office of the Secretary
of State of Texas in the manner provided in the Act.
1.5. Filings.
The General Partner and the Limited Partners, acting either
directly or through the General Partner as attorney-in-fact or through such
person or persons as the General Partner may appoint as attorney-in-fact,
shall sign and file such additional and further certificates, affidavits, and
other documents, and amendments thereto, as may be necessary to enable the
Partnership to continue to conduct its business.
1.6. Purpose.
The purpose of the Partnership shall be (i) to own and operate
the Project; and (ii) to conduct such other activities as may be necessary or
appropriate to promote the business of the Partnership, it being agreed that
each of the foregoing is an ordinary part of the Partnership's business;
provided however, the Partnership shall not engage in any activities which are
not in conformance with the Ethical and Religious Directives for Catholic
Health Care Services as approved by the National Conference of Catholic
Bishops or are inconsistent with the mission and philosophy of the Sisters of
the Holy Family of Nazareth.
1.7. Powers.
The Partnership shall have all powers reasonably necessary to
achieve its purposes hereunder. Without limiting the foregoing, the
Partnership is expressly authorized to do the following:
(i) acquire, by purchase or otherwise, the Project;
(ii) take and hold property, real, personal and mixed,
in the Partnership's name;
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(iii) enter into any agreement with any person, firm or
corporation, including the General Partner, or any Affiliate
of the General Partner, requiring such person to perform
services for the Partnership or to assist the General
Partner in the management of the Partnership or its
business, provided approval of the Partners is received and
further provided:
(a) the compensation to be paid to the General Partner
or any of its Affiliates shall be consistent with the
provisions of this Agreement,
(b) the services to be performed shall be appropriate
for the management of the Partnership or its business, and
(c) the agreement shall be no less favorable to the
Partnership than it would be if negotiated on an
arm's-length basis with an independent third party.
(iv) borrow money from third parties, the General
Partner or Affiliates of the General Partner, but excluding
other limited partnerships sponsored by Affiliates of the
General Partner, and issue evidences of indebtedness in
furtherance of any or all of the purposes of the
Partnership, and secure the same by grant of security
interests in assets of the Partnership;
(v) open and maintain one or more Partnership bank
accounts in which all monies received by the Partnership
shall be deposited;
(vi) lease, sell, exchange, refinance or grant an
option for the sale of all or any portion of the real or
property of the Partnership, including the Project, at such
rental, price or amount, for cash, securities or other
property, and upon such terms as the General Partner may
deem appropriate;
(vii) execute and deliver deeds, deeds of trust, notes,
leases, subleases, mortgages, bills of sale, financing
statements, security agreements, easements and any and all
other instruments appropriate to the conduct of the
Partnership's business and the financing thereof;
(viii) lend its funds or make guarantees of others upon
such terms as the General Partner shall determine, but
excluding loans to, or guarantees of, the General Partner
and any of its affiliates, including other limited
partnerships sponsored by Affiliates of the General Partner;
(ix) retain counsel, accountants, financial advisers
and other professional personnel; and
(x) engage in such other activities and incur such
other expenses as may be necessary or appropriate for the
furtherance of the Partnership's purposes, and
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execute, acknowledge and deliver any and all instruments
necessary to the foregoing.
1.8. Principal Place of Business.
The principal place of business of the Partnership shall be
located at 4000 South Loop 256, Palestine, TX 75802, Attn: President, The
General Partner may from time to time by notice to all Partners change the
address of the principal place of business of the Partnership.
1.9. Liability of Partners.
No Limited Partner, by virtue of being a limited partner
hereunder, shall be personally liable for the debts, liabilities or
obligations of the Partnership beyond the extent of such Limited Partner's
capital contribution, together with the undistributed share of net profits of
the Partnership from time to time credited to such Limited Partner's capital
account. The amount of cash and other property contributed by a Limited
Partner are the only contributions that a Limited Partner shall be required to
make to the Partnership for the satisfaction of the debts, liabilities or
obligations of the Partnership.
The General Partner shall not be personally liable to any
Limited Partner for repayment of capital contributions of the Limited Partner
or, except as expressly provided in this Agreement, have any obligation to
make any advance or contribution of capital to the Partnership. The General
Partner, however, is liable for all recourse obligations, unlike Limited
Partners, who have no such personal liability, either to third parties, to the
Partnership or to other Partners, except as stated above or otherwise required
by the Act.
1.10. Definitions.
As used herein, the following terms have the indicated
meanings:
1.10.1. "Act" shall have the meaning set forth in
Section 1.1 hereof.
1.10.2. "Affiliate" means (i) any person directly or
indirectly controlling, controlled by or under common control with another
person; (ii) any person owning or controlling 10% or more of the outstanding
voting securities of such other person; (iii) any officer, director or partner
of such person; and (iv) if such other person is an officer, director or
partner, any company for which such person acts in any such capacity.
1.10.3. "Capital Account" shall have that meaning assigned
pursuant to Section 2.4 hereof.
1.10.4. "Capital Contribution" means the amount contributed
to the Partnership by each Partner.
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1.10.5. "Cash Flow" means all cash receipts of the
Partnership (other than capital contributions), less Partnership expenses
(other than expenses such as depreciation and amortization that do not require
cash expenditures), payment of Partnership debts and amounts retained as a
reserve in the sole discretion of the General Partner.
1.10.6. "Code" means the Internal Revenue Code of 1986, as
amended.
1.10.7. "General Partner" means Principal, together with any
additional or substitute General Partner admitted pursuant to the provisions
of this Agreement.
1.10.8. "Limited Partners" means the persons admitted
pursuant to the provisions of this Agreement, but excluding assignees of
Limited Partners as to which the General Partner have not consented to
substitution.
1.10.9. "Management Agreement" means the management
agreement of even date herewith between Principal and the Partnership.
1.10.10. "Mother Frances" means Mother Frances Hospital
Regional Health Care Center.
1.10.11. "Partners" means collectively the General Partner
and the Limited Partners. Reference to a "Partner" shall mean any one of the
Partners.
1.10.12. "Partnership" means the Limited Partnership
continued by this Agreement.
