<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
PROVINCE HEALTHCARE COMPANY
(Exact name of registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
DELAWARE 8062 62-1710772
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
105 WESTWOOD PLACE, SUITE 400
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
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
105 WESTWOOD PLACE, SUITE 400
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>
<S> <C>
J. CHASE COLE J. VAUGHAN CURTIS
WALLER LANSDEN DORTCH & DAVIS, PLLC ALSTON & BIRD LLP
511 UNION STREET, SUITE 2100 1201 WEST PEACHTREE STREET
NASHVILLE, TENNESSEE 37219 ATLANTA, GEORGIA 30309
(615) 244-6380 (404) 881-7000
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act of 1933, please check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==============================================================================================================
PROPOSED
AMOUNT MAXIMUM AMOUNT OF
TITLE OF EACH CLASS TO BE AGGREGATE REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED(1) OFFERING PRICE(1) FEE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock $.01 par value..................... $97,282,500 $27.25 $28,698
==============================================================================================================
</TABLE>
(1) Estimated in accordance with Rule 457(a) solely for the purpose of
calculating the registration fee.
-------------------------
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
JUNE 12, 1998
3,570,000 Shares
(PROVINCE HEALTHCARE LOGO)
Common Stock
------------------
Of the 3,570,000 shares of Common Stock, par value $0.01 per share (the
"Common Stock") offered hereby (the "Offering"), 2,300,000 shares are being
offered by Province Healthcare Company ("Province" or the "Company") and
1,270,000 shares are being offered by the Selling Stockholders. The Company will
not receive any of the proceeds from the sale of shares by the Selling
Stockholders. See "Principal and Selling Stockholders." The Common Stock of the
Company is traded on the Nasdaq National Market under the symbol "PRHC." On June
5, 1998, the last reported sale price for the Common Stock was $27.25 per share.
------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 8.
------------------
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 PROCEEDS
TO DISCOUNTS AND TO TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDERS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............ $ $ $ $
- -------------------------------------------------------------------------------------------------------------------------
Total(2)............. $ $ $ $
=========================================================================================================================
</TABLE>
(1) Before deducting expenses of the Offering estimated at $600,000, payable by
the Company.
(2) The Company and certain Selling Stockholders have granted the Underwriters a
30-day option to purchase up to 385,500 and 150,000 additional shares of
Common Stock, respectively, 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,
Proceeds to Company and Proceeds to Selling Stockholders 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 Alex. 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 NEW HOSPITALS -- HAVASU AND ELKO]
[MAP OF COMPANY'S EXISTING HOSPITAL PORTFOLIO]
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."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
NASDAQ IN ACCORDANCE WITH REGULATION M OR ANY SUCCESSOR RULES UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). SEE
"UNDERWRITING."
<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 an owner and operator of acute-care
hospitals in attractive non-urban markets. The Company currently owns and
operates 10 general acute care hospitals in six states with a total of 739
licensed beds. The Company also provides management services to 50 primarily
non-urban hospitals in 19 states with a total of 3,422 licensed beds. The
Company offers a wide range of inpatient and outpatient medical services and
also provides specialty services, including skilled nursing 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 year ended December 31,
1997 and the three months ended March 31, 1998, the Company had net operating
revenue of $170.5 million and $47.9 million, respectively.
The Company believes that non-urban markets are attractive to health care
service providers. Because non-urban service areas have smaller populations,
there are generally only one or two hospitals in each non-urban market,
resulting in less competition. The strong market position 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 services in selected non-urban markets. To achieve this end, the
Company seeks to acquire hospitals which are the sole or primary providers of
health care services 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
1
<PAGE> 5
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 strategy, which management believes will be
offset by increases in market share and profitability.
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, PHC merged with a subsidiary of Brim 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. James Thomas Anderson, the Company's Senior Vice President of
Acquisitions and Development, was previously a Vice President/Group Director at
Community. Both Mr. Rutledge and Mr. Anderson reported directly to Mr. Rash
while at Community.
RECENT DEVELOPMENTS
On February 10, 1998, the Company completed an initial public offering of
5,405,000 shares of its Common Stock at a price of $16.00 per share (the "IPO"),
the net proceeds of which totaled $77.2 million. Of the net proceeds from the
IPO, $22.7 million was used to redeem all of the outstanding shares of the
Company's Series A Senior Preferred Stock, no par value (the "Senior Preferred
Stock"), and pay all accumulated dividends thereon, $14.9 million was used to
repurchase a portion of the Common Stock issued upon the conversion of Series B
Junior Preferred Stock, no par value (the "Junior Preferred Stock"), at the time
of the IPO, and $39.6 million was used to repay amounts outstanding under the
Company's prior credit agreement.
Since the IPO, the Company has acquired two hospitals and has signed a
definitive agreement to lease a third facility. Each of the five hospitals
acquired by the Company, and three of the hospitals acquired by Brim prior to
the Merger, have been acquired from not-for-profit or governmental entities.
Approximately 1,100 non-urban hospitals in the United States are currently owned
by not-for-profit or governmental entities.
On May 1, 1998, the Company acquired the 119-bed Havasu Samaritan Regional
Hospital ("Havasu") in Lake Havasu City, Arizona. The hospital is located in the
16th fastest growing county in the United States according to United States
Census Bureau statistics. Havasu is located 180 miles northwest of Phoenix,
Arizona and 130 miles southeast of Las Vegas, Nevada. The closest hospital is
Province's Colorado River facility located 40 miles away in Needles, California.
For the year ended December 31, 1997, the hospital generated net revenues of
approximately $55.1 million.
On June 11, 1998, the Company acquired the 50-bed Elko General Hospital
("Elko") in Elko, Nevada. The hospital is located 290 miles from Reno, Nevada
and 225 miles from Salt Lake City, Utah and is the largest hospital between
these two cities. The terms of the Elko acquisition agreement provide that the
Company will construct and open a replacement hospital facility within
2
<PAGE> 6
36 months of the acquisition date. The closest competing hospital is the
University of Utah Medical Center in Salt Lake City, Utah. For the 12 months
ended December 31, 1997, Elko generated net revenues of approximately $26.4
million.
Also, in June 1998, the Company entered into an agreement to lease and to
acquire certain operating assets of Moosa Memorial Hospital (also known as
Eunice Regional Medical Center) ("Eunice") in Eunice, Louisiana. The hospital is
located 45 miles northeast of Lafayette, Louisiana and 70 miles west of Baton
Rouge. The hospital is currently being managed by the Company pursuant to a
management services agreement. The initial term of the lease will be for a
period of 10 years, or until the Company has completed construction of a
replacement hospital facility pursuant to the terms of the lease. The
transaction is scheduled to close on or before July 31, 1998.
THE OFFERING
Common Stock offered by:
The Company............................. 2,300,000 shares
The Selling Stockholders................ 1,270,000 shares
Common Stock to be outstanding after the
Offering.................................. 15,309,768 shares(1)
Use of proceeds........................... To repay certain indebtedness. See
"Use of Proceeds."
Nasdaq National Market symbol............. "PRHC"
- ---------------
(1) Excludes 704,403 shares of Common Stock issuable upon the exercise of
options outstanding as of June 1, 1998 issued pursuant to the Company's 1997
Long-Term Equity Incentive Plan, as amended, at a weighted average exercise
price of $13.71 per share.
3
<PAGE> 7
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)
--------------------
THREE MONTHS THREE
PERIOD PERIOD YEAR ENDED YEAR MONTHS
YEAR ENDED JAN. 1, FEB. 2 TO ENDED MARCH 31, ENDED ENDED
DECEMBER 31, TO DEC. 18, DEC. 31, DEC. 31, ----------------- DEC. 31, MARCH 31,
1995 1996 1996 1997 1997 1998 1997 1998
------------ ----------- --------- -------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net operating revenue........ $101,214 $112,600 $17,255 $170,527 $40,459 $47,851 $251,988 $ 70,570
Operating expenses........... 97,993 109,129 18,268 154,566 35,893 41,916 225,541 60,991
Interest expense............. 738 1,675 976 8,121 1,761 1,855 10,519 2,837
Costs of recapitalization.... -- 8,951 -- -- -- -- -- --
Loss (gain) on sale of
assets..................... (2,814) 442 -- 115 87 33 115 33
Income (loss) from continuing
operations before provision
for income taxes and
extraordinary item......... 5,297 (7,597) (1,989) 7,725 2,718 4,047 15,813 6,709
Income (loss) from continuing
operations before
extraordinary item......... $ 3,369 $ (5,307) (1,316) 4,075 1,507 2,275 9,013 3,896
Net income (loss) to common
shareholders(4)............ $(1,750) $ (1,002) $ 392 $ 1,579 $ 9,013 $ 3,896
Net income (loss) per share
to common shareholders --
diluted(4)(5):............. $ (0.61) $ (0.17) $ 0.06 $ 0.16 $ 0.58 $ 0.25
Weighted average number of
common and common
equivalent shares(5)....... 2,860 5,787 6,354 9,615 15,440 15,582
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------
PRO FORMA
ACTUAL AS ADJUSTED(6)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 6,675 $ 7,073
Total assets.............................................. 181,222 312,493
Long-term obligations, less current maturities............ 52,166 121,225
Common stockholders' equity............................... 95,844 154,785
</TABLE>
<TABLE>
<CAPTION>
BRIM (PREDECESSOR)(1)(2) COMPANY (SUCCESSOR)(1)(2)
--------------------------- ------------------------------------------------
THREE MONTHS
PERIOD PERIOD YEAR ENDED
YEAR ENDED JANUARY 1 TO FEBRUARY 2 TO ENDED MARCH 31,
DECEMBER 31, DECEMBER 18, DECEMBER 31, DECEMBER 31, -----------------
1995 1996 1996 1997 1997 1998
------------ ------------ ------------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
STATISTICAL DATA(7):
Hospitals owned or leased (at end of
period)............................ 4 5 7 8 7 8
Licensed beds (at end of period)..... 294 371 513 570 517 570
Admissions........................... 8,839 9,496 1,964 15,142 3,910 4,575
Patient days......................... 56,088 56,310 8,337 84,386 20,904 25,570
Adjusted patient days(8)............. 92,085 96,812 15,949 149,567 36,437 42,295
Average length of stay (days)(9)..... 6.4 5.9 4.3 5.6 5.3 5.6
Gross outpatient service revenue (in
thousands)......................... $51,414 $64,472 $14,088 $110,879 $25,860 $30,010
Gross outpatient service revenue (%
of gross patient service
revenue)........................... 39.1 43.4 48.2 44.5 42.4 40.0
EBITDA (in thousands)(10)............ $ 5,185 $ 5,244 $ 478 $ 23,847 $ 6,404 $ 8,208
CASH PROVIDED BY (USED IN):
Operating activities................. $ 4,123 $ 220 $ 1,636 $ (838) $(1,264) $ 233
Investing activities................. (1,527) 9,378 3,602 (18,230) (2,481) (2,539)
Financing activities................. (2,128) 15,943 6,018 11,998 (431) 4,795
</TABLE>
See accompanying footnotes on the following page.
4
<PAGE> 8
- ---------------
(1) Principal Hospital Company was formed on February 2, 1996. On December 18,
1996, Brim completed a leveraged recapitalization (the "Recapitalization").
Immediately thereafter, on December 18, 1996, PHC was merged with a
subsidiary of Brim in a transaction in which Brim issued junior preferred
and common stock in exchange for all of the outstanding common stock of PHC
(the "Merger"). 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 financial statements of the Company and Brim 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 of the
Company and Notes 2 and 3 of the Notes to Consolidated Financial Statements
of Brim.
(3) Data included in pro forma statements of income for the year ended December
31, 1997 and the three months ended March 31, 1998, give effect to: (i) the
conversion of the Junior Preferred Stock and accumulated and unpaid
dividends with an aggregate carrying amount of $35.3 million into 2,204,420
shares of Common Stock (the "Preferred Stock Conversion") in connection
with the IPO; (ii) the sale of 5,405,000 shares of Common Stock in the IPO,
and the application of the net proceeds from the IPO of $77.2 million 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; (iii) the operating results from the acquisition of Havasu and Elko
for periods prior to their acquisition; and (iv) the sale of Common Stock
in the Offering and the application of the estimated net proceeds thereof
to the repayment of debt, as described in "Use of Proceeds," as if all such
transactions had been completed as of January 1, 1997.
(4) Includes preferred stock dividends and accretion of $0.2 million, $5.1
million and $0.7 million for the period February 2, 1996 to December 31,
1996, the year ended December 31, 1997, and the three months ended March
31, 1998, respectively.
(5) Net income (loss) per share to common shareholders for the historical
period February 2, 1996 to December 31, 1996, the year ended December 31,
1997 and three months ended March 31, 1998 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 unless the effect is anti-dilutive). Net
income (loss) per share applicable to common shareholders on the 1997 and
1998 pro forma amounts are based on the assumptions outlined in Note 3
above.
(6) The pro forma balance sheet data as of March 31, 1998 gives effect to (i)
the acquisitions of Havasu and Elko and (ii) the sale of Common Stock in
the Offering and the application of the estimated net proceeds thereof to
the repayment of debt, as described in "Use of Proceeds," as if all such
transactions had been completed as of March 31, 1998.
(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, minority interest, 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.
5
<PAGE> 9
FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus Summary and under the captions "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business," and elsewhere in this Prospectus, constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. 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
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 in connection with the Offering.
6
<PAGE> 10
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 "Pre-Merger Acquisitions"). In August 1997, the Company
entered into a lease of Needles Desert Communities Hospital in Needles,
California, subsequently renamed Colorado River Medical Center ("Colorado
River"), (the "Colorado River Acquisition"). On May 1, 1998, the Company
purchased Havasu Samaritan Regional Hospital ("Havasu") in Lake Havasu City,
Arizona, and on June 11, 1998 the Company acquired Elko General Hospital
("Elko") in Elko, Nevada (collectively, the "1998 Acquisitions" and,
collectively with the Pre-Merger Acquisitions and the Colorado River
Acquisition, the "Acquisitions"). Each of the Acquisitions were acquired from
not-for-profit or governmental entities.
On February 4, 1998, the Company 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 105 Westwood
Place, Suite 400, 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.
7
<PAGE> 11
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the following information 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 10-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. The Balanced Budget Act of 1997 established a
plan to balance the budget by fiscal year 2002, and included 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.
8
<PAGE> 12
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 discussion or already enacted are price controls on
hospitals, insurance market reforms to increase the availability of group health
insurance coverage to small businesses, requirements that all businesses offer
health insurance coverage to their employees, and restrictions on the ability of
hospitals to own and operate home health agencies. 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, 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, however, 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
9
<PAGE> 13
Company's senior management or of a significant portion of its local management
staff could have a material adverse effect on the Company's business, financial
condition or results of operations. The Company does not maintain key man life
insurance policies on any of its officers. See "Management."
DEPENDENCE ON PHYSICIANS
The success of the Company's owned and leased hospitals is dependent upon
the number and quality of the physicians on the medical staff of, or who admit
patients to, such facilities, the admissions practices of such physicians and
the maintenance of good relations between the Company and such physicians.
Hospital physicians are generally not employees of the Company and most staff
physicians have admitting privileges at other hospitals. Only a limited number
of physicians are interested in practicing in the non-urban communities in which
the Company's hospitals are located, and the loss of physicians in these
communities, or the inability of the Company to recruit physicians to these
communities, could have a material adverse effect on the Company's business,
financial condition and results of operations. The operations of the Company's
hospitals may also be affected by the shortage of nurses and certain other
health care professionals in these communities. See "Business -- Employees and
Medical Staff."
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, and structures these incentives so as to fall within a proposed safe
harbor for physician recruitment. However, the proposed safe harbor for
physician recruitment has never been finalized. The Company also enters into
certain leases with physicians, and is a party to certain joint ventures with
physicians. 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."
10
<PAGE> 14
In addition, Section 1877 of the Social Security Act (commonly known as the
"Stark Laws"), which restricts referrals by physicians of Medicare and other
government-program patients to providers of a broad range of designated health
services with which they have ownership or certain other financial arrangements,
was amended effective January 1, 1995, to broaden significantly the scope of
prohibited physician referrals under the Medicare and Medicaid programs to
providers with which referring physicians have ownership or certain other
financial arrangements (the "Self-Referral Prohibitions"). Many states have
adopted or are considering similar legislative proposals, some of which extend
beyond the respective state's 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, Arizona 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. It should
be noted, however, that Ohio and Pennsylvania recently allowed their respective
CON laws to expire under the provisions of those states' sunset laws. Texas,
Louisiana and Indiana do not have CON laws. There can be no assurances that the
Company will be able to obtain required CONs in states requiring them.
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."
11
<PAGE> 15
LEVERAGED FINANCIAL POSITION
As of March 31, 1998, after giving pro forma effect to the acquisition of
Havasu and Elko, the Company's total long-term obligations (excluding current
maturities) would have been $180.2 million, or 65.3% of its total
capitalization. Additionally, as of March 31, 1998, after giving pro forma
effect to the application of the net proceeds of the Offering, the Company's
total long-term obligations (excluding current maturities) would have been
$121.2 million, or 43.9% of its total capitalization. The Company has a $260.0
million line of credit with a group of banks. 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 Company may incur additional indebtedness in the future, including
senior indebtedness, subject to limitations imposed by the Credit Agreement. The
level of the Company's indebtedness could have important consequences to the
Company and holders of its Common Stock, including: (i) a substantial portion of
the Company's cash flow from operations must be dedicated to debt service and
will not be available for other purposes (such as operations); (ii) the
Company's ability to obtain additional debt financing in the future for working
capital, capital expenditures, acquisitions, general corporate purposes and
other purposes may be limited; (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) the Company's level of indebtedness could limit its
flexibility in reacting to changes in the industry and economic conditions
generally and 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. Certain of
the Company's competitors may operate on a less leveraged basis and therefore
could have significantly greater operating and financing flexibility than the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
NEED FOR ADDITIONAL CAPITAL
The Company's acquisition program requires substantial capital resources.
In addition, the operations of its existing hospitals require ongoing capital
expenditures for renovation and expansion and the addition of costly medical
equipment and technology utilized in the hospitals. The Company may incur
indebtedness and may issue, from time to time, debt or equity securities to fund
any such expenditures. There can be no assurance that sufficient financing will
be available on terms satisfactory to the Company. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Business -- Business Strategy."
CONCENTRATION OF HOSPITALS IN CALIFORNIA
Four of the Company's 10 owned and leased hospitals are located in
California and, for the three months ended March 31, 1998, 30.5% of the
Company's pro forma 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 50 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
12
<PAGE> 16
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. The Commission has
adopted evaluation criteria and has recently adopted the retrofit standards. The
Company will be required to conduct engineering studies of its California
facilities to determine whether and to what extent modifications to its
facilities will be required. Significant capital expenditures to comply with the
seismic standards could have a material adverse effect on the Company's
financial condition or results of operations.
RISKS RELATED TO INTANGIBLE ASSETS
The Company's acquisitions and the Merger have resulted in significant
increases in intangible assets and goodwill. At March 31, 1998, on a pro forma
basis to reflect the acquisition of Havasu and Elko, the Company had goodwill
and other intangible assets of $144.2 million, which are being amortized over
periods ranging from five to 35 years, with a weighted average life of 33.0
years. 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 32.4% of the outstanding
shares of Common Stock, including 23.8% which will be owned by GTCR Fund IV. As
a result of such ownership, these stockholders, if acting together, may
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 and Selling Stockholders."
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<PAGE> 17
ABSENCE OF DIVIDENDS
The Company does not anticipate paying cash dividends in the foreseeable
future. In addition, the terms of the Company's 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."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
There will be 15,309,768 shares of Common Stock outstanding upon completion
of the Offering (15,695,268 shares if the Underwriters over-allotment option is
exercised in full). The 5,405,000 shares issued in the IPO are, and upon
completion of the Offering, the 3,570,000 shares of Common Stock offered hereby
will be, eligible for resale in the public market without restriction by persons
other than affiliates of the Company. The remaining 6,334,768 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") and will be eligible
for sale in the public market at prescribed times pursuant to Rule 144. 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 90
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 demand and
piggyback registration rights to certain of the Company's current stockholders
and pursuant to which 1,270,000 shares are being offered hereby. Substantially
all of such shares other than the shares offered hereby are subject to the
90-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 intends to
register the issuance of up to 1,209,016 shares of Common Stock authorized under
its 1997 Long-Term Equity Incentive Plan and up to 250,000 shares of Common
Stock authorized under its Employee Stock Purchase Plan. See
"Management -- Long-Term Equity Incentive Plan" and "-- Employee Stock Purchase
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, are estimated to be
$58.9 million ($68.9 million if the Underwriters' over-allotment option is
exercised in full). The Company will not receive any of the proceeds from the
sale of Common Stock by the Selling Stockholders. All of the proceeds of the
Offering will be used to reduce the outstanding loan balances under the Amended
and Restated Credit Agreement, dated as of March 30, 1998, among the Company,
First Union National Bank, as Agent and Issuing Bank, and the various lenders
named therein (the "Credit Agreement"). At June 1, 1998, the Company had
borrowed approximately $156.8 million on the revolving credit facility under the
Credit Agreement to fund acquisitions and working capital. The Company borrowed
an additional $22.0 million in June 1998 in connection with the Elko
acquisition. These borrowings bear interest at a weighted average rate of 7.57%
and mature on March 31, 2003.
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.
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the Nasdaq National Market under the symbol
"PRHC." The Company completed its IPO on February 10, 1998. Prior to that date,
no public market existed for the Common Stock. The following table sets forth
the high and low intra-day sales prices for the Common Stock for the periods
indicated as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
YEAR ENDING DECEMBER 31, 1998 ------ ------
<S> <C> <C>
First Quarter (commencing February 10, 1998)............... $27.13 $18.88
Second Quarter (through June 9, 1998)...................... 29.63 24.63
</TABLE>
On June 5, 1998, the last reported sales price of the Common Stock on the
Nasdaq National Market was $27.25 per share. At June 8, 1998, there were 23
holders of record of Common Stock.
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<PAGE> 19
CAPITALIZATION
The following table sets forth as of March 31, 1998: (i) the capitalization
of the Company; (ii) the capitalization of the Company on a pro forma basis to
reflect the 1998 Acquisitions; and (iii) the capitalization of the Company on a
pro forma as adjusted basis to reflect the 1998 Acquisitions, the sale of the
shares of Common Stock offered hereby, and the application of the estimated net
proceeds therefrom as if all such transactions had occurred as of March 31,
1998. See Pro Forma Condensed Consolidated Financial Statements.
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 6,675 $ 7,073 $ 7,073
======== ======== ========
Long-term obligations(1):
Senior Credit Facility.................................... $ 48,000 $176,000 $117,059
Capital lease obligations................................. 4,157 4,157 4,157
Other long-term obligations............................... 9 9 9
-------- -------- --------
Total long-term obligations....................... $ 52,166 $180,166 $121,225
-------- -------- --------
Common stockholders' equity:
Common stock:
$0.01 par value, authorized: 25,000,000 shares; issued
and outstanding: 13,009,768 shares and 15,309,768
shares pro forma as adjusted(2)...................... 130 130 153
Additional paid-in capital................................ 97,338 97,338 156,256
Retained deficit.......................................... (1,624) (1,624) (1,624)
-------- -------- --------
Total common stockholders' equity...................... 95,844 95,844 154,785
-------- -------- --------
Total capitalization.............................. $148,010 $276,010 $276,010
======== ======== ========
</TABLE>
- ---------------
(1) Excludes current maturities.
(2) Excludes 704,403 shares of Common Stock issuable upon exercise of stock
options outstanding as of June 1, 1998 with a weighted average exercise
price of $13.71 per share. See "Management -- Long-Term Equity Incentive
Plan" and Note 7 of Notes to Consolidated Financial Statements.
16
<PAGE> 20
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On February 10, 1998, Province completed its IPO and its Junior Preferred
Stock was converted into Common Stock. On May 1, 1998, Province acquired Havasu.
On June 10, 1998, Province acquired Elko.
The following unaudited pro forma condensed consolidated balance sheet as
of March 31, 1998 gives effect to: (i) the acquisitions of Havasu and Elko by
Province and (ii) the sale of 2,300,000 shares of Common Stock in the Offering
at an assumed offering price of $27.25 per share and the application of the
estimated net proceeds thereof to the repayment of debt as described in "Use of
Proceeds," as if all such transactions had been completed as of March 31, 1998.
The following unaudited pro forma condensed consolidated statements of
income for the year ended December 31, 1997 and the three months ended March 31,
1998 give effect to: (i) the conversion of Junior Preferred Stock into Common
Stock and the sale of 5,405,000 shares of Common Stock in the IPO at the price
of $16.00 per share, and the application of the net proceeds thereof to the
repurchase of certain shares of Common Stock, the redemption of Senior Preferred
Stock and the repayment of debt; (ii) the acquisitions of Havasu and Elko by
Province; and (iii) the sale of 2,300,000 shares of Common Stock in the Offering
at an assumed offering price of $27.25 per share and the application of the
estimated net proceeds thereof to the repayment of debt as described in "Use of
Proceeds," as if all such transactions had been completed as of January 1, 1997.
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
consolidated financial statements and related Notes thereto included elsewhere
in this Prospectus.
17
<PAGE> 21
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL ACQUISITIONS PRO FORMA OFFERING PRO FORMA
---------------------------- PRO FORMA ACQUISITIONS PRO FORMA OFFERING
PROVINCE HAVASU ELKO ADJUSTMENTS CONSOLIDATED ADJUSTMENTS CONSOLIDATED
-------- ------- ------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......... $ 6,675 $ 6 $ 1,581 $ 106,000(a)
(6)(b)
(105,567)(c)
22,000(d)
(1,581)(e)
(22,035)(f) $ 7,073 $ 58,941(g)
(58,941)(g) $ 7,073
Accounts receivable, net.......... 35,705 3,767 5,297 (3,767)(b) 41,002 41,002
Inventories....................... 3,848 1,076 584 5,508 5,508
Prepaid expenses and other........ 6,028 160 109 (154)(b)
350(f) 6,493 6,493
-------- ------- ------- --------- -------- -------- --------
Total current assets........ 52,256 5,009 7,571 (4,760) 60,076 -- 60,076
Property, plant and equipment,
net............................... 66,804 18,666 8,798 11,094(c)
(5,248)(f) 100,114 100,114
Other assets:
Unallocated purchase price........ 760 -- -- 760 760
Cost in excess of net assets
acquired, net................... 53,146 -- -- 75,724(c)
14,417(f) 143,287 143,287
Other............................. 8,256 7,982 588 (7,982)(b)
(588)(e) 8,256 8,256
-------- ------- ------- --------- -------- -------- --------
$181,222 $31,657 $16,957 $ 82,657 $312,493 $ -- $312,493
======== ======= ======= ========= ======== ======== ========
LIABILITIES AND COMMON STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable.................. $ 5,029 $ 667 $ 588 $ (667)(b) $ 5,617 $ 5,617
Accrued salaries and benefits..... 6,968 -- -- 6,968 6,968
Accrued expenses.................. 2,311 510 856 489(c)
(172)(e)
1,000(f) 4,994 4,994
Current maturities of long-term
obligations..................... 2,255 637 773 (637)(b)
(773)(e) 2,255 2,255
-------- ------- ------- --------- -------- -------- --------
Total current liabilities... 16,563 1,814 2,217 (760) 19,834 -- 19,834
Long-term obligations, less current
maturities........................ 52,166 21,062 1,926 106,000(a)
(21,062)(b)
22,000(d)
(1,926)(e) 180,166 $(58,941)(g) 121,225
Third-party settlements............. 7,255 -- -- 7,255 7,255
Other liabilities................... 8,506 -- 60 (60)(e) 8,506 8,506
Minority interest................... 888 -- -- 888 888
Common stockholders' equity:
Net assets........................ -- 8,781 12,754 10,457(b)
(19,238)(c)
762(e)
(13,516)(f) -- --
Common stock...................... 130 -- 130 23(g) 153
Additional paid-in-capital........ 97,338 -- 97,338 58,918(g) 156,256
Retained earnings (deficit)....... (1,624) (1,624) (1,624)
-------- ------- ------- --------- -------- -------- --------
Total common stockholders'
equity.................... 95,844 8,781 12,754 (21,535) 95,844 58,941 154,785
-------- ------- ------- --------- -------- -------- --------
$181,222 $31,657 $16,957 $ 82,657 $312,493 $ -- $312,493
======== ======= ======= ========= ======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated balance
sheet.
18
<PAGE> 22
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
- ---------------
<TABLE>
<S> <C>
(a) Reflects the borrowing by Province of $106.0 million to finance the
acquisition of Havasu.
(b) Reflects the elimination of Havasu assets not purchased and
liabilities not assumed by Province as follows:
Cash............................................... $ (6)
Accounts receivable, net........................... (3,767)
Prepaid expenses and other......................... (154)
Other.............................................. (7,982)
Accounts payable................................... 667
Current maturities of long-term obligations........ 637
Long-term obligations, less current maturities..... 21,062
---------
Net assets......................................... $ 10,457
=========
(c) Reflects the purchase of Havasu and the allocation of the $105.5
million purchase price to adjust assets purchased and liabilities
assumed to fair value and to record intangibles as follows:
Property, plant and equipment...................... $ 11,094
Cost in excess of net assets acquired.............. 75,724
Accrued expenses................................... (489)
Net assets......................................... 19,238
---------
Cash paid.......................................... $ 105,567
=========
(d) Reflects the borrowing by Province of $22.0 million to finance the
acquisition of Elko.
(e) Reflects the elimination of Elko assets not purchased and liabilities
not assumed by Province as follows:
Cash............................................... $ (1,581)
Other.............................................. (588)
Accrued expenses................................... 172
Current maturities of long-term obligations........ 773
Long-term obligations, less current maturities..... 1,926
Other liabilities.................................. 60
---------
Net assets......................................... $ 762
=========
(f) Reflects the purchase of Elko and the allocation of the purchase
price to adjust assets purchased and liabilities assumed to fair
value and to record intangibles as follows:
Prepaid expenses and other......................... $ 350
Property, plant and equipment...................... (5,248)
Cost in excess of net assets acquired.............. 14,417
Accrued expenses................................... (1,000)
Net assets......................................... 13,516
---------
Cash paid.......................................... $ 22,035
=========
(g) Reflects the sale of 2,300,000 shares of Common Stock in the Offering
at the assumed offering price of $27.25 per share and the receipt and
application of $58.9 million in net proceeds to the repayment of
long-term obligations as follows:
Common Stock....................................... $ 23
Additional paid-in-capital......................... 58,918
---------
Net proceeds....................................... 58,941
Long-term obligations.............................. (58,941)
---------
$ --
=========
</TABLE>
19
<PAGE> 23
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
IPO HISTORICAL ACQUISITIONS PRO FORMA OFFERING
HISTORICAL PRO FORMA PRO FORMA ----------------- PRO FORMA ACQUISITIONS PRO FORMA
PROVINCE ADJUSTMENTS IPO HAVASU ELKO ADJUSTMENTS CONSOLIDATED ADJUSTMENTS
---------- ----------- --------- ------- ------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Net patient service
revenue................. $149,296 $149,296 $55,101 $25,863 $230,260
Management and
professional services... 9,691 9,691 -- -- 9,691
Reimbursable expenses..... 6,674 6,674 -- -- 6,674
Other..................... 4,866 4,866 -- 497 5,363
-------- ------- -------- ------- ------- -------- -------- -------
Net operating
revenue........... 170,527 -- 170,527 55,101 26,360 -- 251,988 --
Expenses:
Salaries, wages and
benefits................ 66,172 66,172 16,626 13,333 96,131
Reimbursable expenses..... 6,674 6,674 -- -- 6,674
Purchased services........ 23,242 23,242 -- 1,172 24,414
Supplies.................. 16,574 16,574 7,457 3,619 27,650
Provision for doubtful
accounts................ 12,812 12,812 4,541 2,794 20,147
Other operating expenses.. 16,318 16,318 14,407 2,353 33,078
Rentals and leases........ 4,888 4,888 -- 282 5,170
Depreciation and
amortization............ 7,557 7,557 1,689 1,287 $ 1,560(d)
(145)(e) 11,948
Interest expense.......... 8,121 $(3,334)(a) 4,787 1,628 139 7,170(f)
1,687(g) 15,411 $(4,892)(h)
Minority interest......... 329 329 -- -- 329
Loss on sale of assets.... 115 115 -- -- 115
-------- ------- -------- ------- ------- -------- -------- -------
Total expenses...... 162,802 (3,334) 159,468 46,348 24,979 10,272 241,067 (4,892)
-------- ------- -------- ------- ------- -------- -------- -------
Income before income taxes.. 7,725 3,334 11,059 8,753 1,381 (10,272) 10,921 4,892
Income taxes.............. 3,650 1,299(b) 4,949 -- -- (54)(b) 4,895 1,905(b)
-------- ------- -------- ------- ------- -------- -------- -------
Net income.................. 4,075 2,035 6,110 8,753 1,381 (10,218) 6,026 2,987
Preferred stock dividends
and accretion............. (5,077) 5,077(c) -- -- --
-------- ------- -------- ------- ------- -------- -------- -------
Net income (loss) to common
shareholders.............. $ (1,002) $ 7,112 $ 6,110 $ 8,753 $ 1,381 $(10,218) $ 6,026 $ 2,987
======== ======= ======== ======= ======= ======== ======== =======
Basic earnings (loss) per
common share:
Net income................ $ 0.71 $ 0.49
Preferred stock dividends
and accretion........... (0.88) --
-------- --------
Net income (loss) per
common share............ $ (0.17) $ 0.49
======== ========
Diluted earnings (loss) per
common share:
Net income................ $ 0.71 $ 0.46
Preferred stock dividends
and accretion........... (0.88) --
-------- --------
Net income (loss) per
common share............ $ (0.17) $ 0.46
======== ========
Weighted average shares:
Basic earnings per common
share................... 5,787 12,466
Diluted earnings per
common share............ 5,787 13,140
<CAPTION>
PRO FORMA
OFFERING
CONSOLIDATED
-------------
<S> <C>
Revenue:
Net patient service
revenue................. $230,260
Management and
professional services... 9,691
Reimbursable expenses..... 6,674
Other..................... 5,363
--------
Net operating
revenue........... 251,988
Expenses:
Salaries, wages and
benefits................ 96,131
Reimbursable expenses..... 6,674
Purchased services........ 24,414
Supplies.................. 27,650
Provision for doubtful
accounts................ 20,147
Other operating expenses.. 33,078
Rentals and leases........ 5,170
Depreciation and
amortization............
11,948
Interest expense..........
10,519
Minority interest......... 329
Loss on sale of assets.... 115
--------
Total expenses...... 236,175
--------
Income before income taxes.. 15,813
Income taxes.............. 6,800
--------
Net income.................. 9,013
Preferred stock dividends
and accretion............. --
--------
Net income (loss) to common
shareholders.............. $ 9,013
========
Basic earnings (loss) per
common share:
Net income................ $ 0.61
Preferred stock dividends
and accretion........... --
--------
Net income (loss) per
common share............ $ 0.61
========
Diluted earnings (loss) per
common share:
Net income................ $ 0.58
Preferred stock dividends
and accretion........... --
--------
Net income (loss) per
common share............ $ 0.58
========
Weighted average shares:
Basic earnings per common
share................... 14,766
Diluted earnings per
common share............ 15,440
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated statements
of income.
20
<PAGE> 24
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
IPO HISTORICAL ACQUISITIONS PRO FORMA OFFERING
HISTORICAL PRO FORMA PRO FORMA ---------------- PRO FORMA ACQUISITIONS PRO FORMA
PROVINCE ADJUSTMENTS IPO HAVASU ELKO ADJUSTMENTS CONSOLIDATED ADJUSTMENTS
---------- ----------- --------- ------- ------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Net patient service
revenue................... $42,750 $42,750 $15,168 $7,417 $65,335
Management and professional
services.................. 2,930 2,930 -- -- 2,930
Reimbursable expenses....... 1,562 1,562 -- -- 1,562
Other....................... 609 609 -- 134 743
------- ----- ------- ------- ------ ------- ------- -------
Net operating
revenue............. 47,851 -- 47,851 15,168 7,551 -- 70,570 --
Expenses:
Salaries, wages and
benefits.................. 18,606 18,606 4,786 3,859 27,251
Reimbursable expenses....... 1,562 1,562 -- -- 1,562
Purchased services.......... 6,035 6,035 -- 331 6,366
Supplies.................... 4,627 4,627 2,218 1,007 7,852
Provision for doubtful
accounts.................. 3,082 3,082 996 521 4,599
Other operating expenses.... 4,257 4,257 3,483 690 8,430
Rentals and leases.......... 1,474 1,474 -- 86 1,560
Depreciation and
amortization.............. 2,205 2,205 459 366 $ 353(d)
(80)(e) 3,303
Interest expense............ 1,855 $(474)(a) 1,381 395 28 1,840(f)
436(g) 4,080 $(1,243)(h)
Minority interest........... 68 68 -- -- 68
Loss on sale of assets...... 33 33 -- -- 33
------- ----- ------- ------- ------ ------- ------- -------
Total expenses........ 43,804 (474) 43,330 12,337 6,888 2,549 65,104 (1,243)
------- ----- ------- ------- ------ ------- ------- -------
Income before income taxes.... 4,047 474 4,521 2,831 663 (2,549) 5,466 1,243
Income taxes.................. 1,772 189(b) 1,961 -- -- 368(b) 2,329 484(b)
------- ----- ------- ------- ------ ------- ------- -------
Net income.................... 2,275 285 2,560 2,831 663 (2,917) 3,137 759
Preferred stock dividends and
accretion................... (696) 696(c) -- -- -- --
------- ----- ------- ------- ------ ------- ------- -------
Net income to common
shareholders................ $ 1,579 $ 981 $ 2,560 $ 2,831 $ 663 $(2,917) $ 3,137 $ 759
======= ===== ======= ======= ====== ======= ======= =======
Basic earnings per common
share:
Net income.................. $ 0.24 $ 0.20
Preferred stock dividends
and accretion............. (0.07) --
------- -------
Net income per common
share..................... $ 0.17 $ 0.20
======= =======
Diluted earnings per common
share:
Net income.................. $ 0.23 $ 0.19
Preferred stock dividends
and accretion............. (0.07) --
------- -------
Net income per common
share..................... $ 0.16 $ 0.19
======= =======
Weighted average shares:
Basic earnings per common
share..................... 9,343 13,010
Diluted earnings per common
share..................... 9,615 13,282
<CAPTION>
PRO FORMA
OFFERING
CONSOLIDATED
-------------
<S> <C>
Revenue:
Net patient service
revenue................... $65,335
Management and professional
services.................. 2,930
Reimbursable expenses....... 1,562
Other....................... 743
-------
Net operating
revenue............. 70,570
Expenses:
Salaries, wages and
benefits.................. 27,251
Reimbursable expenses....... 1,562
Purchased services.......... 6,366
Supplies.................... 7,852
Provision for doubtful
accounts.................. 4,599
Other operating expenses.... 8,430
Rentals and leases.......... 1,560
Depreciation and
amortization..............
3,303
Interest expense............
2,837
Minority interest........... 68
Loss on sale of assets...... 33
-------
Total expenses........ 63,861
-------
Income before income taxes.... 6,709
Income taxes.................. 2,813
-------
Net income.................... 3,896
Preferred stock dividends and
accretion................... --
-------
Net income to common
shareholders................ $ 3,896
=======
Basic earnings per common
share:
Net income.................. $ 0.25
Preferred stock dividends
and accretion............. --
-------
Net income per common
share..................... $ 0.25
=======
Diluted earnings per common
share:
Net income.................. $ 0.25
Preferred stock dividends
and accretion............. --
-------
Net income per common
share..................... $ 0.25
=======
Weighted average shares:
Basic earnings per common
share..................... 15,310
Diluted earnings per common
share..................... 15,582
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated statements
of income.
21
<PAGE> 25
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
- ---------------
(a) Reflects the elimination of interest expense associated with the $39.6
million of long-term obligations repaid with the net proceeds of the IPO.
(b) Reflects the inclusion of the income tax expense (benefit) based on the
combined federal and state statutory rate of 39.0% applied to adjusted
pre-tax income or loss.
(c) Reflects the elimination of the dividends and the accretion of issuance
costs on the Senior Preferred Stock redeemed with a portion of the net
proceeds of the IPO and the Junior Preferred Stock converted into Common
Stock in connection with the IPO.
(d) Reflects the elimination of the historical depreciation expense of Havasu,
and the inclusion of the Company's depreciation of property, plant and
equipment and amortization of goodwill and other intangible assets.
(e) Reflects the elimination of the historical depreciation expense of Elko, and
the inclusion of the Company's depreciation of property, plant and equipment
and amortization of goodwill and other intangible assets.
(f) Reflects the elimination of the historical interest expense related to the
debt of Havasu not assumed in the acquisition, and the inclusion of the
Company's interest expense related to the debt used to finance the
acquisition.
(g) Reflects the elimination of the historical interest expense related to the
debt of Elko not assumed in the acquisition, and the inclusion of the
Company's interest expense related to the debt used to finance the
acquisition.
(h) Reflects the elimination of the historical interest expense related to the
$58.9 million of long-term obligations to be repaid with the net proceeds of
the Offering.
22
<PAGE> 26
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 three fiscal years
ended December 31, 1995, and as of December 18, 1996 and for the period January
1, 1996 to December 18, 1996; and (ii) the Company as of December 31, 1996 and
for the period February 2, 1996 to December 31, 1996, and as of and for the year
ended December 31, 1997 and as of and for each of the three-month periods ended
March 31, 1997 and 1998. The selected financial data for the predecessor and the
Company has been derived from the audited consolidated financial statements of
the predecessor and the Company, except for the March 31, 1997 and 1998
financial data, which information has been derived from the unaudited condensed
consolidated financial statements of the Company. These unaudited condensed
consolidated financial statements include all adjustments necessary (consisting
of normal recurring accruals) for a fair presentation of the financial position
and the results of operations for these periods. Operating results for the three
months ended March 31, 1998 are not necessarily indicative of the results that
may be expected for the entire year ending December 31, 1998. 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.
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
BRIM (PREDECESSOR)(1)(2) COMPANY (SUCCESSOR)(1)(2)
--------------------------------------------- -------------------------------------------------
PERIOD PERIOD THREE MONTHS
YEAR ENDED DECEMBER 31, JAN. 1 1996 FEB. 2 1996 YEAR ENDED MARCH 31,
----------------------------- TO DEC. 18, TO DEC. 31, ENDED ------------------
1993 1994 1995 1996 1996 DEC. 31, 1997 1997 1998
------- -------- -------- ------------- ------------ ------------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net operating revenue....... $84,859 $102,067 $101,214 $112,600 $ 17,255 $170,527 $40,459 $ 47,851
Operating expenses.......... 80,784 96,887 97,993 109,129 18,268 154,566 35,893 41,916
Interest expense............ 1,097 935 738 1,675 976 8,121 1,761 1,855
Costs of recapitalization... -- -- -- 8,951 -- -- -- --
Loss (gain) on sale of
assets.................... (10) (635) (2,814) 442 -- 115 87 33
------- -------- -------- -------- -------- -------- ------- --------
Income (loss) from
continuing operations
before provision for
income taxes and
extraordinary item........ 2,988 4,880 5,297 (7,597) (1,989) 7,725 2,718 4,047
Provision (benefit) for
income taxes.............. 1,772 2,022 1,928 (2,290) (673) 3,650 1,211 1,772
------- -------- -------- -------- -------- -------- ------- --------
Income (loss) from
continuing operations
before extraordinary
item...................... 1,216 2,858 3,369 (5,307) (1,316) 4,075 1,507 2,275
Net income (loss)........... $ 2,950 $ 2,701 $ 3,105 $ 708 (1,578) 4,075 1,507 2,275
Net income (loss) to common
shareholders $ (1,750) $ (1,002) $ 392 $ 1,579
Net income (loss) per share
to common shareholders
before extraordinary
item -- basic(3).......... $ (0.52) $ (0.17) $ 0.07 $ 0.17
Net income (loss) per share
to common shareholders
before extraordinary
item -- diluted(3)........ $ (0.52) $ (0.17) $ 0.06 $ 0.16
======== ======== ======= ========
Cash dividends declared per
common share.............. $ -- $ -- $ -- $ --
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents... $ 2,477 $ 1,819 $ 2,287 $ 27,828 $ 11,256 $ 4,186 $ 7,080 $ 6,675
Total assets................ 47,463 50,170 50,888 76,998 160,521 176,461 156,633 181,222
Long-term obligations, less
current maturities........ 11,884 9,371 7,161 75,995 77,789 83,043 78,564 52,166
Mandatory redeemable
preferred stock........... 8,816 8,816 8,816 31,824 46,227 50,162 46,227 --
Common stockholders' equity
(deficit)................. 9,973 12,380 15,366 (56,308) (490) (1,056) (98) 95,844
</TABLE>
23
<PAGE> 27
- ---------------
(1) PHC was formed on February 2, 1996. On December 18, 1996, Brim completed a
leveraged recapitalization. Immediately thereafter on December 18, 1996, PHC
was merged with and into a subsidiary of Brim in a transaction in which Brim
issued junior preferred stock 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 financial statements of the Company and Brim 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 of the Company, and Notes 2
and 3 of Notes to Consolidated Financial Statements of Brim.
(3) In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share. Statement No. 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes
any dilutive effects of options, warrants and convertible securities.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share and includes dilutive equivalent shares in the
calculation unless the effect is anti-dilutive. All earnings per share
amounts for all periods have been presented, and where appropriate, restated
to conform to Statement 128 requirements.