1.10.13. "Partnership Capital" means the total of the
Capital Contributions of the Partners, as hereinafter set forth, as adjusted
to reflect income, gains, losses, withdrawals and distributions. Capital
contributions of property shall be valued at net fair market value as of the
date of contribution.
1.10.14. "Percentage Interest" means the interest of each
Partner, as set forth on Schedule A.
1.10.15. "PPI" shall mean Palestine-Principal, Inc.
1.10.16. "Project" shall mean Memorial Hospital, a 103 bed
general hospital in Palestine, Texas.
1.10.17. "Securities Act" means the Securities Act of 1933,
as amended, or any similar law then in effect.
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<PAGE> 6
1.10.18. "Trailing EBITDA" means the earnings before income
taxes, depreciation and amortization of the Partnership for the most recently
ended fiscal year of the Partnership, all in accordance with generally accepted
accounting principles.
ARTICLE II
Capital
2.1. Capital Contributions.
The capital contributed or agreed to be contributed by each
Partner is set forth in Schedule A attached to this Agreement.
2.2. Additional Capital Contributions.
2.2.1. If the Partners unanimously determine that the
Partnership requires additional capital contributions, each of the Partners
shall contribute the funds required according to such Partner's Percentage
Interest. The total amount and timing of such additional capital contributions
shall be determined by the Partners. Unless otherwise specified by the Partners
in the determination of additional capital contribution, the General Partner
shall specify the payment date for additional capital contributions upon ten
days prior written notice to the Partners consistent with such determination.
2.2.2. Notwithstanding the foregoing, at the election of
Mother Frances, PPI shall contribute the entire additional capital contribution
on behalf of Mother Frances, in which event such additional capital contribution
shall be treated as a loan to Mother Frances followed by a contribution of
capital by Mother Frances. Amounts up to $250,000 treated as loaned by PPI to
Mother Frances shall bear interest at the Prime Rate plus 1%, and amounts
exceeding $250,000 shall bear interest at the Prime Rate plus 1 1/2%.
2.2.3. The provisions of this Section 2.2 constitute an
agreement among the Partners only and are not intended to create any right or
interest on behalf of any person who is not a Partner or require any Partner to
make a capital contribution for the benefit of any person who is not a Partner.
2.3. Withdrawal and Return of Contributions.
No Partner shall have the right to withdraw his contribution
or to receive any funds or property of the Partnership except as specifically
provided in this Agreement. No Partner shall have the right to demand and
receive property other than cash in return for his contributions.
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<PAGE> 7
2.4. Capital Accounts.
The Partnership will maintain for each Partner an account to be
designated its "capital account," which will be determined and maintained
throughout the full term of the Partnership, in accordance with the capital
accounting rules of Treasury Regulation Section 1.704-l(b)(2)(iv) including any
amendments thereto or successor regulations.
2.5. No Interest on Capital.
No interest shall be paid on capital contributions or on
balances in capital accounts.
2.6. Effect of Transfer of Partnership Interest.
Upon the transfer by any Partner of any or all of its
Partnership interest, pursuant to the provisions of Article V of this Agreement,
the proportionate amount of its respective capital account balance, determined
in accordance with Section 2.4 hereof, shall be transferred to the transferee of
such Partnership interest; provided, however, that no transfer of any
Partnership interest shall, in and of itself, relieve the transferor of any
obligation to the Partnership, including, but not limited to, such transferor's
obligation, if any, to contribute to the capital of the Partnership.
ARTICLE III
Allocation of Income and Loss: Cash Distributions
3.1. Distribution of Cash Flow.
Cash Flow shall be apportioned among and distributed to the
Partners in proportion to their Percentage Interest.
3.2. Profits and Losses.
"Profits" and "Losses" means for each fiscal year or other
period, an amount equal to the Partnership's taxable income or loss for such
year or period, determined in accordance with Code Section 703(a). For this
purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss, with the following adjustments:
(a) Any income of the Partnership that is exempt from federal
income tax and not otherwise taken into account in computing Profits or Losses
pursuant to this Section 3.3 shall be added to such taxable income or loss; and
(b) Any expenditures of the Partnership described in Code
Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures
pursuant to Treasury Regulation Section
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<PAGE> 8
1.704-1(b)(2)(iv)(i) and not otherwise taken into account in computing Profits
or Losses pursuant to this Section 3.3 shall be subtracted from such taxable
income or loss.
3.3. Allocation of Profits and Losses.
3.3.1. Except to the extent provided in Sections 3.4 hereof,
the Profits of the Partnership shall be allocated as follows:
(a) First, to the Partners in proportion to their negative
capital accounts until all negative capital accounts are eliminated;
(b) Next, to the Partners until their capital accounts are in
proportion to their Percentage Interest;
(c) All remaining Profits shall be allocated to the Limited
Partners and the General Partner in proportion to their Percentage Interest.
3.3.2. The Losses of the Partnership shall be allocated to the
Limited Partners and the General Partner in proportion to their Percentage
Interest.
3.4. Special Allocations.
3.4.1. In the event the Limited Partners unexpectedly receive
any adjustments, allocations, or distributions described in Treasury Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or
1.704-1(b)(2)(ii)(d)(6), items of Partnership income and gain shall be specially
allocated to the Limited Partners in an amount and manner sufficient to
eliminate, to the extent required by the Treasury Regulations, the negative
capital account created by such adjustments, allocations or distributions as
quickly as possible. For purposes of the preceding sentence, Partners' Capital
Accounts shall be reduced for the items described in Treasury Regulation Section
1.704-1(b)(2)(ii)(d)(4), (5), and (6). The provisions of this Section 3.4.1 are
intended to comply with the requirements of Treasury Regulation Section
1.704-1(b), including any amendments or successor regulations thereto, and shall
be so interpreted.
3.4.2. If there is a net decrease in Partnership minimum gain
as defined in Regulation Section 1.704-2(d) during a Partnership taxable year,
then each Partner must be allocated items of income and gain for such year in an
amount equal to such Partner's share of the net decrease in Partnership minimum
gain as computed under Regulation Section 1.704-2(g)(2). The provisions of this
Section 3.4.2 are intended to comply with the requirements of Regulation Section
1.704-2, including any amendments or successor regulations thereto, and shall be
so interpreted.