24
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and related Notes thereto included elsewhere
in this Registration Statement.
OVERVIEW
Province Healthcare Company is an owner and operator of acute care
hospitals in attractive non-urban markets. The Company currently owns and
operates 10 general acute care hospitals in six states with a total of 739
licensed beds, and manages 50 hospitals in 19 states with a total of 3,422
licensed beds.
PHC of Delaware, Inc. ("PHC"), 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 in Palestine, Texas, in July 1996 and acquired Starke
Memorial in Knox, Indiana, in October 1996.
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.
On February 4, 1998, the Company 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.
On February 10, 1998, the Company completed its initial public offering of
common stock at a price of $16.00 per share (the "IPO"). In connection with the
IPO, 32,295 shares of Junior Preferred Stock were converted into 2,204,420
shares of Common Stock at the public offering price of the Common Stock. The net
proceeds from the IPO were used to reduce the balance of the outstanding term
and revolving senior credit loans ($39.6 million), redeem the outstanding shares
of the Senior Preferred Stock plus accrued dividends ($22.7 million), and
repurchase 930,266 shares of the Common Stock which were issued upon conversion
of the Junior Preferred Stock ($14.9 million).
IMPACT OF ACQUISITIONS AND DIVESTITURES
An integral part of the Company's strategy is to acquire non-urban acute
care hospitals. 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. 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
25
<PAGE> 29
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.
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 Regional Hospital 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 Colorado River by assuming certain
liabilities and entering into a lease agreement, and by purchasing certain net
assets for a purchase price of $2.6 million.
On May 1, 1998, the Company acquired Havasu Samaritan Regional Hospital by
purchasing certain net assets and assuming certain liabilities for a purchase
price of $105.5 million.
On June 11, 1998, the Company acquired Elko General Hospital by purchasing
certain net assets and assuming certain liabilities for a purchase price of
$21.7 million. The terms of the acquisition provide that the Company will
construct and open a replacement hospital facility within 36 months of the
acquisition date.
In June 1998, the Company entered into an agreement to lease and to acquire
certain operating assets of Moosa Memorial Hospital (also known as Eunice
Regional Medical Center) in Eunice, Louisiana. The hospital is currently being
managed by the Company pursuant to a management services agreement. The lease is
to be for a term of 10 years with total rental payments of $130,000. The lease
will further provide that the Company will construct a replacement hospital
facility in the community pursuant to the terms of the lease. The transaction is
scheduled to close on or before July 31, 1998.
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. Brim's operations consisted
of five owned/leased hospitals and a hospital management company operation. In
the discussion that follows, Memorial Mother Frances, Starke Memorial, Parkview
and Brim are referred to as the "1996 Acquisitions." The December 31, 1997
results include 12 months of operations for all the above entities, plus five
months of operations for Colorado River. The March 31, 1998 results include the
results of operations for all the Company's hospitals other than the 1998
Acquisitions.
DISCONTINUED OPERATIONS
During 1995 and 1996, 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 disposition. In September 1995,
26
<PAGE> 30
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 1995 and 1996 consolidated
financial statements of Brim, Inc.
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 THREE MONTHS
JANUARY 1, FEBRUARY 2, ENDED
YEAR ENDED 1996 TO 1996 TO YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 18, DECEMBER 31, DECEMBER 31, -------------
1995 1996 1996 1997 1997 1998
------------ ------------ ------------ ------------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
Net patient service
revenue.................... 75.0% 78.1% 95.2% 87.5% 85.3% 89.3%
Management and professional
services revenue........... 19.3 16.3 3.5 9.6 12.3 9.4
Other revenue................ 5.7 5.6 1.3 2.9 2.4 1.3
----- ----- ----- ----- ----- -----
Net operating revenue........ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Expenses:
Salaries, wages and
benefits................. 54.7 51.5 44.0 42.7 42.3 42.2
Purchased services......... 14.3 15.3 13.2 13.6 12.5 12.6
Supplies................... 10.1 10.0 11.0 9.7 9.5 9.6
Provision for doubtful
accounts................. 4.5 6.8 11.1 7.5 5.9 6.4
Other operating expenses... 7.9 7.7 16.6 9.6 10.7 8.9
Rentals and leases......... 3.5 4.0 1.2 2.9 3.3 3.1
Depreciation and
amortization............. 1.9 1.6 7.6 4.4 4.4 4.6
Interest expense........... 0.7 1.5 5.7 4.8 4.4 3.9
Minority interest.......... -- -- 1.1 0.2 0.1 0.1
Costs of
recapitalization......... -- 7.9 -- -- -- --
Loss (gain) on sale of
assets................... (2.8) 0.4 -- 0.1 0.2 0.1
----- ----- ----- ----- ----- -----
Income (loss) from continuing
operations before provision
for income taxes and
extraordinary item......... 5.2% (6.7)% (11.5)% 4.5% 6.7% 8.5%
Income (loss) from continuing
operations before
extraordinary item......... 3.3% (4.7)% (7.6)% 2.4% 3.7% 4.8%
Net income (loss)............ 3.1% 0.6% (9.1)% 2.4% 3.7% 4.8%
</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.
27
<PAGE> 31
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 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).
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 revenues include interest income and other miscellaneous revenue.
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
Net operating revenue was $47.9 million for the three months ended March
31, 1998, compared to $40.5 million for the comparable period of 1997, an
increase of $7.4 million or 18.3%.
Net patient service revenue totaled $42.8 million for the three months
ended March 31, 1998, compared to $34.5 million for the three months ended March
31, 1997, an increase of $8.3 million or 24.1%. Net patient service revenue
increased $3.4 million, or 9.8%, at hospitals owned during both periods ("same
hospital basis"), resulting from inpatient and outpatient volume increases, as
well as price increases. The remaining increase of $4.9 million was primarily
attributable to the Colorado River Acquisition.
Management and professional services revenue totaled $4.5 million for the
three months ended March 31, 1998, compared to $5.0 million for the three months
ended March 31, 1997, a decrease of $0.5 million or 10.0%. This decrease
resulted primarily from a net loss in the number of management contracts and a
decrease in consulting revenues. Reimbursable expenses decreased $0.1 million or
5.9%.
Salaries, wages and benefits totaled $18.6 million for the three months
ended March 31, 1998, compared to $15.4 million for the three months ended March
31, 1997, an increase of $3.2 million or 20.8%. Salaries, wages and benefits
increased $1.4 million, or 11.1%, on a same hospital basis, due primarily to an
increase in hospitals' volume and pay rate increases. The remaining increase of
$1.8 million was primarily attributable to the Colorado River Acquisition ($1.6
million) and rate increases at the management company and the corporate office.
Purchased services totaled $6.0 million for the three months ended March
31, 1998, compared to $5.0 million for the three months ended March 31, 1997, an
increase of $1.0 million or 20.0%. Purchased services increased $0.5 million, or
12.3%, on a same hospital basis, primarily as a result of an increase in
contract labor due to a shortage of nurses. The remaining increase of $0.5
million was primarily attributable to the Colorado River Acquisition ($0.4
million) and professional fees as a result of acquisition activity.
Supplies expense totaled $4.6 million for the three months ended March 31,
1998, compared to $3.8 million for the three months ended March 31, 1997, an
increase of $0.8 million or 21.1%. Supplies expense increased $0.4 million, or
9.6%, on a same hospital basis, due primarily to volume increases. The remaining
$0.4 million was primarily attributable to the Colorado River Acquisition.
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<PAGE> 32
Provision for doubtful accounts totaled $3.1 million for the three months
ended March 31, 1998, compared to $2.4 million for the three months ended March
31, 1997, an increase of $0.7 million, or 29.2%. Provision for doubtful accounts
increased $0.4 million, or 15.3%, on a same hospital basis, primarily as a
result of increased net patient service revenue. The remaining $0.3 million was
primarily attributable to the Colorado River Acquisition.
Other operating expenses totaled $4.3 million for the three months ended
March 31, 1998, compared to $4.4 million for the three months ended March 31,
1997, a decrease of $0.1 million, or 2.3%. Other operating expenses decreased
$0.2 million, or 7.2%, on a same hospital basis, primarily as a result of lower
insurance and property tax expense. The Colorado River Acquisition resulted in
an increase of $0.3 million in other operating expenses. Other operating
expenses at the management company and the corporate office decreased $0.2
million.
Rentals and leases totaled $1.5 million for the three months ended March
31, 1998, compared to $1.3 million for the three months ended March 31, 1997, an
increase of $0.2 million or 15.4%, resulting primarily from higher office
building and office equipment rental expense at the corporate office and the
Colorado River Acquisition.
Depreciation and amortization totaled $2.2 million for the three months
ended March 31, 1998, compared to $1.8 million for the three months ended March
31, 1997, an increase of $0.4 million, or 22.2%. Depreciation and amortization
increased $0.3 million, or 22.2% on a same hospital basis, primarily as a result
of capital expenditures. The remaining $0.1 million increase was primarily
attributable to the Colorado River Acquisition.
Interest expense totaled $1.9 million for the three months ended March 31,
1998, compared to $1.8 million for the three months ended March 31, 1997, an
increase of $0.1 million, or 5.6%, primarily as a result of higher interest
rates.
The net result of the above was that the Company recorded net income of
$2.3 million for the three months ended March 31, 1998, compared to $1.5 million
for the three months ended March 31, 1997, an increase of $0.8 million, or
53.3%.
Year Ended December 31, 1997 Compared to Period From February 2, 1996 (PHC's
Inception) to December 31, 1996 (Successor)
The December 31, 1996 results of operations include five months of
operations for Memorial Mother Frances, three months of operations for Starke
Memorial, and 13 days of operations for Brim. The December 31, 1997 results
include 12 months of operations for the 1996 Acquisitions plus five months of
operations for Colorado River.
Net operating revenue was $170.5 million in 1997, compared to $17.3 million
in 1996, an increase of $153.2 million.
Net patient service revenue totaled $149.3 million in 1997, compared to
$16.4 million in 1996, an increase of $132.9 million. This increase is
principally the result of a full year's operations for the 1996 Acquisitions.
Net patient services revenue is shown net of contractual adjustments of $100.1
million and $13.5 million in 1997 and 1996, respectively. Cost report
settlements and the filing of cost reports in the current year resulted in
positive revenue adjustments of $0 and $3.3 million (2.2% of net patient service
revenue) for the period February 2, 1996 to December 31, 1996 and the year ended
December 31, 1997, respectively.
Management and professional services revenue totaled $16.4 million in 1997,
which consisted of management and professional services fees and reimbursable
expenses of $9.7 million and $6.7 million, respectively. Management and
professional services revenue totaled $0.6 million in 1996, including $0.3
million of reimbursable expenses, and related to the 13 days of operations
following the acquisition of Brim. Reimbursable expenses (which are included in
operating revenue and
29
<PAGE> 33
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 $4.9 million in 1997, compared to $0.2 million in
1996. The Company did not have other revenue prior to its acquisition of Brim in
December 1996.
Salaries, wages and benefits totaled $72.8 million in 1997, compared to
$7.6 million in 1996, an increase of $65.2 million, principally as a result of a
full year of operations for the 1996 Acquisitions. Salaries, wages and benefits,
excluding reimbursable expenses of $6.7 million and $0.3 million in 1997 and in
1996, respectively increased $55.7 million.
Purchased services expense totaled $23.2 million in 1997, compared to $2.3
million in 1996, an increase of $20.9 million, principally as a result of a full
year of operations for the 1996 Acquisitions.
Supplies expense totaled $16.6 million in 1997 compared to $1.9 million in
1996, an increase of $14.7 million, principally as a result of a full year of
operations for the 1996 Acquisitions.
The provision for doubtful accounts totaled $12.8 million in 1997, compared
to $1.9 million in 1996, an increase of $10.9 million, principally as a result
of a full year of operations for the 1996 Acquisitions.
Other operating expenses totaled $16.3 million in 1997, compared to $2.9
million in 1996, an increase of $13.4 million, principally as a result of a full
year of operations for the 1996 Acquisitions.
Rentals and leases totaled $4.9 million in 1997, compared to $0.2 million
in 1996, an increase of $4.7 million, principally as a result of a full year of
operations for the 1996 Acquisitions.
Depreciation and amortization totaled $7.6 million in 1997, compared to
$1.3 million in 1996, an increase of $6.3 million, principally as a result of a
full year of operations for the 1996 Acquisitions.
Interest expense totaled $8.1 million in 1997, compared to $1.0 million in
1996, an increase of $7.1 million. This increase resulted primarily from $52.7
million of new bank debt incurred in connection with the Recapitalization,
immediately prior to the acquisition of Brim, and an increase of $10.0 million
in bank debt during 1997 to fund the acquisition of Colorado River and the
buyout of the operating lease at Ojai Valley Community Hospital.
The Company recorded a loss on sale of assets of $0.1 million in 1997,
related primarily to the sale of unused assets at the hospitals.
The combined federal and state effective tax rates for 1997 and 1996 were
47.2% and 33.8%, respectively. For information concerning the provision for
income taxes, as well as information regarding differences between effective tax
rates and statutory rates, see Note 9 of the Notes to Consolidated Financial
Statements.
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
30
<PAGE> 34
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 13 days' revenue from
the management company acquired in the Brim Merger.
Interest expense of $1.0 million results principally from 13 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.
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 Regional Hospital 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 were as
follows (in millions):
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED JANUARY 1 TO
DECEMBER 31, 1995 DECEMBER 18, 1996 INCREASE/(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>
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<PAGE> 35
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 Regional Hospital acquisition accounted for $4.0
million of salary, wages and benefits expense, offset by a decrease of $1.3
million of salary, wages and benefits expense, 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 Regional
Hospital 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
Regional Hospital acquisition.
The 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
Regional Hospital acquisition (10 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.
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 Regional Hospital 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 Regional Hospital 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).
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<PAGE> 36
A loss on sale of assets of $0.4 million was recorded 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.
An income tax benefit of $2.3 million was recognized 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). For information concerning the provision for income taxes, as
well as information regarding differences between effective tax rates and
statutory rates, see Note 5 of the Notes to Consolidated Financial Statements of
Brim.
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 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 77.4%.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had working capital of $35.7 million,
including cash and cash equivalents of $6.7 million. The ratio of current assets
to current liabilities was 3.2 to 1.0 at March 31, 1998, compared to 1.8 to 1.0
at December 31, 1997.
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.
Cash used in operations totaled $0.8 million for the year ended December
31, 1997. Cash provided by (used in) operations totaled $0.2 million and ($1.3
million) for the three months ended March 31, 1998 and 1997, respectively.
Cash used in investing activities totaled $18.2 million for the year ended
December 31, 1997, and $2.5 million for each of the three month periods ended
March 31, 1998 and 1997. 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 $12.0 million for the year
ended December 31, 1997. These amounts resulted from the proceeds from long-term
debt, net of debt refinancing and issuance of stock. Net cash provided by
financing activities was $4.8 million for the three months ended March 31, 1998,
primarily as a result of the IPO. Cash used in financing activities was $0.4
million in 1997, as a result of repayment of debt.
Capital expenditures, excluding acquisitions for each of the three month
periods ended March 31, 1998 and 1997, were $2.5 million and $2.4 million,
respectively. Capital expenditures for the owned hospitals may vary from year to
year depending on facility improvements and service enhancements undertaken by
the hospitals. The management services business does not require
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significant capital expenditures. The Company expects to make capital
expenditures in 1998 of approximately $12.0 million, exclusive of any
acquisitions of businesses. Planned capital expenditures for 1998 consist
principally of capital improvements to owned and leased hospitals. The Company
expects to fund these expenditures through cash provided by operating activities
and borrowings under the Senior Credit Facility.
The Company intends to acquire additional acute care hospitals, and is
actively seeking such acquisitions. There can be no assurance that the Company
will not require additional debt or equity financing for any particular
acquisition.
On February 10, 1998, the Company completed its IPO at a price of $16.00
per share, the net proceeds of which totaled $77.2 million. In addition, in
connection with the IPO, all outstanding shares of Junior Preferred Stock and
accumulated dividends thereon were converted into shares of Common Stock based
on the liquidation value of the Junior Preferred Stock and the IPO price. Of the
net proceeds from the IPO, $22.7 million was used to redeem all of the
outstanding shares of the Company's Senior Preferred Stock and pay all
accumulated dividends thereon, $14.9 million was used to repurchase a portion of
the Common Stock issued upon the conversion of Junior Preferred Stock at the
time of the IPO, and $39.6 million was used to repay amounts outstanding under
the Company's prior credit agreement. Upon completion of the IPO, the Company's
stockholders' equity consisted solely of common equity, which totaled $94.4
million on a pro forma basis as of December 31, 1997, after applying the net
proceeds of the IPO.
For further information concerning the IPO and the pro forma effect of the
IPO on the Company's financial condition and results of operations, see the
Company's unaudited pro forma balance sheet as of March 31, 1998 and the
unaudited pro forma statements of income for the year ended December 31, 1997
and the three months ended March 31, 1998 included elsewhere in this Prospectus,
and Notes 7 and 9 of Notes to Condensed Consolidated Financial Statements as of
and for the three months ended March 31, 1998.
On March 30, 1998, the Company entered into an Amended and Restated Credit
Agreement (the "Credit Agreement") with First Union National Bank, as Agent and
Issuing Bank, and a syndicated group of lenders named therein and increased its
senior credit facility to $260.0 million, including a $35.0 million end-loaded
lease facility component and a $225.0 million revolving credit facility
component (collectively, the "Senior Credit Facility"). Borrowings under the
increased Senior Credit Facility were used to purchase Havasu on May 1, 1998 and
Elko in June 1998. Amounts outstanding under the Credit Agreement as of June 1,
1998, were $156.8 million. The Company borrowed an additional $22.0 million in
June 1998 in connection with the Elko acquisition. The net proceeds of the
Offering will be used to reduce the outstanding balance under the Credit
Agreement. 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 amount of
the Company's outstanding indebtedness. Interest rate swap agreements are used
on a limited basis to manage the Company's interest rate exposure under the
Credit Agreement. The agreements are contracts to exchange periodically fixed
and floating interest rate payments over the life of the agreements. During
1997, 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. 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 three months ended March 31, 1998, the
Company received a weighted average rate of 5.88% and paid a weighted average
rate of 6.27%. The Company pays a commitment fee ranging from one-quarter to
one-half of one percent on the unused portion of the revolving portion of the
Senior Credit Facility. The Company may prepay the principal amount outstanding
under the Credit Agreement at any time before maturity. The Senior Credit
Facility matures on March 31, 2003. Borrowings under the Senior Credit Facility
used to fund acquisitions do not require consent of the lenders so long as they
are used for (i) individual acquisitions in which the acquisition amount for the
individual facility is $25.0 million or less and (ii) any acquisition so long
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as the aggregate acquisition amounts for all acquisitions consummated during any
four consecutive fiscal quarters is less than $40.0 million.
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.
The Company intends to acquire additional acute care facilities, and is
actively seeking such acquisitions. There can be no assurance that the Company
will not require additional debt or equity financing for any particular
acquisition. Also, the Company continually reviews its capital needs and
financing opportunities and may seek additional equity or debt financing for its
acquisition program or other needs.
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 next 12 months. 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 June 1997, the FASB issued Statement 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 the
Company beginning with its December 31, 1998 financial statements. The Statement
affects only disclosures presented in the financial statements and will have no
effect on consolidated financial position or results of operations.
IMPACT OF YEAR 2000
Some older computer programs and systems were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognize a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company has replaced the majority of its key financial and operational
systems as a part of its systems consolidation in the normal course of business.
This replacement has been a planned approach during the last year to enhance or
better meet its functional business and operational
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requirements. Management believes that this program will substantially meet or
address its Year 2000 issues. In addition to its replacement program, the
Company will require modifying some of its software and hardware so that its
computer systems will function properly with respect to dates in the year 2000
and thereafter. The estimated cost of the remaining replacement and modification
for the Year 2000 issue is not considered material to the Company's earnings or
financial position.
The Company also plans to initiate a formal communication process with all
its significant vendors and third-party payors to determine the extent to which
the Company's interface systems are vulnerable to those third parties' failure
to remediate their own Year 2000 issues. There is no guarantee that the systems
of other companies on which the Company's systems rely will be timely converted
and would not have an adverse effect on the Company's system.
The Company believes that with modifications to existing software and
hardware and conversions to new software, the Year 2000 issue will not pose
significant operational problems for its computer systems. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 issue could have a material impact on the operations of the Company.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this discussion, including without
limitation, statements containing the words "believes," "anticipates,"
"intends," "expects," and words of similar import, constitute forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. 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
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, readers 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."
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BUSINESS
OVERVIEW
Province Healthcare Company is an owner and operator of acute-care
hospitals in attractive non-urban markets. The Company currently owns and
operates 10 general acute care hospitals in six states with a total of 739
licensed beds. The Company also provides management services to 50 primarily
non-urban hospitals in 19 states with a total of 3,422 licensed beds. The
Company offers a wide range of inpatient and outpatient medical services and
also provides specialty services including skilled nursing 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 services 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 year ended
December 31, 1997 and the three months ended March 31, 1998, the Company had net
operating revenue of $170.5 million and $47.9 million, respectively.
The Company's objective is to be the leading provider of high quality
health care in selected non-urban markets. To achieve this end, the Company
seeks to acquire hospitals which are the sole or primary providers of health
care services in their markets and which present Province's management the
opportunity to increase profitability and market share. The Company targets
acquisition candidates that: (i) have a minimum service area population of
20,000 with a stable or growing employment base; (ii) are the sole or primary
providers of health care services in the community; (iii) have annual net
patient revenue of at least $12.0 million; and (iv) have financial performance
that will benefit from Province management's proven operating skills. The
Company's goal is to acquire two to four hospitals each year of the
approximately 1,100 non-urban hospitals that fit the Company's acquisition
profile.
Following the acquisition of a hospital, the Company implements its
systematic policies and procedures to improve the hospital's operating and
financial performance. Key elements of the Company's operating strategy are to:
(i) expand the breadth of services offered in the community to increase local
market share; (ii) improve hospital operations by implementing appropriate
expense controls, managing staffing levels, reducing supply costs and
renegotiating certain vendor contracts; (iii) recruit additional general
practitioners and specialty physicians to the community; and (iv) form
relationships with local employers and regional tertiary providers to solidify
the position of the Company's hospital as the focal point of the community's
health care delivery system.
Prior to its 1996 recapitalization and merger with PHC of Delaware, Inc.
("PHC"), the Company operated under the name Brim, Inc. ("Brim"). The current
operations of the Company include the operations of Brim and 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,
PHC merged with a subsidiary of Brim 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. James Thomas Anderson, the Company's Senior Vice President of
Acquisitions and Development, was previously a Vice
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President/Group Director at Community. Both Mr. Rutledge and Mr. Anderson
reported directly to Mr. Rash while at Community.
THE NON-URBAN HEALTH CARE MARKET
According to United States Census Bureau statistics, 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 strong market position 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 services 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 services
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
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believes it can increase health care expenditures captured locally and limit
patient migration to larger urban facilities, thereby increasing hospital
revenue.
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
the sole or primary providers of health care services 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.
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 12 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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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 Hospital in Palestine,
Texas and leased Starke Memorial Hospital in Knox, Indiana, and Brim leased
Parkview Regional Hospital in Mexia, Texas. In August 1997, the Company leased
Colorado River Medical Center. The Company provided management services to
Parkview Regional Hospital and Colorado River Medical Center prior to their
respective acquisitions.
On May 1, 1998, Province acquired Havasu Samaritan Regional Hospital in
Lake Havasu City, Arizona, and on June 11, 1998, the Company acquired Elko
General Hospital in Elko, Nevada. Also, in June 1998, the Company entered into
an agreement to lease and acquire certain operating assets of Moosa Memorial
Hospital (also known as Eunice Regional Medical Center) in Eunice, Louisiana.
This transaction is scheduled to close on or before July 31, 1998. Each of the
five hospitals acquired by the Company, and three of the hospitals acquired by
Brim prior to the Merger, have been acquired from not-for-profit or governmental
entities and the recent agreement to lease Moosa Memorial Hospital is with a
hospital service district. Approximately 1,100 non-urban hospitals in the United
States are currently owned by not-for-profit or governmental entities.
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.
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.
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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 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.
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 and operates 10 general acute care hospitals in
California, Texas, Arizona, Colorado, Indiana and Nevada with a total of 739
licensed beds. Eight of the Company's 10 hospitals are the only hospital in the
town in which they are located. The owned and leased hospitals represented 87.5%
and 89.3% of the Company's net operating revenues for the year ended December
31, 1997, and the three months ended March 31, 1998, respectively.
The Company's hospitals offer a wide range of inpatient medical services
such as operating/recovery rooms, intensive care units, diagnostic services and
emergency room services, as well as outpatient services such as same-day
surgery, radiology, laboratory, pharmacy services and physical therapy. The
Company's hospitals also frequently provide certain specialty services which
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<PAGE> 45
include skilled nursing, 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.
The following table sets forth certain information with respect to each of
the Company's owned and leased hospitals.
<TABLE>
<CAPTION>
LICENSED OWNED/
HOSPITAL BEDS LEASED
- -------- -------- ---------
<S> <C> <C>
Colorado Plains Medical Center
Fort Morgan, Colorado..................................... 40 Leased(1)
Colorado River Medical Center
Needles, California....................................... 53 Leased(2)
Elko General Hospital
Elko, Nevada.............................................. 50 Owned(3)
General Hospital
Eureka, California........................................ 83 Leased(4)
Havasu Samaritan Regional Hospital
Lake Havasu City, Arizona................................. 119(5) Owned
Memorial Mother Frances Hospital
Palestine, Texas.......................................... 97 Owned(6)
Ojai Valley Community Hospital
Ojai, California.......................................... 116(7) Owned
Palo Verde Hospital
Blythe, California........................................ 55 Leased(8)
Parkview Regional Hospital
Mexia, Texas.............................................. 77 Leased(9)
Starke Memorial Hospital
Knox, Indiana............................................. 49 Leased(10)
---
Total............................................. 739
===
</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 July 2012, and is subject to three five-year renewal
terms. The Company has a right of first refusal to purchase the hospital.
(3) The Company has contractually agreed to construct a replacement facility
within 36 months of the acquisition date. This facility was acquired on
June 11, 1998.
(4) 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.
(5) Includes a 20-bed skilled nursing facility.
(6) The hospital is owned by a partnership of which a subsidiary of the Company
is the sole general partner (with a 1.0% general partnership interest) and
another subsidiary of the Company has a 94.0% limited partnership interest,
subject to an option by the other limited partner to acquire an additional
5.0% interest.
(7) Includes a 66-bed skilled nursing facility.
(8) 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.
(9) 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.
(10) 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. In 1997, Colorado Plains 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 hospital also expects to
open an inpatient rehabilitation unit in September 1998. The closest competing
hospitals are located approximately 50
42
<PAGE> 46
miles away. Colorado Plains is a sole community provider as designated under
Medicare and has a service area population of approximately 43,000.
Colorado River Medical Center 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 August 1998. The hospital's primary
competitor is located approximately 20 miles away. Colorado River is a sole
community provider as designated under Medicare and has a service area
population of approximately 47,000.
Elko General Hospital is located approximately 290 miles from Reno, Nevada
and 225 miles from Salt Lake City, Utah, and is the largest hospital between
those two cities. The Elko region has experienced rapid population growth over
the last five years, with gold mining and gaming being the primary industries.
The Company acquired this hospital on June 11, 1998 and expects to construct and
open a replacement hospital facility within 36 months of the acquisition date.
Elko is a sole community provider as designated under Medicare and has a service
area population of approximately 65,000.
General Hospital is located approximately 300 miles north of San Francisco.
The hospital also operates an 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.
Havasu Samaritan Regional Hospital is located approximately 180 miles from
Phoenix, Arizona and 130 miles from Las Vegas, Nevada, and is the only hospital
in town. The hospital is located in the 16th fastest growing county in the
United States, according to United States Census Bureau statistics. The Company
acquired this hospital on May 1, 1998. The hospital currently provides general
acute care, radiation, oncology and diagnostic services, including a recently
added cardiac catheterization lab. Havasu is a sole community provider as
designated under Medicare and has a service area population of approximately
70,000.
Memorial Mother Frances Hospital is located approximately halfway between
Dallas and Houston, and approximately 50 miles from Tyler, Texas. The hospital
recently added 10 beds to its inpatient rehabilitation unit, thereby expanding
unit capacity to 22 beds. Memorial Mother Frances Hospital 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.
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
January 1999. The hospital's primary competitors are one small hospital located
45 miles away and two large hospitals located approximately 100 miles away. Palo
Verde Hospital 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
43
<PAGE> 47
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. 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 17,800 square feet of office space for its
corporate headquarters in Brentwood, Tennessee under a seven-year lease which
expires on February 28, 2005 and contains customary terms and conditions.
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)
------------------------------ --------------------------------------------------
THREE
PERIOD PERIOD YEAR MONTHS
YEAR ENDED JANUARY 1 TO FEBRUARY 2 TO ENDED ENDED MARCH 31,
DECEMBER 31, DECEMBER 18, DECEMBER 31, DECEMBER 31, -----------------
1995 1996 1996 1997 1997 1998
------------ --------------- --------------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Hospitals owned or leased (at end of
period)............................. 4 5 7 8 7 8
Licensed beds (at end of period)...... 294 371 513 570 517 570
Beds in service (at end of period).... 243 266 393 477 405 463
Admissions............................ 8,839 9,496 1,964 15,142 3,910 4,575
Average length of stay (days)(1)...... 6.4 5.9 4.3 5.6 5.3 5.6
Patient days.......................... 56,088 56,310 8,337 84,386 20,904 25,570
Adjusted patient days(2).............. 92,085 96,812 15,949 149,567 36,437 42,295
Occupancy rate (% of licensed
beds)(3)............................ 52.3 43.1 39.5 40.6 44.9 49.8
Occupancy rate (% of beds in
service)(4)......................... 63.2 60.1 51.3 48.5 57.4 61.4
Net patient service revenue (in
thousands).......................... $75,871 $87,900 $16,425 $149,296 $34,504 $42,750
Gross outpatient service revenue (in
thousands).......................... $51,414 $64,472 $14,088 $110,879 $25,860 $30,010
Gross outpatient service revenue (% of
gross patient service revenue)...... 39.1 43.4 48.2 44.5 42.4 40.0
</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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
44
<PAGE> 48
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 because of the significant effect that acquisitions have had
on the Company. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition."
<TABLE>
<CAPTION>
BRIM (PREDECESSOR) COMPANY (SUCCESSOR)
---------------------------- -----------------------------------------------
PERIOD PERIOD THREE MONTHS
YEAR ENDED JANUARY 1 TO FEBRUARY 2 TO YEAR ENDED ENDED MARCH 31,
DECEMBER 31, DECEMBER 18, DECEMBER 31, DECEMBER 31, ----------------
1995 1996(1) 1996(1) 1997 1997 1998
------------ ------------- ------------- ------------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
Medicare.................... 50.2% 54.7% 63.3% 60.3% 58.4% 62.3%
Medicaid.................... 16.8 17.0 12.0 13.1 15.0 11.0
Private and other sources... 33.0 28.3 24.7 26.6 26.6 26.7
----- ----- ----- ----- ----- -----
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 SOURCE
-------- -------- ------------
<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
Year ended December 31, 1997 (Successor).................... 11.8 76.2 12.0
Three months ended March 31, 1997........................... 12.8 74.5 12.7
Three months ended March 31, 1998........................... 11.9 76.4 11.7
</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 has developed a corporate-wide compliance program and, in June
1997, 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 focuses on all areas
of regulatory compliance, including physician recruitment, reimbursement and
cost reporting practices, laboratory and home health care operations. The
Company has conducted on-site compliance training for all of the employees at
eight of its hospitals and expects to complete employee training at the
remaining two hospitals by the third quarter of 1998. The Company also maintains
a toll-free hotline to permit employees to report compliance concerns on an
anonymous basis. The Company will regularly monitor its corporate compliance
program to respond to developments in health care regulation and the industry.
See "Risk Factors -- Health Care Regulation" and " -- Health Care Industry
Investigations."
45
<PAGE> 49
MANAGEMENT SERVICES
The Company's management services division provides comprehensive
management services to 50 primarily non-urban hospitals in 19 states with a
total of 3,422 licensed beds. These services are provided under three to
five-year contracts with the Company. The Company generally provides a chief
executive officer, who is an employee of the Company, and may also provide a
chief financial officer, but it does not typically employ other hospital
personnel. The Company provides a continuum of solutions to the problems faced
by these hospitals through services which may include instituting new financial
and operating systems and various management initiatives, such as establishing a
local or regional provider network to efficiently meet a community's health care
needs. Management believes the Company's contract management business provides a
competitive advantage in identifying and developing relationships with suitable
acquisition candidates and in understanding the local markets in which such
hospitals operate. This division represented 9.6% and 9.4% of net operating
revenue for the fiscal year ended December 31, 1997 and the three months ended
March 31, 1998, respectively. PHC did not provide management services until its
acquisition of Brim on December 18, 1996. Two of the Company's recent hospital
acquisitions grew out of relationships formed while the Company provided
management services to such hospitals.
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 June 9, 1998, the Company had 2,672 "full-time equivalent" employees,
27 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 May 31, 1998,
the Company employed only three 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 acute hospital services are based on a prospective
payment system ("PPS"). Under PPS, a hospital receives a fixed amount for
inpatient hospital services based on the established fixed payment amount per
discharge for categories of hospital treatment known as diagnosis related groups
("DRGs"). DRG payments do not consider a specific hospital's costs, but are
national rates adjusted for area wage differentials. Psychiatric services,
long-term care, rehabilitation, pediatric services and certain designated
research hospitals, and distinct parts of
46
<PAGE> 50
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, 1997, the Company
had five units reimbursed under the TEFRA 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. However, the Balanced Budget Act of 1997 ("BBA") set the DRG rate
of increase for federal fiscal year 1998 at zero percent. The BBA set the DRG
rates of increase for future federal fiscal years at rates that will be based on
the Market Basket rates less reduction factors of 1.9% in 1999, 1.8% in 2000,
and 1.1% in 2001 and 2002. The Company anticipates that future legislation may
further decrease the future rates of increase for DRG payments, but is unable to
predict the amount of the final reduction.
Outpatient services provided by general hospitals 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 BBA mandated the implementation of a PPS for Medicare outpatient
services by January 1, 1999. This outpatient PPS system will be based on a
system of Ambulatory Payment Categories ("APCs"). Each APC will represent a
bundle of outpatient services and each APC will be assigned a fully prospective
reimbursement rate. Because implementing regulations with respect to outpatient
PPS have not been promulgated, the Company is not able to predict the full
impact of this provision of the BBA.
Each state has its own Medicaid program that is funded jointly by such
state and the 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 local needs and resources. 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/Peer Group limits; (ii) negotiated rates per discharge or per diems 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
negotiated contract method. None of the Company's cost-based hospitals is
currently subject to a MIRL/Peer Group limit, because its 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, Colorado River, Elko, Havasu 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 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
47
<PAGE> 51
program payments as well as affect the cost of providing services and the timing
of payment to facilities. The final determination of amounts earned under the
programs often requires many years, because of audits by the program
representatives, providers' rights of appeal and the application of numerous
technical reimbursement provisions. Management believes that adequate provision
has been made for such adjustments. Until final adjustment, however, significant
issues remain unresolved and previously determined allowances could become
either inadequate or more than ultimately required.
HEALTH CARE REFORM, REGULATION AND LICENSING
Certain Background Information
Health care, as one of the largest industries in the United States,
continues to attract much legislative interest and public attention. Medicare,
Medicaid, and other public and private hospital cost-containment programs,
proposals to limit health care spending, proposals to limit prices and industry
competitive factors are among the many factors which are highly significant to
the health care industry. In addition, the health care industry is governed by a
framework of federal and state laws, rules and regulations that are extremely
complex and for which the industry has the benefit of only limited regulatory or
judicial interpretation. Although the Company believes it is in compliance in
all material respects with such laws, rules and regulations, if a determination
is made that the Company was in violation of such laws, rules or regulations,
its business, financial condition and results of operations could be materially
adversely affected.
There continue to be federal and state proposals that would, and actions
that do, impose more limitations on government and private payments to providers
such as the Company and proposals to increase co-payments and deductibles from
program and private patients. The Company's facilities also are affected by
controls imposed by government and private payors designed to reduce admissions
and lengths of stay. Such controls, including what is commonly referred to as
"utilization review," have resulted in fewer of certain treatments and
procedures being performed. Utilization review entails the review of the
admission and course of treatment of a patient by a third party. Utilization
review by third-party peer review organizations ("PROs") is required in
connection with the provision of care paid for by Medicare and Medicaid.
Utilization review by third parties is also required under many managed care
arrangements.
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 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,
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 10 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.
48
<PAGE> 52
Anti-kickback and Self-Referral Regulations
Sections of the Anti-Fraud and Abuse Amendments to the Social Security Act,
commonly known as the "anti-kickback" statute (the "Anti-kickback Amendments"),
prohibit certain business practices and relationships that might affect the
provision and cost of health care services reimbursable under Medicare and
Medicaid, including the payment or receipt of remuneration for the referral of
patients whose care will be paid for by Medicare or other government programs.
Sanctions for violating the Anti-kickback Amendments include criminal penalties
and civil sanctions, including fines and possible exclusion from government
programs such as the Medicare and Medicaid programs. Pursuant to the Medicare
and Medicaid Patient and Program Protection Act of 1987, the U.S. Department of
Health and Human Services has issued regulations that create safe harbors under
the Anti-kickback Amendments ("Safe Harbors"). 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 and structures these incentives so as to fall within a proposed safe
harbor for physician recruitment. However, the proposed safe harbor for
physician recruitment has never been finalized. 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 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.
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.
49
<PAGE> 53
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 or entity to exclusion from participation in state
health care programs). Further, if any physician or entity enters into an
arrangement or scheme that the physician or entity knows or should know has the
principal purpose of assuring referrals by the physician to a particular entity,
and the physician directly made referrals to such entity, then such physician or
entity could be subject to a civil money penalty of up to $100,000. Many states
have adopted or are considering similar legislative proposals, some of which
extend beyond the Medicaid program to prohibit the payment or receipt of
remuneration for the referral of patients and physician self-referrals
regardless of the source of the payment for the care. The Company's contracts
with physicians on the medical staff of its hospitals and its participation in
and development of joint ventures and other financial relationships with
physicians could be adversely affected by these amendments and similar state
enactments.
The Company is unable to predict the future course of federal, state and
local regulation or legislation, including Medicare and Medicaid statutes and
regulations. Further changes in the regulatory framework or in the
interpretation of these laws, rules and regulations could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Environmental Regulations
The Company's health care operations generate medical waste that must be
disposed of in compliance with federal, state and local environmental laws,
rules and regulations. The Company's operations, as well as the Company's
purchases and sales of facilities, are also subject to various other
environmental laws, rules and regulations.
Health Care Facility Licensing Requirements
The Company's health care facilities are subject to extensive federal,
state and local legislation and regulation. In order to maintain their operating
licenses, health care facilities must comply with 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. All of
the Company's hospitals are 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.
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<PAGE> 54
Governmental Developments Regarding Sales of Not-for-Profit Hospitals
In recent years, the legislatures and attorneys general of several states
have shown a heightened level of interest in transactions involving the sale of
non-profit hospitals. Although the level of interest varies from state to state,
the trend is to provide for increased governmental review, and in some cases
approval, of transactions in which not-for-profit corporations sell a health
care facility. Attorneys general in certain states, including California, have
been especially active in evaluating these transactions. Although the Company
has not yet been adversely affected as a result of these trends, such increased
scrutiny may increase the difficulty or prevent the completion of transactions
with not-for-profit organizations in certain states in the future.
California Seismic Standards
California recently adopted a law requiring standards and regulations to be
developed to ensure hospitals meet seismic performance standards. Within three
years after adoption of the standards by the California Building Standards
Commission, owners of subject properties are to evaluate their facilities and
develop a plan and schedule for complying with the standards. The Commission has
adopted evaluation criteria and has recently adopted the retrofit standards. The
Company will be required to conduct engineering studies of its California
facilities to determine whether and to what extent modifications to its
facilities will be required. Significant capital expenditures to comply with the
seismic standards could have a material adverse effect on the Company's
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.
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<PAGE> 55
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the Company's
directors and executive officers as of May 11, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Martin S. Rash................... 43 Chairman of the Board, President, Chief Executive
Officer and Director
Richard D. Gore.................. 46 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................. 50 Vice President and Controller
Bruce V. Rauner.................. 42 Director
Joseph P. Nolan.................. 33 Director
A.E. Brim........................ 67 Director
Michael T. Willis................ 53 Director
David L. Steffy.................. 55 Director
</TABLE>
Mr. Rash has served as the President, Chief Executive Officer and as a
director of the Company since the Recapitalization in December 1996, and as
Chairman of the Board since May 1998. 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 Dortch & Davis, a law firm based in Nashville,
Tennessee, where he practiced in the health care group.
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<PAGE> 56
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 a director of the Company since the Merger in
December 1996 (Chairman of the Board, December 1996 - May 1998), and served as a
director of PHC from its inception in February 1996 to December 1996. Mr. Rauner
is the Managing Principal of GTCR Golder Rauner, LLC and has been a Principal
with Golder, Thoma, Cressey, Rauner, Inc. ("GTCR"), 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 Metamor Worldwide, 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 is a Principal of GTCR
Golder Rauner, LLC and has been a Principal of GTCR since July 1996. Mr. Nolan
joined GTCR 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 since 1993 as Chairman of the Board, Chief Executive Officer
and President of Metamor Worldwide, Inc., a diversified staffing services
company, previously known as COREStaff, Inc. 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.
The Board of Directors has established two standing committees. The
Compensation Committee was appointed by the Board of Directors in January 1998
to administer the Company's stock plans and recommend to the Board of Directors
compensation of the Company's executive officers. The Compensation Committee is
comprised of Messrs. Brim, Nolan and Willis.
The Audit Committee was appointed by the Board of Directors in January 1998
to recommend the annual appointment of the Company's auditors, with whom the
Audit Committee reviews the scope of audit and non-audit assignments and related
fees, accounting principles used by the Company in financial reporting, internal
auditing procedures and the adequacy of the Company's internal control
principles. The Audit Committee is comprised of Messrs. Willis and Steffy.
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 Brim, Inc.
until the merger with Principal Hospital Company (predecessor-in-interest by
merger to the Company) in December 1996, and he is currently an employee of the
Company. See "Executive Compensation" for a description of Mr. Brim's employment
agreement. Mr. Nolan is a member of GTCR Golder Rauner, LLC.
No executive officer of the Company serves 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.
53
<PAGE> 57
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 as of
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
--------------------------
ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- --------------------------- ---- -------- -------- ------------
<S> <C> <C> <C> <C>
Martin S. Rash(1)........................................... 1997 $261,458 $130,729 $12,647
Chairman of the Board, President and 1996 229,166 114,583 0
Chief Executive Officer
Richard D. Gore(2).......................................... 1997 181,205 90,602 10,236
Executive Vice President 1996 123,958 61,979 0
and Chief Financial Officer
James O. McKinney(3)........................................ 1997 177,329 88,665 10,070
Senior Vice President 1996 141,036 20,974 4,760
of Managed Operations
John M. Rutledge(4)......................................... 1997 172,005 86,002 9,959
Senior Vice President 1996 7,167 0 0
and Chief Operating Officer
Brenda B. Rector(5)......................................... 1997 130,503 52,201 6,072
Vice President and Controller 1996 22,917 9,167 0
Steven P. Taylor(6)......................................... 1997 193,166 88,000 10,595
Former Senior Vice President 1996 196,027 48,180 6,436
of Acquisition 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) Mr. McKinney was compensated at an annual salary of 133,463 in 1996 (by
Brim, Inc., a predecessor-in-interest by merger to the Company), and he
joined PHC in January 1997. 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 PHC 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.
54
<PAGE> 58
STOCK OPTION GRANTS
The following table sets forth certain information regarding grants of
stock options under the Equity Incentive Plan made to the Named Executive
Officers during 1997. None of the Named Executive Officers exercised any stock
options during 1997.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
PERCENT OF AT
NUMBER OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------------
NAME GRANTED FISCAL YEAR PER SHARE(1) DATE 5% 10%
- ---- ---------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Martin S. Rash....... -- -- -- -- -- --
Richard D. Gore...... -- -- -- -- -- --
James O. McKinney.... 5,464 2.1% $4.58 March 3, 2007 $ 15,738.16 $ 39,887.20
John M. Rutledge..... 109,290 42.4 4.58 March 3, 2007 314,755.20 797,817.00
Brenda B. Rector..... 27,978 10.9 4.58 March 3, 2007 80,576.64 204,239.40
Stephen P. Taylor.... -- -- -- -- -- --
</TABLE>
- ---------------
(1) Based upon the fair market value of the Common Stock on the date of grant of
options, as determined by the Company's Board of Directors.
(2) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission. There can
be no assurance provided to any executive officer or any other holder of the
Company's securities that the actual stock price appreciation over the term
will be at the assumed 5% and 10% levels or at any other defined level.
Unless the market price of the Common Stock appreciates over the option
term, no value will be realized from the option grants made to the Named
Executive Officers.
EMPLOYMENT AGREEMENTS
The Company entered into Senior Management Agreements with Messrs. Rash and
Gore effective as of December 17, 1996. Messrs. Rash and Gore are the Company's
Chief Executive Officer and Chief Financial Officer, respectively, and currently
receive annual base salaries determined by the Company's Board of Directors (the
"Board") which will be adjusted by the Compensation Committee. 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 fifty
percent (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 in the case of Mr. Gore.
The Company entered into an Employment Agreement with Mr. Brim effective as
of December 17, 1996. Mr. Brim receives an annual base salary of $121,680, to be
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 or 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.
55
<PAGE> 59
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.
Non-employee directors of the Company receive a fee of $1,000 per board meeting
attended and are reimbursed for out-of-pocket expenses related to the Company's
business. In addition, non-employee directors of the Company are eligible to
participate in the Company's 1997 Long-Term Equity Incentive Plan.
LONG-TERM EQUITY INCENTIVE PLAN
In March 1997 the Board adopted the 1997 Long-Term Equity Incentive Plan,
and the Board and the stockholders approved increases in the number of shares
available pursuant to the plan in each of October 1997 and June 1998 (as
amended, the "Equity Incentive Plan"). The Equity Incentive 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. Options to purchase a total of 1,209,016 shares of Common
Stock are available for issuance pursuant to the Equity Incentive Plan, of which
options to purchase 704,403 shares have been granted as of May 31, 1998.
The Equity Incentive Plan is administered by the Compensation Committee. As
grants to be awarded under the Equity Incentive Plan are made entirely in the
discretion of the Compensation Committee, the recipients, amounts and values of
future benefits to be received pursuant to the Equity Incentive Plan are not
determinable.
Pursuant to the Equity Incentive 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 10 years from the date of grant in the case of a
non-qualified option or an incentive option and of five years from the date of
grant in the case of an incentive option granted to a person who owns stock
constituting more than 10% of the voting power of the Company. In addition, the
Equity Incentive 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 Equity
Incentive 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 Equity Incentive 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.
56
<PAGE> 60
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 Equity Incentive 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 10 days of the date of grant, unless such shares are treasury shares.
Except as otherwise provided by the Compensation Committee, all restrictions on
a grantee's restricted stock will lapse immediately prior to a change in control
of the Company or at such time as the grantee ceases to be a director, officer
or employee of the Company and its subsidiaries due to death, disability or
retirement. If a grantee ceases to serve as such a director, office or employee
for any other reason, all his or her restricted stock as to which the applicable
restrictions have not lapsed will be forfeited immediately.
Pursuant to the Equity Incentive 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 Equity Incentive
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
Equity Incentive 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 Equity Incentive 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 Equity Incentive Plan will terminate on
March 3, 2007.
EMPLOYEE STOCK PURCHASE PLAN
In May 1998 the Board adopted, and in June 1988 the stockholders approved,
the Province Healthcare Company Employee Stock Purchase Plan (the "ESPP"). The
ESPP grants to all eligible employees an option to purchase shares of Common
Stock at a discount from fair market value and is intended to qualify as an
employee stock purchase plan under section 423 of the Code. The option is
granted on January 1 of each year. As of May 31, 1998, approximately 1,804
employees were eligible to participate in the ESPP. The ESPP is administered by
the Compensation Committee of the Board of Directors. No member of the
Compensation Committee is eligible to participate in the ESPP. A total of
250,000 shares of Common Stock have been reserved for issuance under the ESPP.
All employees who have been employed for at least 90 days are eligible to
participate in the ESPP, except: (i) employees who are regularly scheduled to
work less than 20 hours per week, (ii) employees who are regularly scheduled to
work fewer than five months during the year or (iii) employees who own 5% or
more of the voting power or the value of all classes of the Company's capital
stock.
57
<PAGE> 61
On January 1 of each year (the "Grant Date"), each eligible employee is
granted an option to purchase shares of Common Stock on the next following
December 31 (the "Exercise Date"). The purchase price of the Common Stock under
the option is 85% of the fair market value of the Common Stock on either the
Grant Date or the Exercise Date, whichever is lower. This right to purchase
Common Stock is limited to the lesser of: (i) the number of shares that may be
purchased with 10% of the eligible employee's compensation during the year or
(ii) $25,000 per calendar year, based on the fair market value of the Common
Stock on each Grant Date. In order to exercise the option granted under the
ESPP, an employee must authorize the Company to deduct a portion of the
employee's regular pay to be held for the purchase of Common Stock. On each
Exercise Date, the funds deducted are used to purchase shares of Common Stock
for each participating employee. Options that are not exercised by participating
employees terminate on the Exercise Date.
In general, an employee's right to participate in the ESPP expires
immediately on termination of employment. At that time, all payroll amounts that
have been withheld and have not yet been used to purchase Common Stock since the
previous Exercise Date are refunded to the employee without interest. If
termination is due to death, disability or retirement, however, the employee (or
the personal representative of his estate) may elect instead for amounts
previously withheld to be used to purchase Common Stock at the next Exercise
Date.
58
<PAGE> 62
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
REDEMPTION OF SENIOR PREFERRED STOCK AND COMMON STOCK CONVERSION AND REPURCHASE
Immediately following the consummation of the IPO in February 1998, the
Company used $22.7 million of the net proceeds from the IPO to redeem all of the
outstanding shares of the Senior Preferred Stock, which were held by Leeway &
Co. In addition, in connection with the IPO, all outstanding shares of Junior
Preferred Stock were converted into 2,204,420 shares of Common Stock, and the
Company used $14.9 million of the net proceeds from the IPO to repurchase from
GTCR Fund IV and Leeway & Co. 930,266 of the shares of Common Stock issued upon
conversion of 13,636 of their shares of Junior Preferred Stock.
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. The Stockholders Agreement was terminated upon completion of
the Company's IPO in February 1998.
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 had a Professional Services Agreement with GTCR pursuant to
which GTCR provided financial and management consulting services. Under the
agreement, GTCR received 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 the years ended December 31, 1996 and 1997, and for the
three months ended March 31, 1998, PHC and the Company had paid or accrued an
aggregate of $1.4 million, $252,273 and $26,300, respectively, in fees under the
agreement. The agreement was terminated prior to the consummation of the IPO.
Messrs. Rauner and Nolan, principals of GTCR, continue to serve as directors of
the Company and are compensated as non-employee directors. See
"Management -- Director Compensation."
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<PAGE> 63
SENIOR MANAGEMENT AGREEMENTS
In connection with the Recapitalization, 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 IPO, 50% of
the Vesting Shares became vested, and the remaining Vesting Shares will become
vested in equal installments on the first three anniversaries of the completion
of the IPO. 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) vested
Common Stock at a price equal to fair market value; and (ii) unvested Common
Stock at a price equal to original cost. The Executive Agreements also contain
restrictions on the transfer of the Company's securities. Upon completion of the
IPO, the portions of the Executive Agreements which restricted the transfer of
the Company's securities were terminated.
The Executive Agreements further provide that in the event GTCR or its
affiliates own less than 25% of the Common Stock of the Company or any person or
entity acquires 20% or more of the Common Stock or all or substantially all of
the Company's assets, then any unvested Common Stock held by Mr. Rash and Mr.
Gore vests immediately upon the occurrence of such event. Following consummation
of the Offering, GTCR and its affiliates will own less than 25% of the
outstanding Common Stock, and all unvested shares held by Mr. Rash and Mr. Gore
will become fully vested.
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."
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<PAGE> 64
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to ownership of the
Common Stock as of June 1, 1998 by (i) each person known by the Company
beneficially to own five percent or more of the Company's Common Stock; (ii)
each of the Company's directors and the executive officers named in the Summary
Compensation Table; (iii) the Selling Stockholders; and (iv) all directors and
executive officers of the Company as a group. Unless otherwise indicated, to the
knowledge of the Company, each stockholder listed below has sole voting and
investment power with respect to the shares beneficially owned. The Company is
unaware of any person other than those listed below that beneficially owns more
than 5% of the outstanding shares of the Company's Common Stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE SHARES TO OWNED AFTER THE
OFFERING(1)(2) BE SOLD OFFERING(1)(2)
DIRECTORS, OFFICERS, SELLING ------------------- IN THE -------------------
AND 5% STOCKHOLDERS NUMBER PERCENT OFFERING NUMBER PERCENT
- ---------------------------- --------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Golder, Thoma, Cressey, Rauner Fund IV,
L.P.(3)................................. 4,501,258 34.5% 850,000 3,651,258 23.8%
Bruce V. Rauner(3)(4)..................... 4,501,258 34.5 850,000 3,651,258 23.8
Joseph P. Nolan(3)(5)..................... 4,506,258 34.5 850,000 3,656,258 23.8
Leeway & Co.(6)........................... 1,153,218 8.8 287,000 866,218 5.6
Martin S. Rash(7)......................... 615,737 4.7 -- 615,737 4.0
Richard D. Gore(7)........................ 423,062 3.2 -- 423,062 2.8
James O. McKinney(7)(8)................... 26,278 * -- 26,278 *
John M. Rutledge(7)(9).................... 61,858 * -- 61,858 *
Brenda B. Rector(7)(10)................... 8,096 * -- 8,096 *
A.E. Brim(11)............................. 158,105 1.2 39,000 119,105 *
Michael T. Willis(12)..................... 10,000 * -- 10,000 *
David L. Steffy(7)........................ 40,000 * -- 40,000 *
Steven P. Taylor(13)...................... 156,739 1.2 24,000 132,739 *
John Miller(14)........................... 156,739 1.2 30,000 126,739 *
CTK Capital Corporation(15)............... 108,601 * 20,000 88,601 *
SSS Capital Corporation(16)............... 108,601 * 20,000 88,601 *
All executive officers and directors as a
group (12 persons)...................... 5,872,394 45.0% 1,200,000 4,983,394 32.4%
</TABLE>
- ---------------
* Less than 1%.
(1) Includes shares of Common Stock subject to options which are exercisable
within 60 days of June 1, 1998.
(2) Shares of Common Stock subject to options which are exercisable within 60
days of June 1, 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.
(3) The address of each of Golder, Thoma, Cressey, Rauner Fund IV, L.P. ("GTCR
Fund IV") and Messrs. Rauner and Nolan is 6100 Sears Tower, Chicago, IL
60606.
(4) Represents shares held and shares to be sold in the Offering by GTCR Fund
IV. GTCR is the general partner of GTCR IV, L.P., which is the general
partner of GTCR Fund IV. As a principal of GTCR, Mr. Rauner may be deemed
to share the power to vote and dispose of the shares held by GTCR Fund IV.
Mr. Rauner disclaims beneficial ownership of the shares of Common Stock
owned by GTCR Fund IV.
(5) Includes shares held and shares to be sold in the Offering by GTCR Fund IV.
GTCR is the general partner of GTCR IV, L.P., which is the general partner
of GTCR Fund IV. As a principal of GTCR, Mr. Nolan may be deemed to share
the power to vote and dispose of the shares held by GTCR Fund IV. Mr. Nolan
disclaims beneficial ownership of the shares of Common Stock owned by GTCR
Fund IV. Mr. Nolan owns 5,000 shares individually.
(6) 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.
(7) The address of each of Messrs. Rash, Gore, McKinney, Rutledge, Steffy and
Ms. Rector is 105 Westwood Place, Suite 400, Nashville, TN 37027.
(8) Includes options to purchase 1,093 shares granted under the Company's
Equity Incentive Plan.
(9) Includes options to purchase 21,858 shares granted under the Company's
Equity Incentive Plan.
(10) Includes options to purchase 5,596 shares granted under the Company's
Equity Incentive Plan.
(11) Includes 156,739 shares, which are held of record by Brim Capital
Corporation, and options to purchase 1,366 shares owned by Mr. Brim
individually.
(12) The address of Mr. Willis is Metamor Worldwide, Inc. 4400 Post Oak Pkwy
#1130, Houston, TX 77027.
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<PAGE> 65
(13) Mr. Taylor resigned from the Company in December 1997. The address of Mr.
Taylor is 305 NE 102d Ave., Portland, OR 97202.
(14) Mr. Miller is a former officer of Brim.
(15) James Williams, a principal of CTK Capital Corporation, is a former officer
of Brim.
(16) David McAllister, a principal of SSS Capital Corporation, is a former
officer of Brim.
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<PAGE> 66
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 25,000,000 shares of
Common Stock, par value $0.01 per share; 25,000 shares of Series A Senior
Preferred Stock, no par value; 50,000 shares of Series B Junior Preferred Stock,
no par value; and 100,000 shares of Preferred Stock, par value $.01 per share.
At June 9, 1998, there were 13,009,768 shares of Common Stock, and no shares of
Senior Preferred Stock, Junior Preferred Stock or Preferred Stock outstanding.
Upon completion of the Offering, 15,309,768 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 and the terms of the Credit Agreement, 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.
PREFERRED STOCK
The Board may, without any further vote or action by the Company's
stockholders, from time to time, direct the issuance of shares of Preferred
Stock in one or more series with such designations, rights, preferences and
limitations as the Board may determine, including the consideration received
therefor. The Board also has the authority to determine the number of shares
comprising each series, dividend rates, redemption provisions, liquidation
preferences, sinking fund provisions, conversion rights and voting rights
without the approval by the holders of Common Stock. Although it is not possible
to state the effect that any issuance of Preferred Stock might have on the
rights of holders of Common Stock, the issuance of Preferred Stock may have one
or more of the following effects: (i) to restrict Common Stock dividends if
Preferred Stock dividends have not been paid; (ii) to dilute the voting power
and equity interest of holders of Common Stock to the extent that any series of
Preferred Stock has voting rights or is convertible into Common Stock; or (iii)
to prevent current holders of Common Stock from participating in the
distribution of the Company's assets upon liquidation until any liquidation
preferences granted to holders of Preferred Stock are satisfied. In addition,
the issuance of Preferred Stock may, under certain circumstances, have the
effect of discouraging a change in control of the Company by, for example,
granting voting rights to holders of Preferred Stock that require approval by
the separate vote of the holders of Preferred Stock for any amendment to the
Company's Certificate of Incorporation or any reorganization, consolidation,
merger or other similar transaction involving the Company. As a result, the
issuance of the Preferred Stock may discourage bids for the Common Stock at a
premium over the market price therefor, and could have a materially adverse
effect on the market value of the Common Stock. There are currently no shares of
Preferred Stock outstanding and the Board of Directors does not presently intend
to issue any shares of Preferred Stock.
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<PAGE> 67
CERTAIN PROVISIONS OF DELAWARE LAW
The Company is 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
The Company's Certificate of Incorporation limits 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.
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<PAGE> 68
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 15,309,768 shares of
Common Stock outstanding (15,695,268 shares if Underwriter's over-allotment
option is exercised in full). Of these shares, the 5,405,000 shares issued in
the IPO and the 3,570,000 shares of Common Stock sold in the Offering will be
tradeable without restriction under the Securities Act, except for any such
shares which may be acquired by an "affiliate" of the Company (an "Affiliate"),
as that term is defined in Rule 144 under the Securities Act ("Rule 144"), which
shares will be subject to the resale limitations of Rule 144.
In general, under Rule 144 as currently in effect, 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 153,098 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. After the Offering, 6,334,768 shares of Common Stock will
be eligible for sale in the public market at prescribed times 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 90 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 6,334,768 shares of Common
Stock otherwise eligible for sale as discussed above, substantially all are
subject to such agreements.
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
As of June 1, 1998 the Company has outstanding options to purchase a total
of 704,403 shares of Common Stock pursuant to the Company's Equity Incentive
Plan. The Company intends to file a Registration Statement on Form S-8 with
respect to the options issuable under the Equity Incentive Plan and
approximately 53,081 of these options are currently exercisable and may be
resold in the public market. Of the shares subject to options, 368,171 are
subject to lock-up agreements. Upon completion of this Offering, an additional
504,613 shares of Common Stock will be available for
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<PAGE> 69
future option grants under the Company's Equity Incentive Plan. 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 "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
IPO. 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 a demand registration). Expenses incurred in connection
with the exercise of such piggyback registration rights are borne by the
Company. In accordance with such Registration Agreement, 1,270,000 shares are
being offered by the Selling Stockholders pursuant hereto.
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<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 and the Selling Stockholders the following
respective numbers of shares of Common Stock at the 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............................................. 3,570,000
=========
</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 and the Selling Stockholders have been advised by the
Representatives of the Underwriters that the Underwriters propose to offer the
shares of Common Stock to the public at the 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 Offering, the offering price and other selling
terms may be changed by the Representatives of the Underwriters.
The Company and certain of the Selling Stockholders have granted to the
Underwriters an option, exercisable not later than 30 days after the date of
this Prospectus, to purchase up to 535,500 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 3,570,000,
and the Company and the Selling Stockholders 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 3,570,000 shares are
being offered.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
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<PAGE> 71
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 90 days from the date of this Prospectus without the prior written consent of
BT Alex. Brown Incorporated. In addition, stockholders of the Company holding in
the aggregate approximately 6.4 million shares of Common Stock and options to
purchase 368,171 shares of Common Stock, have agreed not to offer or otherwise
dispose of any such Common Stock for a period of 90 days from the 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 have from time to time performed certain financial
advisory and investment banking services for the Company for which they have
received customary fees. The Representatives acted as underwriters in the
Company's offering of 5,405,000 shares of Common Stock in the IPO. In the
future, in the ordinary course of their businesses, the Representatives and
certain of their affiliates may engage in investment banking or other
transactions of a financial nature with the Company, including the provision of
certain advisory services and the making of loans to the Company and its
affiliates, for which they would receive customary fees.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Waller Lansden Dortch & Davis, A Professional Limited
Liability Company, Nashville, Tennessee. Certain legal matters will be passed
upon for the Underwriters by Alston & Bird LLP, Atlanta, Georgia.
EXPERTS
The consolidated financial statements and supplemental schedule of Province
Healthcare Company at December 31, 1996 and 1997, and for the period February 2,
1996 to December 31, 1996, and the year ended December 31, 1997; the
consolidated financial statements of Brim, Inc. for the period January 1, 1996
to December 18, 1996; and the financial statements of Havasu Samaritan Regional
Hospital at December 31, 1996 and 1997, and for each of the three years in the
period ended December 31, 1997, appearing in this Registration Statement, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
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<PAGE> 72
The consolidated financial statements of Brim, Inc. and subsidiaries for
the year ended December 31, 1995 have been included herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
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 (No. 333-34421) 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.
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files 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.
69
<PAGE> 73
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROVINCE HEALTHCARE COMPANY
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets at December 31, 1996 and 1997... F-3
Consolidated Statements of Operations for the period
February 2, 1996 to December 31, 1996 and for the Year
Ended December 31, 1997................................... F-4
Consolidated Statements of Changes in Common Stockholders'
Deficit for the period February 2, 1996 to December 31,
1996 and for the Year Ended December 31, 1997............. F-5
Consolidated Statements of Cash Flows for the period
February 2, 1996 to December 31, 1996 and for the Year
Ended December 31, 1997................................... F-6
Notes to Consolidated Financial Statements.................. F-7
Condensed Consolidated Balance Sheet at March 31, 1998
(Unaudited)............................................... F-25
Condensed Consolidated Statements of Income for the three
months ended March 31, 1997 and 1998 (Unaudited).......... F-26
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1998 (Unaudited).... F-27
Notes to Condensed Consolidated Financial Statements
(Unaudited)............................................... F-28
BRIM, INC. AND SUBSIDIARIES
Report of Independent Auditors.............................. F-32
Independent Auditors' Report................................ F-33
Consolidated Statements of Income for the Year Ended
December 31, 1995 and for the period January 1, 1996 to
December 18, 1996......................................... F-34
Consolidated Statements of Cash Flows for the Year Ended
December 31, 1995 and for the period January 1, 1996 to
December 18, 1996......................................... F-35
Notes to Consolidated Financial Statements.................. F-36
HAVASU SAMARITAN REGIONAL HOSPITAL
Report of Independent Auditors.............................. F-44
Balance Sheets at December 31, 1996 and 1997................ F-45
Statements of Operations and Changes in Net Assets for the
Years Ended December 31, 1995, 1996 and 1997.............. F-46
Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997....................................... F-47
Notes to Financial Statements............................... F-48
Condensed Balance Sheet at March 31, 1998 (Unaudited)....... F-55
Condensed Statements of Operations and Changes in Net Assets
for the Three Months Ended March 31, 1997 and 1998
(Unaudited)............................................... F-56
Condensed Statements of Cash Flows for the Three Months
Ended March 31, 1997 and 1998 (Unaudited)................. F-57
Notes to Condensed Financial Statements (Unaudited)......... F-58
</TABLE>
F-1
<PAGE> 74
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Province Healthcare Company
We have audited the accompanying consolidated balance sheets of Province
Healthcare Company (formerly known as Principal Hospital Company) and
subsidiaries as of December 31, 1996 and 1997, 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
and the year ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 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 1997, and the
consolidated results of their operations and their cash flows for the period
February 2, 1996 to December 31, 1996 and the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Nashville, Tennessee
March 23, 1998
F-2
<PAGE> 75
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------- DECEMBER 31, 1997
1996 1997 (NOTE 16)
-------- -------- -----------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 11,256 $ 4,186 $ 4,186
Accounts receivable, less allowance for doubtful
accounts of $4,477 in 1996 and $4,749 in 1997.... 22,829 30,902 30,902
Inventories......................................... 2,883 3,655 3,655
Prepaid expenses and other.......................... 8,159 8,334 8,334
-------- -------- --------
Total current assets........................ 45,127 47,077 47,077
Property, plant and equipment, net.................... 49,497 65,974 65,974
Other assets:
Unallocated purchase price.......................... 7,265 760 760
Cost in excess of net assets acquired, net.......... 52,333 53,624 53,624
Other............................................... 6,299 9,026 9,026
-------- -------- --------
65,897 63,410 63,410
-------- -------- --------
$160,521 $176,461 $176,461
======== ======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
COMMON STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................... $ 7,915 $ 6,524 $ 6,524
Accrued salaries and benefits....................... 7,772 8,720 8,720
Accrued expenses.................................... 5,359 4,422 4,422
Current maturities of long-term obligations......... 1,873 6,053 6,053
-------- -------- --------
Total current liabilities................... 22,919 25,719 25,719
Long-term obligations, less current maturities........ 77,789 83,043 43,501
Third-party settlements............................... 6,604 4,680 4,680
Other liabilities..................................... 6,898 13,088 7,373
Minority interest..................................... 574 825 825
-------- -------- --------
91,865 101,636 56,379
Mandatory redeemable preferred stock.................. 46,227 50,162 --
Common stockholders' equity (deficit):
Common stock -- no par value; authorized 20,000,000
shares; issued and outstanding 5,370,500 shares
and 6,330,614 shares at December 31, 1996 and
1997, respectively, 13,009,768 shares, $0.01 par
value, pro forma (unaudited) at December 31,
1997............................................. 1,680 2,116 130
Additional paid-in-capital.......................... -- -- 97,405
Retained deficit.................................... (2,170) (3,172) (3,172)
-------- -------- --------
(490) (1,056) 94,363
-------- -------- --------
$160,521 $176,461 $176,461
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 76
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED
PERIOD FEBRUARY 2, YEAR ENDED DECEMBER 31, 1997
TO DECEMBER 31, 1996 DECEMBER 31, 1997 (NOTE 16)
-------------------- ----------------- -----------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenue:
Net patient service revenue......... $16,425 $149,296 $149,296
Management and professional
services......................... 607 16,365 16,365
Other............................... 223 4,866 4,866
------- -------- --------
Net operating revenue....... 17,255 170,527 170,527
------- -------- --------
Expenses:
Salaries, wages and benefits........ 7,599 72,846 72,846
Purchased services.................. 2,286 23,242 23,242
Supplies............................ 1,897 16,574 16,574
Provision for doubtful accounts..... 1,909 12,812 12,812
Other operating expenses............ 2,872 16,318 16,318
Rentals and leases.................. 214 4,888 4,888
Depreciation and amortization....... 1,307 7,557 7,557
Interest expense.................... 976 8,121 4,787
Minority interest................... 184 329 329
Loss on sale of assets.............. -- 115 115
------- -------- --------
Total expenses.............. 19,244 162,802 159,468
------- -------- --------
Income (loss) before income taxes..... (1,989) 7,725 11,059
Income taxes (benefit)................ (673) 3,650 4,949
------- -------- --------
Income (loss) before extraordinary
item................................ (1,316) 4,075 6,110
Loss from early retirement of debt,
net of taxes of $167................ (262) -- --
------- -------- --------
Net income (loss)..................... (1,578) 4,075 6,110
Preferred stock dividends and
accretion........................... (172) (5,077) --
------- -------- --------
Net income (loss) to common
shareholders........................ $(1,750) $ (1,002) $ 6,110
======= ======== ========
Income (loss) per share to common
shareholders -- basic:
Income (loss) before
extraordinary item............. $ (0.52) $ (0.17) $ 0.49
Extraordinary item............... (0.09) -- --
------- -------- --------
Net income (loss) to common
shareholders.............. $ (0.61) $ (0.17) $ 0.49
======= ======== ========
Income (loss) per share to common
shareholders -- diluted:
Income (loss) before
extraordinary item............. $ (0.52) $ (0.17) $ 0.46
Extraordinary item............... (0.09) -- --
------- -------- --------
Net income (loss) to common
shareholders.............. $ (0.61) $ (0.17) $ 0.46
======= ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 77
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
NOTES
CLASS A COMMON CLASS B COMMON NO PAR VALUE RECEIVABLE
STOCK STOCK COMMON STOCK FOR
------------------ ---------------- ------------------ COMMON RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT STOCK DEFICIT TOTAL
------- -------- ------- ------ --------- ------ ---------- -------- --------
(DOLLARS IN THOUSANDS)
<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)
Issuance of stock......... -- -- -- -- 960,114 436 -- -- 436
Preferred stock dividends
and accretion........... -- -- -- -- -- -- -- (5,077) (5,077)
Net income.............. -- -- -- -- -- -- -- 4,075 4,075
------- -------- ------- ---- --------- ------ ----- ------- --------
Balance at December 31,
1997.................... -- $ -- -- $ -- 6,330,614 $2,116 $ -- $(3,172) $ (1,056)
======= ======== ======= ==== ========= ====== ===== ======= ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 78
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FEBRUARY 2, YEAR ENDED
TO DECEMBER 31, 1996 DECEMBER 31, 1997
-------------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)...................................... $ (1,578) $ 4,075
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization..................... 1,307 7,557
Provision for doubtful accounts................... 1,909 12,812
Deferred income taxes............................. (874) 4,677
Extraordinary charge from retirement of debt...... 429 --
Provision for professional liability.............. 200 36
Loss on sale of assets............................ -- 115
Changes in operating assets and liabilities, net
of effects from acquisitions and disposals:
Accounts receivable.......................... (3,243) (20,885)
Inventories.................................. 91 (712)
Prepaid expenses and other................... 724 (3,833)
Other assets................................. 375 (2,256)
Accounts payable and accrued expenses........ 2,160 (2,449)
Accrued salaries and benefits................ 643 860
Third-party settlements...................... -- (1,924)
Other liabilities............................ (507) 1,089
--------- --------
Net cash provided by (used in) operating
activities...................................... 1,636 (838)
INVESTING ACTIVITIES
Purchase of property, plant and equipment............ (1,043) (15,557)
Purchase of acquired companies, net of cash
received.......................................... 4,645 (2,673)
--------- --------
Net cash provided by (used in) investing
activities...................................... 3,602 (18,230)
FINANCING ACTIVITIES
Proceeds from long-term debt......................... 19,300 12,000
Repayments of debt................................... (26,431) (4,143)
Additions to deferred loan costs..................... (709) --
Issuance of common stock............................. 13,858 436
Issuance of preferred stock.......................... -- 3,705
--------- --------
Net cash provided by financing activities............ 6,018 11,998
--------- --------
Net increase (decrease) in cash and cash
equivalents....................................... 11,256 (7,070)
Cash and cash equivalents at beginning of period..... -- 11,256
--------- --------
Cash and cash equivalents at end of period........... $ 11,256 $ 4,186
========= ========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid during the period...................... $ 1,011 $ 7,143
========= ========
Income taxes paid during the period.................. $ -- $ 5,639
========= ========
ACQUISITIONS
Assets acquired...................................... $ 148,326 $ 3,191
Liabilities assumed.................................. (119,553) (518)
Common and preferred stock issued.................... (33,418) --
--------- --------
Cash paid (received)................................. $ (4,645) $ 2,673
========= ========
NONCASH TRANSACTIONS
Dividends and accretion.............................. $ 172 $ 5,077
========= ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 79
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION
The Company (formerly Principal Hospital Company (PHC) until February 4,
1998) was founded on February 2, 1996. 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. As 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. As PHC was
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, on
February 4, 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.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform to the 1997 presentation. These reclassifications had no
effect on net income.
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
F-7
<PAGE> 80
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
patients. The Company manages the receivables by regularly reviewing its
accounts and contracts and by providing appropriate allowances for uncollectible
amounts. Significant concentrations of gross patient accounts receivable at
December 31, 1996 and 1997, consist of receivables from Medicare of 29% and 36%,
respectively, and Medicaid of 17% and 12%, 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, 1997, in the opinion of management, there has been
no such impairment.
At December 31, 1996 and 1997, cost in excess of net assets acquired
totaled $52,393,000 and $55,653,000, respectively, and accumulated amortization
totaled $60,000 and $2,029,000, respectively. Management contracts are included
in other noncurrent assets. At December 31, 1996 and 1997, management contracts
totaled $1,200,000 and accumulated amortization totaled $9,000 and $249,000,
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 and 1997, deferred loan costs totaled $2,959,000 and $3,083,000,
respectively, and accumulated amortization totaled $48,000 and $916,000,
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
F-8
<PAGE> 81
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
operations.
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, and deferred income taxes.
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% and 62% of gross patient service revenue for the period
February 2, 1996 to December 31, 1996, and for the year ended December 31, 1997,
respectively, are 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 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 operations. Management
and professional services revenue, excluding reimbursable expenses, was $294,000
and $9,690,000 for the period February 2, 1996 to December 31, 1996 and for the
year ended December 31, 1997, 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 two managed hospitals for which the
Company has guaranteed the hospitals' long-term debt of $690,000.
F-9
<PAGE> 82
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board (FASB) issued Statement
No. 128, Earnings per Share. Statement 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented and, where appropriate, restated to conform to Statement 128
requirements.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income. The Statement requires that items required to be recognized as
components of comprehensive income be reported in a financial statement
displayed with the same prominence as other financial statements. The Statement
is effective for financial statements for fiscal years beginning after December
15, 1997. Adoption of Statement No. 130 will have no impact on the Company's net
income or stockholders' equity.
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
affects only disclosures presented in the financial statements and will have no
effect on consolidated financial position or results of operations.
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 ($211,000), purchasing current 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.
BRIM, INC.
On December 18, 1996, a subsidiary of Brim merged with PHC. Brim was
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. As discussed in Note 1, the merger was
accounted for as a reverse acquisition under the purchase method of accounting
and, 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, 1996. The reverse acquisition of Brim
by PHC
F-11
<PAGE> 84
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 assumed an agreement between Brim and Golder, Thoma, Cressey, Rauner
Fund IV, L.P. (GTCR Fund IV) that granted GTCR Fund IV 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 provided that
Leeway & Co., Mr. Martin Rash, Mr. Richard Gore, and two banks were
obligated to purchase redeemable junior preferred stock and common stock
in specified amounts at the same per share prices in the event GTCR Fund
IV exercised its right to acquire junior preferred and common stock. In
July 1997, GTCR Fund IV exercised its right and, accordingly, 3,755
shares of redeemable junior preferred stock and 706,886 shares of common
stock were purchased for net proceeds of $4,182,000 by GTCR Fund IV, Mr.
Rash, Mr. Gore, and two banks.
- Second Additional Investment -- The agreement discussed immediately above
also granted GTCR Fund IV 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 exercised its right to acquire junior preferred and common stock. In
connection with the public offering of its common stock, the rights of
GTCR Fund IV, Leeway & Co., Mr. Rash, and Mr. Gore, to purchase stock of
the Company pursuant to the Second Initial Investment were terminated
with no purchases being made (see note 15.)
F-12
<PAGE> 85
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- 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 December 31, 1996, the Company terminated
approximately 200 employees and paid severance benefits of the full
amount of the recorded severance liability.
- 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 7).
NEEDLES DESERT COMMUNITIES HOSPITAL
Effective August 1, 1997, the Company acquired Needles Desert Communities
Hospital (which subsequently changed its name to Colorado River Medical Center)
by entering into a 15-year lease agreement with three five-year renewal terms
and by purchasing assets totaling $1,139,000, prepaying rent totaling $2,052,000
and assuming certain liabilities totaling $518,000.
OTHER INFORMATION
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.
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 statements of operations from the respective
dates of acquisition.
The following pro forma information reflects the operations of the entities
acquired in 1996 and 1997, 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. (In thousands, except per share data).
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Total revenue............................................... $164,748 $177,248
Net loss.................................................... $(11,607) $ 3,435
Net loss per share to common shareholders -- basic.......... $ (4.06) $ 0.59
Weighted average common shares.............................. 2,860 5,787
</TABLE>
The Company has minority ownership in various health care related
businesses. These investments are accounted for by the equity method. The
assets, liabilities and results of operations of these businesses are not
material to the consolidated financial statements.
F-13
<PAGE> 86
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (In thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------- -------
<S> <C> <C>
Land........................................................ $ 2,181 $ 4,991
Leasehold improvements...................................... 2,616 3,114
Buildings and improvements.................................. 31,359 37,310
Equipment................................................... 12,359 22,846
------- -------
48,515 68,261
Less allowances for depreciation and amortization........... (927) (5,900)
------- -------
47,588 62,361
Construction-in-progress (estimated cost to complete at
December 31, 1997 -- $10,992)............................. 1,909 3,613
------- -------
$49,497 $65,974
======= =======
</TABLE>
Assets under capital leases were $18,491,000 and $23,619,000 net of
accumulated amortization of $171,000 and $2,684,000 at December 31, 1996 and
1997, respectively. Interest is capitalized in connection with construction
projects at the Company's facilities. The capitalized interest is recorded as
part of the asset to which it relates and is amortized over the asset's
estimated useful life. In 1996 and 1997, respectively, $28,000 and $223,000 of
interest cost was capitalized.
5. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following (In thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------- -------
<S> <C> <C>
Revolving credit agreement.................................. $37,000 $47,000
Term loan................................................... 35,000 35,000
Other debt obligations...................................... 87 47
------- -------
72,087 82,047
Obligations under capital leases (see Note 11).............. 7,575 7,049
------- -------
79,662 89,096
Less current maturities..................................... (1,873) (6,053)
------- -------
$77,789 $83,043
======= =======
</TABLE>
Prior to the merger with Brim (see Note 3), 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 of Brim, the Company assumed a $100
million credit facility of Brim, 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 $47,000,000 of borrowings outstanding under the revolving credit
agreement and $35,000,000 under the term loan at December 31, 1997. Future
borrowings under the revolver are limited, in certain instances, to acquisitions
of identified businesses. At December 31, 1997, the Company had additional
borrowing capacity available under the revolver of approximately $18,000,000.
F-14
<PAGE> 87
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 9.50% to 7.88% during 1997. 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 with the bank. Amounts
outstanding under the letter of credit totaled $603,000 and $0 at December 31,
1996 and 1997, respectively. 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 is only 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.
During 1997, 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 6.27% 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, 1997,
excluding capital leases, are as follows (In thousands):
<TABLE>
<S> <C>
1998........................................................ $ 3,774
1999........................................................ 52,773
2000........................................................ 6,750
2001........................................................ 7,750
2002........................................................ 11,000
Thereafter.................................................. --
-------
$82,047
=======
</TABLE>
As discussed in Notes 15 and 16, the Company repaid the $35,000,000 term
loan and made a payment of $4,542,000 on the revolving credit agreement
subsequent to December 31, 1997 from the proceeds of the initial public offering
of the Company's common stock. Management has
F-15
<PAGE> 88
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amended and restated the Credit Agreement, subsequent to December 31, 1997, to
increase availability under the credit facility to $260.0 million.
6. MANDATORY REDEEMABLE PREFERRED STOCK
Redeemable preferred stock consists of the following (In thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------- -------
<S> <C> <C>
Series A redeemable senior preferred stock -- $1,000 per
share stated value, authorized 25,000, issued outstanding
20,000, net of a warrant of $139,000 and unamortized
issuance costs of $892,000 and $793,000, as of December
31, 1996 and 1997, respectively........................... $18,969 $19,068
Series B redeemable junior preferred stock -- $1,000 per
share stated value, authorized 50,000, issued and
outstanding 28,540 and 32,295, net of unamortized issuance
costs of $1,282,000 and $1,201,000, as of December 31,
1996 and 1997, respectively............................... 27,258 31,094
------- -------
$46,227 $50,162
======= =======
</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.
Of the 32,295 outstanding shares of Series B redeemable junior preferred
stock, 28,540 were issued in December 1996 by Brim and 3,755 were issued in July
1997. Issuance costs totaled $1,282,000 and $50,000 in December 1996 and July
1997, respectively. 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.
In connection with its initial public offering of common stock (see Note
15), the Company redeemed all of the outstanding shares of preferred stock and
all accrued and unpaid dividends thereon.
7. STOCKHOLDERS' EQUITY
COMMON STOCK
The capital stock of the Company consists of common stock, no par value, of
which 20,000,000 shares are authorized and 6,330,614 shares are issued and
outstanding as of December 31, 1997.
The capital stock of PHC previously 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 with Brim 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.
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.
F-16
<PAGE> 89
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK OPTIONS
The Company follows Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees (APB 25) and related Interpretations in accounting
for its employee stock options, because as discussed below, the alternative fair
value accounting provided for under FASB Statement No. 123, Accounting for
Stock-Based Compensation, requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, when the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.
The Company had no stock options outstanding prior to March 1997. In March
1997, the Company's Board of Directors approved the 1997 Long-Term Incentive
Plan (the Plan) under which options to purchase 959,016 shares of common stock
may be granted to officers, employees, and directors. The options have a maximum
term of 10 years and vest in five equal annual installments. Options are
generally granted at not less than market price on the date of 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. In September 1997, the Company's
Board of Directors approved the grant of options to acquire 70,586 common shares
at an exercise price equal to the initial public offering price of the Company's
common stock, but none of these options were granted at December 31, 1997. As of
December 31, 1997, the remaining contractual life of the options is 9.3 years,
none of the options are exercisable, and shares available for grant total
674,486. No options were exercised or forfeited during 1997.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1997: risk-free interest rate of 6.41%; dividend yield of 0%;
volatility factor of the expected market price of the Company's common stock of
.563; and a weighted-average expected life of the option of 5 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands, except for per share information):
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Pro forma net loss to common shareholders................... $(1,131)
Pro forma net loss per share to common shareholders:
Basic..................................................... (0.20)
Diluted................................................... (0.18)
</TABLE>
F-17
<PAGE> 90
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
WARRANT
In connection with the reverse acquisition of Brim (see Note 3), the
Company assumed a warrant that had been issued by Brim to purchase 253,228
shares of Brim's common stock. On September 12, 1997, the warrant, which had an
exercise price of $0.061 per share, was exercised resulting in total proceeds to
the Company of $15,447.
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 majority of the Company's Medicare cost
reports have been audited by the Medicare fiscal intermediary through
December 31, 1995.
- Medicaid -- Inpatient and outpatient services rendered to the
beneficiaries under the Medi-Cal program (California's medicaid program)
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 Medi-Cal. The Company's Medi-Cal cost reports have been audited by the
Medi-Cal fiscal intermediary through December 31, 1995. The Medicaid
programs of the other states in which the Company owns or leases
hospitals are prospective payment systems which generally do not have
retroactive cost report settlement procedures.
- 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.
Differences between original estimates and subsequent revisions (including final
settlements) are included in the statements of operations in the period in which
the revisions are made, and resulted in increases in net patient service revenue
of $788,000 for the predecessor company in 1996 and $3,260,000 for the Company
in 1997. The amount of the revisions that occurred in the fourth quarter of 1997
totaled $2,400,000.
F-18
<PAGE> 91
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
The provision for income tax expense (benefit) attributable to income
(loss) before extraordinary item consists of the following amounts (In
thousands):
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE YEAR
FEBRUARY 2 TO ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Current:
Federal........................................ $ 162 $ (829)
State.......................................... 39 (198)
----- -------
201 (1,027)
Deferred:
Federal........................................ (706) 3,776
State.......................................... (168) 901
----- -------
(874) 4,677
----- -------
$(673) $ 3,650
===== =======
</TABLE>
The differences between the Company's effective income tax rate of 33.8%
and 47.2% before extraordinary item for 1996 and 1997, respectively, and the
statutory federal income tax rate of 34.0% are as follows (In thousands):
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE YEAR
FEBRUARY 2 TO ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- ------------------
<S> <C> <C>
Statutory federal rate.......................... $(676) $2,627
State income taxes, net of federal income tax
benefit....................................... (85) 464
Amortization of goodwill........................ -- 577
Other........................................... 88 (18)
----- ------
$(673) $3,650
===== ======
</TABLE>
F-19
<PAGE> 92
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 (In thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------- -------
<S> <C> <C>
Deferred tax assets -- current:
Accounts and notes receivable............................. $ 3,305 $ --
Accrued vacation liability................................ 710 739
Accrued liabilities....................................... 1,260 447
------- -------
Deferred tax assets -- current.............................. 5,275 1,186
Deferred tax liabilities -- current:
Accounts and notes receivable............................. -- (32)
------- -------
Deferred tax liabilities -- current......................... -- (32)
------- -------
Net deferred tax assets -- current.......................... $ 5,275 $ 1,154
======= =======
Deferred tax assets -- noncurrent:
Net operating losses...................................... $ 278 $ 278
Accrued liabilities....................................... 706 701
Other..................................................... -- 115
------- -------
984 1,094
Less valuation allowance.................................... (278) (278)
------- -------
Deferred tax assets -- noncurrent........................... 706 816
Deferred tax liabilities -- noncurrent:
Property, plant and equipment............................. (4,246) (5,047)
Management contracts...................................... (464) (370)
Other..................................................... (41) --
------- -------
Deferred tax liabilities -- noncurrent...................... (4,751) (5,417)
------- -------
Net deferred tax liabilities -- noncurrent.................. $(4,045) $(4,601)
======= =======
Total deferred tax assets......................... $ 6,259 $ 2,280
======= =======
Total deferred tax liabilities.................... $ 4,751 $ 5,449
======= =======
Total valuation allowance......................... $ 278 $ 278
======= =======
</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 and 1997 related to a subsidiary. 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.
During 1997, the Internal Revenue Service finalized its examination of the
predecessor company's federal income tax returns for the 1993 and 1994 years.
Finalization of the examination had no impact on the results of operations of
the Company.
F-20
<PAGE> 93
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (In thousands, except per share data):
<TABLE>
<CAPTION>
PRO FORMA
1997
1996 1997 (SEE NOTE 16)
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Numerator for basic and diluted income (loss) per
share to common shareholders:
Income (loss) before extraordinary item........... $(1,316) $ 4,075 $ 6,110
Less preferred stock dividends.................... (172) (5,077) --
------- ------- -------
Income (loss) before extraordinary item to common
shareholders................................... (1,488) (1,002) 6,110
Extraordinary item................................ (262) -- --
------- ------- -------
Net income (loss) to common shareholders.......... $(1,750) $(1,002) $ 6,110
======= ======= =======
Denominator:
Denominator for basic income (loss) per share to
common shareholders -- weighted-average
shares......................................... 2,860 5,787 12,466
Effect of dilutive securities:
Stock rights................................... -- 336 336
Warrants....................................... 10 189 189
Employee stock options......................... -- 149 149
------- ------- -------
Denominator for diluted income (loss) per share to
common shareholders -- adjusted weighted-
average shares................................. 2,870 6,461 13,140
======= ======= =======
Income (loss) per share to common shareholders --
basic:
Income (loss) before extraordinary item to common
shareholders................................... $ (0.52) $ (0.17) $ 0.49
Extraordinary item................................ (0.09) -- --
------- ------- -------
Net income (loss) to common shareholders.......... $ (0.61) $ (0.17) $ 0.49
======= ======= =======
Income (loss) per share to common shareholders --
diluted:(1)
Income (loss) before extraordinary item to common
shareholders................................... $ (0.52) $ (0.17) $ 0.46
Extraordinary item................................ (0.09) -- --
------- ------- -------
Net income (loss) to common shareholders.......... $ (0.61) $ (0.17) $ 0.46
======= ======= =======
</TABLE>
- ------------------
(1) Historical diluted loss per share amounts for 1996 and 1997 have been
calculated using the same denominator as used in the basic income (loss) per
share calculation as the inclusion of dilutive securities in the denominator
would have an anti-dilutive effect.
11. 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-21
<PAGE> 94
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum payments at December 31, 1997, 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>
1998........................................................ $ 2,785 $ 4,286
1999........................................................ 2,332 2,981
2000........................................................ 1,271 2,367
2001........................................................ 883 1,465
2002........................................................ 316 1,311
Thereafter.................................................. 1,021 5,246
------- -------
Total minimum lease payments................................ 8,608 $17,656
=======
Amount representing interest................................ (1,559)
-------
Present value of net minimum lease payments (including
$2,279 classified as current)..................... $ 7,049
=======
</TABLE>
12. 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.
13. 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 and $988,000 for the
period February 2, 1996 to December 31, 1996 and the year ended December 31,
1997, respectively.
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 and $98,000 for the period February 2, 1996 to December 31, 1996 and the
year ended December 31, 1997, respectively.
14. FAIR VALUES OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents: The carrying amount reported in the balance
sheets for cash and cash equivalents approximates fair value.
Accounts Receivable and Accounts Payable: The carrying amount reported in
the balance sheets for accounts receivable and accounts payable approximates
fair value.
Long-Term Debt: The carrying amount reported in the balance sheets for
long-term obligations approximates fair value. The fair value of the Company's
long-term obligations is
F-22
<PAGE> 95
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
estimated using discounted cash flow analyses, based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements.