3.4.3. Notwithstanding any provision of this Article III to
the contrary, to the extent allocations of loss or deductions to a Limited
Partner would cause such Limited Partner to have a negative Capital Account
balance, or increase the negative balance in a Limited Partner's
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<PAGE> 9
Capital Account, such loss or deduction shall be allocated among those Limited
Partners with positive Capital Account balances to the extent thereof and in
proportion thereto, with any remaining loss or deduction being allocated to the
General Partner. For the purposes of this Section 3.4.3, distributions made
prior to or contemporaneous with any allocation to a Limited Partner shall be
reflected in such Partner's Capital Account prior to making such allocation to
such Partner, and a Partner's Capital Account shall be credited to the extent
(i) such Partner is unconditionally obligated to make additional contributions
to the Partnership; (ii) such Partner is unconditionally obligated to fund a
deficit in his Capital Account upon liquidation; and (iii) such Partner is
deemed to be obligated to restore his Capital Account balance pursuant to
Regulation Sections 1.704-2(s)(1) and 1.704-2(i)(5).
3.4.4. In no event shall the General Partner's interest in
each item of income, gain, loss, deduction or credit be less than 1% of each
such item at all times during the existence of the Partnership.
3.5. Allocation for Purposes of Nonrecourse Liabilities.
Solely for purposes of Regulation Sections 1.752-3(a)(3),
Partnership profits shall be allocated to the Limited Partners and the General
Partner in proportion to their Percentage Interest.
3.6. Modification.
The General Partner, without the consent of the Limited
Partners, may modify the provisions of Article III hereof or any other
provisions of this Agreement if, after consultation with counsel to the
Partnership, the General Partner determines that such modification is necessary
to (i) cause the allocations contained in Article III to have substantial
economic effect or otherwise be respected for federal income tax purposes under
Section 704 of the Code; (ii) cause the allocation of Profits and Losses under
Article III hereof to conform, in accordance with the requirements of Section
704 of the Code, to the distributions provided in Article III; or (iii) cause
the provisions of the Agreement to comply with any applicable legislation,
regulation or rule enacted or promulgated after the date of this Agreement,
which change is necessary to enable the Partnership to carry out its purposes in
the manner contemplated by this Agreement. Any such amendment shall be so as to
cause the least significant deviation from the provisions of this Agreement as
originally set forth.
3.7. Consequences of Distributions.
Upon the determination to distribute funds in any manner
expressly provided in this Article III, made in good faith, the General Partner
shall incur no liability on account of such distribution, even though such
distribution may have resulted in the Partnership retaining insufficient funds
for the operation of its business which insufficiency resulted in loss to the
Partnership or necessitated the borrowing of funds by the Partnership.
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<PAGE> 10
3.8. Partner Admission Date; Allocation of Profits, Losses and
Distributions in Respective Partnership Interest Transferred.
A purchaser of the Partnership interest of a Limited Partner
shall become a Limited Partner on the date that both (a) its capital
contribution, and (b) the other Partners accept such purchaser's subscription.
If all or any portion of a Partnership interest is transferred during any fiscal
year of the Partnership, Profits or Losses attributable to such Partnership
interest for such fiscal year shall be divided and allocated between a
transferor and the transferee based on the time each such party was, according
to the books and records of the Partnership, the owner of record of the
Partnership interest transferred during the year in which the transfer occurs
utilizing any permissible convention selected by the General Partner.
ARTICLE IV
Rights, Duties and Obligations of the General Partner
4.1. General Partner to Manage Business.
Subject to Section 4.8 hereof, the General Partner shall
manage and control the business of the Partnership with full, exclusive and
complete discretion in the management and control of said business, and shall
make all decisions affecting said business. The Limited Partners, as such, shall
not and shall have no right or power to take part in the control of the
business, affairs and/or operations of the Partnership. The General Partner may,
from time to time, delegate any or all of such responsibilities to third parties
which, under the General Partner's supervision, will perform such acts and
services for the Partnership as the General Partner may approve.
4.2. Powers of the General Partner.
Subject to Section 4.8 hereof, the General Partner shall have
all powers necessary or desirable to carry out the purposes, business and
objectives of the Partnership and its duties as set forth herein and all of the
power and authority in connection therewith as may be specifically stated in
this Agreement or as may be otherwise provided by law. The General Partner
specifically has the power and authority to execute agreements, at the
Partnership's expense and in its name, for the acquisition of the Project and
the financing in connection therewith.
4.3. Tax Matters Partner.
The General Partner shall serve as the Tax Matters Partner
pursuant to Section 6231(a)(7)(A) of the Code, and shall take such action as
may be required to register such status with the Internal Revenue Service. The
Tax Matters Partner ("TMP") is responsible for all administrative and judicial
proceedings for the assessment and collection of tax deficiencies or the refund
of tax overpayments arising out of a Partner's distributive share of items of
income, deduction, credit and/or of any other Partnership item (as that term is
defined in the Code or in regulations issued
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<PAGE> 11
\
by the Internal Revenue Service) allocated to the Partners affecting any
Partner's tax liability. The TMP shall promptly give notice to all Partners of
any administrative or judicial proceedings pending before the Internal Revenue
Service involving any Partnership item and the progress of any such proceeding.
Such notice shall be in compliance with such regulations as are issued by the
Internal Revenue Service. The TMP shall have all the powers provided to a tax
matters partner in Sections 6221 through 6233) of Code, including the specific
power to extend the statute of limitations with respect to any matter which is
attributable to any Partnership item or affecting any item pending before the
Internal Revenue Service and to select the forum to litigate any tax issue or
liability arising from Partnership items. The TMP may resign his position by
giving thirty (30) days written notice to all Partners, whereupon the Partners
shall designate a new TMP. The TMP shall be entitled to reimbursement for any
and all reasonable expenses incurred with respect to any administrative and/or
judicial proceedings affecting the Partnership.
4.4. Duties of the General Partner.
4.4.1. The General Partner shall use its best efforts to
carry out the purposes, business and objectives of the Partnership; shall devote
such time to Partnership business as shall be reasonably required to carry out
such purposes, business and objectives; and shall use its best efforts to assure
the efficient management and operation of the Partnership.