Interest rate swap agreement: The fair value of the Company's interest
rate swap agreement is $720,000 at December 31, 1997.
15. SUBSEQUENT EVENTS
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.
PUBLIC OFFERING OF COMMON STOCK
On February 10, 1998, the Company completed its initial public offering of
common stock. The net proceeds from the offering were 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 was converted into common stock at the public offering price of the common
stock. (See Note 16.)
16. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The unaudited pro forma consolidated balance sheet as of December 31, 1997
gives effect to (i) the conversion from no par value to $0.01 par value common
stock, (ii) the conversion of junior preferred stock into common stock, and
(iii) the sale of common stock in the initial public offering and the
application of net proceeds thereof to the repurchase of certain shares of
common stock, the redemption of senior preferred stock and the repayment of
debt, as if all such transactions had been completed as of December 31, 1997 at
the offering price of $16.00 per share, as follows (see Note 15):
- The reclassification of $2,053,000 from common stock to additional
paid-in-capital upon conversion from no par to $0.01 par value Common
Stock.
- The prepayment of $696,000 of dividends on the senior preferred stock and
junior preferred stock.
- The conversion of the 32,295 shares of junior preferred stock net of
issuance costs plus accumulated and unpaid dividends into 2,204,420
shares of common stock at the initial public offering price of $16.00 per
share.
- The sale of 5,405,000 shares of common stock in the offering at the
initial public offering price of $16.00 per share for proceeds net of
offering costs, of $77,165,000.
- The repurchase of 930,266 shares of common stock using offering proceeds
of $14,884,000.
- The redemption of 20,000 shares of senior preferred stock with a
liquidation value of $20,000,000 net of issuance and warrant costs of
$932,000 and the payment of accumulated and unpaid dividends of
$2,739,000, using offering proceeds of $22,739,000.
F-23
<PAGE> 96
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- The application of the remaining proceeds from the offering of
$39,542,000 for the repayment of long-term obligations.
The unaudited pro forma consolidated statement of operations for the year
ended December 31, 1997 gives effect to (i) the conversion of junior preferred
stock into common stock and (ii) the sale of common stock in the offering and
the application of net proceeds thereof to the repurchase of certain shares of
common stock, the redemption of senior preferred stock and the repayment of
debt, as if all such transactions had been completed as of January 1, 1997 at
the initial public offering price of $16.00 per share, as follows:
- The elimination of interest expense associated with the $39,542,000 of
long-term obligations incurred on December 18, 1996 and repaid with the
net proceeds of the offering, and the elimination of the related income
tax benefit based on the combined federal and state statutory rate of
39%.
- The elimination of the dividends and the accretion of issuance costs on
the senior preferred stock redeemed with a portion of the net proceeds of
the offering and the junior preferred stock converted into common stock
in connection with the offering.
The pro forma consolidated financial information 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 December 31, 1997 as to the
pro forma balance sheet, or as of January 1, 1997 as to the statement of
operations, or to project the Company's results of operations in any future
period.
F-24
<PAGE> 97
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------
(IN THOUSANDS)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 6,675
Accounts receivable, less allowance for doubtful accounts
of $5,562.............................................. 35,705
Inventories............................................... 3,848
Prepaid expenses and other................................ 6,028
--------
Total current assets.............................. 52,256
Property, plant and equipment, net.......................... 66,804
Other assets:
Unallocated purchase price................................ 760
Cost in excess of net assets acquired, net................ 53,146
Other assets.............................................. 8,256
--------
Total assets...................................... $181,222
========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 5,029
Accrued salaries and benefits............................. 6,968
Accrued expenses.......................................... 2,311
Current maturities of long-term obligations............... 2,255
--------
Total current liabilities......................... 16,563
Long-term obligations, less current maturities.............. 52,166
Third-party settlements..................................... 7,255
Other liabilities........................................... 8,506
Minority interest........................................... 888
Mandatory redeemable preferred stock........................ --
Common stockholders' equity (deficit):
Common stock -- $0.01 par value, authorized 25,000,000,
issued and outstanding 13,009,768...................... 130
Additional paid-in-capital................................ 97,338
Retained deficit.......................................... (1,624)
--------
Total common stockholders' equity (deficit)....... 95,844
--------
Total liabilities, redeemable preferred stock and
common stockholders' equity...................... $181,222
========
</TABLE>
See accompanying notes.
F-25
<PAGE> 98
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------
PRO FORMA
(NOTE 10)
1997 1998 1998
-------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Revenue:
Net patient service revenue............................... $34,504 $42,750 $42,750
Management and professional services...................... 3,253 2,930 2,930
Reimbursable expenses..................................... 1,707 1,562 1,562
Other..................................................... 995 609 609
------- ------- -------
Net operating revenue............................. 40,459 47,851 47,851
Expenses:
Salaries, wages and benefits.............................. 15,400 18,606 18,606
Reimbursable expenses..................................... 1,707 1,562 1,562
Purchased services........................................ 5,045 6,035 6,035
Supplies.................................................. 3,817 4,627 4,627
Provision for doubtful accounts........................... 2,410 3,082 3,082
Other operating expenses.................................. 4,353 4,257 4,257
Rentals and leases........................................ 1,323 1,474 1,474
Depreciation and amortization............................. 1,770 2,205 2,205
Interest expense.......................................... 1,761 1,855 1,381
Minority interest......................................... 68 68 68
Loss on sale of assets.................................... 87 33 33
------- ------- -------
Total expenses.................................... 37,741 43,804 43,330
Income before provision for income taxes.................... 2,718 4,047 4,521
Provision for income taxes.................................. 1,211 1,772 1,961
------- ------- -------
Net income.................................................. 1,507 2,275 2,560
Preferred stock dividends and accretion..................... (1,115) (696) --
------- ------- -------
Net income to common shareholders........................... $ 392 $ 1,579 $ 2,560
======= ======= =======
Basic earnings per share to common shareholders:
Net income................................................ $ 0.28 $ 0.24 $ 0.20
Preferred stock dividends and accretion................... (0.21) (0.07) --
------- ------- -------
Net income to common shareholders......................... $ 0.07 $ 0.17 $ 0.20
======= ======= =======
Diluted earnings per share to common shareholders:
Net income................................................ $ 0.24 $ 0.23 $ 0.19
Preferred stock dividends and accretion................... (0.18) (0.07) --
------- ------- -------
Net income to common shareholders......................... $ 0.06 $ 0.16 $ 0.19
======= ======= =======
</TABLE>
See accompanying notes.
F-26
<PAGE> 99
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1997 1998
-------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:........ $ (1,264) $ 233
INVESTING ACTIVITIES
Purchase of property, plant and equipment................. (2,420) (2,524)
Net capital contributions and
withdrawals -- investments............................. (61) (15)
-------- -------
Net cash used in investing activities..................... (2,481) (2,539)
FINANCING ACTIVITIES
Proceeds from long-term debt.............................. -- 61,000
Repayments of debt........................................ (431) (95,649)
Net proceeds from issuance of common stock................ -- 77,067
Exchange of Junior Preferred Stock........................ -- (14,884)
Redemption of Senior Preferred Stock...................... -- (22,739)
-------- -------
Net cash provided by (used in) financing activities....... (431) 4,795
-------- -------
Net increase (decrease) in cash and cash equivalents...... (4,176) 2,489
Cash and cash equivalents at beginning of period.......... 11,256 4,186
-------- -------
Cash and cash equivalents at end of period................ $ 7,080 $ 6,675
======== =======
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid during the period........................... $ 1,433 $ 1,966
======== =======
Income taxes paid during the period....................... $ 41 $ 166
======== =======
NONCASH TRANSACTIONS
Dividends and accretion on preferred stock................ $ 1,115 $ 696
Conversion and redemption of preferred stock.............. -- 33,138
Property and equipment acquired through capital leases.... 706 --
</TABLE>
See accompanying notes.
F-27
<PAGE> 100
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1998
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. Interim results are not necessarily indicative of results
that may be expected for the full year.
In the opinion of management, the accompanying interim financial statements
contain all material adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the consolidated financial position,
results of operations and cash flows of Province Healthcare Company (the
"Company").
For further information, refer to the consolidated financial statements and
footnotes included herein.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income." The Statement requires that items required to be recognized as
components of comprehensive income be reported in a financial statement
displayed with the same prominence as other financial statements. The Statement
is effective for financial statements for fiscal years beginning after December
15, 1997. For the three month period ending March 31, 1998, the Company had no
comprehensive income components except for net income.
In June 1997, the FASB issued Statement 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 the
Company beginning with its December 31, 1998 financial statements. The Statement
affects only disclosures presented in the financial statements and will have no
effect on consolidated financial position or results of operations.
3. LONG-TERM DEBT
On March 30, 1998, the Company amended and restated its Credit Agreement
and increased its credit facilities to $260 million, including a five-year $35
million End-Loaded Lease Facility ("ELLF"). At March 31, 1998, the Company had
$48 million outstanding under its revolving line of credit and no amounts
outstanding under the ELLF.
The Amended and Restated 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 Amended and Restated 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 Amended and Restated Credit
Agreement is secured by substantially all assets of the Company.
F-28
<PAGE> 101
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (In thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
ACTUAL PRO FORMA
---------------- (NOTE 10)
1997 1998 1998
------- ------ ---------
<S> <C> <C> <C>
Numerator:
Net income............................................ $ 1,507 $2,275 $ 2,560
Preferred stock dividends and accretion............... (1,115) (696) --
------- ------ -------
Net income to common shareholders..................... $ 392 $1,579 $ 2,560
======= ====== =======
Denominator:
Denominator for basic earnings per share to common
shareholders -- weighted-average shares............ 5,371 9,343 13,010
Effect of dilutive securities --
Incentive stock options............................ 311 272 272
July stock issuance................................ 672 -- --
------- ------ -------
Denominator for diluted earnings per share......... 6,354 9,615 13,282
Basic earnings per share to common shareholders:
Net income............................................ $ 0.28 $ 0.24 $ 0.20
Preferred stock dividends and accretion............... (0.21) (0.07) --
------- ------ -------
Net income to common shareholders..................... $ 0.07 $ 0.17 $ 0.20
======= ====== =======
Diluted earnings per share to common shareholders:
Net income............................................ $ 0.24 $ 0.23 $ 0.19
Preferred stock dividends and accretion............... (0.18) (0.07) --
------- ------ -------
Net income to common shareholders..................... $ 0.06 $ 0.16 $ 0.19
======= ====== =======
</TABLE>
5. INCOME TAXES
The income tax provision recorded for the three months ended March 31, 1998
and 1997 differs from the expected income tax provision due to permanent
differences and the provision for state income taxes.
6. ACQUISITIONS
In August 1997, the Company acquired Colorado River Medical Center ("CRMC")
(formerly Needles Desert Communities Hospital) in Needles, California by paying
cash of $3,191,000 and assuming liabilities totaling $518,000. The operating
results of CRMC are included in the Company's results of operations from the
date of purchase; therefore, the results of operations for the first quarter of
1998 include CRMC.
7. 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.
F-29
<PAGE> 102
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GENERAL AND PROFESSIONAL LIABILITY RISKS
The reserve for the self-insured portion of general and professional
liability risks is included in "Other liabilities" and is based on actuarially
determined estimates.
LITIGATION
The Company currently, and from time to time, is expected to be subject to
claims and suits arising in the ordinary course of business.
NET PATIENT SERVICE REVENUE
Final determination of amounts earned under the Medicare and Medicaid
programs often occurs in subsequent periods because of audits by the programs,
rights of appeal and the application of numerous technical provisions.
FINANCIAL INSTRUMENTS
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. On March 10, 1997, as required by the Credit Agreement, 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. 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 three months ended March 31, 1998 and 1997, the Company
received a weighted average rate of 5.88% and 5.72% and paid a weighted average
rate of 6.27% and 6.27%, respectively.
8. STOCKHOLDERS' EQUITY
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
condensed consolidated financial statements and footnotes thereto have been
restated to reflect this reincorporation. As a result of the reincorporation,
$2,053,000 was reclassified from common stock to additional paid-in-capital upon
conversion from no par to $0.01 par value Common Stock.
PUBLIC OFFERING OF COMMON STOCK
On February 17, 1998, the Company closed its initial public offering of
common stock. In connection with the offering, the Series B redeemable junior
preferred stock was converted into common stock at the public offering price of
the common stock. The net proceeds from the offering were used to redeem the
outstanding balance of the Series A redeemable senior preferred stock plus
accrued dividends, reduce the balance of the outstanding term and revolving
credit loans, and repurchase a portion of the common stock which was issued upon
conversion of the Series B redeemable junior preferred stock.
F-30
<PAGE> 103
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the changes in the stockholders' equity
accounts as a result of the reincorporation and the initial public offering of
common stock (In thousands):
<TABLE>
<CAPTION>
NO PAR VALUE
COMMON STOCK
------------------- ADDITIONAL RETAINED
SHARES AMOUNT PAID-IN-CAPITAL DEFICIT TOTAL
---------- ------ --------------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997... 6,330,614 $2,116 $ -- ($3,172) $(1,056)
Reincorporation................ -- (2,053) 2,053 -- --
Conversion of the junior
preferred stock and initial
public offering of common
stock........................ 6,679,154 67 95,285 (31) 95,321
Preferred stock dividends and
accretion.................... -- -- -- (696) (696)
Net income..................... -- -- -- 2,275 2,275
---------- ------ ------- ------- -------
Balance at March 31, 1998...... 13,009,768 $ 130 $97,338 ($1,624) $95,844
========== ====== ======= ======= =======
</TABLE>
9. SUBSEQUENT EVENT
On May 1, 1998, the Company acquired the assets and business of Havasu
Samaritan Regional Hospital ("Havasu") in Lake Havasu City, Arizona for
approximately $105.5 million. To finance the acquisition, the Company borrowed
$106.0 million under its revolving credit facility. The acquisition will be
accounted for as a purchase business combination, and the results of operations
of Havasu will be included in the results of operations of the Company from the
purchase date forward.
On June 11, 1998, the Company acquired certain net assets and assumed
certain liabilities of Elko General Hospital ("Elko") for a purchase price of
$21.7 million. To finance the acquisition, the Company borrowed $22.0 million
under its revolving credit facility. The acquisition will be accounted for as a
purchase business combination, and the results of operations of Elko will be
included in the results of operations of the Company from the purchase date
forward.
10. PRO FORMA FINANCIAL INFORMATION
The condensed consolidated pro forma statement of income for the three
months ended March 31, 1998, gives effect to (i) the conversion of junior
preferred stock into common stock and (ii) the sale of common stock in the
offering and the application of net proceeds thereof to the repurchase of
certain shares of common stock, the redemption of senior preferred stock and the
repayment of debt, as if all such transactions had been completed as of January
1, 1998, at the initial public offering price of $16.00 per share, as follows:
-- The elimination of interest expense associated with the $39.5 million of
long-term obligations repaid with the net proceeds of the offering, and
the elimination of the related income tax benefit based on the combined
federal and state statutory rate of 39%.
-- The elimination of the dividends and the accretion of issuance costs on
the senior preferred stock redeemed with a portion of the net proceeds
of the offering, and the junior preferred stock converted into common
stock in connection with the offering.
The pro forma condensed consolidated financial information does not purport
to represent what the Company's results of operations would have been had such
transactions in fact occurred as of January 1, 1998, or to project the Company's
results of operations in any future period.
F-31
<PAGE> 104
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Brim, Inc.
We have audited the accompanying consolidated statements of income and cash
flows of Brim, Inc. and subsidiaries 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 results of operations and cash flows
of Brim, Inc. and subsidiaries 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
the second paragraph of
Note 10, as to which the date
is February 4, 1998
F-32
<PAGE> 105
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Brim, Inc.
We have audited the accompanying consolidated statements of income and cash
flows of Brim, Inc. and subsidiaries for the year ended December 31, 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 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 consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Brim, Inc. and subsidiaries for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Portland, Oregon
March 8, 1996
F-33
<PAGE> 106
BRIM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR ENDED JANUARY 1 TO
DECEMBER 31, 1995 DECEMBER 18, 1996
----------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Revenue:
Net patient service revenue............................ $ 75,871 $ 87,900
Management and professional services................... 19,567 18,330
Other.................................................. 5,776 6,370
-------- --------
Net operating revenue.......................... 101,214 112,600
-------- --------
Expenses:
Salaries, wages and benefits........................... 55,289 58,105
Purchased services..................................... 14,411 17,199
Supplies............................................... 10,143 11,218
Provision for doubtful accounts........................ 4,601 7,669
Other operating expenses............................... 8,030 8,674
Rentals and leases..................................... 3,555 4,491
Depreciation and amortization.......................... 1,964 1,773
Interest expense....................................... 738 1,675
Costs of recapitalization.............................. -- 8,951
(Gain) loss on sale of assets.......................... (2,814) 442
-------- --------
Total expenses................................. 95,917 120,197
-------- --------
Income (loss) from continuing operations before provision
for income taxes....................................... 5,297 (7,597)
Provision (benefit) for income taxes..................... 1,928 (2,290)
-------- --------
Income (loss) from continuing operations................. 3,369 (5,307)
Discontinued operations:
Income from discontinued operations, less applicable
income taxes........................................... 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.................. (264) 6,015
-------- --------
Net income............................................... $ 3,105 $ 708
======== ========
</TABLE>
See accompanying notes.
F-34
<PAGE> 107
BRIM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR ENDED JANUARY 1 TO
DECEMBER 31, 1995 DECEMBER 18, 1996
----------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 3,105 $ 708
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 2,631 1,773
Provision for doubtful accounts........................... 4,734 7,669
Loss (income) from investments............................ (86) 272
Deferred income taxes..................................... (137) (3,277)
Gain on sale of assets.................................... (2,608) (8,519)
Provision for professional liability...................... 301 468
Changes in operating assets and liabilities, net of
effects from acquisitions and disposals:
Accounts receivable..................................... (5,269) (5,899)
Inventories............................................. (140) (48)
Prepaid expenses and other.............................. 3,178 2,448
Accounts payable and accrued expenses................... (1,880) 3,450
Accrued salaries and benefits........................... -- 1,144
Third-party settlements................................. 62 245
Other liabilities....................................... 232 (214)
-------- --------
Net cash provided by operating activities................... 4,123 220
INVESTING ACTIVITIES
Purchase of property, plant and equipment................... (1,398) (12,642)
Net capital contributions and withdrawals -- investments.... (2,063) 1,775
Purchase of acquired company................................ (15,765) (1,763)
Proceeds from sale of assets................................ 20,607 21,957
Escrow deposit on facility purchase......................... (3,829) --
Other....................................................... 921 51
-------- --------
Net cash (used in) provided by investing activities......... (1,527) 9,378
FINANCING ACTIVITIES
Proceeds from long-term debt................................ 39 72,000
Repayments of debt.......................................... (2,048) (6,657)
Issuance of common stock.................................... 245 --
Repurchase of common stock.................................. (364) --
Recapitalization............................................ -- (49,400)
-------- --------
Net cash (used in) provided by financing activities......... (2,128) 15,943
-------- --------
Net increase in cash and cash equivalents................... 468 25,541
Cash and cash equivalents at beginning of year.............. 1,819 2,287
-------- --------
Cash and cash equivalents at end of year.................... $ 2,287 $ 27,828
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid during the year............................... $ 1,584 $ 558
======== ========
Income taxes paid during the year........................... $ 4,183 $ 2,288
======== ========
ACQUISITIONS
Fair value of assets acquired............................... $ 15,784 $ 3,092
Liabilities assumed......................................... (19) (1,329)
-------- --------
Cash paid................................................... $ 15,765 $ 1,763
======== ========
SALE OF ASSETS
Assets sold................................................. $ 17,791 $ 13,274
Liabilities released........................................ 505 155
Debt assumed by purchaser................................... (297) --
Gain on sale of assets...................................... 2,608 8,519
-------- --------
Cash received............................................... $ 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-35
<PAGE> 108
BRIM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 18, 1996
1. 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 2, the Company consummated a leveraged recapitalization on
December 18, 1996. Immediately thereafter, as more fully described in Note 10, 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 are presented on the historical cost basis
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.
PHC 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.
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.
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.
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.
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
F-36
<PAGE> 109
BRIM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 the year ended
December 31, 1995, and for the period January 1 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 $10,652,000
and $9,329,000 for the year ended December 31, 1995, and for the period January
1 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, 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.
RECLASSIFICATIONS
Certain reclassifications have been made in the 1995 consolidated financial
statements to conform to the 1996 presentation. These reclassifications had no
effect on the results of operations previously reported.
2. 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 Fund IV), and PHC. The basic elements of the
recapitalization of the Company included the following: GTCR Fund IV 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
F-37
<PAGE> 110
BRIM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 6),
and sold for cash certain real estate properties for a price of $406,500
plus assumption of debt of approximately $800,000 (see Note 3).
- GTCR Fund IV 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.
- 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 Fund IV 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.
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
F-38
<PAGE> 111
BRIM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
3. 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 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 6)
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 JANUARY 1 TO
DECEMBER 31, 1995(1) DECEMBER 18, 1996(2)
-------------------- --------------------
<S> <C> <C>
Total revenue...................................... $111,201 $113,433
Income from continuing operations.................. 3,849 (749)
</TABLE>
- ---------------
(1) Includes Parkview Regional Hospital and excludes the hospital divested in
1995.
(2) 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
results of operations of these businesses are not material to the consolidated
financial statements.
F-39
<PAGE> 112
BRIM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PATIENT SERVICE REVENUE
The Company has agreements with third-party payors that provide for
payments to the Company at amounts different from its established rates. A
summary of the payment arrangements with major third-party payors follows:
- Medicare -- Inpatient acute care services rendered to Medicare program
beneficiaries are paid at prospectively determined rates per diagnosis.
These rates vary according to a patient classification system that is
based on clinical, diagnostic, and other factors. Inpatient nonacute
services, certain outpatient services and medical education costs related
to Medicare beneficiaries are paid based on a cost reimbursement
methodology. The Company is reimbursed for cost reimbursable items at a
tentative rate with final settlement determined after submission of
annual cost reports by the Company and audits thereof by the Medicare
fiscal intermediary. The Company's classification of patients under the
Medicare program and the appropriateness of their admission are subject
to an independent review. The Company's Medicare cost reports have been
audited by the Medicare fiscal intermediary through December 31, 1993.
- Medicaid -- Inpatient and outpatient services rendered to Medicaid
program beneficiaries are reimbursed either under contracted rates or
reimbursed for cost reimbursable items at a tentative rate with final
settlement determined after submission of annual cost reports by the
Company and audits thereof by Medicaid. The Company's Medicaid cost
reports have been audited by the Medicaid fiscal intermediary through
December 31, 1993.
- Other -- The Company also has entered into payment agreements with
certain commercial insurance carriers, health maintenance organizations
and preferred provider organizations. The basis for payment to the
Company under these agreements includes prospectively determined rates
per discharge, discounts from established charges, and prospectively
determined daily rates.
Final determination of amounts earned under the Medicare and Medicaid
programs often occur in subsequent years because of audits by the programs,
rights of appeal and the application of numerous technical provisions.
Adjustments from finalization of prior year cost reports from both Medicare and
Medicaid resulted in an increase in patient service revenue of $788,000 for the
period January 1 to December 18, 1996.
F-40
<PAGE> 113
BRIM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. 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 PERIOD
YEAR ENDED JANUARY 1 TO
DECEMBER 31, 1995 DECEMBER 18, 1996
----------------- -----------------
<S> <C> <C>
Current:
Federal........................................ $1,580 $ 561
State.......................................... 334 134
------ -------
1,914 695
Deferred:
Federal........................................ 11 (2,411)
State.......................................... 3 (574)
------ -------
14 (2,985)
------ -------
$1,928 $(2,290)
====== =======
</TABLE>
The differences between the Company's effective income tax rate of 36.4%
and 30.2% from continuing operations for 1995 and 1996, respectively, and the
statutory federal income tax rate of 34.0% are as follows (In thousands):
<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR ENDED JANUARY 1 TO
DECEMBER 31, 1995 DECEMBER 18, 1996
----------------- -----------------
<S> <C> <C>
Statutory federal rate........................... $1,801 $(2,580)
State income taxes, net of federal income tax
benefit........................................ 222 (290)
Amortization of goodwill......................... 69 16
Change in valuation allowance.................... (141) (2)
Nondeductible recapitalization costs............. -- 298
Other............................................ (23) 268
------ -------
$1,928 $(2,290)
====== =======
</TABLE>
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. Finalization of the examination is not expected to have a significant
impact on the results of operations of the Company.
6. 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 $1,126,000 for the year ended December 31, 1995. Loss from
operations of this business segment was $146,000 for the year ended December
31,1995, 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 $155,000 for the year ended December 31, 1995. Loss
from operations of this business segment was $249,000 for the year ended
December 31, 1995, net of taxes. Loss on disposal of this business was $377,000,
net of taxes.
F-41
<PAGE> 114
BRIM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $19,422,000 and $18,598,000 for the year ended
December 31, 1995 and for the period January 1 to December 18, 1996,
respectively. Income from operations was $1,178,000 and $537,000, net of taxes,
for the year ended December 31, 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.
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
YEAR ENDED JANUARY 1 TO
DECEMBER 31, 1995 DECEMBER 18, 1996
----------------- -----------------
<S> <C> <C>
Income from discontinued operations.............. $ 1,284 $ 891
Applicable income taxes.......................... 501 354
------- ------
783 537
(Loss) gain on disposal of discontinued
operations..................................... (1,715) 8,961
Applicable income taxes.......................... (668) 3,483
------- ------
(1,047) 5,478
------- ------
Total.................................. $ (264) $6,015
======= ======
</TABLE>
7. 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-42
<PAGE> 115
BRIM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum payments at December 18, 1996, by year and in the aggregate,
under noncancellable operating leases with terms of one year or more consist of
the following (In thousands:)
<TABLE>
<S> <C>
1997........................................................ $ 3,369
1998........................................................ 2,768
1999........................................................ 2,180
2000........................................................ 1,862
2001........................................................ 1,784
Thereafter.................................................. 5,831
-------
Total minimum lease payments................................ $17,794
=======
</TABLE>
8. 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.
9. 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 $394,000 and $385,000 for the
year ended December 31, 1995 and for the period January 1 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 to December 18, 1996, respectively.
10. SUBSEQUENT EVENTS
Immediately after the recapitalization discussed in Note 2, 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. 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
common share data included in the footnotes to the consolidated financial
statements have been restated to reflect the stock split and the
reincorporation.
F-43
<PAGE> 116
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Samaritan Health System
dba Havasu Samaritan Regional Hospital
We have audited the accompanying balance sheets of Havasu Samaritan
Regional Hospital (an operating unit of Samaritan Health System) as of December
31, 1996 and 1997, and the related statements of operations and changes in net
assets, and cash flows for the three years in the period ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Havasu Samaritan Regional
Hospital at December 31, 1996 and 1997, and the results of its operations and
its cash flows for the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Phoenix, Arizona
May 5, 1998
F-44
<PAGE> 117
HAVASU SAMARITAN REGIONAL HOSPITAL
(AN OPERATING UNIT OF SAMARITAN HEALTH SYSTEM)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 5,500 $ 5,750
Accounts receivable, less allowance for doubtful accounts
of $618,000 in 1996 and in $1,159,000 in 1997.......... 1,834,095 3,049,331
Inventories............................................... 847,185 1,094,129
Other..................................................... 132,301 146,652
----------- -----------
Total current assets.............................. 2,819,081 4,295,862
Assets limited as to use.................................... 1,973,798 1,970,060
Property and equipment, net................................. 17,943,464 17,790,545
Other....................................................... 3,590,201 4,433,580
----------- -----------
Total assets...................................... $26,326,544 $28,490,047
=========== ===========
LIABILITIES AND NET ASSETS
Current liabilities:
Accounts payable.......................................... $ 840,712 $ 978,708
Accrued expenses.......................................... 3,326,066 943,729
Current portion of long-term debt......................... 597,700 636,620
----------- -----------
Total current liabilities......................... 4,764,478 2,559,057
Long-term debt, less current portion........................ 21,374,542 20,996,743
Net assets.................................................. 187,524 4,934,247
----------- -----------
Total liabilities and net assets.................. $26,326,544 $28,490,047
=========== ===========
</TABLE>
See accompanying notes.
F-45
<PAGE> 118
HAVASU SAMARITAN REGIONAL HOSPITAL
(AN OPERATING UNIT OF SAMARITAN HEALTH SYSTEM)
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Net health services............................... $36,987,398 $43,119,350 $55,101,188
----------- ----------- -----------
Total revenue............................. 36,987,398 43,119,350 55,101,188
Expenses:
Salaries, wages and benefits...................... 14,236,405 14,344,613 16,626,159
General and administrative........................ 5,917,715 7,124,119 9,995,088
Supplies.......................................... 5,016,343 5,724,295 7,457,270
Provision for doubtful accounts................... 2,860,514 3,768,725 4,541,100
Corporate allocated expenses...................... 3,596,293 4,411,531 4,411,536
Interest.......................................... 1,582,123 1,659,146 1,628,303
Depreciation and amortization..................... 1,654,855 1,631,557 1,688,330
----------- ----------- -----------
Total expenses............................ 34,864,248 38,663,986 46,347,786
Excess of revenue over expenses..................... 2,123,150 4,455,364 8,753,402
Equity realignments, net............................ (2,607,242) (5,989,351) (4,006,679)
----------- ----------- -----------
(Decrease) increase in net assets................... (484,092) (1,533,987) 4,746,723
Net assets, beginning of year....................... 2,205,603 1,721,511 187,524
----------- ----------- -----------
Net assets, end of year............................. $ 1,721,511 $ 187,524 $ 4,934,247
=========== =========== ===========
</TABLE>
See accompanying notes.
F-46
<PAGE> 119
HAVASU SAMARITAN REGIONAL HOSPITAL
(AN OPERATING UNIT OF SAMARITAN HEALTH SYSTEM)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------
1995 1996 1997
----------- ----------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
(Decrease) increase in net assets.................... $ (484,092) $(1,533,987) $4,746,723
Adjustments to reconcile (decrease) increase in net
assets to net cash (used in) provided by operating
activities:
Depreciation and amortization................... 1,654,855 1,631,557 1,688,330
Provision for doubtful accounts................. 2,860,514 3,768,725 4,541,100
Changes in operating assets and liabilities:
Increase in accounts receivable, net.......... (6,892,256) (1,904,207) (5,756,336)
Increase in inventories and other current
assets..................................... (45,295) (78,979) (261,295)
Increase (decrease) in accounts payable and
accrued expenses........................... 1,206,217 430,957 (2,244,341)
----------- ----------- ----------
Net cash (used in) provided by operating
activities...................................... (1,700,057) 2,314,066 2,714,181
INVESTING ACTIVITIES
Purchases of property and equipment, net........... (720,411) (1,990,210) (1,450,536)
Decrease in assets limited as to use............... 43,454 979 3,738
Decrease (increase) in other assets................ 2,657,570 (14,967) (928,254)
----------- ----------- ----------
Net cash provided by (used in) investing
activities...................................... 1,980,613 (2,004,198) (2,375,052)
FINANCING ACTIVITIES
Repayment of long-term debt........................ (280,356) (309,868) (338,879)
----------- ----------- ----------
Net cash used in financing activities.............. (280,356) (309,868) (338,879)
----------- ----------- ----------
Net increase in cash............................... 200 -- 250
Cash, beginning of year............................ 5,300 5,500 5,500
----------- ----------- ----------
Cash, end of year.................................. $ 5,500 $ 5,500 $ 5,750
=========== =========== ==========
</TABLE>
See accompanying notes.
F-47
<PAGE> 120
HAVASU SAMARITAN REGIONAL HOSPITAL
(AN OPERATING UNIT OF SAMARITAN HEALTH SYSTEM)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
ORGANIZATION
Havasu Samaritan Regional Hospital (Havasu) is an operating unit of
Samaritan Health System (Samaritan), a not-for-profit organization. Samaritan is
tax exempt under the provisions of the Internal Revenue Code and the Arizona
Revised Statutes. Havasu, an acute care health care provider, is located in Lake
Havasu, Arizona (see Subsequent Event note).
ACCOUNTING POLICIES
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 reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.
Accounts Receivable
Havasu receives payment for services rendered to patients under payment
arrangements with payors which include (i) Medicare and Arizona's Medicaid
program, Arizona Health Care Cost Containment System (AHCCCS), (ii) other third
party payors including commercial carriers, and health maintenance and preferred
provider organizations, and (iii) others. The following table summarizes the
percent of gross accounts receivable from all payors as of December 31:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Medicare and AHCCCS......................................... 46% 44%
Other Third Party........................................... 13 17
Other....................................................... 41 39
--- ---
100% 100%
=== ===
</TABLE>
Inventories
Inventories, consisting principally of supplies, are stated at the lower of
cost (first-in, first-out method) or market.
Property and Equipment
Property and equipment is stated at cost. Upon sale or retirement, cost and
related accumulated depreciation are eliminated from the respective accounts and
any resulting gain or loss is included in other revenue. Depreciation is
computed using the straight-line method over the estimated useful lives of the
respective assets.
Bond Issue Costs
Certain costs incurred in connection with long-term financing programs have
been deferred. Bond issue costs (included in other assets) are amortized using
the interest method over the life of the related bond issue.
F-48
<PAGE> 121
HAVASU SAMARITAN REGIONAL HOSPITAL
(AN OPERATING UNIT OF SAMARITAN HEALTH SYSTEM)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Goodwill
The excess of the purchase price over the fair value of net assets acquired
(included in other assets) is being amortized on a straight-line basis over 20
years. Havasu periodically assesses the recoverability of goodwill by comparing
the carrying amount of goodwill to the future benefits or undiscounted cash
flows derived from the asset.
Third Party Payor Settlements
The basis for payment to Havasu under its third party government and
private payor agreements include prospectively determined rates per discharge,
discounts from established charges, and prospectively determined daily rates.
Annually, Medicare cost reports are filed with the intermediary and are
subject to audit and adjustment prior to settlement. Estimates of final
settlements for all years through 1997 have been reflected in accrued expenses.
Revenue
Approximately 52 percent in 1995 and 1996 and 49 percent in 1997 of
Havasu's net health services revenue was derived from the Medicare and AHCCCS
programs, the continuation of which are dependent upon governmental policies.
Net health services revenue is reported at estimated net realizable amounts from
patients, third party payors, and others for services rendered. Contractual
adjustments resulting from agreements with various organizations to provide
services for amounts which differ from billed charges, including services under
the Medicare, AHCCCS, and certain managed care programs, are recorded as
deductions from health services revenue. Provision for doubtful accounts is made
when the related revenue is recorded. Accounts, when determined to be
uncollectible, are charged against the allowance for doubtful accounts.
Laws and regulations governing the Medicare and AHCCCS programs are complex
and subject to interpretation. Havasu believes that it is substantially in
compliance with all applicable laws and regulations and is not aware of any
pending or threatened investigations involving allegations of potential
wrongdoing which would have a material impact on Havasu's financial condition or
results of operations. While no such regulatory inquiries have been made,
compliance with such laws and regulations can be subject to future government
review and interpretation as well as significant regulatory action including
fines, penalties, and exclusion from the Medicare and AHCCCS programs.
ACCOUNTS RECEIVABLE SALE
At December 31, 1996, Samaritan had sold certain of its eligible accounts
receivable (including $5,484,143 of Havasu's accounts receivable), as defined,
to Hospital Billing and Collection Service, Ltd. (HBCS), a Delaware
not-for-profit cooperative. Proceeds from the sale were in the form of cash (see
Transactions with Affiliates note) and noninterest bearing subordinated notes.
Samaritan also purchased HBCS capital certificates. As of December 31, 1996,
$1,051,826 of noninterest bearing notes and $822,621 of capital certificates
were allocated to Havasu by Samaritan based on the ratio of Havasu's sold
accounts receivable to the aggregate accounts receivable portfolio sold to HBCS
(included in other assets). In conjunction with the sale, Samaritan was required
to repurchase from HBCS all accounts receivable which became uncollectible after
180 days (the recourse provision). Havasu estimated its liability under the
recourse provision to be $838,106 at December 31, 1996 (included in accrued
expenses). Effective July 1, 1997, Samaritan terminated its agreement with HBCS
and repurchased the sold receivables with proceeds from a short-term note from
First National
F-49
<PAGE> 122
HAVASU SAMARITAN REGIONAL HOSPITAL
(AN OPERATING UNIT OF SAMARITAN HEALTH SYSTEM)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Bank of Chicago (FNBC). This short-term note was subsequently repaid on
September 30, 1997, with proceeds from an accounts receivable sale to Preferred
Receivables Funding Corporation (PRFC), as described below.
At December 31, 1996, Samaritan had sold certain of its eligible accounts
receivable (including $2,843,671 of Havasu's accounts receivable), as defined,
to PRFC, with FNBC serving as agent. Proceeds from the sales were in the form of
cash (see Transactions with Affiliates note) and a noninterest bearing retained
collateralization. As of December 31, 1996, $656,223 of noninterest bearing
retained collateralization was allocated to Havasu by Samaritan based on the
ratio of Havasu's sold accounts receivable to the aggregate accounts receivable
portfolio sold to PRFC (included in other assets). In conjunction with the sale,
Samaritan was required to pay PRFC the amount of all accounts receivable which
became uncollectible or remained uncollected after 180 days. Havasu estimated
its liability under this provision to be $223,181 at December 31, 1996 (included
in accrued expenses).
Effective September 30, 1997, Samaritan amended its agreement with PRFC
effectively repurchasing the then sold receivables. Simultaneously, Samaritan
sold its accounts receivable (including approximately $9,782,000 of Havasu's
accounts receivable) to Samaritan Finance Company, LLC (SFC), a special purpose
subsidiary of Samaritan. SFC, in turn, simultaneously sold an undivided
percentage interest in a defined portion of the receivables to PRFC, with FNBC
serving as agent. Under the sale agreement, the receivables are sold without
recourse. Proceeds from the sale to FNBC were in the form of cash (see
Transactions with Affiliates note) and retained collateralization. As of
December 31, 1997, $3,462,839 of retained collateralization was allocated to
Havasu by Samaritan based on the ratio of Samaritan's total retained
collateralization to Samaritan's total accounts receivable portfolio sold to
FNBC, applied to Havasu's sold accounts receivable (included in other assets).
ASSETS LIMITED AS TO USE
Pursuant to the terms of bond indentures, Samaritan is required to maintain
amounts on deposit in separate accounts and with trustees. These funds can be
used only to satisfy obligations permitted by the respective agreements and are
invested primarily in governmental obligations that are stated at market. As of
December 31, 1996 and 1997, $1,992,851 and $2,011,598, respectively, of 1990B
Bond Reserve Funds (see Long-Term Debt note) were allocated to Havasu by
Samaritan based upon the estimated use of debt proceeds.
PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31 follows (see Assets Held
for Sale Note):
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Land................................................... $ 2,236,000 $ 2,236,000
Buildings and improvements............................. 8,658,393 9,451,460
Equipment and improvements............................. 18,513,643 20,453,411
------------ ------------
29,408,036 32,140,871
Amortization and accumulated depreciation.............. (12,910,126) (14,367,608)
------------ ------------
16,497,910 17,773,263
Construction in progress............................... 1,445,554 17,282
------------ ------------
$ 17,943,464 $ 17,790,545
============ ============
</TABLE>
F-50
<PAGE> 123
HAVASU SAMARITAN REGIONAL HOSPITAL
(AN OPERATING UNIT OF SAMARITAN HEALTH SYSTEM)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
OTHER ASSETS
A summary of other assets at December 31, follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Allocated bond issue costs.................................. $1,031,534 $1,031,534
Allocated HBCS subordinated notes and capital
certificates.............................................. 1,874,447 --
Allocated FNBC retained collateralization................... 656,223 3,462,839
Goodwill.................................................... 711,263 711,263
Other....................................................... 30,000 27,000
---------- ----------
4,303,467 5,232,636
Amortization................................................ (713,266) (799,056)
---------- ----------
$3,590,201 $4,433,580
========== ==========
</TABLE>
Bond issue costs were allocated to Havasu by Samaritan based upon the
estimated use of debt proceeds.
ACCRUED EXPENSES
A summary of accrued expenses at December 31, follows:
<TABLE>
<CAPTION>
1996 1997
---------- --------
<S> <C> <C>
Accrued payroll............................................. $ 559,696 $183,147
Interest payable............................................ 116,922 113,511
Third party payor settlement................................ 1,587,712 643,615
Accounts receivable sale recourse provision................. 1,061,287 --
Other....................................................... 449 3,456
---------- --------
$3,326,066 $943,729
========== ========
</TABLE>
LONG-TERM DEBT
A summary of long-term debt at December 31, follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Allocated Refunding Bonds-Series 1990B................... $22,876,620 $22,278,920
Unamortized discount-Series 1990B........................ (904,378) (645,557)
----------- -----------
21,972,242 21,633,363
Less current portion..................................... 597,700 636,620
----------- -----------
$21,374,542 $20,996,743
=========== ===========
</TABLE>
Refunding Bonds -- Series 1990B
During 1990, Samaritan issued tax-exempt Hospital System Revenue Refunding
Bonds, Series 1990B. $26,353,000 of the Series 1990B issuance was allocated to
Havasu by Samaritan based upon the estimated use of debt proceeds. The Bonds are
comprised of Serial Bonds, Term Bonds and Capital Appreciation Bonds. The Serial
and Term Bonds are due in annual installments through 2001 with additional
payments in 2004, 2005, 2013, 2016 and 2019. Interest is due semiannually at
fixed rates which range from 6.00 percent to 7.15 percent. The Capital
Appreciation Bonds will yield approximately 7.25 percent upon their maturity
during each of the years 2006 to 2009. The Bonds
F-51
<PAGE> 124
HAVASU SAMARITAN REGIONAL HOSPITAL
(AN OPERATING UNIT OF SAMARITAN HEALTH SYSTEM)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
are guaranteed by MBIA and are collateralized by substantially all of the
Obligated Group's, as defined, real property and fixed equipment.
In addition to the requirement that certain funds be established and held
by a trustee, bond indentures also place other restrictions on Samaritan,
including restrictions on dispositions of assets, maintenance of a minimum debt
service coverage ratio and days cash on hand, among others.
Havasu's allocated portion of the Refunding Bonds-Series 1990B fair market
value as of December 31, 1997 amounts to $25,049,000.
Future Maturities
Future maturities of Havasu's allocated portion of long-term debt, at
December 31, 1997, follow:
<TABLE>
<S> <C>
1998........................................................ $ 636,620
1999........................................................ 681,100
2000........................................................ 728,360
2001........................................................ 778,400
2002........................................................ 834,000
Thereafter.................................................. 17,974,883
-----------
$21,633,363
===========
</TABLE>
SAVINGS PLAN
Havasu participates in Samaritan's defined contribution plan for all
eligible employees. The plan permits each employee to contribute up to 15
percent of salary on a pretax basis subject to certain limitations under the
Internal Revenue Code. Under the plan, Samaritan provided a matching
contribution equal to a range of 60 percent to 100 percent for each participant
depending on length of service as defined under the plan. Effective January 1,
1997, the Plan was amended and renamed the Futura 401(k) Savings Plan (the
Futura Plan). The Futura Plan's participants include the eligible employees of
Samaritan and its affiliates; HealthPartners of Arizona, Inc., and
HealthPartners of Southern Arizona. Samaritan's match of participant
contributions under the Futura Plan was not changed by this amendment to the
Plan. Havasu's contributions to the plan totaled $293,632 in 1995, $489,924 in
1996 and $310,721 in 1997.
RETIREMENT PLAN
The Samaritan sponsored noncontributing defined benefit plan covering all
employees meeting eligibility requirements was frozen effective December 31,
1992. The frozen benefit accruals are based on years of service and employee's
five highest consecutive years of earnings during the last 10 calendar years
preceding retirement or termination. Samaritan's funding policy is to contribute
annually the amount recommended to satisfy the minimum funding requirements. As
of December 31, 1996 and 1997, Plan information has not been determined for
Havasu as an individual participant in the Plan.
INSURANCE PROGRAMS
Havasu participates in Samaritan's medical malpractice, general liability,
workers' compensation and discriminatory insurance coverage, provided through a
combination of purchased and self-insurance programs. Under its self-insurance
program, Samaritan self-insured the first $1,000,000 per occurrence for medical
malpractice limited in the aggregate to $12,000,000 annually for claims
F-52
<PAGE> 125
HAVASU SAMARITAN REGIONAL HOSPITAL
(AN OPERATING UNIT OF SAMARITAN HEALTH SYSTEM)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
made through May 31, 1993. Effective June 1, 1993, Samaritan began to self
insure the first $5,000,000 per occurrence for medical malpractice with no
aggregate limits. Insurance coverage has been purchased to cover payments in
excess of $5,000,000 per occurrence.
In connection with self-insurance programs, accounts have been established
by Samaritan and Samaritan Insurance Funding Ltd. (SIFL) for the purpose of
accumulating assets based on actuarial recommendations. These assets can be used
only for the payment of medical malpractice, general liability, workers'
compensation and discrimination claims, related expenses and the cost of
administering the accounts. It is Samaritan's policy to record the expense and
related liability for medical malpractice, general liability, workers'
compensation and discriminatory losses based upon actuarial estimates using a
discount rate of 7.0 percent in 1995 and 6.0 percent in 1996 and 1997. No
liabilities related to the self insurance programs are allocated to the
operating units of Samaritan, and no self insurance liabilities were allocated
to Havasu by Samaritan at December 31, 1996 or 1997. Self insurance expense is
allocated to Havasu by Samaritan with other overhead expenses (see Transactions
with Affiliates note).
COMMITMENTS AND CONTINGENCIES
Sale and Leaseback of Equipment Under This Lease
During 1994, Samaritan entered into a sale/leaseback transaction with a
financial institution covering various medical, computer and office equipment
that had been purchased during 1993 and 1994. The lease is for a period of 60
months with monthly lease payments. At December 31, 1996 and 1997 $880,076 of
Havasu's net equipment was leased under the Samaritan sale/leaseback
transaction. Subsequent to December 31, 1997, Samaritan repurchased Havasu's
equipment.
Amounts charged to expense for operating leases totaled $623,206 in 1995,
$660,529 in 1996 and $1,020,320 in 1997.
Year 2000 (Unaudited)
Some of Havasu's information systems and biomedical equipment have
time-sensitive software that will not properly recognize the year 2000. This
could result in a system failure or miscalculations causing disruption of
Havasu's operations. Havasu is currently completing an assessment and developing
a plan to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter.
TRANSACTIONS WITH AFFILIATES
Samaritan allocated corporate expenses of $3,596,293 in 1995, $4,411,531 in
1996 and $4,411,536 in 1997 to Havasu for management services. Corporate
expenses are allocated based on the ratio of Havasu's operating expenses to
Samaritan's consolidated operating expenses for the years ended December 31,
1995 and 1996. Corporate expenses allocated for the year ended December 31, 1997
remained constant with the December 31, 1996 allocated amount.
Havasu participates in Samaritan's centralized cash management function
whereby all of Havasu's cash receipts are deposited into Samaritan's corporate
cash accounts and Samaritan processes Havasu's cash disbursements. The
centralized cash management activity is recorded through the intercompany
balances.
At December 31, 1995, 1996 and 1997, Samaritan made net equity realignments
among its operating units through the elimination of certain intercompany
balances. These realignments were
F-53
<PAGE> 126
HAVASU SAMARITAN REGIONAL HOSPITAL
(AN OPERATING UNIT OF SAMARITAN HEALTH SYSTEM)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
recorded as decreases of $2,607,242, $5,989,351 and $4,006,679 in Havasu's net
assets at December 31, 1995, 1996 and 1997, respectively.
SUBSEQUENT EVENT
On May 1, 1998, Samaritan sold substantially all of the real and personal
assets of Havasu, excluding cash, accounts receivable, notes receivable, trust
fund assets and certain prepaid expenses, to Province Healthcare for
approximately $105,500,000.
F-54
<PAGE> 127
HAVASU SAMARITAN REGIONAL HOSPITAL
(AN OPERATING UNIT OF SAMARITAN HEALTH SYSTEM)
CONDENSED BALANCE SHEET (UNAUDITED)
MARCH 31, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash...................................................... $ 5,750
Accounts receivable, less allowance for doubtful accounts
of $974,000............................................ 3,767,756
Inventories............................................... 1,075,634
Other..................................................... 160,164
-----------
Total current assets.............................. 5,009,304
Assets limited as to use.................................... 1,978,248
Property and equipment, net................................. 18,665,620
Other....................................................... 6,003,846
-----------
Total assets...................................... $31,657,018
===========
LIABILITIES AND NET ASSETS
Current liabilities:
Accounts payable.......................................... $ 666,690
Accrued expenses.......................................... 510,587
Current portion of long-term debt......................... 636,620
-----------
Total current liabilities......................... 1,813,897
Long-term debt, less current portion........................ 21,061,883
Net assets.................................................. 8,781,238
-----------
Total liabilities and net assets.................. $31,657,018
===========
</TABLE>
See accompanying notes.
F-55
<PAGE> 128
HAVASU SAMARITAN REGIONAL HOSPITAL
(AN OPERATING UNIT OF SAMARITAN HEALTH SYSTEM)
CONDENSED STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------------
1997 1998
----------- -----------
<S> <C> <C>
Revenue:
Net health services....................................... $13,656,703 $15,168,436
----------- -----------
Total revenue..................................... 13,656,703 15,168,436
Expenses:
Salaries, wages and benefits.............................. 3,855,606 4,786,574
General and administrative................................ 2,218,094 2,380,442
Supplies.................................................. 1,930,190 2,217,844
Provision for doubtful accounts........................... 1,297,699 996,224
Corporate allocated expenses.............................. 1,102,884 1,102,884
Interest.................................................. 377,111 394,689
Depreciation and amortization............................. 404,384 458,840
----------- -----------
Total expenses.................................... 11,185,968 12,337,497
Excess of revenue over expenses............................. 2,470,735 2,830,939
Equity realignments, net.................................... 987,086 1,016,052
----------- -----------
Increase in net assets...................................... 3,457,821 3,846,991
Net assets, beginning of year............................... 187,524 4,934,247
----------- -----------
Net assets, end of year..................................... $ 3,645,345 $ 8,781,238
=========== ===========
</TABLE>
See accompanying notes.
F-56
<PAGE> 129
HAVASU SAMARITAN REGIONAL HOSPITAL
(AN OPERATING UNIT OF SAMARITAN HEALTH SYSTEM)
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Increase in net assets...................................... $3,457,821 $3,846,991
Adjustments to reconcile increase in net assets to net cash
provided by operating activities:
Depreciation and amortization............................. 404,384 458,840
Provision for doubtful accounts........................... 1,297,699 996,224
Changes in operating assets and liabilities:
Increase in accounts receivable, net................... (4,132,963) (1,714,649)
Decrease (increase) in inventories and other current
assets................................................ 84,376 (3,205)
Decrease in accounts payable and accrued expenses...... (513,395) (680,020)
---------- ----------
Net cash provided by operating activities.............. 597,922 2,904,181
INVESTING ACTIVITIES
Purchases of property and equipment, net.................... (597,586) (1,312,773)
Increase in other assets.................................... (336) (1,591,408)
---------- ----------
Net cash used in investing activities....................... (597,922) (2,904,181)
---------- ----------
Net increase in cash........................................ -- --
Cash, beginning of year..................................... 5,500 5,750
---------- ----------
Cash, end of year........................................... $ 5,500 $ 5,750
========== ==========
</TABLE>
See accompanying notes.
F-57
<PAGE> 130
HAVASU SAMARITAN REGIONAL HOSPITAL
(AN OPERATING UNIT OF SAMARITAN HEALTH SYSTEM)
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Havasu
Samaritan Regional Hospital (Havasu), an operating unit of Samaritan Health
System (Samaritan), 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 three months
ended March 31, 1998, are not necessarily indicative of the results that may be
expected for the year ended December 31, 1998. For further information, refer to
the 1997 financial statements and footnotes thereto included herein.
ACCOUNTS RECEIVABLE SALE
Effective September 30, 1997, Samaritan sold its accounts receivable
(including approximately $12,036,000 of Havasu's accounts receivable as of March
31, 1998) to Samaritan Finance Company, LLC (SFC), a special purpose subsidiary
of Samaritan. SFC, in turn, simultaneously sold an undivided percentage interest
in a defined portion of the receivables to Preferred Receivables Funding
Corporation, with First National Bank of Chicago (FNBC) serving as agent. Under
the sale agreement, the receivables are sold without recourse. Proceeds from the
sale to FNBC were in the form of cash (see Transactions with Affiliates note)
and retained collateralization. As of March 31, 1998, $5,055,000 of retained
collateralization was allocated to Havasu by Samaritan based on the ratio of
Samaritan's total retained collateralization to Samaritan's total accounts
receivable portfolio sold to FNBC, applied to Havasu's sold accounts receivable
(included in other assets).
TRANSACTIONS WITH AFFILIATES
Samaritan allocated corporate expenses of $1,102,884 in 1997 and 1998 to
Havasu for management services. Corporate expenses are allocated based on the
ratio of Havasu's operating expenses to Samaritan's consolidated operating
expenses for the three months ended March 31, 1997. Corporate expenses allocated
for the three months ended March 31, 1998 remained constant with the March 31,
1997 allocated amount.
Havasu participates in Samaritan's centralized cash management function
whereby all of Havasu's cash receipts are deposited into Samaritan's corporate
cash accounts and Samaritan processes Havasu's cash disbursements. The
centralized cash management activity is recorded through the intercompany
balances.
At March 31, 1997 and 1998, Samaritan made net equity realignments among
its operating units through the elimination of certain intercompany balances.
These realignments were recorded as increases of $987,086 and $1,016,052 in
Havasu's net assets at March 31, 1997 and 1998, respectively.
SUBSEQUENT EVENT
On May 1, 1998, Samaritan sold substantially all of the real and personal
assets of Havasu, excluding cash, accounts receivable, notes receivable, trust
fund assets and certain prepaid expenses, to Province Healthcare for
approximately $105,500,000.
F-58
<PAGE> 131
REPORT OF INDEPENDENT AUDITORS ON SCHEDULE
Board of Directors
Province Healthcare Company
We have audited the consolidated financial statements of Province
Healthcare Company and subsidiaries as of December 31, 1996 and 1997, and for
the period February 2, 1996 (date of inception) to December 31, 1996, and the
year ended December 31, 1997, and have issued our report thereon dated March 23,
1998 (included elsewhere in this Registration Statement). Our audit also
included the financial statement schedule 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
March 23, 1998
S-1
<PAGE> 132
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
BALANCE CHARGED TO BALANCE
AT TO OTHER (2) 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) $4,477
For the year ended December 31,
1997:
Allowance for doubtful accounts... 4,477 12,812 -- (12,540) 4,749
</TABLE>
- ---------------
(1) Allowances as a result of acquisitions.
(2) Uncollectible accounts written off, net of recoveries.
S-2
<PAGE> 133
======================================================
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, THE SELLING STOCKHOLDERS 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.................... 1
The Company........................... 7
The Recapitalization and the Merger... 7
Risk Factors.......................... 8
Use of Proceeds....................... 15
Dividend Policy....................... 15
Price Range of Common Stock........... 15
Capitalization........................ 16
Pro Forma Condensed Consolidated
Financial Statements................ 17
Selected Consolidated Financial
Data................................ 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 25
Business.............................. 37
Management............................ 52
Certain Relationships and Related
Transactions........................ 59
Principal and Selling Stockholders.... 61
Description of Capital Stock.......... 63
Shares Eligible for Future Sale....... 65
Underwriting.......................... 67
Legal Matters......................... 68
Experts............................... 68
Additional Information................ 69
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
3,570,000 Shares
PROVINCE HEALTHCARE LOGO
Common Stock
-------------------
PROSPECTUS
-------------------
BT Alex. Brown
BancAmerica Robertson Stephens
Goldman, Sachs & Co.
The Robinson-Humphrey
Company
, 1998
======================================================
<PAGE> 134
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......... $ 28,698
NASD Filing Fee............................................. 10,228
Blue Sky Fees and Expenses (including attorneys' fees and
expenses)................................................. 2,000
Printing and Engraving Expenses............................. 230,000
Transfer Agent's Fees and Expenses.......................... 8,000
Accounting Fees and Expenses................................ 160,000
Legal Fees and Expenses..................................... 150,000
Miscellaneous Expenses...................................... 11,074
--------
Total............................................. $600,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
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 provides 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 provides 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 another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
II-1
<PAGE> 135
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 Senior Preferred Stock, to Leeway & Co.; (ii) an
aggregate of 14,137 shares of its Junior Preferred Stock, 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.
From March 1997 to May 1998, the Company issued options to purchase an
aggregate of 704,403 (net of forfeitures) shares of Common Stock under the
Equity Incentive Plan, exercisable at a weighted average price of $13.71. As of
June 1998, no options had been exercised.
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>
<C> <C> <S>
1.1 -- Form of Underwriting Agreement between Province Healthcare
Company ("Province") and BT Alex. Brown Incorporated,
BancAmerica Robertson Stephens, Goldman, Sachs & Co. and The
Robinson-Humphrey Company LLC
2.1 -- Agreement and Plan of Merger, dated as of December 16, 1996,
between Brim, Inc. ("Brim") and Carryco, Inc. (1)
</TABLE>
II-2
<PAGE> 136
<TABLE>
<C> <C> <S>
2.2 -- Plan and Agreement of Merger, dated as of December 17, 1996, between Brim, Principal Hospital Company
("PHC") and Principal Merger Company(1)
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(1)
2.4 -- Amended and Restated Agreement and Plan of Merger, dated as of January 15, 1998, between Principal
Hospital Company and Province(1)
3.1 -- Amended and Restated Certificate of Incorporation of Province(1)
3.2 -- Amended and Restated Bylaws of the Province(1)
4.1 -- Form of Common Stock Certificate(1)
4.2 -- Securities Purchase Agreement, dated as of December 17, 1996, between Brim and Leeway & Co.(1)
4.3 -- First Amendment to Securities Purchase Agreement, dated as of September 30, 1997, between PHC and Leeway
& Co.(1)
4.4 -- Amended and Restated Credit Agreement, dated as of March 30,1998, among Province, First Union National
Bank, as Agent and Issuing Bank, and Various Lenders thereto(2)
4.5 -- Participation Agreement, dated as of March 30, 1998, among Province, as Construction Agent and Lessee,
various parties as Guarantors, First Security Bank, National Association, as Owner Trustee, various
banks party thereto, as Holders, various banks party thereto, as Lenders, and First Union National Bank,
as Agent.(2)
5.1 -- Opinion of Waller Lansden Dortch & Davis, PLLC 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 Fund IV") and PHC(1)
10.2 -- First Amendment to Investment Agreement, dated as of December 17, 1996, between Brim, GTCR Fund IV and
PHC(1)
10.3 -- Form of Investment Agreement Counterpart(1)
10.4 -- Preferred Stock Purchase Agreement, dated as of November 25, 1996, between Brim and General Electric
Capital Corporation(1)
10.5 -- Employment Agreement, dated as of December 17, 1996, by and between Steven P. Taylor and Brim(1)
10.6 -- Employment Agreement, dated as of December 17, 1996, by and between A.E. Brim and Brim(1)
10.7 -- Registration Agreement, dated as of December 17, 1996, by and among Brim, PHC, GTCR Fund IV, Leeway &
Co., First Union Corporation of America, AmSouth Bancorporation and certain other stockholders(1)
10.8 -- Senior Management Agreement, dated as of December 17, 1996, between Brim, Rash, GTCR Fund IV, Leeway &
Co. and PHC(1)
10.9 -- First Amendment to Senior Management Agreement, dated as of July 14, 1997, between the Company, Rash and
GTCR Fund IV(1)
10.10 -- Second Amendment to Senior Management Agreement, dated as of October 15, 1997, between the Company, Rash
and GTCR Fund IV(1)
10.11 -- Senior Management Agreement, dated as of December 17, 1996, between Brim, Gore, GTCR Fund IV, Leeway &
Co. and PHC(1)
10.12 -- First Amendment to Senior Management Agreement, dated as of July 14, 1997, between the Company, Gore and
GTCR Fund IV(1)
10.13 -- Second Amendment to Senior Management Agreement, dated as of October 15, 1997, between the Company, Gore
and GTCR Fund IV(1)
10.14 -- Lease and Security Agreement, dated April 11, 1994, as amended, by and between Nationwide Health
Properties, Inc. and Brim Hospitals, Inc.(1)
10.15 -- Lease Agreement, dated December 16, 1985, as amended, by and between Union Labor Hospital Association
and Brim Hospitals, Inc.(1)
</TABLE>
II-3
<PAGE> 137
<TABLE>
<C> <C> <S>
10.16 -- Lease Agreement, dated October 1, 1996, by and between County of Starke, State of Indiana, and Principal
Knox Company(1)
10.17 -- Lease Agreement, dated December 1, 1992, by and between Palo Verde Hospital Association and Brim
Hospitals, Inc.(1)
10.18 -- Lease Agreement, dated May 15, 1986, as amended, by and between Fort Morgan Community Hospital
Association and Brim Hospitals, Inc.(1)
10.19 -- Lease Agreement, dated April 24, 1996, as amended, by and between Parkview Regional Hospital, Inc. and
Brim Hospitals, Inc.(1)
10.20 -- Lease Agreement, dated December 17, 1996, between Brim and Encore Senior Living, L.L.C.(1)
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.(1)
10.22 -- Lease Agreement, dated as of March 30, 1998, between First Security Bank, National Association, as Owner
Trustee, and Province, as Lessee(2)
10.23 -- Principal Hospital Company 1997 Long-Term Equity Incentive Plan(1)
10.24 -- Amendment to the Principal Hospital Company Long-Term Equity Incentive Plan, effective March 24, 1998(3)
10.25 -- Province Healthcare Company Employee Stock Purchase Plan, effective March 24, 1998(3)
10.26 -- Asset Purchase Agreement, dated June 8, 1998, between the County of Elko and Province Healthcare Company
10.27 -- Agreement of Limited Partnership, dated July 17, 1996, between Principal Hospital Company, Palestine
Principal, Inc. and Mother Frances Hospital Regional Healthcare Center(1)
16.1 -- Letter of KPMG Peat Marwick, LLP regarding change in certifying accountants.(1)
21.1 -- Subsidiaries of the Registrant
23.1 -- Consent of Waller Lansden Dortch & Davis, PLLC (included in opinion filed as Exhibit 5.1)
23.2 -- Consent of Ernst & Young LLP
23.3 -- Consent of KPMG Peat Marwick LLP
24.1 -- Power of Attorney (included on signature page)
27.1 -- Financial Data Schedule (for SEC use only)
27.2 -- Financial Data Schedule (for SEC use only)
</TABLE>
- ---------------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1, Registration No. 333-34421.
(2) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1998, Commission File No. 0-23639.
(3) Incorporated by reference to the Company's Proxy Statement on Schedule 14A
dated May 11, 1998, Commission File No. 0-23639.
(b) Financial Statement Schedules.
Schedule II -- Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to every purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
II-4
<PAGE> 138
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> 139
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Brentwood, State of
Tennessee on June 11, 1998.
PROVINCE HEALTHCARE COMPANY
By: /s/ RICHARD D. GORE
------------------------------------
Richard D. Gore
Executive Vice President and Chief
Financial Officer
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Province Healthcare Company,
hereby severally constitute and appoint Richard D. Gore and Brenda B. Rector and
each of them singly, our true and lawful attorneys with full power to them, and
each of them singly, to sign for us and in our names in the capacities indicated
below, the Registration Statement on Form S-1 filed herewith, any and all
pre-effective and post-effective amendments to said Registration Statement, and
any registration statement filed pursuant to Rule 462(b) under the Securities
Act of 1933 and generally to do all such things in our names and on our behalf
in our capacities as officers and directors to enable Province Healthcare
Company to comply with the provisions of the Securities Act of 1933, as amended,
and all requirements of the Securities and Exchange Commission, hereby ratifying
and confirming our signatures as they may be signed by our said attorneys, or
any of them, to said Registration Statement and any and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on June 11, 1998, by the following
persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
/s/ MARTIN S. RASH President and Chief Executive Officer, Director
- ---------------------------------------------------
Martin S. Rash
/s/ RICHARD D. GORE Executive Vice President and Chief Financial
- --------------------------------------------------- Officer, Director
Richard D. Gore
/s/ BRENDA B. RECTOR Vice President and Controller (Chief Accounting
- --------------------------------------------------- Officer)
Brenda B. Rector
/s/ BRUCE V. RAUNER Director
- ---------------------------------------------------
Bruce V. Rauner
/s/ JOSEPH P. NOLAN Director
- ---------------------------------------------------
Joseph P. Nolan
/s/ A.E. BRIM Director
- ---------------------------------------------------
A.E. Brim
/s/ MICHAEL T. WILLIS Director
- ---------------------------------------------------
Michael T. Willis
/s/ DAVID L. STEFFY Director
- ---------------------------------------------------
David L. Steffy
</TABLE>
II-6
<PAGE> 1
EXHIBIT 1.1
________________ Shares
Province Healthcare Company
Common Stock
($0.01 Par Value)
UNDERWRITING AGREEMENT
_____________, 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"),
and certain stockholders of the Company (the "Selling Stockholders") propose 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 ______________ shares of the Company's Common Stock, $0.01 par value (the
"Firm Shares"), of which ___________ shares will be sold by the Company and
______________ shares will be sold by the Selling Stockholders. 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, and the respective amounts
to be sold by the Selling Stockholders are set forth opposite their names in
Schedule II hereto. The Company and the Selling Stockholders are sometimes
referred to herein collectively as the "Sellers." The Company also proposes to
sell at the Underwriters' option an aggregate of up to ____________ additional
shares of the Company's Common Stock (the "Option Shares") as set forth below.
As the Representatives, you have advised the Company and the Selling
Stockholders (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
<PAGE> 2
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."
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 AND THE SELLING
STOCKHOLDERS.
(a) The Company represents and warrants to each of the
Underwriters as follows:
(i) A registration statement on Form S-1 (File No. 333-
___________) 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.
(ii) 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
-2-
<PAGE> 3
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").
(iii) 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 III 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, or if such Corporate Subsidiary
is incorporated in the State of Oregon, such Corporate Subsidiary is
active on the records of the Corporate Division of the State of Oregon,
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 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(a)(iii), 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.
(iv) 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 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(a)(iv), 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
-3-
<PAGE> 4
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 partnership
agreements by the Company or any Subsidiary or, to the Company's
knowledge, any other party to such agreements.
(v) 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 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(a)(v), 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.
(vi) 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
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<PAGE> 5
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.
(vii) 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 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.
(viii) 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.
(ix) 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.
(x) 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
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<PAGE> 6
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
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.
(xi) 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.
(xii) 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.
(xiii) 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.
(xiv) 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.
(xv) 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
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<PAGE> 7
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
which are not disclosed in the Company's financial statements which are
included in the Registration Statement.
(xvi) 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.
(xvii) 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.
(xviii) 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
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<PAGE> 8
infringement by others of patents, patent rights, trade names,
trademarks or copyrights owned by or licensed to the Company or any
Subsidiary.
(xix) 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. The Company
acknowledges that the Underwriters may engage in passive market making
transactions in the Shares on the Nasdaq National Market in accordance
with Regulation M under the Exchange Act.
(xx) 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.
(xxi) 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.
(xxii) 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.
(xxiii) 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.
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<PAGE> 9
(xxiv) The Company's Common Stock is registered pursuant to
Section 12(g) of the Exchange Act and is listed on The Nasdaq National
Market and the Company has taken no action designed to, or likely to
have the effect or, terminating the registration of the Common Stock
under the Exchange Act or delisting the Common Stock from the Nasdaq
National Market, nor has the Company received any notification that the
Commission or the NASD is contemplating terminating such registration
or listing. The Company has filed in a timely manner all reports and
other information required to be filed with the Commission pursuant to
the Exchange Act since the Company has been subject to the reporting
requirements of the Exchange Act. The Shares have been approved for
listing, subject to notice of issuance, on the Nasdaq National Market.
(xxv) 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.
(xxvi) 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
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<PAGE> 10
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.
(xxvii) 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 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.
(xxviii) 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.
(xxix) 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
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<PAGE> 11
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 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 (xxix).
(xxx) 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.
(xxxi) 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
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<PAGE> 12
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.
(b) Each of the Selling Stockholders severally represents and
warrants as follows:
(i) Such Selling Stockholder now has and at the Closing Date
will have good and marketable title to the Firm Shares to be sold by
such Selling Stockholder, free and clear of any liens, encumbrances,
equities and claims whatsoever, and full right, power and authority to
effect the sale and delivery of such Firm Shares; and upon the delivery
of, against payment for, such Firm Shares pursuant to this Agreement,
the Underwriters will acquire good and marketable title thereto, free
and clear of any liens, encumbrances, equities and claims.
(ii) Such Selling Stockholder has duly executed and delivered
a power of attorney (the "Power of Attorney"), in the form heretofore
delivered to the Representatives, appointing Martin S. Rash and Richard
D. Gore, as such Selling Stockholders' attorneys-in-fact
("Attorney-in-Fact"), with authority to execute, deliver and perform on
behalf of such Selling Stockholder this Agreement and a custody
agreement ("Custody Agreement") in the form heretofore delivered to the
Representatives, with the Company, as custodian (the "Custodian"). Such
Selling Stockholder has full right, power and authority to execute and
deliver the Power of Attorney and to authorize the execution of this
Agreement and the Custody Agreement and to perform its obligations
under such agreements. The execution and delivery of this Agreement and
the consummation by such Selling Stockholder of the transactions herein
contemplated and the fulfillment by such Selling Stockholder of the
terms hereof will not require any consent, approval, authorization or
other order of any court, regulatory body, administrative agency or
other governmental body (except as may be required under the Act, or
state securities or Blue Sky laws) and will not result in a breach of
any of the terms and provisions of, or constitute a default under,
organizational documents of such Selling Stockholder, if not an
individual, or an indenture, mortgage, deed of trust or other agreement
or instrument to which such Selling Stockholder is a party, or of any
order, rule or regulation applicable to such Selling Stockholder of any
court or of any regulatory body or administrative agency or other
governmental body having jurisdiction.
(iii) Such Selling Stockholder has not taken and will not
take, directly or indirectly, any action designed to, or which has
constituted, or which might reasonably be expected to cause or result
in the stabilization or manipulation of the price of the Common Stock
of the Company and, other than as permitted by the Act, the Selling
Stockholder will not distribute any prospectus or other offering
material in connection with the offering of the Shares.
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<PAGE> 13
(iv) The information pertaining to such Selling Stockholder in
the Prospectus is complete and accurate in all material respects.
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 Sellers agree 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. The obligations of the
Company and each of the Selling Stockholders shall be several and not
joint.
(b) Certificates in negotiable form for the total number of
the Shares to be sold hereunder by the Selling Stockholders have been
placed in custody with the Custodian pursuant to the Custody Agreement
executed by the Attorney-in-Fact on behalf of each Selling Stockholder
for delivery of all Firm Shares to be sold hereunder by the Selling
Stockholders. Each of the Selling Stockholders specifically agrees that
the Firm Shares represented by the certificates held in custody for the
Selling Stockholders under the Custody Agreement are subject to the
interests of the Underwriters hereunder, that the arrangements made by
the Selling Stockholders for such custody are to that extent
irrevocable, and that the obligations of the Selling Stockholders
hereunder shall not be terminable by any act or deed of the Selling
Stockholders (or by any other person, firm or corporation including the
Company, the Custodian or the Underwriters) or by operation of law
(including the death of an individual Selling Stockholder or the
dissolution of a corporate Selling Stockholder) or by the occurrence of
any other event or events, except as set forth in the Custody
Agreement. If any such event should occur prior to the delivery to the
Underwriters of the Firm Shares hereunder, certificates for the Firm
Shares shall be delivered by the Custodian in accordance with the terms
and conditions of this Agreement as if such event has not occurred. The
Custodian is authorized to receive and acknowledge receipt of the
proceeds of sale of the Shares held by it against delivery of such
Shares.
(c) Payment for the Firm Shares to be sold hereunder is to be
made in immediately available funds by wire transfer to separate
accounts designated by the Company, one established in the name of the
Company for the shares sold by it and one established in the name of
the Company, "as Custodian" for the shares to be sold by the Selling
Stockholders, in each case 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.,
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
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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.
(d) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions
herein set forth, the Company hereby grants an option to the 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 public offering price set forth in the Prospectus.
The Representatives may from time to time thereafter change the public
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.
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<PAGE> 15
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 AND THE SELLING STOCKHOLDERS.
(a) The Company covenants and agrees with the several
Underwriters that:
(i) 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, (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 and (C)
file on a timely basis all reports and any definitive proxy or
information statements required to be filed by the Company with the
Commission subsequent to the date of the Prospectus and prior to the
termination of the offering of the Shares by the Underwriters.
(ii) 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.
(iii) 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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exceed nine months) as the Representatives may reasonably request for
distribution of the Shares.
(iv) 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.
(v) 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.
(vi) 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.
(vii) 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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<PAGE> 17
(viii) 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 90 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.
(ix) The Company will use its reasonable best efforts to list,
subject to notice of issuance, the Shares on the Nasdaq National
Market.
(x) 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 90 days after the date of this Agreement, directly or
indirectly, except with the prior written consent of BT Alex. Brown
Incorporated ("Lockup Agreements").
(xi) The Company shall apply the net proceeds of its sale of
the Shares substantially as set forth in the Prospectus.
(xii) 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").
(xiii) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a
registrar for the Common Stock.
(xiv) 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.
(b) Each of the Selling Stockholders covenants and agrees with the
several Underwriters that:
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<PAGE> 18
(i) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other capital stock of the
Company or other securities convertible, exchangeable or exercisable
for Common Stock or derivative of Common Stock owned by the Selling
Stockholder or request for the registration for the offer or sale of
any of the foregoing (or as to which the Selling Stockholder has the
right to direct the disposition of) will be made for a period of 90
days after the date of this Agreement, directly or indirectly, by such
Selling Stockholder otherwise than hereunder or with the prior written
consent of BT Alex. Brown Incorporated.
(ii) In order to document the Underwriters' compliance with
the reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 and the Interest and Dividend Tax Compliance
Act of 1983 with respect to the transactions herein contemplated, each
of the Selling Stockholders agrees to deliver to you prior to or at the
Closing Date a properly completed and executed United States Treasury
Department Form W-9 (or other applicable form or statement specified by
Treasury Department regulations in lieu thereof).
(iii) Such Selling Stockholder 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.
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. To the extent, if at all, that
any of the Selling Stockholders engage special legal counsel to
represent them in connection with this offering, the fees and expenses
of such counsel shall be borne by such Selling Stockholder. Any
transfer taxes imposed on the sale of the Shares to the several
Underwriters will be paid by the Sellers pro rata. The Sellers 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
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<PAGE> 19
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 or the Selling Stockholders 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 and the Selling Stockholders
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 and the Selling Stockholders contained
herein, and to the performance by the Company and the Selling
Stockholders 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 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 or
the Selling Stockholders, 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
Waller Lansden Dortch & Davis, a Professional Limited Liability Company
("Waller Lansden"), counsel for the Company and the Selling
Stockholders, 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
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<PAGE> 20
states of Oregon and Tennessee, and is active on the records
of the Corporation Division 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) 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 into any
shares of capital stock or of ownership interests in the
Corporate Subsidiaries are outstanding.
(iv) 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.
(v) 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.
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<PAGE> 21
(vi) 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 each such share issuance and transfer, the shares were
represented by a share certificate in the form of the specimen
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
with all applicable requirements of the General Corporation
Law of the State of Delaware.
(vii) 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.
(viii) 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 (the
"Effective Date") and such counsel has no knowledge that any
stop order suspending its
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<PAGE> 22
effectiveness has been issued or that any proceedings for that
purpose are pending before, or overtly threatened by, the
Commission.
(ix) 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.
(x) 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.
(xi) 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.
(xii) 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 Health Care Laws
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.
(xiii) 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.
(xiv) The descriptions of statutes, regulations and
documents under the captions "The Company," "The
Recapitalization and the Merger," "Risk Factors -- Effect of
Reimbursement and Payment Policies; Health Care Reform
Legislation," "Risk Factors -- Health Care Regulation,"
"Business -- Reimbursement,"
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<PAGE> 23
"Business -- Health Care Reform, Regulation and Licensing,"
"Management -- Employment Agreements," "Management--Long-Term
Incentive Plan," "Certain Relationships and Related
Transactions," "Description of Capital Stock," and "Shares
Eligible for Future Sale -- Registration Rights Agreement," in
the Prospectus have been reviewed by such counsel and fairly
summarize such statutes and regulations in all material
respects.
(xv) The Registration Statement, the Prospectus, and
each amendment or supplement thereto comply as to form in all
material respects with the requirements of the Act and the
applicable rules and regulations thereunder (except that such
counsel need express no opinion as to the financial statements
and related schedules therein).
(xvi) 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.
(xvii) 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.
(xviii) 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 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); (c) 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) 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.
(xix) 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.
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<PAGE> 24
(xx) 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 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 an exhibit 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); (c) 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) 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.
(xxi) Except as disclosed in the Prospectus, such
counsel is not aware of any holder of any security of the
Company or any other person who has the right, contractual or
otherwise, to have any securities of the Company included in
the Registration Statement, except for any such rights as
shall have been complied with or waived.
(xxii) This Agreement has been duly authorized,
executed and delivered on behalf of the Selling Stockholders.
(xxiii) Each Selling Stockholder has full legal
right, power and authority, and any approval required by law
(other than as required by State securities and Blue Sky laws
as to which such counsel need express no opinion), to sell,
assign, transfer and deliver the portion of the Shares to be
sold by such Selling Stockholder.
(xxiv) The Custody Agreement and the Power of
Attorney executed and delivered by or on behalf of each
Selling Stockholder is valid and binding.
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<PAGE> 25
(xxv) The Underwriters (assuming that they are bona
fide purchasers within the meaning of the Uniform Commercial
Code) have acquired good and marketable title to the Shares
being sold by each Selling Stockholder on the Closing Date,
and the Option Closing Date, as the case may be, free and
clear of all liens, encumbrances, equities and claims.
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 generally 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, (vii) those
applicable to the Company as an operator or hospitals and provider of
healthcare services, and (viii) state statutes, rules and regulations
relating to matters generally similar to (ii) through (vi) above.
In rendering such opinion Waller Lansden may rely as to
matters governed by laws of states other than Delaware or Tennessee 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. 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, at the time it became effective under the Act
(but after giving effect to any modifications incorporated therein
pursuant to Rule 430A under the Act) 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 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,
Waller Lansden may state that their belief is based upon the procedures
set forth therein, but is without independent check and verification.
(c) 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), (vi), (viii), (ix) and (xv) of
Paragraph (b) of this Section 6, and that the Company is validly
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<PAGE> 26
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
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.
(d) 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.
(e) 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;
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<PAGE> 27
(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;
(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.
(f) The Company and the Selling Stockholders 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.
(g) The Firm Shares and Option Shares, if any, have been
approved for designation upon notice of issuance on the Nasdaq National
Market.
(h) The Lockup Agreements described in Section 4(a)(x) 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 and the Selling Stockholders 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.
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<PAGE> 28
In such event, the Company, the Selling Stockholders 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 SELLERS.
The obligations of the Sellers to sell and deliver the portion
of the Shares required to be delivered as and when specified in this
Agreement are subject to the 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
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<PAGE> 29
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) The Selling Stockholders, severally and not jointly, agree
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 Selling
Stockholders 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(b) 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;
and provided, further, however, that such Selling Stockholder will be
liable hereunder in such case only if and 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 reliance upon and in conformity with information
pertaining to such Selling Stockholder, as such, furnished in writing
to the Company by such Selling Stockholder specifically for use in such
registration statement or prospectus. In no event, however, shall the
liability of any Selling Stockholder for indemnification under this
Section 8(b) exceed the proceeds received by such Selling Stockholder
from the Underwriters in the offering. This indemnity agreement will be
in addition to any liability which the Selling Stockholders may
otherwise have.
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(c) 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, the Selling
Stockholders and each person, if any, who controls the Company or the
Selling Stockholders within the meaning of the Act, against any losses,
claims, damages or liabilities to which the Company or any such
director, officer, Selling Stockholder 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 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, Selling Stockholder 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.
(d) 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), (b) or (c) or
contribution provided for in Section 8(e) shall be available to any
party who shall fail to give notice as provided in this Section 8(d) 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) (c) or
(e). 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
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<PAGE> 31
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 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) or (b)
and by the Company and the Selling Stockholders in the case of parties
indemnified pursuant to Section 8(c). 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.
(e) 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(d)) to hold harmless an
indemnified party under Section 8(a), (b) or (c) 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
and the Selling Stockholders 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 and the Selling Stockholders 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 and the Selling Stockholders on the one hand
and the Underwriters on the other shall be deemed to be in
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the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company and the Selling
Stockholders 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 and the Selling Stockholders 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, the Selling Stockholders and the Underwriters
agree that it would not be just and equitable if contributions pursuant
to this Section 8(e) were determined by pro rata allocation (even if
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(e). 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(e) 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 (e), (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, (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 and (iii) no Selling Stockholder
shall be required to contribute any amount in excess of the proceeds
received by such Selling Stockholder from the Underwriters in the
offering. The Underwriters' obligations in this Section 8(e) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) 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 an Underwriter, the Company or any
Selling Stockholder, shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this
Section 8.
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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 or a Selling Stockholder), 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 and the Selling Stockholders 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 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 and the Selling Stockholders 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 or of the Selling Stockholders 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 or to
the Selling
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<PAGE> 34
Stockholders, 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
Sellers 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
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, the Company and the Selling Stockholders 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.
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<PAGE> 35
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company, the Selling Stockholders 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.
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> 36
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
SELLING STOCKHOLDERS ON SCHEDULE II
By:
---------------------------------------
Attorney-in-Fact
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> 37
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 Underwriters (___)
</TABLE>
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<PAGE> 38
SCHEDULE II
SCHEDULE OF SELLING STOCKHOLDERS
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<PAGE> 39
SCHEDULE III
SCHEDULE OF SUBSIDIARIES
CORPORATE SUBSIDIARIES
Brim Equipment Services, Inc.
Brim Healthcare, Inc.
Brim Hospitals, Inc.
Brim Fifth Avenue, Inc.
Brim Pavilion, Inc.
Brim Outpatient Services, Inc.
Care Health Company, Inc.
InProNet, Inc.
Mexia-Principal, Inc.
Principal Hospital Company of Nevada, Inc.
PHC of Delaware, Inc.
Palestine-Principal G.P. Inc.
Palestine Principal, Inc.
Principal Knox Company
Principal Needles, Inc.
The Woodrum Group, Inc.
Brim Services Group, Inc.
Care Management, Inc.
Centennial Health Resources, Inc.
PARTNERSHIP SUBSIDIARIES
Mexia Principal Healthcare, L.P.
Palestine Principal Healthcare, L.P.
Scottsdale Limited Partnership
Harris Street Surgery Partners Limited Partnership
LLC SUBSIDIARIES
Community Health Partners, L.L.C.
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<PAGE> 40
SCHEDULE 1(a)(iii)
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SCHEDULE 1(a)(iv)
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SCHEDULE 1(a)(v)
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Exhibit 5.1
June 10, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Province Healthcare Company
Registration Statement on Form S-1
Ladies and Gentlemen:
We are acting as counsel to Province Healthcare Company, a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933 (the "Act") of an aggregate of 3,570,000 shares of the
Company's Common Stock, $0.01 par value per share (the "Shares"), pursuant to a
Registration Statement on Form S-1 (the "Registration Statement"). We have
examined and relied upon such records, documents and other instruments as in our
judgment are necessary and appropriate in order to express the opinion
hereinafter set forth, and have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, and the conformity
to original documents of all documents submitted to us as certified or
photostatic copies.
Based upon the foregoing, we are of the opinion that the Shares, when
issued and delivered in the manner and on the terms described in the
Registration Statement (after the Registration Statement is declared effective),
will be duly authorized, validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and further consent to the reference to us under the
caption "Legal Matters" in the prospectus included in the Registration
Statement.
Very truly yours,
Waller Lansden Dortch & Davis, PLLC
<PAGE> 1
EXHIBIT 10.26
ASSET PURCHASE AGREEMENT
*****
PROVINCE HEALTHCARE COMPANY
A DELAWARE CORPORATION
AS BUYER
--------
AND
THE COUNTY OF ELKO
A POLITICAL SUBDIVISION OF THE STATE OF NEVADA
AS SELLER
---------
DATED: JUNE 8, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Transfer of Assets.......................................................................................1
1.1 Transferred Assets..............................................................................1
1.2 Retained Assets.................................................................................3
2. Purchase Price...........................................................................................4
2.1 Amount..........................................................................................4
2.2 Payment of Purchase Price.......................................................................4
3. Assumption of Obligations................................................................................5
3.1 Obligations Assumed.............................................................................5
3.2 Obligations Not Assumed.........................................................................7
3.3 Mutual Indemnity................................................................................7
4. "As is," "where is"; No Knowledge of Defects.............................................................7
5. Representations and Warranties of Seller.................................................................8
5.1 Organization of Seller..........................................................................8
5.2 Authority.......................................................................................8
5.3 Financial Statements............................................................................8
5.4 Third Party Rights..............................................................................9
5.5 Governmental Consents...........................................................................9
5.6 Litigation......................................................................................9
5.7 Licenses and Permits............................................................................9
5.8 Compliance with Laws...........................................................................10
5.9 Employee Relations.............................................................................10
5.10 Assumed Contracts..............................................................................11
5.11 No Commission..................................................................................11
5.12 U.S. Persons...................................................................................11
5.13 Assets Used in the Operation of the Facilities.................................................11
5.14 Insurance......................................................................................11
5.15 Changes Since Interim Statements...............................................................12
5.16 Medical Staff..................................................................................12
5.17 Hill-Burton Care...............................................................................12
5.18 Taxes..........................................................................................12
5.19 Employee Benefit Plans.........................................................................12
5.20 Absence of Undisclosed Liabilities.............................................................13
5.21 No Agreements with Third Parties...............................................................13
5.22 Title to Personal Property.....................................................................13
5.23 Disclosure.....................................................................................13
</TABLE>
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<TABLE>
<S> <C> <C>
6. Obligations and Covenants of Seller.....................................................................13
6.1 Conduct of Business............................................................................14
6.2 Access and Information.........................................................................15
6.3 Encumbrances...................................................................................15
6.4 Consent of Others..............................................................................15
6.5 Seller's Efforts to Close......................................................................16
6.7 Insurance Coverage.............................................................................16
6.8 Notice of Developments.........................................................................16
7. Representations and Warranties of Buyer.................................................................16
7.1 Organization and Good Standing.................................................................16
7.2 Authority......................................................................................17
7.3 Consents.......................................................................................17
7.4 Financial Statements...........................................................................17
7.7 Due Diligence; Experience......................................................................18
7.8 No Commission; No Offer of Employment..........................................................18
8. Obligations and Covenants of Buyer......................................................................18
8.1 Consent of Others..............................................................................18
8.2 Inspection by Buyer............................................................................19
8.3 Buyer's Efforts to Close.......................................................................19
8.4 No Liens.......................................................................................19
8.5 Notice to Seller...............................................................................19
9. Conditions Precedent to Obligations of Buyer............................................................20
9.1 Accuracy of Warranties and Representations.....................................................20
9.2 Performance of Obligations.....................................................................20
9.3 [Intentionally left blank].....................................................................20
9.4 Third Party Consents...........................................................................20
9.5 Permits and Program Participation..............................................................20
9.6 Tax Matters....................................................................................20
9.7 Title Policy or Survey.........................................................................21
9.8 Instruments of Transfer........................................................................21
9.9 Officer's Certificate..........................................................................21
9.10 Certified Resolutions..........................................................................21
9.11 Opinion of Seller's Counsel....................................................................22
9.12 Adverse Action.................................................................................22
9.13 Payment of Certain Debt........................................................................22
9.14 Adverse Change.................................................................................22
10. Conditions Precedent to Obligations of Seller...........................................................22
10.1 Accuracy of Warranties and Representations.....................................................23
</TABLE>
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<TABLE>
<S> <C> <C>
10.2 Performance of Obligations.....................................................................23
10.3 Payment of Purchase Price......................................................................24
10.4 Officer's Certificate..........................................................................24
10.5 Certified Resolutions..........................................................................24
10.6 Opinion of Buyer's Counsel.....................................................................24
10.7 Adverse Action.................................................................................24
10.8 Advisory Board.................................................................................25
10.9 Contracts......................................................................................25
10.10 Adverse Change.................................................................................25
11. Closing.................................................................................................25
11.1 Pre-Closing....................................................................................25
11.2 Deliveries at Closing..........................................................................26
11.3 [Intentionally left blank].....................................................................26
12. Casualty and Condemnation...............................................................................26
12.1 Casualty.......................................................................................26
12.2 Condemnation...................................................................................26
13. Additional Covenants....................................................................................27
13.1 Further Documentation or Action................................................................27
13.2 Preservation of and Access to Records..........................................................28
13.3 Litigation Cooperation.........................................................................29
13.4 Allocation of Purchase Price...................................................................29
13.5 [Intentionally left blank].....................................................................29
13.6 Retained Assets and Receivables................................................................29
13.7 Cost Report Audits and Contests................................................................30
13.8 Filing Cost Reports: Amounts Due To or From Third Party Payors.................................31
13.9 Employee Matters...............................................................................31
13.10 Employee Benefit Plans.........................................................................32
13.11 Use of Controlled Substance Permits............................................................33
13.12 Advisory Board.................................................................................33
13.13 Charity and Indigent Care Policies.............................................................35
13.14 Continuation and Expansion of Services.........................................................35
13.15 Medical Staff Bylaws...........................................................................35
13.16 New Facility; Capital Commitment...............................................................35
13.17 Right of First Refusal; Purchase Option........................................................36
13.18 Hill Burton....................................................................................38
13.19 Disproportionate Share Payments................................................................38
14. Survival; Limitations ..................................................................................38
15. Remedies................................................................................................39
</TABLE>
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<TABLE>
<S> <C> <C>
16. Termination Prior to Closing............................................................................39
16.1 Termination Upon Certain Events................................................................39
16.2 Effect of Termination..........................................................................40
16.3 Liquidated Damages.............................................................................40
17. General Provisions......................................................................................41
17.1 Notices........................................................................................41
17.2 Form of Instruments............................................................................42
17.3 Attorneys' Fees................................................................................42
17.4 Time Is of the Essence.........................................................................42
17.5 Successors and Assigns.........................................................................43
17.6 Counterparts...................................................................................43
17.7 Captions and Paragraph Headings................................................................44
17.8 Entirety of Agreement, Amendments..............................................................44
17.9 Expenses; Prorations...........................................................................44
17.10 Construction...................................................................................45
17.11 Waiver.........................................................................................45
17.12 Severability...................................................................................45
17.13 Certain Definitions............................................................................45
17.14 Consents Not Unreasonably Withheld.............................................................51
17.15 Governing Law; Venue...........................................................................51
17.16 Tax and Medicare Effect........................................................................51
17.17 Misdirected Payments, Etc......................................................................51
17.18 Additional Assurances..........................................................................52
17.19 Public Announcements...........................................................................52
17.20 Force Majeure..................................................................................52
</TABLE>
(iv)
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of June 8, 1998, (the "Agreement Date") by and between THE COUNTY OF
ELKO, a political subdivision of the State of Nevada ("Seller"), and PROVINCE
HEALTHCARE COMPANY, a Delaware corporation ("Buyer")(Seller and Buyer being
referred to at times individually as a "Party" and collectively as "Parties"),
with reference to the following facts:
A. Seller owns that certain 50 bed general acute-care facility which is commonly
known as Elko General Hospital (the "Hospital") and certain outpatient centers,
clinics and other activities and businesses related thereto (collectively,
together with the Hospital and any activity or business conducted therewith, but
excluding the Retained Assets, the "Hospital Business").