4.4.2. The General Partner shall supervise the preparation and
filing of the tax returns of the Partnership; shall, on behalf of the
Partnership, make such tax elections and determinations as appear to be
appropriate; and shall advise the Limited Partners of their shares of tax
liabilities.
4.4.3. The General Partner shall cause the Partnership at all
times to maintain such insurance, in such amounts and against such other risks,
as the General Partner deem advisable to protect the Partnership.
4.4.4. The General Partner shall maintain separate financial
accounts so that the funds of the Partnership shall be kept separate and will
not be commingled with any other funds.
4.5. Compensation of the General Partner and its Affiliates.
The General Partner shall receive no compensation for their
services as General Partner, except that the General Partner shall be entitled
to its interest in Profits, Losses, and Cash Flow as set forth elsewhere in this
Agreement. The General Partner shall be entitled to receive repayment of any
moneys lent the Partnership, together with interest, if any, provided in
connection with any such loan. The General Partner shall be entitled to receive
reimbursement for expenses as set forth in Article IX hereof. Affiliates of the
General Partner shall be entitled to receive reasonable compensation for
services rendered to the Partnership, provided the Partners approve the terms of
the services and compensation and the requirements of Section 1.7(iii) are met.
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<PAGE> 12
4.6. Other Interests of Partners.
Any Partner may engage in other business including business of
a nature which is the same as or similar to the business of this Partnership
without duty or obligation to account to the Partnership in connection
therewith. Any Partner may, in his individual capacity, lend money to or
otherwise deal with the Partnership and shall have no liability or obligation to
the Partnership in connection with such dealings unless the dealings are
manifestly unfair or the benefits received by such Partner are unreasonable.
4.7. Amendment of Partnership Agreement.
Except as set forth below, no amendment to this Agreement
shall be made without the consent of all of the Partners. Notwithstanding the
provisions immediately above, amendments to reflect any one or more of the
following events may be made by the General Partner when required in order to
carry out the other provisions of this Agreement and to comply with law and no
such amendments shall require the vote, approval or written consent of any of
the other Partners:
4.7.1. Transfer of any limited partnership interest pursuant
to Article V.
4.7.2. Change in the name of the Partnership, the location
of the principal place of business of the Partnership,
the name or place of residence of a Partner, the
location of the Partnership's registered office or the
identity of the Partnership's registered agent.
4.7.3. Substitution of a Limited Partner pursuant to Article
V.
4.7.4. Correction of a nonsubstantive error in this Agreement;
and
4.7.5. Amendments necessary to cause the Agreement to comply
with applicable law, regulation or rule; including, but
not limited to, any amendment deemed necessary by the
General Partner to permit the Partnership to be treated
as a partnership for federal income tax purposes.
4.8. Major Decisions Requiring Unanimous Partner Approval.
Notwithstanding anything herein to the contrary, the
following described actions shall be referred to as "Major Decisions" and shall
require the affirmative approval of all of the Partners:
4.8.1. The replacement, modification, consolidation,
refinancing or extension of any mortgage or other
financing instrument covering any property owned by
the Partnership.
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<PAGE> 13
4.8.2. Confessing a judgment against the Partnership in
connection with any threatened or pending legal action.
4.8.3. Any act in contravention of this Agreement.
4.8.4. Any act which would make it impossible to carry on
the ordinary business of the Partnership, except as
otherwise provided in this Agreement.
4.8.5. The knowing performance of any act that would subject
any Limited Partner to liability as a General Partner
in any jurisdiction.
4.8.6. Dissolution or liquidation of the Partnership.
4.8.7. The sale, lease, or transfer of all or substantially
all of the Partnership's assets.
4.8.8. The filing of a voluntary petition or initiation of
proceedings to have the Partnership adjudicated
bankrupt or insolvent, or the consent to the
institution of bankruptcy or insolvency proceedings
against the Partnership, or the filing of a petition
seeking or consenting to reorganization or relief of
the Partnership as debtor under any applicable federal
or state law relating to bankruptcy, insolvency, or
other relief for debtors with respect to the
Partnership; or the seeking or consent to the
appointment of any trustee, receiver, conservator,
assignee, sequestrator, custodian, liquidator (or other
similar official) of the Partnership or of all or any
substantial part of the properties and assets of the
Partnership, or the making of any general assignment
for the benefit of creditors of the Partnership, or
admitting in writing the inability of the Partnership
to pay its debts generally as they become due or the
declaration of a moratorium on the Partnership debt or
the taking any action in furtherance of any such
action.
4.8.9. Amendment, modification or alteration of this
Agreement, except as permitted in Section 4.7.
4.8.10. Merger or consolidation with any other entity.
4.8.11. Approval of the agreements pursuant to which
the Partnership acquires the Project or
finances such acquisition.
4.8.12. Approval of Medical Staff Bylaws for the Project.
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<PAGE> 14
4.8.13. Credentialing of physicians on the medical staff of
the Project.
4.8.14. Approval of managed care contracts relating to the
Project with over 5,000 covered lives.
4.8.15. Approval of a Charity Care Policy for the Project.
4.8.16. Approval of the annual budget for the Project.
4.8.17. Approval of the administrator/CEO for the Project.
4.8.18. Amendment of the Management Agreement.
4.9. Liability of General Partner to Partnership or to Limited
Partners.
The General Partner, its employees, agents and assigns, shall not be
liable to the Limited Partners or to the Partnership for any loss suffered which
arises out of an act or omission of the General Partner, its employees, agents
and assigns, if, in good faith, it was determined by the General Partner that
such act or omission was in the best interests of the Partnership and such act
or omission did not constitute negligence or fraud. The General Partner, its
employees, agents and assigns, shall be indemnified by the Partnership against
any and all claims, demands and losses whatsoever if: (i) the indemnitee
conducted itself in good faith; and (ii) reasonably believed (a) in the case of
conduct in its official capacity with the Partnership, that its conduct was in
its best interests and (b) in all other cases, that its conduct was at least not
opposed to its best interests; and (iii) in the case of any criminal proceeding,
it had no reasonable cause to believe its conduct was unlawful.