B. Buyer desires to purchase from Seller, and Seller desires to sell to
Buyer, the Hospital Business, and all of the equipment, fixtures and other real
and personal property which are used in or necessary for the operation of the
Hospital Business (other than the Retained Assets), on the terms and conditions
set forth in this Agreement.
C. For purposes of this Agreement (and the Related Agreements except as
may be otherwise expressly stated therein) capitalized terms shall have the
meanings set forth or cross- referenced in Paragraph 17.13 hereof.
NOW, THEREFORE, in consideration of the foregoing recitals, and the
representations, warranties and covenants herein contained, and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Parties, intending to be legally bound, do hereby agree as
follows:
1. TRANSFER OF ASSETS
1.1 TRANSFERRED ASSETS
At the Closing, for the consideration hereinafter
provided, Seller shall sell, transfer, convey, assign and deliver to Buyer, and
Buyer shall purchase and accept from Seller, all of the assets and businesses
which are used in, or necessary for, the operation of the Hospital Business
(collectively, the "Transferred Assets"), including, without limiting the
generality of the foregoing, the following assets, but excluding all Retained
Assets:
(a) The real property upon which the Hospital is
situated, other than the real property referred to in Paragraph 1.2(b), together
with all improvements, construction work-in-progress, buildings and other
improvements thereon, and any and all of Seller's rights, privileges and
easements appurtenant thereto (the "Real Property"), all of which real property
is more specifically identified on Schedule 1.1(a).
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(b) The leasehold estates of Seller, as landlord or
tenant, and the related lease and sublease agreements (collectively, the "Real
Property Leases") with respect to the Real Property Leases, which are identified
on Schedule 1.1(b).
(c) All equipment and other tangible personal
property (other than cash and items of tangible personal property that are
consumed, disposed of or held for sale or are inventoried in the ordinary course
of business) related to the Hospital Business owned by Seller (the "Personal
Property"), including without limitation all equipment, furnishings, fixtures,
machinery, office furnishings, vehicles, instruments, leasehold improvements,
and spare parts, which Personal Property as of February, 1998, is more
specifically described on Schedule 1.1(c) provided to Buyer.
(d) All inventories of supplies, drugs, food,
janitorial and office supplies, maintenance and shop supplies and other
disposables (the "Inventory") related to the Hospital Business which are
existing as of the Closing Date (the "Purchased Inventory").
(e) All of Seller's right, title, and interest in, to
and under all written contracts, agreements, obligations, commitments or
covenants (other than the Real Property Leases and those contracts directly
relating to the Retained Assets or Excluded Liabilities) related to the Hospital
Business in force as of the Closing Date (i) that are set forth on Schedule
1.1(e), (ii) that are not included on Schedule 1.1(e) but relate to the Hospital
Business and which Buyer consents to assume, or (iii) with respect to the
Contracts which are entered into after the Agreement Date, as to which the
requirements of Paragraph 6.1(c) have been satisfied, (all such contracts,
agreements, obligations, commitments or covenants are collectively referred to
as the "Contracts").
(f) To the extent lawfully transferable, all of
Seller's rights to certificates of need, accreditations, registrations,
licenses, permits and other governmental consents or approvals necessary to or
intended for the operation of the Hospital Business as presently conducted by
Seller, including, without limitation those described on Schedule 1.1(f).
(g) All advance payments, prepayments, prepaid
expenses, escrows, deposits and similar assets of Seller related to the Hospital
Business (collectively, the "Prepaids"), which are existing as of the Closing
Date, the categories and amounts of which as of April 30, 1998 are set forth on
Schedule 1.1(g) provided to Buyer.
(h) Effective as of Closing and for so long as Buyer
uses the name, owns the Hospital and carries on the Hospital Business or owns
and carries on the Hospital Business at the New Facility, Buyer shall have an
exclusive, nontransferable, royalty free right to use the name "Elko General
Hospital" and all related names, marks, and logos used in connection with the
Hospital Business; provided, however, Seller disclaims any warranty of title or
noninfringement with respect to any names or marks forming part of the
Transferred Assets and assumes no obligation to register, defend or preserve
such name or mark, or the right to use the same.
(i) All unexpired warranties and covenants not to
compete to the extent transferable to Buyer, which Seller has received from
third parties with respect to the Transferred Assets, including, without
limitation, such warranties and covenants as are set forth in any construction
agreement, lease agreement, equipment purchase agreement, consulting agreement,
agreement for architectural and engineering services or purchase and sale
agreement.
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(j) Hospital Records (as defined in Paragraph 13.2),
including those that are maintained at the Hospital in the ordinary course of
business.
(k) All claims, choses in action, rights of recovery,
rights of set off, rights to refunds and similar rights pertaining to the
Transferred Assets.
(l) All Seller's rights in the following to the
extent used in the Hospital Business: Intangible assets of an intellectual
property nature, telephone numbers, proprietary computer software, if any,
clinical and policy and procedure manuals and promotional, marketing and
recruiting materials, and any applications or registrations relating to any of
the foregoing.
(m) Seller's rights respecting computer and data
processing software and hardware used by the Hospital and located at the
Hospital.
(n) The Receivables (as defined in Paragraph 17.13
below); provided, however, Seller shall not transfer, convey or assign to Buyer
the Medicare Receivables but rather Buyer shall have the right hereunder to have
transferred to it from Seller, upon Seller's receipt, all amounts which are or
may become due Seller as Medicare Receivables.
(o) Seller's rights, title and interest in and to any
disproportionate share payments from the State of Nevada under Nevada's Medicaid
program related to health care services provided at or through the Hospital for
periods commencing on or after the Closing Date (the "Dispro Payments");
conditioned upon satisfaction of the prerequisites set forth in Section 13.19.
The foregoing (except for the Retained Assets defined in Paragraph 1.2)
comprise substantially all of the property and assets used in the conduct and
operation of the Hospital Business as of the Agreement Date, including without
limitation, those assets reflected on Hospital's Interim Statements (except
Inventory used in the ordinary course of business) and any assets acquired for
use in connection with the Hospital Business between the date thereof and the
Closing Date.
1.2 RETAINED ASSETS
At the Closing, Seller shall retain the following
assets relating to the Hospital Business (the "Retained Assets"):
(a) All cash, cash equivalents, and other marketable
securities.
(b) The real property commonly referred to as the
alley strip and more specifically described on Schedule 1.2(b).
(c) All Cost Report Receivables.
(d) The accounts, notes or other amounts receivable
from Payors, patients, physicians or others arising from or in connection with
the operation of the Hospital Business that have been assigned by Seller to
another person for collection and are not included in the balance sheets of the
Hospital ("Excluded Receivables").
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(e) Such other assets, if any, specifically described
on Schedule 1.2(e).
(f) Seller's minute books, tax records and
Proprietary Documents (as defined in Paragraph 17.13).
(g) Such other assets owned or held by Seller which
are not used in or necessary for the operation of the Hospital or Hospital
Business.
Buyer acknowledges and agrees that Seller shall have
the right to remove, and may remove at any time prior to or following the
Closing Date (at Seller's expense, but without charge by Buyer for storage), all
or any part of the tangible Retained Assets; provided, however, that such
removal by Seller shall, whenever reasonably possible, take place during normal
business hours and with reasonable prior written notice to Buyer of the time
when such removal shall take place. Seller's employees, representatives and
agents shall conduct themselves during such removal process in such a manner so
that Buyer's normal business activities shall not be unduly or unnecessarily
disrupted thereby.
2. PURCHASE PRICE
2.1 AMOUNT
The monetary portion of the purchase price (the
"Purchase Price") to be paid by Buyer to Seller for the Transferred Assets shall
be equal to the sum of (a) Fifteen Million Five Hundred Thousand Dollars
($15,500,000) plus One Hundred Thirty-Four Thousand Nine Hundred Twenty-Five
Dollars ($134,925) for certain major Hospital equipment subject to purchase
orders entered after the date of the Confidentiality Agreement, as set forth on
Schedule 2.1(a), plus (b) an amount equal to the Net Working Capital as of the
Closing Date as determined in Paragraph 2.2(a) below, plus (c) the amount of
indebtedness of the Hospital Business to be paid by Seller on or before Closing
pursuant to Paragraph 9.13 ("Tax Exempt Debt"), plus (d) One Million Seven
Hundred Fifty Thousand Dollars ($1,750,000) as consideration for the Dispro
Payments (the "Dispro Payments Amount") and less (e) the amounts of the
indebtedness of Seller assumed by Buyer (if any) pursuant to Paragraph 3.1(d).
As additional consideration, Buyer shall perform its obligations hereunder,
including those relating to the New Facility, and Buyer shall assume, effective
as of the Closing Date, the Assumed Obligations. In addition, Buyer shall bear
the expense of repairing certain generator switches at Hospital and shall
reimburse Seller for reasonable expenses incurred prior to the Closing Date by
Seller related thereto.
2.2 PAYMENT OF PURCHASE PRICE
(a) Estimated Statement. On or before the Closing,
Seller shall prepare and deliver to Buyer an estimate of Net Working Capital and
Tax Exempt Debt (the "Estimated Statement") based upon the books and records of
Seller with respect to the Hospital Business for the most recent month ending
prior to the Closing for which data is available; provided, however, the value
of the Purchased Inventory shall be determined pursuant to Paragraph 2.2(b)
below. The Estimated Statement shall set forth Seller's estimate of the Net
Working Capital and Tax Exempt Debt as of the Closing Date. Except for the
Purchased Inventory, all determinations made with respect to the Estimated
Statement shall be based upon the internal records of, and the valuations
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customarily used by, Seller and shall be consistent with generally accepted
accounting principles as consistently applied by Seller ("GAAP"). The Purchase
Price, using the Net Working Capital figure and amount of Tax Exempt Debt
determined by reference to the Estimated Statement (the "Tentative Purchase
Price"), shall be paid to Seller by Buyer at the Closing as set forth in
Paragraph 2.2(c).
(b) Inventory. For the purposes of the Estimated
Statement, the Purchased Inventory shall be inventoried and valued with
reference to the April 30, 1998 balance sheet of the Hospital. Within twenty
(20) Business Days after the Closing, a physical inventory shall be conducted by
both parties of the Purchased Inventory as of the Closing Date. For purposes of
this Paragraph 2.2(b), (i) Purchased Inventory shall exclude damaged and
obsolete items, and (ii) the final valuation and any adjustments shall be
determined by the Accounting Firm pursuant to the Net Working Capital adjustment
process in Paragraph 2.2(d) based upon such physical inventory and reference to
the most recent invoice price for each item reflected thereby.
(c) Purchase Price Paid at Closing. At the Closing,
the Purchase Price shall be paid as follows:
(i) Buyer shall wire transfer immediately
available funds to one or more accounts designated by Seller prior to the
Closing in an amount equal to the Tentative Purchase Price less the Dispro
Payments Amount;
(ii) Buyer shall assume Seller's liabilities
under the Assumed Obligations by delivering to Seller an assignment and
assumption of the Assumed Obligations substantially in the form and substance of
Exhibit 2.2; and
(iii) Buyer shall execute and deliver to
Seller a promissory note in the stated principal amount of the Dispro Payments
Amount containing the terms and conditions described in Section 13.19 (the
"Dispro Payments Promissory Note").
(d) Final Post-Closing Purchase Price Adjustment.
Unless waived by mutual agreement of the Parties, the final calculation of Net
Working Capital and Tax Exempt Debt ("Final Report") as of the Closing Date
shall be determined by a mutually agreed upon independent accounting firm or
firms ("Accounting Firm") within 180 days of the Closing Date; provided,
however, the Purchased Inventory calculation shall be made as provided in
Paragraph 2.2(b). Accounting Firm shall follow such procedures, consistent with
GAAP and this Agreement (including without limitation the prorations in
Paragraph 17.9(b)), as it deems appropriate under the circumstances. Seller and
Buyer shall promptly make such information and personnel available as requested
by Accounting Firm and shall both cooperate to collect the Receivables, during
the time period with Buyer using all reasonable commercial collection efforts.
Within five (5) Business Days of receipt of the Final Report, Buyer shall pay
Seller or Seller shall pay Buyer, as the case may be, the difference between the
Estimated Statement and the Final Report. The Final Report by the Accounting
Firm shall establish the Purchase Price and shall be final and binding on all
Parties.
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3. ASSUMPTION OF OBLIGATIONS
3.1 OBLIGATIONS ASSUMED
Buyer shall assume, effective as of the Closing and
as part of the Purchase Price, and shall pay, discharge and perform as and when
due, each of the following obligations of Seller (the "Assumed Obligations"):
(a) All obligations and liabilities of Seller which
arise, first become due or payable, or are to be performed during any period
commencing on or after the Closing Date under the Contracts, Real Property
Leases or Permits (collectively, the "Assumed Contracts").
(b) All obligations and liabilities to the Hired
Employees (as defined in Paragraph 13.9) for paid time off (including vacation
pay and "paid days leave") and sick pay (both regular sick pay and extended sick
leave) through the Closing Date ("Paid Time Off"), together with all payroll
taxes or other Taxes (as defined in Paragraph 17.13) attributable or otherwise
payable with respect thereto (the amount of which Taxes shall be determined as
if the Paid Time Off were payable as of the Closing Date), whether or not the
foregoing have been recorded on the financial records of Seller, and all other
obligations and liabilities concerning employee matters to be assumed by Buyer
pursuant to Paragraph 13.9 or 13.10 (if applicable). Seller has provided Buyer
with a list of accrued Paid Time Off as of June 5, 1998 with respect to all
employees of the Hospital Business, which schedule includes all Paid Time Off
earned by such employees as of such date and also contains a summary of all of
the sick pay benefits made available by Seller to its employees.
(c) Any accrued and unpaid liabilities of Seller in
existence on the Closing Date, which were incurred in the ordinary course of the
operation of the Hospital Business, which represent the following current
liabilities (collectively, together with the liabilities and obligations for
Paid Time Off and related Taxes assumed under Paragraph 3.1(b), the "Accrued
Operating Expenses"): (i) trade payables incurred to suppliers of goods or
services, (ii) water, gas, electricity and other utility charges, (iii) license
fees, (iv) rent, common area maintenance charges, operating expenses and other
charges arising under the Real Property Leases, (v) insurance premiums, but only
with respect to policies that will be continued in force by Buyer after the
Closing, (vi) salaries and other payroll costs respecting Hired Employees
accrued in accordance with the normal accounting practices of Seller (but not
including accrued benefits with respect to Plans (as defined in Paragraph
17.13)), (vii) similar liabilities incurred in the ordinary course of the
operation of the Hospital Business and customarily recorded as a current
liability, other than the current portion of long term liabilities and
obligations, income taxes (whether deferred or currently payable) and the
obligations and liabilities specified in Paragraph 3.2, and (viii) any other
liabilities and obligations, if any, agreed to in writing by Buyer and Seller.
(d) All obligations and liabilities of Seller with
respect to indebtedness set forth on Schedule 3.1(d).
(e) Buyer acknowledges that as of the Closing Date
there will be patients located in the Hospital and Buyer will accept such
patients as patients of Buyer and will assume and accept responsibility and
liability (other than liability for acts and omissions of Seller prior to the
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Closing Date) for treating such patients; subject to Paragraph 13.8, all
revenues and expenses of such patients for periods from and after the Closing
Date shall become revenue and expenses of Buyer.
3.2 OBLIGATIONS NOT ASSUMED
Except for the Assumed Obligations, Buyer shall not assume or
become obligated with respect to any other obligation or liability of Seller of
any nature whatsoever (whether express or implied, fixed or contingent,
liquidated or unliquidated, known or unknown, due or to become due) (the
"Excluded Liabilities"). The Excluded Liabilities shall remain the sole
responsibility of Seller. Without limiting the generality of the foregoing,
Seller is retaining all rights and obligations related to, and Buyer assumes no
liability for or acquires no rights to, (a) the rights of Seller under any
pending litigation or asserted or unasserted claims against any Person (except
for claims related to Assumed Contracts or Transferred Assets which Buyer is
acquiring); (b) liabilities under any Plan (as defined in Paragraph 17.13)
covering Hospital employees as of the Closing Date or related to the termination
of participation in such Plan; (c) liabilities arising from the settlement of
cost reports of Seller, including "recapture" obligations; or (d) liabilities
related to the Tax Exempt Debt. In addition, Seller shall retain liability for
and have appropriate insurance or other coverage for professional liability
claims arising out of the Hospital Business prior to the Closing.
3.3 MUTUAL INDEMNITY.
Buyer shall defend, indemnify and hold Seller, its officers,
employees and agents (including without limitation, County Commissioners and the
Hospital Board of Trustees) harmless from any and all third party claims,
damages, liabilities, losses, costs, or expenses (including attorneys' fees)
("Claims") related to or arising out of the Transferred Assets, Assumed
Obligations or Hospital Business for periods from and after the Closing Date;
provided, however, Buyer shall not be so obligated to indemnify Seller with
respect to Claims described in subsection (iii) of the succeeding sentence.
Seller shall defend, indemnify and hold Buyer, its Affiliates, directors,
officers, employees and agents harmless from any and all Claims (i) related to
or arising out of the Retained Assets or the Excluded Liabilities, (ii) from any
and all Claims related to or arising out of the Hospital Business, Transferred
Assets or Assumed Obligations for periods prior to the Closing Date and (iii)
claims challenging Seller's authority to transfer, convey or assign to Buyer any
of the Transferred Assets or Buyer's assumption from Seller of the Assumed
Obligations.
4. "AS IS," "WHERE IS"; NO KNOWLEDGE OF DEFECTS
Buyer acknowledges that neither Seller, Hospital nor any of
their elected officials, officers, agents or employees has made any written or
oral representations or warranties to Buyer relating to the condition of any of
the Real Property, the Personal Property, the Inventory, or any rights or
property related thereto (for purposes of this Paragraph, collectively, the
"Property"), and except as to the representations and warranties expressly made
in Article 5 hereof and in the Deed, SELLER HEREBY DISCLAIMS ALL OTHER
WARRANTIES AND REPRESENTATIONS, INCLUDING WITHOUT LIMITATION ANY IMPLIED
WARRANTY OR REPRESENTATION AS TO FITNESS FOR ANY PARTICULAR PURPOSE,
MERCHANTABILITY, DESIGN, QUALITY, LAYOUT, FOOTAGE, PHYSICAL CONDITION,
OPERATION, COMPLIANCE WITH SPECIFICATIONS, ABSENCE OF UNKNOWN PHYSICAL DEFECTS
OR DAMAGE, OR ANY OTHER MATTER
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AFFECTING OR RELATED TO THE PROPERTY. WITHOUT LIMITING THE FOREGOING, SELLER
DOES NOT AND HAS NOT MADE ANY REPRESENTATION OR WARRANTY REGARDING THE PRESENCE
OR ABSENCE OF ANY HAZARDOUS MATERIALS ON, UNDER OR ABOUT THE PROPERTY OR THE
COMPLIANCE OR NON-COMPLIANCE OF THE PROPERTY WITH ANY ENVIRONMENTAL REGULATIONS.
SUBJECT TO THE FOREGOING, BUYER ACKNOWLEDGES THAT BUYER HAS INSPECTED AND WILL
INSPECT FURTHER, THE PROPERTY AND ACCEPTS THE PROPERTY "AS IS", "WHERE IS" AND
"WITH ALL FAULTS." SELLER IS NOT LIABLE OR BOUND IN ANY MANNER BY ANY VERBAL OR
WRITTEN STATEMENTS, REPRESENTATIONS, OR INFORMATION PERTAINING TO THE PROPERTY
FURNISHED BY ANY REAL ESTATE BROKER, AGENT, EMPLOYEE, SERVANT OR OTHER PERSON,
UNLESS THE SAME ARE SPECIFICALLY SET FORTH OR REFERRED TO HEREIN, AND SELLER
SHALL NOT BE LIABLE OR BOUND IN ANY MANNER BY ANY STATEMENT OR INFORMATION
CONTAINED IN ANY STUDIES OR REPORTS PROVIDED TO BUYER PURSUANT TO ANY PROVISIONS
OF THIS AGREEMENT, OR ANY OMISSION WITH RESPECT TO ANY SUCH STUDIES OR REPORTS.
NOTWITHSTANDING THE FOREGOING, SELLER DOES REPRESENT AND WARRANT TO BUYER THAT
TO SELLER'S KNOWLEDGE, EXCEPT AS DISCLOSED HEREIN, THERE IS NO PHYSICAL DEFECT
IN OR DAMAGE TO THE TRANSFERRED ASSETS WHICH WOULD HAVE MATERIAL ADVERSE EFFECT
ON THE HOSPITAL BUSINESS AFTER THE CLOSING.
5. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
5.1 ORGANIZATION OF SELLER
Seller is a validly existing political subdivision of
the State of Nevada.
5.2 AUTHORITY
(a) Seller has the full legal power and the authority
to execute and deliver this Agreement and all Related Agreements to which it is
a Party, to perform the obligations and covenants set forth herein and therein
and to carry out the transactions contemplated hereby and thereby; (b) the
execution and delivery of this Agreement and the Related Agreements by Seller
and the consummation of the transactions contemplated hereby or thereby have
been duly authorized by all necessary legal action on the part of Seller,
including approval by the Board of County Commissioners of Elko County, Nevada;
(c) this Agreement and the Related Agreements are legally valid and binding upon
and enforceable against Seller in accordance with their terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar Laws now or hereafter in effect relating to
creditors' rights generally and subject to the availability of equitable
remedies; and (d) the execution, delivery and performance of this Agreement and
all such Related Agreements and the consummation of the transactions
contemplated hereby and thereby will not violate any Law applicable to Seller or
any of the Transferred Assets.
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5.3 FINANCIAL STATEMENTS
(a) Financial Statements. Seller has provided Buyer
with true and complete copies of the audited balance sheets with respect to the
Hospital Business and the Transferred Assets as of June 30, 1995, 1996 and 1997
and the related statements of income for each fiscal year then ended (the "Prior
Years' Statements"), and (ii) the unaudited balance sheet with respect to the
Hospital Business and the Transferred Assets as of April 30, 1998 and the
related statements of income for the ten (10) months then ended (the "Interim
Statements"). The Prior Years' Statements and the Interim Statements are
collectively referred to as the "Financial Statements". Except as disclosed in
the Disclosure Memorandum hereto, the Financial Statements present fairly, in
all material respects, the financial position and results of operations with
respect to the Hospital Business and the Transferred Assets as of the dates and
for the periods indicated, in each case in conformity with GAAP throughout the
periods indicated.
(b) Qualifications to Unaudited Statements.
Notwithstanding the foregoing, the unaudited Financial Statements do not reflect
all adjustments and accruals, do not contain all footnotes or other explanatory
materials associated with financial statements prepared in accordance with GAAP
and do not contain normal and recurring year-end adjustments (provided such
adjustments, if included, would not have a Material Adverse Effect on the
financial position or results of operation of the Hospital Business). The
Financial Statements are to be read in conjunction with, and are subject to, all
notes and other explanatory materials set forth therein.
5.4 THIRD PARTY RIGHTS
Except for the governmental consents referred to in
Paragraph 5.5 and except as otherwise disclosed in the Disclosure Memorandum, as
of the Closing, Seller will have the right to transfer and assign to Buyer all
of its right, title and interest in and to the Transferred Assets without
obtaining the consent or approval of any other Person.
5.5 GOVERNMENTAL CONSENTS
Except as disclosed in the Disclosure Memorandum, no
consent, approval, authorization or order of, and no exemption by or filing
with, any court or governmental agency is required on behalf of Seller in
connection with the execution and delivery of this Agreement or any Related
Agreement, or the consummation and fulfillment by Seller of the transactions
contemplated hereby or thereby, or the performance by Seller of its obligations
hereunder or thereunder.
5.6 LITIGATION
Except as set forth in the Disclosure Memorandum, there are no
actions, suits, claims or proceedings pending or, to the Knowledge of Seller,
threatened against or affecting the Transferred Assets or relating to the
operations of the Hospital Business, at law or in equity, or before or by any
federal, state, municipal or other governmental department, commission, agency
or instrumentality which would have a Material Adverse Effect on the Transferred
Assets or prevent or materially delay the consummation of the transactions
contemplated hereunder.
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5.7 LICENSES AND PERMITS
Except as set forth in the Disclosure Memorandum,
Seller, in the name of the Hospital, possesses all certificates of need,
licenses, permits and other governmental consents and approvals (the "Permits")
necessary for the operation of the Hospital Business at the locations and in the
manner operated as of the Agreement Date. Except as otherwise disclosed in the
Disclosure Memorandum, the Hospital and such other components of the Hospital
Business as are set forth in the Disclosure Memorandum are fully accredited by
the Joint Commission on Accreditation of Healthcare Organizations ("JCAHO"), are
certified for participation in the Medicare, Medicaid and CHAMPUS programs, have
a current and valid provider contract with each such program and, to the
Seller's Knowledge, are in compliance with the conditions of participation in
each such program and with the indigent care conditions, if any, contained in or
related to any Permits obtained in connection with the Hospital Business. Except
as set forth in the Disclosure Memorandum, (a) to the Seller's Knowledge, Seller
has complied in all material respects with the terms and conditions of all such
Permits, accreditations and participations, and (b) there has occurred no event
nor is any event, action, investigation or proceeding pending or, to Seller's
Knowledge, threatened which could cause or permit revocation or suspension of or
otherwise adversely affect the maintenance of any such Permits, accreditations
or participations. Seller has previously delivered to Buyer true and complete
copies of the most recent JCAHO accreditation survey report and deficiency list,
if any, and all other such surveys and lists received by Seller since January 1,
1996; the most recent Statement of Deficiencies and Plan of Correction; the most
recent state licensing report and list of deficiencies, if any, and all other
such reports and lists received by Seller since January 1, 1996; the most recent
Medicare and Medicaid certification reports and list of deficiencies, if any,
and all other such reports and lists received by Seller since January 1, 1996;
the most recent fire marshal's survey and deficiency list, if any and all other
such surveys and lists received by Seller since January 1, 1996; and the
corresponding plans of correction or other responses to all such reports and
surveys; together with all correspondence in Seller's possession or under its
control relating to the foregoing reports, lists and surveys created from and
after January 1, 1996.
5.8 COMPLIANCE WITH LAWS
Except as disclosed in the Disclosure Memorandum, to
Seller's Knowledge the Hospital Business is in compliance with all applicable
Laws, the violation of which would have a Material Adverse Effect on the
Hospital Business or Transferred Assets; provided that Seller makes no
representations or warranties with respect to compliance with any Environmental
Regulations.
5.9 EMPLOYEE RELATIONS
Seller has provided Buyer with a list as of June 1,
1998 of all of Seller's employees at Hospital, their salary or wage rates,
department and job title or summary of responsibilities of such employees.
Except as set forth in the Disclosure Memorandum, Seller has not entered into
any written agreement with its employees providing for a specified employment
term. Except as disclosed in the Disclosure Memorandum, (a) neither Seller nor
the Hospital Business is a party to any agreement with any union, trade
association or other employee organization with respect to the employees of the
Hospital Business, (b) no demand has been made for recognition by a labor
organization with respect to any employees of the Hospital Business, (c) no
union organizing activities by or with respect to any such employees are taking
place, (d) there are currently no disputes, grievances, charges, complaints or
proceedings involving the employees of the Hospital Business, (e) the Hospital
Business has not suffered any strikes, slowdowns, walkouts, lockouts or
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any other interruptions or disruptions of operations as a result of labor
disturbances with respect to employees of the Hospital Business, (f) as of the
date of this Agreement, to Seller's Knowledge, the employee relations of Seller
with the employees of the Hospital Business as a group are satisfactory within
industry standards, (g) no union representation question exists with respect to
any employees of the Hospital Business, and (h) no collective bargaining
agreement is currently being negotiated by Seller with respect to the employees
of the Hospital Business.
5.10 ASSUMED CONTRACTS
Except as set forth in the Disclosure Memorandum,
with respect to Assumed Contracts, (a) to Seller's Knowledge, there is no
default by Seller under any Assumed Contract, (b) Seller has not received
written or other notice that any Person intends to cancel or terminate any
Assumed Contract or exercise or not exercise any right, remedy or other option
thereunder, (c) to the Seller's Knowledge, all of the Assumed Contracts are in
full force and effect without amendment or modification, (d) except for
obtaining consents from the other parties to the Assumed Contract to the
transfer of the Assumed Contracts from Seller to Buyer, the consummation of the
transactions contemplated by this Agreement and the Related Agreements will not
constitute and, to Seller's Knowledge, no event has occurred which, with or
without the passage of time or the giving of notice, would constitute a breach
or default by any Party to any such Assumed Contract or would cause the
acceleration of any obligation of any Party thereto or the creation of any Lien
upon any Transferred Asset, and (e) to the Seller's Knowledge, Seller has not
waived any material right under any Assumed Contract.
5.11 NO COMMISSION
Neither Seller nor any of its employees has employed,
contracted for the services of or authorized any broker, finder, investment
banker or other Person who would be entitled to receive a commission or fee with
respect to the consummation of the transactions contemplated hereby, and Seller
shall be solely responsible for any fees or commissions payable to any such
Person by reason of the actions (or alleged actions) of Seller or any of its
employees.
5.12 U.S. PERSONS
Seller is not a "foreign person" for purposes of
Section 1445 of the Internal Revenue Internal Revenue Code of 1986, as amended
(the "Internal Revenue Code"), or any other Laws requiring withholding of
amounts paid to foreign Persons.
5.13 ASSETS USED IN THE OPERATION OF THE FACILITIES
Except for the Retained Assets and Inventory disposed
of by Seller in the ordinary course of business since the date of the Interim
Statements, there are no assets or properties that are used in the conduct of
the operations of the Hospital Business which, individually or in the aggregate,
are necessary or useful for the operation of the Hospital Business that are not
included in the Transferred Assets.
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5.14 INSURANCE
The Disclosure Memorandum contains a list of all
policies of insurance held by (or programs of self-insurance maintained by)
Seller with respect to the Transferred Assets or Hospital Business which are
currently in effect (the "Insurance Policies"). The Disclosure Memorandum
specifies for each Insurance Policy whether it is a "claims made" or an
"occurrence basis" policy and whether, after the Closing, Seller will be
entitled to the benefits of such policies in accordance with their terms for
claims arising out of occurrences prior to the Closing.
5.15 CHANGES SINCE INTERIM STATEMENTS
Since the date of the Interim Statements, other than
as contemplated or permitted by this Agreement, Seller has conducted the
Hospital Business and the Transferred Assets in the ordinary and course of
business and, other than in contemplation or preparation for the closing of the
transactions anticipated to be consummated hereunder, and except as shown in the
Disclosure Memorandum, there has not been any change or loss, which could have a
Material Adverse Effect on the Hospital Business or Transferred Assets.
5.16 MEDICAL STAFF
Seller has previously delivered to Buyer, with
respect to the Hospital Business, (a) a true and correct copy of the blank forms
generally used with respect to medical staff privilege and membership
application or delineation of privileges; (b) the current Medical Staff Bylaws,
respecting the Hospital Business; (c) a list of all physicians and other health
professionals who were members of the medical staff on May 28, 1998 and the
corresponding privileges of each such medical staff member; and (d) all written
contracts with physicians, physician groups or other members of the medical
staff of the Hospital. Except as disclosed in the Disclosure Memorandum, no
proceedings are currently pending, or to Seller's knowledge, threatened, seeking
to remove or limit the privileges of any member of the medical staff of
Hospital.
5.17 HILL-BURTON CARE
Seller received loan a pursuant to the Public Health
Service Act, 42 U.S.C. Section 291 et seq. Seller has satisfied its obligations
under 42 C.F.R. 124, Subpart F, to provide uncompensated services and neither
Seller nor the Transferred Assets are subject to any further monetary
obligations thereunder, but Seller's obligation to provide community service
under 42 C.F.R. 124, Subpart G, continues.
5.18 TAXES
Seller's income is not subject to federal income tax.
Although Hospital's income and its properties are not currently subject to
Nevada state or local ad valorem taxes, no representation is made as to the post
Closing Taxes applicable to Buyer's ownership of Hospital.
5.19 EMPLOYEE BENEFIT PLANS
Except as disclosed in the Disclosure Memorandum,
Seller does not maintain, sponsor or make, nor is it required to make,
contributions to any Plans. True, correct, and complete copies of each of
Hospital's effective Plans, written personnel policies, and a list of each
Active
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Employee's base salary, accrued vacation, accrued sick leave, and insurance and
retirement plan status as of April 30, 1998, have been provided to Buyer. Seller
is not in default with respect to any payment required to be made pursuant to
any such Plan or with respect to any payment or other obligation due to any
Active Employee that would have a Material Adverse Effect on the Hospital
Business or the Transferred Assets. With respect to the Plans, except as
disclosed in the Disclosure Memorandum, to Seller's Knowledge (a) there have
been no prohibited transactions, breaches of fiduciary duty or other violations
of law by Seller that could subject Seller or Buyer to any liability; (b) such
plans are governmental plans as defined in the Code and ERISA; (c) there are no
pending claims, lawsuits or actions against Seller related to such Plans (other
than ordinary course claims for benefits); (d) Hospital has complied with
continuation coverage provisions of COBRA with respect to all current and former
employees. Seller hereby disclaims any representations or warranties relating to
the Public Employees Retirement System ("PERS"), as maintained by the State of
Nevada, except that Seller has or will make under PERS for Hospital employees
and Buyer will be indemnified by Seller for any liability for contributions to
PERS or otherwise under PERS as a result of consummation of this transaction.
5.20 ABSENCE OF UNDISCLOSED LIABILITIES
To the Knowledge of Seller, with respect to the
ownership, use and operation of the Hospital Business and the Transferred
Assets, Seller is not obligated for, nor are the Hospital Business or any of the
Transferred Assets subject to, any liabilities, whether known or unknown,
contingent or absolute, except those which were incurred in the ordinary course
of business and which do not have a Material Adverse Effect on the Hospital
Business or Transferred Assets, other than as disclosed to Buyer in the
Financial Statements and the Disclosure Memorandum.
5.21 NO AGREEMENTS WITH THIRD PARTIES
Seller has not entered into any letters of intent or
understandings which are presently in effect with any other Person with respect
to the sale or other disposition of the Hospital Business or the Transferred
Assets (other than Inventory in the ordinary course of business). Seller is not
party to any presently effective executory agreement with any Person (other than
Buyer) with respect to any such sale or disposition.
5.22 TITLE TO PERSONAL PROPERTY
As of Closing, Seller shall own and hold good title
or valid leasehold interest to all Personal Property which constitutes a portion
of the Transferred Assets and at Closing, upon payment of the Tax Exempt Debt,
Seller will convey to Buyer good title to all such owned Personal Property,
subject to no Lien, except for Liens related to the Assumed Obligations.
5.23 DISCLOSURE
This Agreement and the Disclosure Memorandum hereto
do not and will not contain any untrue statement of a material fact or omit any
material fact necessary to make the statements therein not misleading in any
material respect. As used in this Paragraph, "material" shall be interpreted in
the context of the transactions provided for herein or the operations of the
Hospital, taken as a whole, and not in the context of any single piece of
information provided hereunder.
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6. OBLIGATIONS AND COVENANTS OF SELLER
Seller hereby covenants and agrees as follows:
6.1 CONDUCT OF BUSINESS
From the date hereof to the Closing Date, Seller
agrees that, with respect to the Hospital Business, unless Buyer otherwise
consents in writing and except for actions taken pursuant to Assumed Contracts
in effect on the date hereof or which arise from or are related to the
anticipated transfer of the Transferred Assets or as otherwise contemplated by
this Agreement, Seller shall do or comply with each of the following subject to
the limitations set forth in this Paragraph 6.1 and the Disclosure Memorandum:
(a) Operate the Hospital Business substantially as
presently operated.
(b) Use its reasonable commercial efforts to preserve
the business organization of the Hospital Business intact and to preserve the
Hospital Business' relationships with physicians, patients, Payors, suppliers
and others having business relations with the Hospital Business.
(c) Not enter into any contract or amendment of a
contract (other than one which is described in Paragraph 1.1(e)(ii)) unless
Buyer has failed to disapprove of such contract or amendment in a written notice
to Seller given within five (5) Business Days of Seller's written notice to
Buyer of such proposed contract or amendment accompanied by a copy thereof.
Buyer's disapproval of such contract or amendment shall not be unreasonably
given nor delayed. Any contract or amendment entered into in compliance with
this Paragraph 6.1(c), including any contract permitted by the terms of this
Agreement, shall constitute an Assumed Contract for all purposes of this
Agreement as if it were originally set forth on Schedule 1.1(e).
(d) Maintain the Insurance Policies in full force and
effect.
(e) Except as required by their terms, not amend,
terminate, fail to renew or renegotiate any material contract that would be an
Assumed Contract as of the date hereof, except in the ordinary course of
business consistent with past practices, or default (or take or omit to take any
action that, with or without the giving of notice or passage of time, would
constitute a default) in any of its obligations under any such contracts that
would be an Assumed Contract as of the date hereof.
(f) Not (i) purchase, sell or transfer, or make any
contract for the purchase, sale or transfer of, any assets or properties which
would be included in the Transferred Assets other than Inventory in the ordinary
course of business; (ii) assign or transfer Receivables to collection agencies
in a manner inconsistent with past practice.
(g) Not grant any general or uniform increase in the
rates of pay or benefits to the employees of the Hospital Business (or a class
thereof) or an increase in salary or benefits for any managerial employee of the
Hospital Business, except as described on Schedule 6.1(g).
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(h) Maintain the Transferred Assets in the same
condition as of the date hereof, ordinary wear and tear excepted.
(i) Not take any actions which would cause any of
Seller's representations and warranties set forth in Paragraph 5 to be false as
of the Closing.
Nothing in this Paragraph 6.1 shall, without the
mutual written agreement of Buyer and Seller, obligate Seller to make
expenditures other than in the ordinary course of business. Nothing in this
Paragraph 6.1 shall obligate Seller to make any expenditures to restore or
replace the Real Property or equipment, except for normal, routine maintenance.
6.2 ACCESS AND INFORMATION
Subject to the restrictions set forth in that certain
Letter of Intent and Confidentiality Agreement (the "Confidentiality Agreement")
dated March 16, 1998, executed by Buyer and Seller, and provided that Buyer has
complied with the provisions thereof, Seller shall afford Buyer, and the
counsel, accountants and other representatives of Buyer, reasonable access to
and arrange interviews with, throughout the period from the date hereof to the
Closing, the Transferred Assets and the employees, personnel and medical staff
of the Hospital Business and all the properties, books, contracts, commitments,
cost reports and records of the Hospital Business (regardless of where such
information may be located). Such access shall be afforded after no less than 24
hours prior notice, during normal business hours and only in such manner so as
not to unreasonably disturb patient care or to interfere with the normal
operations of the Hospital Business. Seller may have one of its employees
present during all such times as Buyer is provided access as described in this
Paragraph. Seller also shall furnish to Buyer all such information concerning
the affairs of the Hospital Business as is in the possession or control of
Seller and as Buyer may reasonably request, including the right to have copies
and/or extracts of pertinent records, documents and contracts. In addition,
Seller shall provide such written consents and authorizations as may be
necessary for Buyer to have access to materials on file with governmental
agencies. Seller's covenants under this Paragraph are made with the
understanding that Buyer and any other Person provided with access to
information under this Paragraph shall use all such information in compliance
with the Confidentiality Agreement and all Laws. Neither Buyer nor any other
Person shall have access to employee records, Patient Records or any other
records to the extent that the disclosure of such records would be prohibited by
any Law, rule, regulation or accreditation standards.
6.3 ENCUMBRANCES
From the date hereof and until the Closing, Seller
shall not permit any new Lien to attach upon any of the Transferred Assets,
except for statutory liens for Taxes not yet delinquent and security interests
otherwise permitted pursuant to the provisions of this Agreement. The provisions
of this Paragraph shall not apply to any Liens resulting from acts or omissions
of Buyer.
6.4 CONSENT OF OTHERS
It shall be the responsibility of Buyer to use its
reasonable commercial efforts to obtain any consents required in connection with
the Permits referred to in Paragraph 8.1 (including
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Buyer's licensing requirements); provided, however, Seller shall cooperate with
Buyer in obtaining such consents, prior to and after the Closing so long as such
cooperation is at out-of-pocket cost to Seller.
6.5 SELLER'S EFFORTS TO CLOSE
Seller shall use its reasonable commercial efforts to
satisfy all the conditions precedent set forth in Paragraph 9 to the extent that
Seller's action or inaction can control or influence the satisfaction of such
conditions.
6.6 MONTHLY STATEMENTS
From the date hereof to the Closing, Seller shall
deliver to Buyer within fifteen (15) days after the end of each calendar month
copies of the unaudited balance sheet of the Hospital Business and the
Transferred Assets and the related statement of income for the immediately
preceding calendar month (all such balance sheets and statements of income shall
collectively be referred to as the "Monthly Statements").
6.7 INSURANCE COVERAGE
At or prior to the Closing, Seller shall have
delivered to Buyer written proof, satisfactory to Buyer, that Seller has general
liability and professional liability insurance coverage with respect to all
claims attributable to or arising out of the operation of the Hospital Business
or the Transferred Assets on or before the Closing, regardless of when any such
claims shall be made. At the Closing, Seller shall cause the insurer to issue
and deliver to Buyer a certificate evidencing coverage pursuant to the terms of
this Paragraph 6.7, and Seller shall cause each such insurance policy to contain
a clause requiring the insurer to give not less than thirty (30) days' prior
written notice to Buyer as a condition to any cancellation or modification of
such policy. Following the Closing, Seller shall pay all premiums and take all
other steps as may be reasonably necessary to maintain director and officer
liability insurance policies and pollution coverage in full force and effect for
a period measured by the shorter of the applicable statute of limitations period
plus 2 months or eighty-four (84) months or such lesser period as reasonably
agreed to by Buyer at or following the Closing. The Parties acknowledge that
Seller's general liability and professional liability insurance for the Hospital
is on an occurrence basis, for which no extended reporting period of coverage is
needed.
6.8 NOTICE OF DEVELOPMENTS
From the date hereof and until the Closing, (a)
Seller shall promptly notify Buyer of any material change with respect to the
operations of the Hospital Business or the condition of the Transferred Assets,
and (b) Seller shall, promptly upon becoming aware thereof, give notice to Buyer
of the occurrence of, or the threatened occurrence of, any event which would
cause or constitute a breach, or would have caused or constituted a breach, had
such event occurred or been known to Seller prior to the date of this Agreement,
of any of its covenants, agreements, representations or warranties contained or
referred to in this Agreement or in any Related Agreement.
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7. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants the following:
7.1 ORGANIZATION AND GOOD STANDING
Buyer is a corporation duly incorporated and validly
existing under the Laws of Delaware, and is authorized to exercise its corporate
powers, rights and privileges and is in good standing in, the State of Nevada
and has full corporate power to carry on its business as contemplated hereby and
to own or lease and operate its properties and assets now owned or leased and
operated by it.
7.2 AUTHORITY
Buyer has the full corporate power and authority to
execute and deliver this Agreement and any Related Agreements to which it is a
Party, to perform the obligations and covenants set forth herein and therein and
to carry out the transactions contemplated herein. This Agreement and any
Related Agreements are binding upon and enforceable against Buyer in accordance
with their terms except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar Laws now or hereafter in
effect relating to creditors' rights generally and except that the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding may be brought. The execution, delivery and performance of this
Agreement and any Related Agreements and the consummation of the transactions
contemplated hereby or thereby will not (a) violate any Law applicable to Buyer
or any of its assets, except for any violation which would not prevent or delay
in any material respect the consummation of the transactions contemplated hereby
or have a Material Adverse Effect on Buyer, (b) violate or conflict with any
provision of the Articles of Incorporation or Bylaws of Buyer, or (c) will not
conflict with or breach or constitute a default under any contract or
arrangement to which Buyer is a Party or by which it bound other than such
conflict, breach, or default that would not have a Material Adverse Effect on
Buyer.
7.3 CONSENTS
Except as disclosed on Schedule 7.3, no consent,
approval, authorization or order of, and no exemption by or filing with, any
person is required on behalf of Buyer in connection with the execution and
delivery of this Agreement or any Related Agreement, or the consummation and
fulfillment by Buyer of the transactions contemplated hereby or thereby, or the
performance by Buyer of its obligations hereunder or thereunder.
7.4 FINANCIAL STATEMENTS
The audited financial statements of Buyer for the
fiscal years ended December 31, 1996 and 1997, and previously delivered to
Seller, present fairly, in all material respects, the consolidated financial
position of Buyer and its subsidiaries and the consolidated results of their
operations and changes in financial position as of the dates and for the periods
indicated, in conformity with GAAP.
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7.5 ABSENCE OF CHANGES
Since December 31, 1997, Buyer has not suffered any
change or loss which would have a Material Adverse Effect on Buyer.
7.6 COMPLIANCE WITH LAWS
To Buyer's Knowledge, except as disclosed in Schedule
7.6, neither Buyer nor any of its subsidiaries is in violation of any law
applicable to it which violation could have a Material Adverse Effect on Buyer.
7.7 DUE DILIGENCE; EXPERIENCE
(a) Buyer has inspected such of Seller's records and
properties, including the Transferred Assets, as Buyer has deemed appropriate,
and to the degree Buyer has deemed appropriate in light of the risks and
liabilities Buyer is assuming under this Agreement;
(b) Buyer has had ample opportunity to utilize
experts and counsel to assist it in such inspections;
(c) Buyer is not relying on any verbal or written
representation or statement by Seller or anyone purporting to act on Seller's
behalf concerning the condition or value of any Transferred Asset, with Buyer
understanding that the only statements authorized by Seller to be made
concerning the Transferred Assets are made herein, and in the Deed; and
(d) Officers and employees of Buyer are experienced
and well qualified in the development, acquisition, construction, marketing and
operating of new and existing acute care hospitals and familiar with the service
area of the Hospital and the current state of the Hospital Business.
7.8 NO COMMISSION; NO OFFER OF EMPLOYMENT
None of Buyer, its Affiliates or any of their
officers or directors has employed, contracted for the services of, or
authorized any broker, finder, investment banker, or other Person who would be
entitled to receive a commission or fee with respect to the consummation of the
transactions contemplated hereby, and Buyer shall be solely responsible for any
fees or commissions payable to any such Person by reason of the actions (or
alleged actions) of Buyer, its Affiliates or any of their officers or directors.
Neither Buyer, its Affiliates nor any of their employees, officers or directors
has made or offered any contract of employment or other compensation to any
Person connected with Seller or the Hospital Business with respect to the
consummation of the transactions contemplated hereby (except as expressly
contemplated under Paragraph 13.9).
8. OBLIGATIONS AND COVENANTS OF BUYER
Buyer hereby covenants and agrees as follows:
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8.1 CONSENT OF OTHERS
As soon as reasonably practicable after the date of
this Agreement, and in any event prior to the Closing, Buyer shall use its
reasonable commercial efforts to obtain the consents required to be obtained by
Buyer hereunder of all necessary Persons (including governmental agencies having
jurisdiction over this transaction) to the consummation of the transactions
contemplated hereunder, including, without limitation, the Permits,
participations and accreditations referred to in Paragraph 9.5, and the
assignment of the Assumed Contracts; provided, however, it is understood that
the consents necessary to acquire, develop, construct and operate the New
Facility will be obtained after the Closing in accordance with Schedule 13.16.
Notwithstanding anything contained in this Agreement to the contrary, Seller
shall have no liability to Buyer for failing to obtain a consent to the transfer
of an Assumed Contract in respect of any Assumed Contract where Buyer has waived
obtaining consent or in respect of any Permit, participation and accreditation,
referred to in Paragraph 9.5.
8.2 INSPECTION BY BUYER
Buyer has commenced its due diligence investigation
and inspection of the Transferred Assets (structural, operational,
environmental, title or otherwise) and of the business, prospects and affairs of
the Transferred Assets and the Hospital Business (collectively, the
"Inspection"). All costs and expenses incurred in connection with the Inspection
shall be borne by Buyer. Buyer has obtained a preliminary title report (the
"Preliminary Title Report") issued by Stewart Title Company (the "Title
Company") with respect to the Real Property. Buyer and Seller acknowledge and
agree that any Environmental Survey of the Real Property prepared in connection
with this transaction prior to the date of this Agreement is only an initial
environmental site assessment (the "Phase I Assessment"), but will include, if
subsequently determined by Buyer to be necessary or prudent, any further
environmental investigation (including all remediation reports with respect
thereto, the "Phase II Investigation") of the Real Property and that thereafter
all references in this Agreement to the Environmental Survey shall mean both the
Phase I Assessment and all Phase II Investigations. Seller shall grant to Buyer
a right of access to the Real Property for the Inspection, which right shall
include the right to inspect, sample, test or perform any other service or
procedure reasonably necessary for the preparation of the Environmental Survey.
Buyer shall give Seller no less than 24 hours' notice before any of the
Inspections are conducted, and all Inspections shall be conducted during normal
business hours and in a manner so as not to unreasonably disturb patient care or
interfere with the normal operations of the Hospital Business unless otherwise
agreed by Buyer and Seller. Seller shall be permitted to have one of its
employees present during all Inspections, including, without limitation, all
Inspections of and sample gatherings (including borings) from the soil or any
floor tile, insulation or other internal component of the Real Property.
8.3 BUYER'S EFFORTS TO CLOSE
Buyer, shall use its reasonable commercial efforts to
satisfy all the conditions precedent set forth in Paragraph 10 to the extent
that Buyer's action or inaction can control or influence the satisfaction of
such conditions.
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8.4 NO LIENS
Buyer shall not cause or permit any Lien (including,
without limitation, any mechanic's or materialman's lien) to be filed against
any of the Real Property or the other Transferred Assets as a result of Buyer's
activities, acts or omissions (including, without limitation, the Inspections)
before the Closing.
8.5 NOTICE TO SELLER
Buyer shall notify Seller promptly if it become aware
prior to the Closing of (a) any event or condition which would cause Seller's
representations or warranties contained in this Agreement to be untrue or
inaccurate in any material respect, or (b) any material failure of Seller to
comply with or satisfy any covenants to be complied with or satisfied by Seller
hereunder.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligations of Buyer under this Agreement are subject to
the satisfaction or Buyer's waiver in writing, at or prior to the Closing, of
each of the following additional conditions:
9.1 ACCURACY OF WARRANTIES AND REPRESENTATIONS
Each of the representations and warranties of Seller
set forth in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and at and as of the Closing Date with the same
force and effect as though such representations and warranties had been made as
of the Closing Date.
9.2 PERFORMANCE OF OBLIGATIONS
Seller shall have performed all agreements and
covenants required by this Agreement to be performed by it on or prior to the
Closing.
9.3 [INTENTIONALLY LEFT BLANK]
9.4 THIRD PARTY CONSENTS
Buyer shall have received all necessary consents,
approvals and authorizations of third parties with respect to the assignment to
Buyer of all Assumed Contracts, if any, which have been requested by Buyer and
reasonably determined by Buyer to be material to the operation of the Hospital
Business. Subject to the provisions of Paragraph 6.4, Closing the transaction
contemplated hereunder shall constitute a waiver and release by Buyer of Seller
from any responsibility to obtain consents in regard to the Assumed Contracts.
9.5 PERMITS AND PROGRAM PARTICIPATION
Buyer shall have obtained (or received reasonable
assurances that it shall obtain within a reasonable time after the Closing) all
Permits and accreditations required for the operation of the Hospital Business
by Buyer following the Closing in substantially the same manner as currently
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operated, and Buyer shall have obtained (or received reasonable assurances that
it shall obtain within a reasonable period of time after the Closing) Medicare,
Medicaid and CHAMPUS certification of the Hospital Business and certification of
the participation by the Hospital Business in the programs of any other Payors
reasonably determined by Buyer to be of material importance to the Hospital
Business that will in each instance be effective as of the Closing, so that
after the Closing the Hospital Business may participate in or receive
reimbursement from all such programs effective as of the Closing.
9.6 TAX MATTERS
Seller shall have delivered to Buyer a duly executed
certificate of non-foreign status in the form required by Internal Revenue Code
ss.1445.
9.7 TITLE POLICY OR SURVEY
Buyer shall have received commitments satisfactory to
Buyer from the Title Company to issue as of the Closing Date an owner's (or
leasehold, in the case of leasehold estates) title insurance policy on Owner's
Policy Form 10-17-92 (with the standard "survey" exception deleted and matters
of survey reflected on the survey provided to such Title Company) for the Real
Property, together with improvements, buildings and fixtures thereon, in an
amount consistent with the parties' allocation of Purchase Price. The commitment
shall provide for the issuance of said policy to Buyer as of Closing together
with any endorsements thereto requested by Buyer and available in the State of
Nevada and shall insure good and marketable fee simple title (or leasehold
title, in the case of leasehold estates) to the Real Property in Buyer subject
only to the Permitted Encumbrances. Additionally, Buyer shall have received an
as-built survey of the Real Property acceptable to the Title Company for
purposes of deleting standard survey exceptions as provided above and reflecting
all improvements visible on the grounds and all easements, rights-of-way, means
of ingress or egress, encroachments and drainage ditches, whether abutting or
interior, or record or on the grounds. The survey shall reflect whether and to
the extent any portion of the Real Property lies within the 100-year flood
plain. The survey shall be certified to the Title Company and Buyer and shall be
in a form satisfactory to both. The costs of such title policy (including the
survey exception deletion) and survey shall be borne by Buyer.
9.8 INSTRUMENTS OF TRANSFER
At the Closing, Seller shall have delivered to Buyer
a Grant, Bargain and Sale Deed for the Real Property substantially in the form
attached hereto as Exhibit 9.8, and such bills of sale and assignments of the
Assumed Contracts which shall be effective to transfer to Buyer all of Seller's
right, title and interest in and to the Transferred Assets pursuant to the terms
of this Agreement and to permit the Title Company to issue the Title Policy
pursuant to Paragraph 9.7 hereof with respect to the Real Property. The bills of
sale and the assignment and assumption of the Assumed Contracts shall be
substantially in the form and substance of Exhibit 2.2.
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9.9 OFFICER'S CERTIFICATE
Seller shall have delivered to Buyer a certificate,
dated on the Closing Date, executed by the Chairman of the Elko County
Commissioners on behalf of Seller certifying as to the satisfaction of the
conditions set forth in Paragraphs 9.1 and 9.2.
9.10 CERTIFIED RESOLUTIONS
Seller shall have delivered to Buyer: (a) a copy of
the resolutions of the Board of County Commissioners of Elko County, Nevada,
authorizing the execution of this Agreement and the performance of the
transactions contemplated hereby which shall be certified as true, correct and
effective as of the Closing Date; and (b) an incumbency certificate from Seller
which shall be certified as true, correct and effective as of the Closing Date.
9.11 OPINION OF SELLER'S COUNSEL
Buyer shall have received an opinion from the Elko
County District Attorney's office, dated as of the Closing Date and addressed to
Buyer, regarding matters in Paragraphs 5.1, 5.2 and 5.6 and set forth in
Schedule 9.11 in regard to the laws of the State of Nevada, and from Fulbright &
Jaworski L.L.P. regarding the requirement to make a filing under the
Hart-Scott-Rodino Act, subject to customary conditions and limitations.
9.12 ADVERSE ACTION
No bona fide action or proceeding shall be pending
against either Buyer or Seller wherein an unfavorable judgment, decree or order
would prevent or make unlawful the carrying out of the transactions contemplated
by this Agreement or would compel Buyer's divestiture of all or any part of the
Transferred Assets or any other assets of Buyer or its Affiliates or otherwise
restrict Buyer's operation of the Transferred Assets; and no governmental agency
shall have notified either Buyer or Seller (which notice has not been withdrawn)
that the consummation of the transactions contemplated by this Agreement would
constitute a violation of the Laws of any jurisdiction or would compel Buyer's
divestiture of all or any part of the Transferred Assets or any other assets of
Buyer or its Affiliates or otherwise restrict Buyer's operation of the
Transferred Assets or that it has commenced or intends to commence proceedings
to restrain the consummation of the transactions contemplated hereunder.
9.13 PAYMENT OF CERTAIN DEBT
Seller shall have paid all outstanding Tax Exempt
Debt incurred in connection with the Transferred Assets or otherwise encumbering
the Transferred Assets or the revenues of the Hospital Business as specified in
Schedule 9.13.
9.14 ADVERSE CHANGE
There shall not have occurred after the date of this
Agreement any change that would be materially adverse to the results of
operations, financial condition, prospects or operations of the Hospital, except
to the extent contemplated by the Disclosure Memorandum and actions expressly
contemplated hereunder; Seller shall not have suffered any material loss or
damage to the Transferred Assets or the Hospital Business not covered by
insurance. Seller shall not (a) be in
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receivership or dissolution, (b) have made any assignment for the benefit of
creditors, (c) admitted in writing its inability to pay its debts as they
mature, (d) have been adjudicated a bankrupt or (e) have filed a petition in
voluntary bankruptcy, a petition or answer seeking reorganization, or an
arrangement with creditors under the federal bankruptcy law or any other similar
law or statutes of the United States or any state, nor shall any such petition
have been filed against it.
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
The obligations of Seller under this Agreement are subject to
the satisfaction or Seller's waiver in writing, at or prior to the Closing, of
each of the following additional conditions:
10.1 ACCURACY OF WARRANTIES AND REPRESENTATIONS
Each of the representations and warranties of Buyer
set forth in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and at and as of the Closing Date with the same
force and effect as though such representations and warranties had been made as
of the Closing Date.
10.2 PERFORMANCE OF OBLIGATIONS
Buyer shall have performed all agreements and
covenants required by this Agreement to be performed by it on or prior to the
Closing.
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10.3 PAYMENT OF PURCHASE PRICE
Buyer shall have delivered, or caused to be
delivered, to Seller at the Closing (a) the immediately available funds
described in Paragraph 2.2(c)(i), and (b) the assumption and undertaking of
Assumed Obligations referred to in Paragraph 2.2(c)(ii).
10.4 OFFICER'S CERTIFICATE
Buyer shall have delivered to Seller (a) a
certificate, dated the Closing, executed by its President or any duly authorized
Vice President, on behalf of Buyer certifying as to the satisfaction of the
conditions set forth in Paragraphs 10.1 and 10.2, and (b) a good standing
certificate for Buyer from the Delaware Secretary of State and qualification to
do business in Nevada from the Nevada Secretary of State, dated as of a date not
earlier than ten (10) Business Days prior to the Closing Date.
10.5 CERTIFIED RESOLUTIONS
Buyer shall have delivered to Seller: (a) the
resolutions of the Board of Directors of Buyer authorizing the execution of this
Agreement and the performance of the transactions contemplated hereby which
shall be certified as true, correct and effective as of the Closing Date by the
Secretary or Assistant Secretary of Buyer, and (b) an incumbency certificate of
Buyer which shall be certified as true, correct and effective as of the Closing
Date by the Secretary or Assistant Secretary of Buyer. Buyer shall deliver to
Seller, a certificate of corporate existence of Buyer from the state of its
incorporation and evidence of qualification to do business in Nevada, dated the
most recent practical date prior to the Closing.
10.6 OPINION OF BUYER'S COUNSEL
Seller shall have received an opinion from Waller
Lansden Dortch & Davis, A Professional Limited Liability Company, dated as of
the Closing Date and addressed to Seller, regarding the matters set forth in
Paragraphs 7.1 and 7.2, subject to customary conditions and limitations.
10.7 ADVERSE ACTION
No bona fide action or proceeding shall be pending
against either Buyer or Seller wherein an unfavorable judgment, decree or order
would prevent or make unlawful the carrying out of the transactions contemplated
by this Agreement or would compel Buyer's divestiture of all or any part of the
Transferred Assets or otherwise restrict Buyer's operation of the Transferred
Assets; and no governmental agency shall have notified either Buyer or Seller
(which notice has not been withdrawn) that the consummation of the transactions
contemplated by this Agreement would constitute a violation of the Laws of any
jurisdiction or would compel Buyer's divestiture of all or any part of the
Transferred Assets or otherwise restrict Buyer's operation of the Transferred
Assets or that it has commenced or intends to commence proceedings to restrain
the consummation of the transactions contemplated hereunder.
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10.8 ADVISORY BOARD
Pursuant to the Nevada Transfer Law, Buyer shall have
made appropriate provisions for an Advisory Board (as set forth in Paragraph
13.12) in the Articles of Incorporation of Buyer (or its permitted transferee
under Paragraph 17.5).
10.9 CONTRACTS
Buyer shall have entered into binding commitments on
terms satisfactory to Seller (a) to lease the ambulance barn property to Seller
or its designee, (b) to extend the jail food contract with the County of Elko,
and (c) to continue to provide space and services at the Hospital on the same
terms as of the date hereof to the (i) Auxiliary and (ii) to the extent legally
permissible, to the Hospice; and Buyer shall have executed the Capital
Construction Agreement, substantially in the form of Exhibit 13.16.
10.10 ADVERSE CHANGE
There shall not have occurred after the date of this
Agreement any change that would be materially adverse to the results of
operations, financial condition, prospects, or operations of the Buyer. Buyer
shall not (a) be in receivership or dissolution, (b) have made any assignment
for the benefit of creditors, (c) admitted in writing its inability to pay debts
as they mature, (d) have been adjudicated a bankrupt or (e) have filed a
petition in voluntary bankruptcy, a petition or answer seeking reorganization,
or any arrangement with creditors under the federal bankruptcy law or any other
similar law or statutes of the United States or any state, nor shall any such
petition have been filed against it.
11. CLOSING
The Closing shall take place on June 30, 1998, at Elko,
Nevada, at a time and a location mutually agreeable to the Parties, or such
sooner date as mutually acceptable to Buyer and Seller; provided all conditions
precedent to the Parties' obligations set forth in Paragraphs 9 and 10 shall
have been satisfied, waived or are capable of being performed as of such date.
If the conditions specified in this Agreement have not been fulfilled by such
date, subject to the limitation set forth in Paragraph 16.1(e), either Buyer or
Seller may defer the Closing for a reasonably necessary period or periods by
written notice to the other Party. The date on which the Closing actually occurs
shall be referred to herein as the "Closing Date". The Closing shall be
effective for all purposes as of 11:59 p.m. (determined by reference to the
Pacific time zone) on the day immediately preceding the Closing. The term
"Closing" as used in this Agreement shall mean the meeting of Buyer and Seller
at which the documents and instruments referred to in Paragraph 9.8 are
delivered to Buyer, the documents and funds referred to in Paragraph 10.2 are
delivered to Seller and the other actions required to be taken hereunder shall
have been taken.
11.1 PRE-CLOSING
A preclosing of the transactions contemplated
hereunder may, if either Party so elects, be held at a time and place mutually
agreeable to legal counsel to each of the Parties on the day preceding the
Closing Date.
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11.2 DELIVERIES AT CLOSING
At the Closing, Buyer shall cause the Purchase Price
referred to in Paragraph 2.2(c)(i) to be wired to the account or accounts
designated by Seller and, upon written confirmation from the sending bank that
said wire transfer has commenced (which written confirmation shall include the
confirmation number of such wire transfer), the Parties shall take the actions
set forth below:
(a) Seller shall deliver to Buyer the deeds and other
instruments of transfer, conveyance and assignment as described in Paragraph
9.8, the other agreements, documents and instruments referred to in Paragraph 9,
and a list of the source or access codes to computers, the combinations to any
safe and the location of any safe deposit boxes, together with the keys to any
of the foregoing.
(b) Buyer shall deliver to Seller the agreements,
certificates, documents and instruments referred to in Paragraph 10.
11.3 [INTENTIONALLY LEFT BLANK]
12. CASUALTY AND CONDEMNATION
12.1 CASUALTY
If any material part of the Transferred Assets are
damaged, lost or destroyed (whether by fire, theft, vandalism or other casualty)
in whole or in part prior to the Closing Date, Seller shall promptly notify
Buyer of the same. If the fair market value of such damage or destruction does
not exceed the lesser of $ 1,000,000 or 10% of the allocated portion of the
Purchase Price for such Transferred Assets set forth in Schedule 13.4, Seller
shall, at Buyer's option, either (a) reduce the Purchase Price by the net book
value of the assets destroyed, as reflected on the Interim Statements, or (b)
transfer the insurance proceeds or the rights to insurance proceeds of
applicable insurance to Buyer, and Buyer shall restore the improvements. If any
part of the Transferred Assets is damaged, lost or destroyed (whether by fire,
theft, vandalism or other cause or casualty) in whole or in part prior to the
Closing and the fair market value of such damages exceeds the lesser of $
1,000,000 or 10% of such allocated portion of the Purchase Price, Buyer may
elect either to (d) require Seller to transfer the proceeds (or the right to the
proceeds) of applicable insurance to Buyer, and Buyer shall restore the
improvements, or (e) terminate this Agreement by written notice to Seller within
ten (10) Business Days after Seller's delivery to Buyer of Seller's notice as
described above.
12.2 CONDEMNATION
From the date hereof and until the Closing, in the
event that any material portion of the Transferred Assets (including access
thereto or parking therefor) is taken, reduced or restricted by any pending,
threatened or contemplated condemnation or eminent domain proceeding or
otherwise, then Buyer, at its sole discretion, may elect to terminate this
Agreement by written notice to Seller within five (5) Business Days after the
date that Buyer receives notice of the taking or threatened taking.
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13. ADDITIONAL COVENANTS
The following provisions shall apply, and the following
actions shall be taken, prior to or subsequent to the Closing:
13.1 FURTHER DOCUMENTATION OR ACTION
From time to time, at the request of either Party,
whether on or after the Closing, without further consideration, either Party, at
its expense and within a reasonable amount of time after request hereunder is
made, shall execute and deliver such further instruments of assignment and
transfer and take such other action as may be reasonably required to assign and
transfer more effectively the Transferred Assets to Buyer in a manner consistent
with the terms and conditions of this Agreement, deliver or make the payment of
the Purchase Price to Seller or any amounts due from one Party to the other
pursuant to the terms or this Agreement, confirm Seller's ownership of the
Retained Assets or otherwise carry out the purposes of any provision of this
Agreement. Notwithstanding anything contained in this Agreement to the contrary,
this Agreement shall not constitute an agreement to assign any Transferred
Asset, or assume any Assumed Obligation, if the attempted assignment or
assumption of the same, as a result of the absence of a consent or authorization
of a third party, would constitute a breach or default under any lease,
agreement or commitment or would in any way adversely affect the rights, or
increase the obligations, of Buyer or Seller with respect thereto; provided,
however, that the assignment of any contract, including, without limitation,
Medicare, Medicaid and similar provider agreements, which may lawfully be made
subject to customary conditions subsequent (such as need surveys, evaluations of
Buyer or other determinations by the counter parties to such agreements) shall
be deemed not to constitute a default under, or in any way adversely affect the
rights or increase the obligations of Buyer with respect to, such lease,
agreement or commitment, unless the counter party indicates prior to the Closing
that such condition or conditions subsequent are not likely to be met. If any
such consent or authorization is not obtained, or if an attempted assignment or
assumption would be ineffective or would adversely affect the rights or increase
the obligations of Seller or Buyer with respect to any such lease, agreement or
commitment, so that Buyer would not, in fact, receive all such rights, or assume
the obligations, of Seller with respect thereto as they exist prior to such
attempted assignment or assumption, then Seller and Buyer shall enter into such
reasonable cooperative arrangements as may be reasonably acceptable to both
Buyer and Seller (including, without limitation, sublease, agency, or payment
arrangements and enforcement for the benefit of Buyer of any and all rights of
Seller against an involved third party) to provide for Buyer the benefits of
such Transferred Asset or to relieve Seller from the obligations of such Assumed
Obligation, and any transfer or assignment to Buyer by Seller of any such
Transferred Asset, or any assumption by Buyer of any such Assumed Obligation,
which shall require the consent or authorization of a third party that is not
obtained shall be made subject to such consent or authorization being obtained.
Furthermore, Seller agrees to continue to use its
reasonable best efforts after Closing to assist Buyer in obtaining written
confirmation of Buyer's right (i) to continue to obtain heat for the Hospital
from the geothermal line underlying the Real Property and subject to a certain
Interlocal Contract, dated as of December 19, 1985 (the "Interlocal Contract"),
on the same terms as presently enjoyed by the Hospital; and (ii) to continue to
sublease from the Elko County Fair Board (the "Fair Board") a certain parking
lot located on 13th Avenue in Elko, Nevada, owned by the City of Elko and leased
to the Fair Board, on the same terms as presently enjoyed by the Hospital.
Seller
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acknowledges it has represented to Buyer that it has received verbal consents
from all relevant parties to the matters described in the immediately preceding
sentence.
13.2 PRESERVATION OF AND ACCESS TO RECORDS
(a) Owner of Hospital Records. The term "Hospital
Records" shall mean (a) all or any portion of the medical, clinical and other
records directly or indirectly associated with the admission, care and treatment
of patients (excluding, however, all billing, other financial and marketing
information related thereto) for periods ending on or prior to the Closing Date
(the "Patient Records"), and (b) all or any portion of the financial and other
records and files of the Hospital Business (including patient billing, other
financial and marketing information, whether or not included as part of the
"financial jacket" of the Patient Records) for periods ending on or prior to the
Closing Date, but excluding Seller's minute books, tax records and Proprietary
Documents and documents related solely to the Retained Assets and Excluded
Liabilities ("Business Records"), and upon the Closing, Seller shall be deemed
to have assigned and transferred to (or, if necessary, waived and released
solely in favor of) Buyer and shall be deemed to have consented to Buyer's
access to all such records, documents and materials. As set forth in Paragraph
1.1, the Hospital Records are Transferred Assets. Notwithstanding the foregoing,
the Parties shall cooperate in providing copies and access to the Hospital
Records as set forth below.
(b) Seller's Access. Buyer shall retain the Hospital
Records at the Hospital (or at such other locations within Elko, Nevada, as
Buyer, in its reasonable discretion, shall determine from time to time) at
Buyer's cost, from and after the Closing for the full period required by
applicable Laws, but at least for a period of 5 years (and, if at the expiration
thereof any tax or Payor audit or administrative or judicial proceeding is in
process or the applicable statute of limitations has been extended, for such
longer period as such audit or proceeding is in process or such statutory period
has been extended) (the "Document Retention Period"). After the Closing, Buyer
shall grant, and Seller shall have, access to the Hospital Records (including
any Patient Records) as needed for any lawful purpose; provided, however, that
Seller shall not have access to any Hospital Record the disclosure of which
would be prohibited by any Law; and provided further, that any Hospital Records
delivered to or made available to Seller and its representatives shall be
treated as confidential by Seller and its representatives, shall not be
disclosed or communicated to any other Person other than Seller and its
representatives who are reasonably required to have access to such information
(unless Seller is compelled to disclose the same by judicial or administrative
process), shall be returned to Buyer when Seller's use therefor has terminated.
Buyer shall instruct the appropriate employees of the Hospital to cooperate in
providing access to such records to Seller and its authorized representatives as
contemplated herein. Access to such records shall be, whenever reasonably
possible, during normal business hours and with at least 24 hours prior written
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
so that Buyer's normal business activities shall not be unduly or unnecessarily
disrupted. Any reasonable, documented, out-of-pocket expenses incurred by Buyer
to third parties in providing Seller the access contemplated by this Paragraph
13.2(b) shall be promptly reimbursed to Buyer by Seller.
(c) Destruction Notice. After the expiration of the
aforementioned Document Retention Period, Buyer may, in its discretion, upon
ninety (90) days prior written notification to Seller (the "Destruction
Notice"), destroy any Hospital Records in its possession; provided, however,
within eighty (80) days after its receipt of the Destruction Notice, Seller
shall
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have the right, at its own expense, to require Buyer to deliver any such records
to Seller, and Buyer shall thereupon deliver the same to Seller. Anything herein
to the contrary notwithstanding, Buyer shall have the right to destroy any of
the Business Records at any time after the fourth anniversary of the Closing
Date provided that (i) Buyer delivers to Seller a Destruction Notice at least
ninety (90) days prior to the date on which Buyer intends to destroy such
Business Records, and (ii) Seller does not, within eighty (80) days after its
receipt of the Destruction Notice, notify Buyer that Seller wants such records
delivered to Seller at Seller's sole cost and expense. Upon the timely delivery
of any such notice to Buyer, Buyer shall deliver to Seller the Business Records
specified therein. Buyer shall not destroy any Hospital Records or Business
Records which either Seller or Buyer were or are then required by Law to
maintain for longer periods.
13.3 LITIGATION COOPERATION
After the Closing, upon reasonable written request,
each Party shall cooperate with the other, at the requesting Party's expense
(but including only out-of-pocket expenses to third parties and not the costs
incurred by any Party for the wages or other benefits paid to its officers,
directors, employees, or agents), in furnishing information, testimony and other
assistance in connection with any actions, tax or cost report audits,
proceedings, arrangements or disputes involving either of the Parties (other
than in connection with disputes between the Parties) and based upon contracts,
arrangements or acts of Seller which were in effect or occurred on or prior to
the Closing and which related to the Hospital Business or the Transferred
Assets, including, without limitation, arranging discussions with, and the
calling as witnesses of, officers, directors, employees, agents and
representatives of Buyer and Seller.
13.4 ALLOCATION OF PURCHASE PRICE
The Purchase Price shall be allocated among each of
the Transferred Assets (or, where more practical, each category of Transferred
Assets) in accordance with Schedule 13.4. Except as otherwise required by Law,
Seller and Buyer hereby agree to allocate the Purchase Price in accordance with
Schedule 13.4, to be bound by such allocations for all purposes, to account for
and report the purchase and sale of the Transferred Assets contemplated hereby
for all purposes (including, without limitation, financial, accounting, and
federal and state tax purposes) in accordance with such allocations, and not to
take any position (whether in financial statements, tax returns, tax audits or
otherwise), which is inconsistent with such allocations without the prior
written consent of the other Party.
13.5 [INTENTIONALLY LEFT BLANK]
13.6 RETAINED ASSETS AND RECEIVABLES
(a) General Rule. Any asset (including all
remittances and all mail and other communications) that is determined by the
Parties' agreement, or, absent such agreement, determined by litigation, to be a
Retained Asset and that is or comes into the possession, custody or control of
Buyer or any of its Affiliates shall forthwith be transferred, assigned or
conveyed by Buyer or such Affiliate to Seller, and, until such transfer,
assignment and conveyance, Buyer and its Affiliates shall not have any right,
title or interest in such asset, but instead shall hold such asset in trust for
the benefit of Seller. Any asset (including all remittances and mail and other
communications)
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that is determined by the Parties' agreement or, absent such agreement,
determined by litigation, to be or otherwise relate to a Transferred Asset
(including the proceeds of Medicare Receivables) and that is or comes into the
possession, custody or control of Seller shall forthwith be transferred,
assigned and conveyed by Seller to Buyer, and, until such transfer, assignment
and conveyance, Seller shall not have any right, title or interest in such
asset, but instead shall hold such asset in trust for the benefit of Buyer.
(b) Straddle Patient Receivables. To compensate
Seller for services rendered and medicine, drugs and supplies provided through
the Closing Date with respect to patients ("Straddle Patients") who were
admitted to the Hospital on or before the Closing Date and discharged by the
Hospital after the Closing Date, the following shall apply: All capitation, per
diem and other periodic interim payments which are received by Buyer after the
Closing Date which, pursuant to the remittance advice which accompanies such
payment or otherwise, are attributable to a period on or before the Closing Date
shall constitute Receivables for all purposes of this Agreement (including,
without limitation, for purposes of calculating the Purchase Price). Any
capitation, per diem and other periodic interim payment received by Buyer after
the Closing Date which, pursuant to the remittance advice which accompanies such
payment or otherwise, is attributable partially to a period ending on or before
the Closing Date and partially to a period after the Closing Date shall be
prorated to reflect the number of days included within such periodic interim
payment which occurred on or before the Closing Date, and such prorated amount
shall be included within the foregoing sentence.
(c) Medicare Receivables. Notwithstanding anything in
this Agreement that might be construed to the contrary, this Agreement shall not
constitute an agreement to assign any Medicare Receivable. Seller hereby
appoints, effective as of the Closing Date, Buyer (either alone or through an
Affiliate) as its agent to collect the Medicare Receivables and apply the
proceeds therefrom in discharge of Seller's obligation to deliver the same to
Buyer pursuant to Paragraph 1.1(n), and Buyer hereby accepts such appointment.
Upon receipt of such proceeds, Buyer shall retain the same in satisfaction of
Seller's obligation set forth in Paragraph 1.1(n). All procedures and
requirements specified herein (including, without limitation, Buyer's
obligations under Paragraph 13.6(b)) for the collection of Receivables shall be
fully applicable to such Medicare Receivables, except that any provisions herein
that would otherwise require or provide for Buyer's "reassignment" of a
Receivable that is non-assignable to Buyer in the first instance shall be
construed to require or provide that Buyer, as agent for Seller, return
pertinent documentation respecting such Medicare Receivable to Seller to permit
further collection efforts with respect to such Medicare Receivable by Seller
(in accordance with such collection efforts and procedures as Seller, in its
sole discretion, shall determine). Buyer shall use reasonable commercial efforts
to collect the Medicare Receivables but shall not be required to file any
lawsuit or commence any other proceeding to collect any Medicare Receivable.
Seller covenants and agrees not to instruct any Payor to send any payments with
respect to the Medicare Receivables to any location other than the location of
the Hospital.
13.7 COST REPORT AUDITS AND CONTESTS
After the Closing and for the period of time
necessary to conclude any pending or potential audit or contest of any cost
reports with respect to the Hospital concerning periods ending on or before the
Closing Date, Buyer shall, within five (5) Business Days of Buyer's receipt of
the same, forward to Seller all information received from Payors relating to
periods ending on or
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prior to the Closing Date, including, without limitation, cost report
settlements, notices of program reimbursements, demand letters for payment and
proposed audit adjustments. Upon the reasonable request of Seller, Buyer shall
assist Seller (including by providing the reasonable support of its employees at
no cost to Seller, except reimbursement for Buyer's reasonable, documented,
out-of-pocket third party expenses) in obtaining information deemed by Seller to
be necessary or convenient in connection with any audit or contest of such
reports. Buyer's services hereunder shall be purely ministerial in nature and
under no circumstances shall Buyer perform any services which will cause Buyer
to become an agent or other fiduciary of Seller with respect to such audits or
contests.
13.8 FILING COST REPORTS: AMOUNTS DUE TO OR FROM THIRD
PARTY PAYORS
(a) Filing Procedures. Buyer shall assist Seller in
the preparation of all cost reports (including terminating cost report) and
other filings required to be filed with Medicare, other Payors or governmental
agencies with respect to operations of the Hospital Business for periods ending
on or prior to the Closing Date by providing the reasonable support of its
employees, at no cost to Seller, except reimbursement for Buyer's reasonable,
documented, out-of-pocket third party expenses in obtaining financial
information or data deemed by Seller to be necessary for the preparation of such
cost reports and other filings. Such cost reports and filings shall be prepared
in a manner consistent with the principles applied and practices followed by
Seller in the preparation of such cost reports and filings which were filed
prior to the date of this Agreement.
(b) Retained Rights and Obligations. Seller shall
retain all rights to any amounts receivable from and remain obligated for all
amounts due to Medicare or such other Payors with respect to such filed cost
reports or filings for periods ending on or before the Closing (as reflected
thereon or as finally determined by the audit, contest or other adjustment of
such reports or filings), and the Parties hereby acknowledge and agree that
Buyer is not hereby being assigned or assuming any of the same. Buyer shall
promptly notify Seller of such amounts due to Medicare or other Payors from
Seller or any amounts due from Medicare or other Payors to Seller which are
being withheld by Medicare or such other Payors and the reasons therefor.
Seller's rights shall include, without limitation, the right to dispute or to
appeal any determinations relating to such reports.
13.9 EMPLOYEE MATTERS
(a) Active Employees. Buyer shall offer to hire,
effective on the Closing Date, each of the then active employees of the Hospital
Business for the equivalent position and same salary or hourly rate of
compensation being paid to such employee as of the Closing. ("Active
Employees"). For purposes of this Agreement, active employees are those
employees who are actually providing services to the Hospital Business
(including those employees who are temporarily absent or on leave due to
vacation or other matters in compliance with Law or Seller's policies pertaining
to employee matters). Seller shall have the right but not the obligation to
continue to employ or offer to employ any Active Employee who declines Buyer's
offer of employment.
(b) Hiring of Active Employees by Buyer. Buyer shall
hire at the Closing the Active Employees who elect to accept employment with
Buyer (the "Hired Employees"). Buyer agrees to give the Hired Employees full
credit for the Paid Time Off, either by allowing such employees such Paid Time
Off as to which such employees would have been entitled under the policies of
Seller if such employees had remained employees of Seller or, upon termination
of
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employment, by making full payment to such employees of the Paid Time Off that
such employees would have received under the policies of Seller had they been
terminated while in Seller's employ. The initial annual salaries or hourly rates
of compensation, as applicable, paid by Buyer to the Hired Employees, shall
provide the base for any adjustments in respect of any such employees following
the Closing, with the adjustments to be determined in accordance with the
policies and practices from time to time in effect for Buyer's employees in
general.
(c) Health Benefits. Buyer shall provide the Hired
Employees the program of health care benefits that are made available to Buyer's
employees in general, such benefits which are to be effective as to the Hired
Employees as of the Closing shall be as set forth in Schedule 13.9(c); provided,
however, that such health care benefits shall be immediately available to the
Hired Employees as of the Closing Date who were then participants of and
entitled to receive benefits under Seller's health care plans without any
limitation with respect to preexisting conditions, and such Hired Employees
shall become as of the Closing Date participants thereunder, without regard to
any applicable waiting period. Buyer shall give each Hired Employee credit for
deductibles that have been met under Seller's health benefits as of the Closing
Date and credit for his or her prior service with Seller for purposes of
satisfying any waiting periods of Buyer's health care plans with respect to
eligibility to participate or preexisting conditions.
(d) Continued Employment; Severance Benefits.
Following the Closing, Buyer shall use reasonable efforts to retain Hired
Employees for so long as their services are satisfactory and as long as the
level of staffing is not detrimental to the success of the Hospital. In the
event of an employee reduction, Buyer shall provide each Hired Employee who is
thereby terminated and who is otherwise eligible for severance benefits, the
severance benefits set forth in Schedule 13.9(d).
(e) No Employment Contract. The understandings set
forth in this Paragraph 13.9 and Paragraph 13.10 are solely for the purpose of
defining the obligations between Buyer and Seller with respect to the
individuals employed in the operation of the Hospital Business as of the Closing
Date and shall not be construed as creating any employment contract between
either Buyer or Seller, on the one hand, and any such employee, on the other,
nor to create or modify any Plan. All such employees shall remain terminable at
will by Buyer or Seller, as the case may be, except to the extent otherwise
required by Law or any preexisting employment or other contracts which have been
specifically assumed by Buyer hereunder.
13.10 EMPLOYEE BENEFIT PLANS
(a) Termination of Seller's Plans. Except as may
otherwise be provided in this Paragraph 13.10, Seller (a) shall terminate as of
the Closing Date the active participation of all Hired Employees in all of the
Plans covering such employees, and (b) shall cause the Plans to make timely
appropriate distributions, to the extent required, to the Hired Employees in
accordance with, and to the extent permitted by, the terms and conditions of
such Plans. Buyer and Seller shall coordinate and cooperate prior to Closing as
to communications to the employees of the Hospital Business notifying such
employees of their rights in respect of their cessation of active participation
in the Plans, which rights shall include, among others, such employees rights
under continuation coverage requirements pursuant to COBRA, 42 U.S.C.
ss.300bb-1, et seq., if applicable, and certificates of group health coverage
under HIPAA.
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(b) Credit to Hired Employees for Prior Service.
Buyer shall give each Hired Employee credit for his or her prior service with
Seller for the purpose of determining eligibility to participate and vesting
with respect to accrual of benefits subsequent to Closing in all employee
benefits of Buyer made available to its employees in general, including, without
limitation retirement, severance and Paid Time Off, with the exception of
healthcare benefits subject to HIPAA; provided, however, eligibility for and
vesting of severance benefits after the Closing shall be determined in
accordance with the provisions of Paragraph 13.9(d). Buyer shall treat prior
service with Seller as continuous under HIPAA.
13.11 USE OF CONTROLLED SUBSTANCE PERMITS
To the extent permitted by Law, Buyer shall have the
right, for a period not to exceed ninety (90) days following the Closing Date,
to operate under the Permits of Seller relating to controlled substances and the
operations of pharmacies and laboratories, until Buyer is able to obtain such
permits for itself. In furtherance thereof, Seller shall execute and deliver to
Buyer special limited powers of attorney as reasonably requested by Buyer and in
form and substance satisfactory to Seller. Buyer acknowledges that it shall
apply for all such Permits as soon as reasonably practicable before and after
the Closing Date and shall diligently pursue such applications. Buyer shall
indemnify and hold Seller harmless from and against all losses, liabilities,
damages, costs and expenses, including reasonable attorneys' fees, actually
incurred, paid or required under penalty of Law to be paid by Seller resulting
in whole or in part from the use of such Permits by Buyer.
13.12 ADVISORY BOARD
(a) Within thirty (30) days following the Closing and
Buyer's receipt of the Advisory Board candidate recommendations from the Elko
County Commissioners as contemplated below, and for so long as Buyer owns and
operates the Hospital (including the New Facility), Buyer shall establish and
maintain as an adjunct to Buyer's governing board for the Hospital Business, an
advisory board (the "Advisory Board") which shall have the responsibilities
related to the Hospital Business (including the New Facility) set forth below.
The Advisory Board shall be comprised of nine (9) members consisting of persons
who represent a broad cross-section of people to be served by the Hospital as
required under the Nevada Transfer Law, to be selected by Buyer from candidates
recommended by the Commissioners of Elko County, three (3) of which will be
active members of the medical staff and have privileges at the Hospital. The
members of the initial Advisory Board will include at least two (2) persons who
are members of the Hospital Board of Trustees as of the Closing. The members of
the Advisory Board shall hold office for a three-year term or until their
earlier resignation or removal. A person may not serve more than two consecutive
full terms as a member of the Advisory Board (i.e., six (6) years), but after a
one year absence may serve up to two more consecutive terms. Members may be
removed, with or without cause, by mutual agreement of Buyer and the Elko County
Commissioners. Any member may resign at any time by notifying the Elko County
Commissioners and the Hospital Administrator. Any vacancy will be filled for the
unexpired term in the same manner as provided above by Buyer from a list of
candidates provided by the Elko County Commissioners. Members of the initial
Advisory Board will serve terms of office as follows:
Three (3) shall hold one year terms
Three (3) shall hold two year terms
Three (3) shall hold three year terms
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The determination of which persons shall serve terms as set forth above shall be
determined by Buyer and Seller at the time of their selection.
(b) The Advisory Board shall have the following
responsibilities, and such other duties as may be delegated to it from time to
time by Buyer:
(i) Assist in the development of policy
respecting governance, advising the Buyer regarding strategic planning and
policies and monitoring progress towards strategic goals;
(ii) Recommending and/or advising with
respect to candidates for the position of the Hospital's Chief Executive Officer
and for other strategic positions;
(iii) Review and approval pursuant to
Paragraph 13.14 any material changes in, or termination of, medical services
provided by the Hospital Business;
(iv) Participation in the review of capital
and operating budgets and facility planning for the Hospital Business, including
the New Facility;
(v) Fostering community relationships and
identifying service and education opportunities;
(vi) Review reports of patient, employee and
physician satisfaction;
(vii) Approving new charity care policies
pursuant to Paragraph 13.13;
(viii) Adopting procedural rules relative to
the conduct of the Advisory Board meetings.
(c) The Parties acknowledge that the primary purpose
of this Paragraph 13.12 is to ensure community input and, to the degree herein
provided, direction on health care in Elko County. Accordingly, Buyer also
agrees to consult with the Advisory Board prior to any direct or indirect
involvement in or operation of any clinic or health facility in Elko County
other than the Hospital or the New Facility. The Advisory Board shall be
convened for at least six (6) meetings per year of which at least two meetings
will be open to the general public to attend and have an opportunity to comment;
regular meetings shall be convened by Buyer and if not timely convened by Buyer,
or in the event it is reasonably believed that a need exists for a special
meeting, then the chair of the Advisory Board or 3 members of the Advisory Board
may convene a meeting, provided, that the number of Advisory Board meetings
shall not be unreasonably excessive. Notice of the meetings open to the public
shall be posted conspicuously at the Hospital at least five (5) days in advance
of the meeting. Buyer shall provide the Advisory Board, subject to reasonable
restrictions on confidentiality so as not to disadvantage the Hospital
competitively, a copy of annual financial statements for the Hospital Business.
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13.13 CHARITY AND INDIGENT CARE POLICIES
After the Closing and for so long as Buyer owns and
operates the Hospital Business (including the New Facility), Buyer shall comply
with the Nevada Transfer Law and shall cause the Hospital (or New Facility) to
adopt and maintain as its policies concerning charity and indigent care, the
policies set forth in Schedule 13.13 (or new policies approved by the Advisory
Board that provide an equivalent or greater benefit to the local community), and
Buyer shall continue to apply such policies in a similar manner as heretofore
applied by Seller. Consistent with such policies and Nevada Transfer Law, Buyer
shall not charge Elko County an amount in excess of the actual cost of providing
such indigent care and agrees to receive any person falling sick or maimed
within Elko County. In addition, Hospital and New Facility shall qualify for
participation in the Medicare and Medicaid programs as well as initiate outreach
programs to promote the wellness of the poor in Elko County and to maintain and
enhance other community benefits provided by the Hospital.
13.14 CONTINUATION AND EXPANSION OF SERVICES
Following the Closing, Buyer will operate the
Hospital (including New Facility) as a community-based, general acute care
facility and use best efforts to maintain JCAHO accreditation (or other
accreditation status which provides deemed provider status under the
Medicare/Medicaid programs) and Medicare/Medicaid provider status. Services of
Hospital (and New Facility) shall be available to all persons regardless of
race, religion, national origin, social or economic standing or financial
circumstances. Unless otherwise approved in writing by the Advisory Board, Buyer
agrees to use all reasonable commercial efforts to continue to provide, in all
material respects, at least the same level and percentage of inpatient and
outpatient services offered by the Hospital Business as of the date of this
Agreement. As part of its obligation to maintain the services now offered by
Seller, subject to the qualifications and conditions set forth in the preceding
sentence, Buyer shall continue to support the services set forth on Schedule
13.14, consistent with the past policies and practices of Seller. The approval
rights granted to the Advisory Board in this Paragraph 13.14 are conditioned
upon the Advisory Board not unreasonably withholding approval for reasonable
changes requested by Buyer, taking into account all circumstances, including
changes in community needs and in Laws enacted after the Closing Date and the
financial impact of such changes upon the Hospital Business.