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<PAGE> 15
4.10. Additional Items.
Mother Frances will use its best efforts (i) to purchase the
West Oak Medical Plaza Building and the rural health clinic contained therein
(by assumption of debt or otherwise), provided such purchase is for fair market
value, is commercially reasonable and the usual and customary seller
representations and warranties are obtained; and (ii) subject to availability,
documentation of need and physician acceptance and approval, to recruit three
(3) physicians in each of the next three (3) years to R.M.S.A. or Trinity Clinic
to practice in the vicinity of the Project.
ARTICLE V
Admission and Withdrawal of Partners and
Transfers of Partnership Interests
5.1. Transfers of Partnership Interests.
The transfer of an interest in the Partnership shall mean the
transfer, alienation, sale, assignment, pledge or other disposition or
encumbrance of all or any part of an existing interest in the Partnership,
whether voluntarily or involuntarily, whether for or without consideration, and
includes a transfer by death or incompetency of a Partner, by operation of law,
by bankruptcy of a Partner, by foreclosure or judicial sale or otherwise. In the
event of the transfer of all or any part of the interest in the Partnership of a
Partner in accordance with this Agreement, this Agreement shall be amended as
necessary to reflect the transfer of the interest.
5.2. Permissible Transfers/Withdrawals.
No transfer or assignment of a Partnership interest shall be
made except on the following conditions:
1. Any Partner may, without the consent of any
other Partner, freely transfer its full Partnership interest
to any other Partner;
2. Any Partner may transfer all or a portion of its
Partnership interest to another person or entity in
accordance with the provisions of this Article V.
In the event that any Partner shall at any time attempt to transfer its interest
in the Partnership or withdraw from the Partnership in violation of the
provisions of this Agreement, such transfer or withdrawal shall be considered
void ab initio, and the Partnership shall, in addition to all other rights and
remedies at law and in equity, be entitled to a decree or order restraining and
enjoining such transfer or withdrawal, and the offending Partner shall not plead
in defense thereto that there would be an adequate remedy at law, it being
expressly acknowledged and agreed that damages at law will be an inadequate
remedy for a breach or threatened breach of the provisions concerning transfer
or withdrawal set forth in this Agreement.
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<PAGE> 16
5.3. Bankruptcy, Resignation, Dissolution, Liquidation or Removal
of the General Partner.
Upon the bankruptcy, resignation, dissolution, liquidation,
conversion or removal of a General Partner, the Partnership shall dissolve
pursuant to Section 7.1 of this Agreement unless a substitute General Partner is
elected by the unanimous vote of the Limited Partners within 60 days and such
Limited Partners vote to continue the business of the Partnership.
5.4. Dissolution of Limited Partner.
The bankruptcy, dissolution, liquidation, or termination of a
Limited Partner shall not cause the termination or dissolution of the
Partnership and the business of the Partnership shall continue. Upon any such
occurrence, the trustee or receiver of such Limited Partner shall have all the
rights of such Limited Partner for the purpose of settling or managing its
estate or property, subject to satisfying conditions precedent to the admission
of such assignee as a substitute Limited Partner. The transfer by such trustee
or receiver of any Partnership interest shall be subject to all of the
restrictions hereunder to which such transfer would have been subject if such
transfer had been made by such bankrupt, dissolved, liquidated or terminated
Limited Partner.
5.5. Provisions Intended to Ensure Compliance with Securities Laws.
5.5.1. Restrictions on Transfer. In addition to the provisions
of Section 5.2 hereof, Partnership interests are not transferable except
pursuant to (i) public offerings registered under the Securities Act, (ii) Rule
144 of the Securities and Exchange Commission (or any similar rule then in
force) if such rule is available, and (iii) subject to the conditions specified
in Section 5.5.2 hereof any other legally available means of transfer.
5.5.2. Procedure for Transfer. In connection with the transfer
of any Partnership interests (other than a transfer referred to in clauses (i)
or (ii) of Section 5.5.1 above), the holder thereof will deliver written notice
to the General Partner describing in reasonable detail the transfer or proposed
transfer, together with an opinion (reasonably satisfactory to the General
Partner) of counsel which (to the General Partner's reasonable satisfaction) is
knowledgeable in securities law matters to the effect that such transfer of
Partnership interests may be effected without registration of such Partnership
interests under the Securities Act.
5.6. No Transfer Which Violates Safe Harbors.
The General Partner may prevent, in its sole discretion, any
transfer that would cause the Partnership not to satisfy any safe harbor
provided in Internal Revenue Service Notice 88-75 or subsequent administrative
or legislative provision permitting the Partnership to avoid being a "publicly
traded partnership" under Section 7704 of the Code.
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<PAGE> 17
5.7. Additional General Partner; Transfer of General Partner's and
PPI's Interest.
No additional General Partner shall be admitted to the
Partnership without the prior written consent of all of the Limited Partners.
The General Partner shall not transfer its interest in the Partnership without
the consent of all of the Limited Partners. Notwithstanding the foregoing, the
General Partner may transfer its Partnership interest to a substitute General
Partner without the consent of the Limited Partners if (a) PPI is selling its
entire Partnership interest in the same transaction; and (ii) Mother Frances has
the right to sell its Partnership interest in the same transaction for a price
equivalent to that received by PPI, adjusted pro rata based on their respective
Partnership interests. PPI shall not transfer its interest in the Partnership
without the consent of Mother Frances, unless Mother Frances has the right to
sell its entire Partnership interest in the same transaction for a price
equivalent to that received by PPI, adjusted pro rata based on their respective
partnership interests.
5.8. Transferees as Substitute Partners.
5.8.1. A party who acquires an interest in the Partnership and
who becomes a substitute Partner as herein provided shall succeed to all of the
rights and powers of a Partner with respect to the interest in the Partnership
which is acquired. A party who does not become a substitute Partner shall be
entitled only to receive the share of profits and losses and the share of
distributions of cash and the return of capital contributions to which the
Partner from whom he acquired his interest in the Partnership would have been
entitled with respect to the interest in the Partnership which is acquired but,
notwithstanding any other provision in this Agreement to the contrary, shall
have no right to require any information or account of Partnership transactions,
no right to inspect the Partnership books and no other rights and powers of a
Partner. A party who does not become a substitute Partner shall nevertheless be
subject to all of the provisions of this Agreement and to all of the
restrictions and liabilities under this Agreement with respect to the interest
acquired.