13.15 MEDICAL STAFF BYLAWS
Buyer hereby adopts as the Medical Staff Bylaws for
the Hospital, effective as of the Closing, the Medical Staff Bylaws in effect on
the Closing Date and hereby extends to the Medical Staff of the Hospital as of
the Closing Date, the same medical staff privileges and membership status they
enjoyed on the Closing Date, subject to any existing peer review or other
proceedings.
13.16 NEW FACILITY; CAPITAL COMMITMENT
Within the three year period following the Closing,
Buyer shall, at its sole cost and expense, use best efforts to acquire, develop,
construct, market and operate the New Facility, consistent with the requirements
set forth in Schedule 13.16 and the Capital Construction Agreement
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attached hereto as Exhibit 13.16. In this regard, Buyer agrees to spend at least
$30 million to develop, construct and complete the New Facility within 36 months
of the Closing Date, and to use its best efforts to cause the development and
construction of a medical office building on the campus of the New Facility and
to negotiate in good faith with the County to assure the County is able to meet
its obligations under NRS 450.470. Buyer shall promptly make appropriate filings
to obtain a Certificate of Need for the New Facility consistent with the
requirements forth in Schedule 13.16, but in no event later than 180 days after
the Closing Date.
13.17 RIGHT OF FIRST REFUSAL; PURCHASE OPTION
(a) Right of First Refusal
(i) Notice. If, after the Closing, Buyer receives an
offer from, or desires to enter into an agreement with, a Person to acquire all
or any material part of the Hospital Business (whether by means of a sale of
stock or merger of an entity owning all or a material part of the assets
comprising the Hospital Business, a sale or lease of all or a material part of
the assets comprising the Hospital Business or other similar transaction) or to
acquire or lease the Real Property (whether before or after Hospital services
have been transferred to the New Facility), and Buyer desires to transfer the
Hospital Business and/or the Real Property to such Person, Buyer shall not
accept such offer or enter into such agreement (unless such offer or agreement
is conditioned on Buyer's compliance with the provisions of this Paragraph), or
complete such disposition to such Person, unless such proposed disposition is a
Bona Fide Offer, in which event Buyer shall give Seller written notice of such
Bona Fide Offer and proceed as provided below. For purposes hereof, the Hospital
Business shall include the activity or business conducted at the Hospital and/or
at the New Facility. The notice of Bona Fide Offer shall contain the following:
(A) A description of the securities or of
the assets and properties that Buyer intends to transfer (the "Offered Assets");
(B) A statement indicating the identity and
address of the proposed purchaser (the "Proposed Purchaser");
(C) A statement indicating the proposed
purchase price (the "Proposed Price") and the other material terms and
conditions of the proposed transfer (the "Proposed Terms"); and
(D) An offer (the "Offer") to sell the
Offered Assets to Seller at the Proposed Price of the Bona Fide Offer on the
Proposed Terms.
(ii) Procedures
(A) Seller shall have one hundred twenty
(120) days after delivery of the notice of Bona Fide Offer in which to accept or
reject the Offer. Such acceptance shall be in writing and must be received by
Buyer prior to the expiration of such 120 day period. If Seller does not accept
the Offer within such 120 day period, Seller shall be deemed to have rejected
the Offer, and Buyer thereupon shall be free, for a period of 12 months
following the expiration of such 120 day period, to transfer the Offered Assets
to the Proposed Purchaser at the Proposed Price and on the
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Proposed Terms. If the Offered Assets are not so transferred within said 12
month period, or if there is any material change in the Proposed Purchaser, the
Proposed Price or the Proposed Terms, then the assets of the Hospital Business
and the Real Property shall again be subject to the provisions of Paragraph
13.17(a).
(B) If Seller accepts the Offer within the
120 day period hereinabove provided, Buyer and Seller shall use their reasonable
efforts to consummate the sale of the Offered Assets to Seller at the Proposed
Price and on the Proposed Terms as soon as practicable thereafter. If Seller
does not complete the purchase of the Offered Assets within one hundred twenty
(120) days after the date of its acceptance of the Offer, and provided Buyer is
not in default of any of its obligations with respect to Seller and the
consummation of the sale failed to occur solely due to the acts or omissions of
Seller and through no fault of Buyer, all rights of Seller to acquire the
Offered Assets, and the requirements of this Paragraph 13.17 applicable to the
Hospital Business, automatically shall terminate and be of no further force or
effect, and Buyer thereafter shall be free to sell or lease any or all of the
assets comprising the Hospital Business or Real Property, as the case may be;
provided, however, if Seller is diligently proceeding within financing of the
purchase price, the period can be extended for up to 120 additional days with
the consent of Buyer.
(C) If Buyer proposes to sell the Offered
Assets for a consideration consisting, in whole or in part, of property other
than cash or cash equivalents, then the Purchase Price to be paid by Seller for
the Offered Assets shall be equal to the fair market value of such non-cash
consideration, plus the amount of any cash consideration, and the full amount of
the Purchase Price shall be payable in cash by Seller at the closing of the sale
of the Offered Assets.
(iii) Permitted Transfers. Anything herein to the
contrary notwithstanding, the provisions of this Paragraph 13.17(a) shall not
apply to any transaction (whether or not for value) with respect to any or all
of the Hospital Business, or any of the assets thereof, (i) entered into by
Buyer with any one or more of Buyer's Affiliates, or (ii) pursuant to which (A)
there is a change of control of Buyer or (B) all or substantially all of Buyer's
assets are sold; provided, however, Buyer and such Affiliate, in respect of (i)
above, and any surviving entity, successor to Buyer or transferee of Buyer's
assets, in respect of (ii) above, shall be required to agree to be bound to the
same extent as Buyer hereunder by the terms of this Agreement which survive the
Closing, including without limitation this Paragraph 13.17.
(b) Option to Purchase. In the event Hospital
(including New Facility) (i) loses its license to operate as a general acute
care hospital under Nevada Law, or (ii) Buyer ceases to operate or determines to
cease to operate Hospital as general acute care hospital, or (iii) loses its
Medicare or Medicaid provider status (each, of the foregoing subparagraphs (i)
through (iii) shall constitute a "Trigger Event"), it shall promptly notify
Seller of such and Seller shall have an option to purchase the Hospital, in its
sole election, at the then Appraised Value, all as set forth below. With respect
to a Trigger Event specified in subparagraph (i) above, Buyer shall have 60 days
to fully restore its license (subject to extension, upon Seller's consent, to
120 days), as long as Buyer is exercising diligent and sustained efforts to
restore the license and to otherwise provide or arrange for the provision of
hospital services to patients in Elko County. With respect to the Trigger Event
specified in subparagraph (iii), Buyer shall have 6 months to fully restore such
provider status (subject to extension, upon Seller's consent, to 12 months) as
long as Buyer is exercising diligent and sustained efforts to restore the status
and is providing hospital services so that no patient is required
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to pay any amount which they would not have otherwise been required to pay if
such provider status had not been lost. Seller's purchase option shall be
exercisable within a 90 day period following its receipt of notice of a Trigger
Event (or 90 days after expiration of the cure period, if applicable). If Seller
exercises such option, Seller shall have 150 days after exercise of its option
to pay the Appraised Value. During the period between Seller's exercise of its
purchase option and the closing thereof, Seller has the right to have a third
party manage the Hospital and Buyer will cooperate fully in such operation of
the Hospital. Notice by Buyer to Seller of a Trigger Event is not a condition
precedent to Seller's exercise of its option hereunder if a Trigger Event
actually occurs.
(c) Miscellaneous. The provisions of this Paragraph
13.17 are in addition to, and do not supersede, Seller's reversion rights under
the Nevada Transfer Law, where applicable. The parties agree that a memorandum
of this Paragraph 13.17 may be filed of record by Seller with the real property
records of Elko County with respect to real property comprising the Hospital
Business (including New Facility). To the extent that the rule against
perpetuities is applicable thereto, but not otherwise, it is agreed that the
rights and options granted in this Paragraph shall expire upon the date that is
ninety (90) years after the date of this Agreement.
13.18 HILL BURTON
From and after Closing, Buyer shall continue to
satisfy Seller and Hospital's obligations, as represented in Paragraph 5.17, to
provide community service under 42 C.F.R. 124, Subpart G.
13.19 DISPROPORTIONATE SHARE PAYMENTS
As a part of the conveyance of the Dispro Payments,
as a part of the Transferred Assets, to Buyer by Seller, (1) the Dispro Payments
Promissory Note shall be payable in twelve (12) equal monthly installments
commencing July 1, 1998, (2) contingent on receipt of timely payments under the
Dispro Payment Promissory Note, Seller shall make intergovernmental transfer
payments to the State of Nevada in the total amount of $1,500,000 in twelve (12)
equal consecutive monthly installments, commencing July 1, 1998 and (3) Seller
and Buyer agree to use reasonable best efforts in the collection and delivery to
Buyer of the Dispro Payments. Seller and Buyer have agreed that Seller is
conveying its right, title and interest in and to the Dispro Payments, and Buyer
is executing and delivering the Dispro Payments Promissory Note, conditioned
upon Buyer and Seller receiving reasonably satisfactory evidence, on or prior to
June 30, 1998 that such conveyance of the Dispro Payments by Buyer, Seller's
purchase thereof and the terms and conditions of any additional instruments or
agreements necessary to effect such conveyance, are in compliance with
applicable federal and Nevada law and are binding and enforceable. If Seller and
Buyer are unable to reach agreement on or before June 30, 1998 that such
arrangement is in compliance with law, upon notice by either Seller or Buyer to
the other so stating, both the conveyance of the Dispro Payments and the Dispro
Payments Promissory Note shall be null, void and of no further force and effect
and neither Seller nor Buyer shall have any further obligation or liability one
to the other in that regard.
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14. SURVIVAL; LIMITATIONS
Notwithstanding any investigation made by Seller or Buyer, the
representations and warranties made by the Parties shall survive the Closing for
one year after the Closing; provided however, Seller's representations and
warranties pursuant to Paragraph 5.17 ("Hill-Burton"), 5.18 ("Taxes"), 5.19
("Employee Benefits"), and 5.22 ("Title to Personal Property") shall survive the
Closing for the applicable statutory period of limitation. Notwithstanding the
foregoing, the covenants made by the Parties in Section 13 survive the Closing
for the periods stated therein or the applicable statutory period of
limitations, whichever is longer; provided, however, the rights of a Party to be
defended, indemnified or held harmless pursuant to the provisions of Paragraph
3.3 in respect of a breach of a representation or warranty made herein shall
expire, with respect to Claims not asserted before such time, upon the
expiration of such representation and warranty as provided in this Paragraph 14.
Notwithstanding anything to the contrary contained herein, no claim by reason of
a breach of a representation or warranty of either party hereunder shall be made
until the aggregate amount of losses resulting for such claims shall exceed
$30,000.
15. REMEDIES
(a) Buyer hereby agrees that a breach of the covenants
contained in Paragraphs 13.12, 13.13, 13.14, 13.15, 13.16, 13.17 and 13.18 will
result in irreparable harm and damage to Seller which cannot be adequately
compensated for by a monetary award and that, in addition to all other remedies
available in law or in equity, Seller and its successors and assigns shall be
entitled to the remedy of a temporary restraining order, preliminary injunction
or such other form of injunctive or equitable relief as may be issued by a court
of competent jurisdiction to restrain or enjoin Buyer and its Affiliates from
breaching the provisions of the Paragraphs referenced in this sentence or
otherwise to specifically enforce the provisions of the Paragraphs referenced in
this sentence.
(b) No remedy conferred by any of the specific provisions of
this Agreement or such Related Agreement is intended to be exclusive of any
other remedy, and each and every remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing at
law or in equity or by statute or otherwise. The election of any one or more
remedies by a Party shall not, except as otherwise expressly provided for
herein, constitute a waiver of the right to pursue other available remedies.
(c) From and after the Closing, if any Party hereto shall fail
or refuse to perform any material term condition, obligation or covenant hereof
which is operative after the Closing, such failure or refusal shall be regarded
an "Event of Default." After an Event of Default occurs, the non-defaulting
party may, at its option, give the defaulting party notice of the Event of
Default setting forth what the Event of Default is and how it may be remedied.
Such notice shall be sent as provided in Paragraph 17.1. The defaulting party
shall have ten (10) days from the date the notice is received to remedy the
Event of Default and, if such Event of Default will is not remedied within such
period, the party giving the notice of default may institute such proceedings
and pursue such remedies as may exist at law or in equity.
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16. TERMINATION PRIOR TO CLOSING
16.1 TERMINATION UPON CERTAIN EVENTS
Either Buyer or Seller may, at or prior to the time
set for Closing, terminate this Agreement under any one of the following
circumstances:
(a) If at the time for Closing (i) a bona fide action
or proceeding shall be pending against any Party wherein an unfavorable
judgment, decree or order would prevent or make unlawful the carrying out of the
transactions contemplated by this Agreement, or (ii) any governmental agency
shall have notified any Party that the consummation of the transactions
contemplated by this Agreement would constitute a violation of the Laws of any
jurisdiction and that it has commenced or intends to commence proceedings to
restrain the consummation of the transactions contemplated hereunder, and such
agency has not withdrawn such notice prior to such termination; or
(b) The mutual written agreement of Seller and
Buyer; or
(c) By Seller, upon written notice to Buyer, if the
conditions of this Agreement to be complied with or performed by Buyer at or
before the Closing shall not have been complied with or performed on or before
the date specified for the Closing in Paragraph 11 (or such later date upon
which the Parties shall mutually agree), and such noncompliance or
nonperformance shall not have been waived by Seller; or
(d) By Buyer, upon written notice to Seller, if the
conditions of this Agreement to be complied with or performed by Seller at or
before the Closing shall not have been complied with or performed on or before
the date specified for the Closing in Paragraph 11 (or such later date upon
which the Parties shall mutually agree), and such noncompliance or
nonperformance shall not have been waived by Buyer;
(e) By the non-breaching Party, in the event either
Seller or Buyer commits a material breach of this Agreement;
(f) [intentionally left blank]
(g) If for any reason the Closing shall not have
occurred on or before 60 days after the Agreement Date.
16.2 EFFECT OF TERMINATION
If there has been a termination under Paragraph 16.1,
then this Agreement shall be deemed terminated, and all further obligations of
the Parties hereunder shall terminate, except that those obligations set forth
in the Confidentiality Agreement and Paragraphs 5.11, 7.8, 16.3 and 17.9(a)
hereof.
16.3 LIQUIDATED DAMAGES
In the event this Agreement is terminated by either
Party pursuant to Paragraph 16.1(e), the Parties agree that the damages that
would result from such a material breach hereof would be extremely difficult to
determine in that both Parties are entering into this Agreement in the belief
that consummation of this transaction will bring both tangible and intangible
benefits to them and their respective constituencies and owners. Therefore, the
Parties agree that in the event of a
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<PAGE> 46
termination of this Agreement by a Party pursuant to Paragraph 16.1(e), the
breaching Party shall pay to the non-breaching party the sum of One Million
Dollars ($1,000,000) as liquidated damages and not as a penalty which shall be
the sole and exclusive remedy for a breach hereof which results in a failure to
Close.
17. GENERAL PROVISIONS
17.1 NOTICES
All notices, requests, demands, waivers, consents and
other communications hereunder shall be in writing, shall be delivered either in
person, by telegraphic, facsimile or other electronic means, by commercial
courier or by mail, and shall be deemed to have been duly given and to have
become effective (a) upon receipt if delivered in person or by telegraphic,
facsimile or other electronic means calculated to arrive on any Business Day
prior to 6:00 p.m. local time at the address of the addressee, or on the next
succeeding Business Day if delivered on a non-business day or after 6:00 p.m.
local time, (b) one (1) Business Day after having been delivered to an air
courier for overnight delivery, or (c) three (3) Business Days after having been
deposited in the mails as certified or registered mail, return receipt
requested, all fees prepaid, directed to the Parties or their assignees at the
following addresses (or at such other address as shall be given in writing by a
Party):
If to Buyer, addressed to:
PROVINCE HEALTHCARE COMPANY
Mr. Tom Anderson
Senior Vice-President
Acquisitions and Development
105 Westwood Place, Suite 400
Brentwood, TN 37027
Facsimile: (615) 370-4710
with a simultaneous copy to counsel for Buyer:
Howard T. Wall III, Esq.
General Counsel
Province Healthcare Company
109 Westpark Drive, Suite 180
Brentwood, TN 37027
Facsimile: (615) 370-4710
and
George W. Bishop III, Esq.
Waller Lansden Dortch & Davis
511 Union Street, Suite 2100
Nashville, TN 37219-8966
Facsimile: (615) 244-6804
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If to Seller, addressed to:
ELKO COUNTY
569 Court Street
Elko, NV 89801
Attn: Cash A. Minor, Chief Financial Officer
Facsimile: (702)753-8535
with a simultaneous copy to counsel for Seller:
Kristin A. McQueary, Esq.
Elko County Chief Civil Deputy
575 Court Street
Elko, NV 89801
Facsimile: (720) 738-0160
and
J. A. (Tony) Patterson, Jr., Esq.
Fulbright & Jaworski L.L.P.
2200 Ross Ave., Suite 2800
Dallas, TX 75201
Facsimile: (214) 855-8200
17.2 FORM OF INSTRUMENTS
To the extent that a form of any document to be
delivered hereunder is not included herein, such document shall be in form and
substance, and shall be executed and delivered in a manner, reasonably
satisfactory to the recipient thereof and consistent with the provisions of this
Agreement.
17.3 ATTORNEYS' FEES
In any litigation or other proceeding relating to
this Agreement or any Related Agreement, or any transactions contemplated herein
or therein, the prevailing party shall be entitled to recover its costs and
reasonable attorneys' fees.
17.4 TIME IS OF THE ESSENCE
(a) Time is hereby expressly made of the essence with
respect to each and every term and provision of this Agreement and any Related
Agreement. The Parties acknowledge that each will be relying upon the timely
performance by the other of its obligations hereunder and thereunder as a
material inducement to each Party's execution of this Agreement and each Related
Agreement. Consequently, the Parties agree that they are bound strictly by the
provisions concerning timely performance of their respective obligations
contained in this Agreement and each Related Agreement, and that if any attempt
is made by either Party to perform an obligation required to be performed, or to
comply with a provision of this Agreement or any Related Agreement required to
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<PAGE> 48
be complied with, in a manner other than in strict compliance with the time
period applicable thereto, even if such purported attempt is but one day late,
then such purported attempt at performance or compliance shall be deemed a
violation of this Paragraph 17.4, shall be deemed in contravention of the
intention of the Parties, shall be null and void and of no force or effect and
shall constitute such Party's material default under this Agreement or such
Related Agreement.
(b) Notwithstanding the foregoing, in the event that
any action or performance shall be due hereunder or under any Related Agreement
on a Saturday, Sunday or any legal holiday for banks in the jurisdiction in
which such action or performance is due or where the Party required to provide
the same is located, the time for such performance shall automatically be
extended until the end of the next Business Day.
17.5 SUCCESSORS AND ASSIGNS
(a) Restrictions on Assignment. Subject to Paragraph
17.5(b), the rights and obligations hereunder shall not be assignable or
delegable by either party without the prior written consent of the other.
(b) Buyer's Limited Right to Assign. Prior to the
Closing Date, Buyer, may assign any or all of its rights and obligations with
respect to the Hospital Business, the Transferred Assets and the Assumed
Obligations to one or more corporations, partnerships, limited liability
companies or any other Persons which are not individuals in which Buyer and its
Affiliates hold all of the voting stock, partnership interests, membership
interests or other ownership interests ("Buyer's Subsidiary"), provided that no
such assignment shall relieve Buyer of any obligation or liability to Seller
hereunder, and provided further that the following shall apply:
(i) Buyer shall provide Seller of prompt
written notice of any such assignment, together with a copy of the written
assignment, which assignment shall contain the provisions described in clauses
(ii), (iii), and (iv) below.
(ii) No such assignment shall be effected if
the making of the assignment will result in Buyer's inability to obtain, or
Buyer's increased difficulty in obtaining, any consent, approval or
authorization required by Paragraph 9.4 or any Permit required by Paragraph 9.5,
or in Buyer's inability to obtain, or increased difficulty in obtaining, any
consent, approval or authorization required by Paragraph 6.4, and any such
attempted assignment shall be void and of no force or effect.
(iii) Buyer's Subsidiary shall irrevocably
appoint Buyer as its sole and exclusive representative and agent authorized to
act for and to receive notices and payments on its behalf in all matters arising
from or related to this Agreement.
(iv) Buyer shall remain jointly and
severally liable to Seller and to third parties with respect to any Assumed
Obligations transferred to Buyer's Subsidiary and the obligations of Buyer
hereunder including without limitation, those set forth in Paragraph 13.
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17.6 COUNTERPARTS
This Agreement and each of the Related Agreements may
be executed in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
17.7 CAPTIONS AND PARAGRAPH HEADINGS
Captions and paragraph headings used herein or in any
Related Agreement are for convenience only and are not a part of this Agreement
or such Related Agreement and shall not be used in construing it.
17.8 ENTIRETY OF AGREEMENT, AMENDMENTS
This Agreement (including the Schedules and
Disclosure Memorandum) and the Related Agreements and other documents and
instruments specifically provided for in this Agreement contain the entire
understanding between the Parties concerning the subject matter of this
Agreement and such other documents and instruments and, except as expressly
provided for herein, supersede all prior understandings and agreements, whether
oral or written, between them with respect to the subject matter hereof and
thereof. Notwithstanding the foregoing, the provisions in Section B of the
Confidentiality Agreement shall continue to be operative as specified therein.
There are no representations, warranties, agreements, arrangements or
understandings, oral or written, between the Parties hereto relating to the
subject matter of this Agreement and such other documents and instruments which
are not fully expressed herein or therein. This Agreement and each of the
Related Agreements may be amended or modified only by an agreement in writing
signed by all of the Parties hereto.
17.9 EXPENSES; PRORATIONS
(a) Except as expressly provided herein, each Party
shall bear and pay its own costs and expenses relating to the transactions
contemplated by, or the performance of or compliance with any condition or
covenant set forth in, this Agreement. In determining the costs and expenses of
each Party hereunder, the following rules shall apply: (i) all costs of the
Preliminary Title Reports, the Title Policy and any survey shall be borne by
Buyer and all costs of the Inspection (except the Phase I Assessment, which has
been paid by Seller) shall be paid by Buyer; (ii) any excise or sales tax with
respect to the sale of the Transferred Assets shall be borne by Buyer; (iii) all
documentary and other transfer taxes and recording fees shall be borne by Buyer;
(iv) the cost and expense of Accounting Firm shall be borne equally by Buyer and
Seller; (v) all filing fees payable in connection with submissions to
governmental agencies relating to the approval of the transactions contemplated
hereby shall be paid by the Party filing the same; and (vi) all other costs,
charges and expenses shall, except as otherwise provided in this Agreement, be
allocated between Buyer and Seller in accordance with the customs of Elko
County.
(b) All normal and customarily proratable items,
including taxes and utility bills, shall be prorated as of the Closing Date. The
actual amounts will not be known as of the Closing Date; therefore, prorations
shall be made on the basis of the Estimated Statement and will be settled in the
context of the calculation of the Final Report pursuant to Section 2.2;
provided, however, Buyer shall be solely responsible for all real estate and
property taxes on the Transferred Assets which become due or assessed by reason
of Buyer's ownership thereof.
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17.10 CONSTRUCTION
This Agreement, the Related Agreements and any other
documents or instruments delivered pursuant hereto shall be construed without
regard to the identity of the Person who drafted the various provisions of the
same. Each and every provision of this Agreement, the Related Agreements and
such other documents and instruments shall be construed as though the Parties
participated equally in the drafting of the same. Consequently, the Parties
acknowledge and agree that any rule of construction that a document is to be
construed against the drafting party shall not be applicable to this Agreement,
the Related Agreements or such other documents and instruments.
17.11 WAIVER
Except as provided herein, the failure of any Party
to insist, in any one or more instances, on performance of any of the terms,
covenants and conditions of this Agreement or any Related Agreement shall not be
construed as a waiver or relinquishment of any rights granted hereunder or
thereunder 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. No waiver of any provision or condition of this Agreement or
any Related Agreement by any Party shall be valid unless in writing and signed
by such Party or operational by the terms of this Agreement or such Related
Agreement. A waiver by one Party of the performance of any covenant, condition,
representation or warranty of the other Party shall not invalidate this
Agreement, nor shall such waiver be construed as a waiver of any other covenant,
condition, representation or warranty. A waiver by any Party of the time for
performing any act shall not constitute a waiver of the time for performing any
other act or the time for performing an identical act required to be performed
at a later time.
17.12 SEVERABILITY
If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future law, and if the
rights or obligations of the Buyer or Seller under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable; (b) this Agreement will be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part hereof; (c) the
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the legal, invalid or unenforceable provision or by its
severance herefrom; and (d) in lieu of such illegal, invalid or unenforceable
provision, there will be added automatically as a part of this Agreement a
legal, valid and enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible. It is the express intent
of the Parties that the provisions of this Agreement and Related Agreements
satisfy the conditions of the Nevada Transfer Law, and Buyer agrees to own and
operate the Hospital and New Facility in a manner consistent therewith.
17.13 CERTAIN DEFINITIONS
(a) Use of Defined Terms. For purposes of this
Agreement, and the Related Agreements except as may be otherwise expressly
stated therein, the following terms shall have the following meanings:
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"Affiliate" of a specified Person shall mean any
other Person which directly or indirectly through one or more intermediaries
controls, is controlled by or is under common control with the Person specified.
The term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person.
"Appraised Value" shall mean the fair market value as
determined by an independent, MAI appraiser. If the two parties cannot agree as
to a single appraiser within 20 days, then each shall appoint a qualified
appraiser within 10 days thereafter and the two appraisers so selected shall
select a third. The cost of the appraisal(s) shall be shared equally by the
parties. The appraised value shall be the middle value of the three appraisers
in the event a panel is convened.
"Bona Fide Offer" shall mean an arm's length offer
made by a Person (a) which is not an Affiliate of Buyer, (b) no member of the
governing board or body of which is an officer, employee or director (or member
of an equivalent governing board or body) of Buyer or an Affiliate of Buyer, (c)
who does not own, directly or indirectly, 5% or more of the capital stock (in
the aggregate if more than one class of stock exists) of Buyer, or an Affiliate
of Buyer (whether as to any one of or in the aggregate for all of Buyer or an
Affiliate of Buyer) and (d) which has the demonstrable ability, financially and
in operational capability, to perform the obligations placed on Buyer under this
Agreement.
"Business Day" shall mean any day other than
Saturday, Sunday or any other day on which banking institutions in Elko, Nevada
are required or authorized by law to suspend operations.
"COBRA" shall mean 29 U.S.C. ss.ss. 1161 through
1169, 42 U.S.C. ss.ss. 300bb-1 et. seq., and Internal Revenue Code ss. 4980B.
"Cost Report Receivables" shall mean Medicare,
Medicaid and CHAMPUS receivables net of related payables relating to the
settlement of cost reports of Seller for periods ending on or prior to the
Closing Date, including depreciation "recapture" (gain or loss) herein,
including, without limitation, recapture of previously reimbursed depreciation
or their expenses.
"Disclosure Memorandum" shall mean that certain
memorandum attached hereto and incorporated herein.
"Environmental Regulations" shall mean all Laws and
all policies and guidelines relating to the use, handling, treatment, storage,
transportation or Release of Hazardous Materials or otherwise relating to the
protection of the environment (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata) or industrial
hygiene.
"Hazardous Materials" shall mean any substance,
material or waste which is now or any time in the future listed, identified or
defined in or pursuant to any Law as "hazardous substances", "hazardous waste",
"toxic substances", "toxic pollutant", "infectious waste" or similarly
identified substances, materials or mixtures (including, without limitation,
medical wastes, asbestos in any form, formaldehyde, radon, radioactive
substances, hydrocarbons, petroleum, gasoline, crude oil or any products,
by-products or fractions thereof, polychlorinated biphenyls, industrial
solvents, flammables, or explosives) or which is either now or anytime in the
future: (i) potentially injurious
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to the public health, safety or welfare or to the environment, (ii) potentially
injurious to, or may impair the value or beneficial use of, the Real Property
(or any improvements thereon), (iii) regulated or monitored by, or required to
be remediated at the behest of, any governmental agency, or (iv) a basis for a
claim or liability of any owner or operator of the Real Property to any Person
under any applicable Law (including the Environmental Regulations).
"HIPAA" shall mean the 1996 Health Insurance
Portability and Accountability Act, including 29 U.S.C. ss.ss. 1181 through
1191c, 26 U.S.C. ss.ss. 9801 through 9806, and 26 U.S.C. ss. 4980D.
"Knowledge" or "knowledge", or "known" with respect
to Seller, shall mean information actually known by those persons listed on
Schedule 17.13 after due inquiry thereof.
"Laws" shall mean the common law and all statutes,
rules, regulations, ordinances, orders, codes, permits, licenses, policies,
guidelines and agreements with or of any federal, state, local or foreign
governmental or regulatory authorities (including, without limiting the
generality of the foregoing, any of the same which terminates, disqualifies or
otherwise adversely affects a Person's (including any Party) reimbursement or
right to payment from, or participation with, any Payor, including without
limitation the Stark Law (42 U.S.C. ss.ss. 1395nn and 1396b), the Medicare and
Medicaid Anti-Kickback Statute (42 U.S.C. ss. 1320a-7b(b)), the False Claims Act
(including 31 U.S.C. ss.ss. 3729 et. seq. and 18 U.S.C. ss.ss. 371, 666, 3013
and 3571), NRS 439B.420-430 and prohibitions against fee splitting, together
with all amendments thereto) or any applicable accreditation agencies
(including, but not limited to, JCAHO), and any order, writ, injunction or
decree issued by any court, arbitrator or governmental agency or in connection
with any judicial, administrative or other non-judicial proceeding (including,
without limitation, arbitration or reference). Laws shall include those Laws now
or hereafter in effect.
"Liens" shall mean all liens, encumbrances (including
security interests of any kind whatsoever), covenants, conditions, restrictions,
easements, encroachments, rights of way, charges or other rights, options,
claims or interests of any third party whatsoever.
"Material Adverse Effect" shall mean (a) with respect
to Seller or Buyer, a change in the business, results of operations, prospects,
financial condition or liabilities thereof that is (individually or in the
aggregate), or may reasonably be expected to be, material and adverse to Seller
or to Buyer and its Affiliates taken as a whole, as the case may be, or (b) with
respect to the Transferred Assets, a change in the value, condition or use
thereof that (individually or in the aggregate) is, or may reasonably be
expected to be, material and adverse to the Transferred Assets taken as a whole;
provided, however, for all purposes of this Agreement, any actual or prospective
change or changes resulting from changes in financial or market conditions,
general economic conditions or economic, market or regulatory changes affecting
the healthcare industry shall not constitute a Material Adverse Effect.
"Medicare Receivables" shall mean any and all
Receivables due from Medicare, Medicaid or CHAMPUS, (excluding Cost Report
Receivables) or any other Receivable, the assignment of which is either
prohibited by Law or by the terms of any contract with a Payor, and including
all deductibles and co-insurance payments receivable from the patient or other
Payor.
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"Net Working Capital" shall mean the book value of
the Receivables Purchased Inventory (as determined pursuant to Paragraph
2.2(b)), Prepaids, and other current assets of the Hospital Business (excluding
the Retained Assets), less the Accrued Operating Expenses calculated consistent
with the Financial Statements and in accordance with GAAP. Net Working Capital
shall exclude capital lease obligations.
"Nevada Transfer Law" shall mean Nevada Revised
Statutes 450.490.
"New Facility" shall mean that certain 75 bed general
acute care hospital to be constructed after the Closing by Buyer in Elko,
Nevada, as provided in Paragraph 13.16.
"Payor" shall mean Medicare, Medicaid, CHAMPUS and
medically indigent assistance programs, Blue Cross, Blue Shield or any other
third party payor or third party administrator (including an insurance company,
a health maintenance organization, preferred provider organization, employee
welfare benefit plan trust, or any other managed care organization) or any
fiscal intermediary or carrier of any of the foregoing.
"Permitted Exceptions" shall mean such exceptions as
set forth in the preliminary title commitment, agreed to by Buyer as of the
Closing.
"Person" shall mean any individual, partnership,
corporation, limited liability company, trust, unincorporated association, joint
venture or any other legal entity of any kind whatsoever, whether for profit or
not for profit, and any governmental agency.
"Plans" or "Plan" shall mean each plan, program or
arrangement providing for compensation, severance, fringe benefits, or other
employee benefits of any kind, including an "employee benefit plan" within the
meaning of Section 3(3) of ERISA and any "multiemployer plan" within the meaning
of Sections 3(37) or 4001(a)(3) of ERISA, which covers employees of the Hospital
Business.
"Proprietary Documents" shall mean any documents of
Seller not customarily used by Seller or Hospital in the ordinary course of
operating the Hospital Business.
"Reasonable Commercial Efforts" or "Reasonable
Efforts" do not include the provision of any consideration to any third party or
the suffering of any economic detriment to a Party's ongoing operations for the
procurement of any consent, authorization or approval required under this
Agreement except for (i) the costs of gathering and supplying data or other
information or making any filings; (ii) fees and expenses of counsel and
consultants; and (iii) customary fees and charges of governmental authorities
and accreditation organizations.
"Receivables" shall mean all accounts, notes or other
amounts receivable recorded or otherwise accrued by Seller as of the Closing
Date as accounts, notes or other amounts receivable from Payors, patients,
physicians or any other Person (whether or not billed), arising from or in
connection with the operation of the Hospital Business, including (to the extent
not already included) rights to payment for services rendered through the
Closing Date to Straddle Patients, but excluding Cost Report Receivables,
Buyer's share of Straddle Patient Payments pursuant to Paragraph 13.6(b) or any
Transferred Asset described in Paragraph 1.1(k) or (n).
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"Related Agreements" shall mean any and all other
agreements, documents and instruments which may be entered into by and between
or among the Parties under, related to or in connection with this Agreement or
the transactions contemplated hereby, including, without limitation, the
agreements and documents referred to herein or attached hereto as Exhibits.
"Release" shall mean any spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping
or disposing into the environment or as otherwise defined in or pursuant to any
Environmental Regulation.
"Tax Exempt Debt" shall mean those obligations to be
paid by Seller at Closing set forth in Schedule 9.13.
"Taxes" shall mean (i) all federal, state, county and
local income, franchise, sales, use, excise, property, payroll, recordation and
transfer taxes, (ii) all federal, state, county and local taxes, levies, fees,
assessments and surcharges (however designated, including privilege taxes, room
or bed taxes and user fees) which are based on the gross receipts, net operating
revenues or patient days of the Hospital Business, and (iii) any interest,
penalties and additions to tax attributable to any of the foregoing.
(b) Table of Contents for Previously Defined Terms.
The terms listed below are defined elsewhere in this Agreement and, for ease of
reference, the Paragraph containing the definition of each such term is set
forth opposite such term.
<TABLE>
<CAPTION>
Term Paragraph
---- ---------
<S> <C>
Accounting Firm 2.2(c)
Accrued Operating Expenses 3.1(c)
Active Employees 13.9
Advisory Board 13.12
Assumed Contracts 3.1(a)
Assumed Obligations 3.1
Business Records 13.2(a)
Buyer's Severance Program 13.9(d)
Buyer's Subsidiary 17.5(a)
Claims 3.3
Closing 11
Confidentiality Agreement 6.2
Contracts 1.1(e)
Destruction Notice 13.2(c)
Disapproved Item 13.7(a)
Dispro Payments 1.1(m)
Dispro Payments Amounts 2.1
Dispro Payments Promissory Note 2.2(c)(iii)
Document Retention Period 13.2(b)
Environmental Survey 8.2
Estimated Statement 2.2
</TABLE>
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<TABLE>
<CAPTION>
Term Paragraph
---- ---------
<S> <C>
Excluded Liabilities 3.2
Excluded Receivables 1.2(d)
Final Report 2.2(c)
Financial Statements 5.3(a)
Force Majeure 17.20
GAAP 2.2(a)
Hired Employees 13.9(b)
Hospital A
Hospital Business A
Hospital Records 13.2
Inspection 8.2
Inspection Period 9.3
Insurance Policies 5.14
Interim Statements 5.3(a)
Internal Revenue Code 5.12
Inventory 1.1(d)
JCAHO 5.7
Monthly Statements 6.7
Offer 13.17(a)
Offered Assets 13.17(a)
Paid Time Off 3.1(b)
Patient Records 13.2(a)
Permits 5.7
Personal Property 1.1(c)
Phase I Assessment 8.2
Phase II Investigation 8.2
Preliminary Title Reports 8.2
Prepaids 1.1(e)
Prior Years' Statements 5.3(a)
Proposed Price 13.17(a)
Proposed Purchaser 13.17(a)
Proposed Terms 13.17(a)
Purchase Price 2.1
Purchased Inventory 1.1(d)
Real Property 1.1(a)
Real Property Leases 1.1(b)
Retained Assets 1.2
Seller's Severance Program 13.9(d)
Straddle Patients 13.6(b)
Tentative Purchase Price 2.2
Title Company 8.2
Title Policy 9.7
Title Surveys 8.2
Transferred Assets 1.1
Trigger Event 13.17(b)
</TABLE>
50
<PAGE> 56
17.14 CONSENTS NOT UNREASONABLY WITHHELD
Wherever the consent or approval of any Party is
required under this Agreement or any Related Agreement, such consent or approval
shall not be unreasonably withheld, delayed or conditioned, unless such consent
or approval is expressly stated to be at the sole and absolute discretion of
such Party or is otherwise similarly qualified.
17.15 GOVERNING LAW; VENUE
This Agreement and each Related Agreement shall be
construed and enforced in accordance with the laws of the State of Nevada as
applied between residents of that state entering into contracts to be performed
wholly within the State of Nevada and Buyer hereby consents to jurisdiction in
the State of Nevada. Venue for any action instituted with respect to this
Agreement, Related Agreement or the transactions contemplated hereunder and
thereunder shall lie exclusively in Elko County, Nevada or in the Northern
Division of the U.S. District Court for the District of Nevada.
17.16 TAX AND MEDICARE EFFECT
Neither Party (nor such Party's counsel, accountant
or representatives) has made or is making any representations to the other Party
(nor such Party's legal counsel, accountant or representatives) concerning any
of the Tax or Medicare effects arising by reason of the transactions provided
for in this Agreement or any Related Agreement, as each Party has obtained
independent professional advice with respect thereto and upon which it has
solely relied. Except as otherwise provided in this Agreement, no Party shall be
liable or in any way responsible to any other Party because of any Tax or
Medicare effect resulting from the transactions provided for in this Agreement
or any Related Agreement, and each Party shall be responsible for the payment of
any Tax or Medicare related charge or payment for which it becomes liable by
reason of the consummation of the transactions provided for in this Agreement
and any Related Agreement.
17.17 MISDIRECTED PAYMENTS, ETC.
Seller and Buyer covenant and agree to remit, with
reasonable promptness, to the other, any payments received, which payments are
on or in respect of accounts or notes receivable owned by (or are otherwise
payable to) the other. In addition, and without limitation, in the event of a
determination by Medicare, other Payor or any governmental agency that payments
to Seller or the Hospital resulted in an overpayment or other determination that
funds previously paid by any program or plan to Seller or the Hospital must be
repaid, Seller shall be responsible for repayment of said monies (or defense of
such actions) if such overpayment or other repayment determination was for
services rendered prior to the Closing Date and Buyer shall be responsible for
repayment of said moneys (or defense of such actions) if such overpayment
determined was for services rendered after the Closing Date. In the event that,
following Closing, Buyer suffers any offset against reimbursement under any
program of any Payor due to Buyer relating to amounts owing under any such
program by Seller or any affiliate of Seller, Buyer shall promptly notify Seller
hereof and Seller shall upon written demand from Buyer within ten (10) Business
Days pay to Buyer the amounts so offset.
51
<PAGE> 57
17.18 ADDITIONAL ASSURANCES
The provisions of this Agreement shall be
self-operative and shall not require further agreement by the Parties except as
may be herein specifically provided to the contrary; provided, however, at the
request of either Party, the other Party shall execute such additional
instruments and take such additional acts as are reasonably necessary to
effectuate this Agreement as provided in Paragraph 13.1.
17.19 PUBLIC ANNOUNCEMENTS
Neither of the Parties, except as required by Law or
governmental entity, shall issue any press release or other public announcement
related to this Agreement or the transactions contemplated hereby, without
having first obtained the approval of the other Party.
17.20 FORCE MAJEURE
Neither Buyer nor Seller shall be deemed in default
under this Agreement or any Related Agreement if failure to perform is due to
Force Majeure as defined herein. Causes for delay due to Force Majeure shall
excuse performance only during their existence and for such time as reasonably
necessary to recover from such cause or delay. If a party claims any such excuse
for failure or delay, it shall give the other party written notice of the
existence of such cause promptly after the occurrence thereof. The term "Force
Majeure" as used herein shall mean an act of God, strike, lockout, act of public
enemy, war, blockade, civil unrest, earthquake, fire, flood, act of federal,
state or local government (other than enforcement of laws), or other similar
event, which in any case is outside the reasonable control of the party claiming
to be affected and is not a change in market or economic conditions.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
52
<PAGE> 58
IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of
the date first above written.
Buyer:
PROVINCE HEALTHCARE COMPANY
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
Seller:
BOARD OF ELKO COUNTY COMMISSIONERS
By:
---------------------------------------------
ATTEST:
-------------------------------------------------
53
<PAGE> 1
Exhibit 21.1
Subsidiaries of
Province Healthcare Company
---------------------------
Blythe-Province, Inc.
Brim Equipment Services, Inc.
Brim Fifth Avenue, Inc.
Brim Healthcare, Inc.
Brim Hospitals, Inc.
Brim Outpatient Services, Inc.
Brim Pavilion, Inc.
Brim Services Group, Inc.
Care Health Company, Inc.
Harris Street Surgery Partners Limited Partnership
Integrated Health Management, LLC
Mexia Principal Healthcare Limited Partnership
Mexia-Principal, Inc.
Palestine Principal Healthcare Limited Partnership
Palestine-Principal G.P., Inc.
Palestine-Principal, Inc.
PHC of Delaware, Inc.
PHC-Elko, Inc.
PHC-Eunice, Inc.
PHC-Lake Havasu, Inc.
Principal Hospital Company of Nevada, Inc.
Principal Knox Company
Principal-Needles, Inc.
The Woodrum Group, Inc.
<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 the second paragraph
of Note 10, as to which the date is February 4, 1998, with respect to the
consolidated financial statements of Brim, Inc., (ii) March 23, 1998, with
respect to the consolidated financial statements and schedule of Province
Healthcare Company and (iii) May 5, 1998, with respect to the financial
statements of Havasu Samaritan Regional Hospital in the Registration Statement
(Form S-1) and related Prospectus of Province Healthcare Company for the
registration of 3,570,000 shares of its common stock.
Ernst & Young LLP
Nashville, Tennessee
June 5, 1998
<PAGE> 1
EXHIBIT 23.3
KPMG Peat Marwick LLP
Suite 2000
1211 South West Fifth Avenue
Portland, OR 97201
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 on the consolidated statements of income
and cash flows of Province Healthcare Company (formerly Brim, Inc.) for the
year ended December 31, 1995 included herein and to the reference to our firm
under the heading "Experts" in Province Healthcare Company's Form S-1
registering 3,570,000 shares of Common Stock.
KPMG Peat Marwick LLP
Portland, Oregon
June 10, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF HAVASU SAMARITAN REGIONAL HOSPITAL FOR THE YEAR ENDED
DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 5,750
<SECURITIES> 0
<RECEIVABLES> 4,208,331
<ALLOWANCES> 1,159,000
<INVENTORY> 1,094,129
<CURRENT-ASSETS> 4,295,862
<PP&E> 32,140,871
<DEPRECIATION> 14,367,608
<TOTAL-ASSETS> 28,490,047
<CURRENT-LIABILITIES> 2,559,057
<BONDS> 20,996,743
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 28,490,047
<SALES> 0
<TOTAL-REVENUES> 55,101,188
<CGS> 0
<TOTAL-COSTS> 46,347,786
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,541,100
<INTEREST-EXPENSE> 1,628,303
<INCOME-PRETAX> 8,753,402
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,753,402
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,753,402
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF HAVASU SAMARITAN REGIONAL HOSPITAL FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 5,750
<SECURITIES> 0
<RECEIVABLES> 4,741,756
<ALLOWANCES> 974,000
<INVENTORY> 1,075,634
<CURRENT-ASSETS> 5,009,304
<PP&E> 33,331,464
<DEPRECIATION> 14,826,448
<TOTAL-ASSETS> 31,657,018
<CURRENT-LIABILITIES> 1,813,897
<BONDS> 21,061,883
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 31,657,018
<SALES> 0
<TOTAL-REVENUES> 15,168,436
<CGS> 0
<TOTAL-COSTS> 12,337,497
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 996,224
<INTEREST-EXPENSE> 394,689
<INCOME-PRETAX> 2,830,939
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,830,939
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,830,939
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