5.8.2. A Transferee of a General Partner's interest may become
a substitute General Partner only in accordance with Paragraph 5.7 hereof. In
the event of the transfer of a limited partnership interest in accordance with
this Agreement, the transferee may become a substitute Limited Partner only with
the written consent of the General Partner which may be withheld in its sole
discretion, and upon satisfaction of the following conditions:
a. The receipt by the General Partner of a written
instrument setting forth the intention of the transferor
that the transferee become a substituted Limited Partner;
b. The receipt by the General Partner of such information,
documents and fees as the General Partner may deem
necessary or desirable to effect the admission of the
transferee as a substitute Limited Partner, including,
without limitation, an opinion of counsel satisfactory to
the General Partner
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<PAGE> 18
that such substitution will not violate the provisions of
any applicable securities laws, rules or regulations.
5.9. Permitted Transfers by Mother Frances.
Notwithstanding anything in this Agreement to the contrary,
Mother Frances shall have the right to transfer its Partnership interest to
Trinity Mother Frances Health System or to an Affiliate that is one hundred
percent (100%) owned though stock ownership (or governed through membership
rights in the case of a not-for-profit organization) by one or more members of
the Trinity Mother Frances Health System group, otherwise Mother Frances shall
not transfer any Partnership interest except in accordance with the following
procedures:
5.9.1. Right of First Refusal. For fifteen (15) days Mother
Frances shall grant to PPI a right of first refusal
(the "First Refusal") to purchase Mother Frances's
Partnership interest at a price equal to a bona fide
written offer to Mother Frances by an independent
third party.
5.9.2. Notice of Intent to Sell. The First Refusal shall be
granted by written notice of intention to make a bona
fide disposition by Mother Frances stating the offer
to sell, the Partnership interest offered, purchase
price therefor which shall be the terms on which
Mother Frances proposes to dispose of its Partnership
interest, and the name and address of the on to whom
Mother Frances desires to transfer the Partnership
interests.
5.9.3. Notice of Exercise. The First Refusal may be exercised
only by actual delivery to Mother Frances, prior to
the termination of the time period, of a notice of
exercise.
5.9.4. Closing. The closing of the purchase of the
Partnership interest pursuant to the right of first
refusal described in this Section 5.9 shall take place
on the date designated by PPI in the notice of
exercise described in clause 5.9.3 above, which date
shall not be more than sixty (60) days nor less than
five (5) days after the delivery of such notice. At
the closing, Mother Frances shall deliver to PPI duly
executed instruments transferring Mother Frances's
Partnership interest to PPI against payment of the
purchase price by a delivery of a check or wire
transfer of funds to an account designated by Mother
Frances. PPI will be entitled to receive customary
representations and warranties from Mother Frances
regarding such sale.
5.9.5. Failure to Exercise Right of First Refusal. If PPI
does not exercise its First Refusal, Mother Frances
may transfer its Partnership
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<PAGE> 19
interest to the purchaser at the purchase price and on
the terms described in the notice delivered pursuant
to clause 5.9.3 above.
5.10. Partners' Representations and Warranties.
5.10.1. Partners' Investment Representations. Each Partner
hereby represents that he or it is acquiring the
Partnership interests set forth in Schedule A for
its own account with the present intention of holding
such securities for investment purposes and that it
has no intention of selling such securities in a
public distribution in violation of federal or state
securities laws; provided that nothing contained
herein will prevent the Partners and the subsequent
holders of such securities from transferring such
securities in compliance with the provisions of
Article V hereof.
5.10.2. Other Representations and Warranties of the Partners.
Each Partner hereby severally represents and warrants
to and covenants and agrees with the Partnership that:
a. Such Partner has had an opportunity to ask questions
and receive answers concerning the terms and
conditions of the securities purchased hereunder and
has had full access to such other information
concerning the Partnership as such Partner may have
requested and that in making its decision to invest
in the securities being purchased hereunder he or it
is not in any way relying on the fact that any other
party has decided to be a Partner hereunder or to
invest in the securities;
b. Such Partner is an "accredited investor" as defined
in Rule 501(a) under the Securities Act;
c. Such Partner is able to bear the economic risk of its
investment in the Partnership purchased hereunder for
an indefinite period of time, including the risk of a
complete loss of such Partner's investment in the
Partnership.
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<PAGE> 20
ARTICLE VI
Special Put/call Rights in Favor of Mother Frances
6.1. Call Right. So long as this Agreement shall be in effect
Mother Frances shall have the right to acquire additional Partnership interests
from the Partnership sufficient for Mother Frances to own ten percent (10%) of
the Partnership interests of the Partnership on the following terms:
6.1.1. Price. The price Mother Frances shall pay for
such additional Partnership interests shall be five percent
(5%) of the sum of (i) the net working capital of the
Partnership as shown on the most recently available balance of
the Partnership prior to the date such Partnership interest is
issued plus (ii) the greater of (x) $21,900,000 or (y) the
product obtained by multiplying 5 times Trailing EBITDA, less
(iii) the debt of the Partnership as shown on such balance
sheet.
6.1.2. Mechanics of Exercise. If Mother Frances
desires to exercise its Call Right, it shall deliver notice
to the General Partner during the first or seventh months
after the annual audited financial statements of the
Partnership are delivered to Mother Frances with respect to
the prior year and simultaneously tender the price for the
additional Partnership interest in cash.
6.1.3. Termination of Call Rights. If Mother Frances
exercises its right to put its Partnership interests to PPI
or the Partnership pursuant to Section 6.2, its rights under
this Section 6.1 shall forthwith cease.
6.2. Put Right. Commencing July 1, 1998, Mother Frances shall
have the right to put its original 5% Partnership interest in the Partnership
either to PPI or the Partnership (at the option of PPI) on the following terms:
6.2.1. Price. The price PPI or the Partnership
shall pay to Mother Frances for such Partnership interest
shall be five percent (5%) of the sum of (i) the net working
capital of the Partnership as shown on the most recently
available balance of the Partnership prior to the date such
Partnership interest is issued plus (ii) the greater of (x)
$21,900,000 or (y) the product obtained by multiplying 5
times Trailing EBITDA, less (iii) the debt of the Partnership
as shown on such balance sheet.
6.2.2. Mechanics of Exercise. If Mother Frances
desires to exercise its Put Right, it shall deliver notice
to the General Partner during the ninety (90) days after the
annual audited financial statements of the Partnership are
delivered to Mother Frances with respect to the prior year,
and the Partnership or PPI shall pay the price for such
additional Partnership interest in cash within thirty (30)
days.
6.2.3. Termination of Put Rights. If Mother Frances
exercises its right to purchase additional Partnership
interest pursuant to Section 6.1, its rights under this
Section 6.2 shall forthwith cease
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<PAGE> 21
6.3. Adjustment of Percentage Interest. In the event of the
exercise of the Call Right or Put Right under this Article, the Percentage
Interest shall be adjusted as of the date of the transfer pursuant to this
Article.
ARTICLE VII
Dissolution and Termination
7.1. Events Causing Dissolution and Termination.
The Partnership shall be dissolved upon (1) the expiration of
the term of the Partnership stated in this Agreement; (2) the sale of all of the
assets of the Partnership and the distribution of the net proceeds therefrom;
(3) at any time with the written consent of the General Partner and of all of
the Limited Partners; (4) the resignation, dissolution and liquidation or
conversion of the General Partner if no substitute General Partner is elected
within sixty (60) days as provided in Section 5.3; and (5) any other event as
may be provided by law. The Partnership shall be terminated when the winding up
of Partnership affairs has been completed following dissolution.
7.2. Winding Up Affairs on Dissolution.
Upon dissolution of the Partnership, the General Partner, or
the persons required or permitted by law to carry out the winding up of the
affairs of the Partnership, shall promptly notify all Partners of such
dissolution; shall wind up the affairs of the Partnership; shall prepare and
file all instruments or documents required by law to be filed to reflect the
dissolution of the Partnership; and, after paying or providing for the payment
of all liabilities and obligations of the Partnership, shall distribute the
assets of the Partnership as provided by law and the terms of this Agreement.
7.3. Distributions in Accordance with Capital Accounts.
Notwithstanding any other provision of this Agreement, upon
liquidation of the Partnership (or any Partner's interest in the Partnership)
liquidating distributions shall be made, in all cases, in accordance with the
Partners' positive capital account balances determined after all adjustments to
the Partners' capital accounts for the taxable year. Such distribution shall be
made within the time periods required by Treasury Regulation Section 1.704-1(b).
In the event that upon liquidation of the Partnership, the General Partner has a
deficit balance in its capital account, the General Partner shall contribute to
the capital of the Partnership an amount of money equal to the lesser of (a)
such deficit balance, or (b) the excess of 1.01 percent of the total capital
contributions by the Limited Partners to the Partnership over the total amount
of capital contributions made to the Partnership by the General Partner. Any
amounts contributed by the General Partner shall be added to the amounts
described above and shall be distributed in the manner provided in this Section
6.4.
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<PAGE> 22
ARTICLE VIII
Fiscal Matters
8.1. Books and Records.
The General Partner shall maintain full and accurate books of
the Partnership at its principal place of business or at such other place as may
be designated from time to time by the General Partner, showing all receipts and
expenditures, assets and liabilities, profits and losses, and all other records
necessary for recording the Partnership's business and affairs. Each Partner and
its duly authorized representatives shall at all time have access to and may
inspect and copy any of such books and records.
8.2. Fiscal Year.
The fiscal year of the Partnership shall end on December 31
of each year.
8.3. Reports to Partners.
The General Partner shall cause to be prepared at the
Partnership's expense, and shall deliver to each Partner the following reports:
8.3.1. Within seventy-five (75) days after the end of each
Fiscal Year, all information necessary for the
preparation of the Limited Partners' federal income
tax returns;
8.3.2. Any Partner may obtain, at such Partner's expense,
such other reports on the Partnership's operations and
conditions as such Partner may reasonably request,
which reports shall be mailed by the General Partner
within one (1) month after notice of such Partner's
request.
8.4. Bank Accounts and Temporary Investments.
All funds of the Partnership shall be deposited in its name in
such checking, savings or other accounts as shall be designated by the General
Partner from time to time separate and apart from, and not commingled with, the
accounts of any other persons, including the accounts of the General Partner or
its Affiliates. Withdrawals therefrom shall be made upon such signature or
signatures as the General Partner may designate.
8.5. Accounting Decisions.
All decisions as to accounting matters shall be made by the
General Partner in accordance with generally accepted accounting principles
consistently applied, unless another method of accounting not in accordance with
generally accepted accounting principles is selected for tax reporting purposes.
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<PAGE> 23
ARTICLE IX
Expense of the Partnership
9.1. Reimbursement of Expenses Incurred by the General Partner.
All expenses of the Partnership's business should be billed
directly to and paid by the Partnership. The General Partner shall be reimbursed
by the Partnership for all direct expenses incurred by it to unrelated third
parties in connection with the Partnership's business, including legal,
accounting, and financial services.
ARTICLE X
General Provisions
10.1. Notices.
All notices, consents, waivers, directions, requests, votes or
other instruments or communications provided for under this Agreement shall be
in writing, signed by the party giving the same, and shall be deemed properly
given when actually received, if delivered in person, or when mailed, if sent by
registered or certified United States mail, postage prepaid, addressed: (a) in
the case of the Partnership, to the Partnership at the principal place of
business of the Partnership; or (b) in the case of any Partner individually, to
such Partner at his address set forth in Schedule A hereto. Each Partner may, by
written notice to all other Partners, specify any other address for the receipt
of such instruments or communications.
10.2. Power of Attorney.
Subject to the requirements of this Agreement, each Partner,
by the execution of this Agreement, hereby irrevocably constitutes and appoints
the General Partner, its successor and assigns, as its true and lawful attorney
and agent, with full power and authority in his name, place and stead to swear
to, execute, acknowledge, deliver, file and record in any appropriate public
office any certificate or other instrument which may be necessary, desirable or
appropriate to qualify or to continue the Partnership as a limited partnership
in the State of Texas; any amendment to this Agreement or to any certificate or
other instrument which may be necessary, desirable or appropriate to reflect the
admission of a Partner, the withdrawal of a Partner or the transfer of all or
any part of the interest of a Partner in the Partnership or any additional
capital contributions or withdrawal of capital contributions by a Partner; any
conveyance of Partnership property; any mortgage or other encumbrance of
Partnership property and related documents; any note or other instrument
evidencing a Partnership obligation and related documents; and any certificates
or instrument which may be appropriate, necessary or desirable to reflect the
dissolution and termination of the Partnership. The power of attorney granted
hereby shall not be affected by disability of the principal, shall be deemed to
be coupled with an interest and shall
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<PAGE> 24
survive the death or incompetency of any Partner and the transfer by any Partner
of its interest as Partner in the Partnership.
10.3. Meetings.
Meetings of all Partners may be called by the General Partner
and/or any Limited Partner. Upon receipt of a written request stating the
purpose(s) of the meeting, the General Partner shall provide all Partners within
ten (10) days after receipt of said request, written notice of the meeting, and
the purpose thereof, to be held on a date not less than fifteen (15) nor more
than sixty (60) days after receipt of said request. Any such meetings shall be
held at the principal place of business of the Partnership.
10.4. Integration.
This Agreement embodies the entire agreement and understanding
among the Partners and supersedes all prior agreements and understandings, if
any, among and between the Partners relating to the subject matter hereof.
10.5. Applicable Law.
This Agreement and the rights of the Partners shall be
governed by and construed and enforced in accordance with the laws of the State
of Texas.
10.6. Counterparts.
This Agreement may be executed in several counterparts and all
counterparts so executed shall constitute one agreement binding on all the
parties hereto, notwithstanding that all the parties are not signatory to the
original or the same counterpart, except that no counterpart shall be authentic
unless signed by the General Partner.
10.7. Severability.
In case any one or more of the provisions contained in this
Agreement or any application thereof shall be invalid, illegal or unenforceable
in any respect, the validity, legality and enforceability of the remaining
provisions contained herein and any other application thereof shall not in any
way be affected or impaired thereby.
10.8. Binding Effect.
Except as herein otherwise provided to the contrary, this
Agreement shall be binding upon, and inure to the benefit of, the Partners and
their respective heirs, executors, administrators, successors and assigns.
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<PAGE> 25
10.9. Waiver of Action of Partition.
The Partners agree that the property of the Partnership is not
and will not be suitable for partition and that all the property of the
Partnership should be dealt with as a single, integral unit. Accordingly, each
of the Partners hereby irrevocably waives any and all rights that it may have to
maintain an action for partition of any of the property of the Partnership,
either as a partition in kind or a partition by sale.
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<PAGE> 26
IN WITNESS WHEREOF, the undersigned, being all of the Partners of the
Partnership, have executed and acknowledged this Agreement as of the day first
above written.
GENERAL PARTNER:
PRINCIPAL HOSPITAL COMPANY,
a Delaware corporation
By: /s/ Martin S. Rash
-------------------------------
Title: President and CEO
----------------------------
LIMITED PARTNERS:
PALESTINE-PRINCIPAL, INC.
a Tennessee corporation
By: /s/ Martin S. Rash
-------------------------------
Title: President and CEO
----------------------------
MOTHER FRANCES HOSPITAL REGIONAL
HEALTH CARE CENTER,
a Texas not-for-profit corporation
By: /s/ Signature Illegible
--------------------------------
Title: President
----------------------------
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<PAGE> 27
Schedule A
PALESTINE PRINCIPAL HEALTHCARE LIMITED PARTNERSHIP
NAMES, ADDRESSES, CAPITAL CONTRIBUTIONS
OF PARTNERS AND NUMBER OF UNITS
The names and addresses of the Partners are set forth below.
The amounts contributed or to be contributed by each Partner as its capital
contribution to the Partnership and the number of Units owned by each Limited
Partner are also set forth below opposite its name:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
NAME AND ADDRESS CAPITAL CONTRIBUTION PERCENTAGE INTEREST
- ----------------------------------------------------------------------------------
<S> <C> <C>
GENERAL PARTNER:
Principal Hospital Company $ 105,000 1%
5123 Paddock Village Court
Suite A-12
Brentwood, TN 37027
Attn: President
LIMITED PARTNERS:
Palestine-Principal, Inc. $9,870,000 94%
Suite A-12
Brentwood, TN 37027
Attn: President
Mother Frances Hospital
Regional Health Care Center $ 525,000 5%
800 East Dawson
Tyler, TX 75701
Attn: President
</TABLE>
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<PAGE> 1
Exhibit 16.1
February 10, 1998
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, except for Note 1 as
to which the date is January 16, 1998, we reported on the consolidated
financial statements of 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 the General Instruction to Form S-1)
under the caption "Change in Accountants" at page 71 of its Pre-effective
Amendment No. 6 to Form S-1 dated February 10, 1998, and we agree with such
statements.
KPMG Peat Marwick LLP
<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 (i) April 30, 1997, except for Notes 2 and 16, as
to which the date is February 4, 1998, with respect to the consolidated
financial statements of Brim, Inc. and (ii) April 30, 1997, except for Note 14,
and Notes 1, 3 and 15, as to which the dates are May 8, 1997 and February 4,
1998, respectively, with respect to the consolidated financial statements and
schedule of Province Healthcare Company (which have been restated), in Amendment
No. 5 to the Registration Statement (Form S-1 No. 333-34421) and related
Prospectus of Province Healthcare Company (formerly known as Principal Hospital
Company) for the registration of 5,405,000 shares of its common stock.
Ernst & Young LLP
Nashville, Tennessee
February 10, 1998
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
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 February 4, 1998):
We consent to the use of our report as of December 31, 1995 and for the
years ended December 31, 1994 and 1995 included herein (Registration No.
333-34421) of Province Healthcare Company (formerly Brim, Inc.) and to the
reference to our firm under the heading "Experts" in the Prospectus.
KPMG Peat Marwick LLP
Portland, Oregon
February 10, 1998
<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 reports dated July 25, 1997 and August 23, 1994 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 February 4, 1998) for the registration of common stock.
Harrell, Rader, Bonner & Bolton LLP
Palestine, Texas
February 10, 1998
