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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NUMBER 0-29818
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LIFEPOINT HOSPITALS, INC.
(Exact Name of Registrant as Specified in its Charter)
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<TABLE>
<S> <C>
DELAWARE 52-2165845
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification No.)
Organization)
103 POWELL COURT, SUITE 200 37027
BRENTWOOD, TENNESSEE (Zip Code)
(Address of Principal Executive Offices)
</TABLE>
Registrant's Telephone Number, Including Area Code: (615) 372-8500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
Common Stock, par value $.01 per share The Nasdaq National Market System
Preferred Stock Purchase Rights The Nasdaq National Market System
</TABLE>
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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COMMISSION FILE NUMBER 333-84755
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LIFEPOINT HOSPITALS HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
---------------------
<TABLE>
<S> <C>
DELAWARE 52-2167869
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification No.)
Organization)
103 POWELL COURT, SUITE 200 37027
BRENTWOOD, TENNESSEE (Zip Code)
(Address of Principal Executive Offices)
</TABLE>
Registrant's Telephone Number, Including Area Code: (615) 372-8500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant:(1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the shares of Common Stock (based upon the
closing sale price of these shares on March 17, 2000) of LifePoint Hospitals,
Inc. held by non-affiliates on March 17, 2000, was approximately $378,056,672.
As of March 17, 2000, the number of outstanding shares of Common Stock of
LifePoint Hospitals, Inc. was 33,704,040, and all of the shares of Common Stock
of LifePoint Hospitals Holdings, Inc. were owned by LifePoint Hospitals, Inc.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of LifePoint's definitive Proxy Statement for its Annual Meeting
of Stockholders to be held on May 11, 2000 are incorporated by reference into
Part III hereof.
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PART I
ITEM 1. BUSINESS
GENERAL
LifePoint Hospitals, Inc. ("LifePoint" or the "Company") owns and operates
general, acute care hospitals located in non-urban areas. As of December 31,
1999, LifePoint operated 23 hospitals. According to industry sources, the
average population in the Company's markets is approximately 27,000, and is
expected to grow on average in excess of 5% between 1998 and 2003, compared to
the expected national growth rate of 4% over the same period. In all but one of
its markets, LifePoint's hospital is the only hospital in the community.
LifePoint's hospitals are located in nine states: Alabama, Florida, Georgia,
Kansas, Kentucky, Louisiana, Tennessee, Utah and Wyoming. Approximately half of
LifePoint's facilities are located in the states of Kentucky and Tennessee.
Three hospitals were held for sale on December 31, 1999. On January 31, 2000,
LifePoint sold Trinity Hospital located in Erin, Tennessee, one of the three
hospitals held for sale.
LifePoint is a successor to the America Group, a division created by
Columbia/HCA Healthcare Corporation ("Columbia/HCA") in November 1997 to operate
general, acute care hospitals located in non-urban areas. Columbia/HCA
established the America Group as an independent, publicly-traded company by
distributing all outstanding shares of LifePoint Common Stock to the
stockholders of Columbia/HCA on May 11, 1999 (the "Distribution"). In connection
with the Distribution, Healthtrust, Inc.-The Hospital Company, a wholly owned
subsidiary of Columbia/HCA, transferred all of the assets comprising the America
Group to LifePoint and LifePoint transferred such assets to LifePoint Hospitals
Holdings, Inc., a wholly owned subsidiary of LifePoint ("Holdings").
Columbia/HCA no longer owns any shares of LifePoint Common Stock.
THE NON-URBAN HEALTH CARE MARKET
LifePoint believes that growing, non-urban health care markets are
attractive to health care service providers as a result of favorable demographic
and economic trends and competitive conditions. All of LifePoint's facilities
are located in non-urban markets.
Because non-urban service areas have smaller populations, there are
generally fewer hospitals and other health care service providers in each
community. Management believes that the smaller populations and relative
significance of the one or two acute care hospitals in these markets also
discourage the entry of alternate non-hospital providers, such as outpatient
surgery centers or rehabilitation or diagnostic imaging centers, as well as
managed care plans. There is generally a lower level of managed care payer
penetration, that is, the relative proportion of the market population enrolled
in managed care programs such as HMOs and PPOs, in LifePoint's markets than
there is in urban markets. In addition, LifePoint believes that non-urban
communities generally view the local hospital as a key part of the local
community.
Management believes that the characteristics of the non-urban health care
market provide LifePoint with attractive acquisition opportunities. Currently,
the majority of non-urban hospitals are owned by not-for-profit and governmental
entities that typically have limited access to capital to keep pace with
advances in medical technology. In addition, such entities frequently lack the
management resources necessary to control hospital expenses, recruit and retain
physicians, expand healthcare services and comply with increasingly complex
reimbursement and managed care requirements. As a result, patients may migrate
to, may be referred by local physicians to, or may be encouraged by managed care
plans to travel to, hospitals in larger, urban markets. Management believes that
as a result of these pressures, not-for-profit and governmental owners of
non-urban hospitals who wish to preserve the local availability of quality
health care services have sought to sell or lease these hospitals to companies,
like LifePoint, that are committed to the local delivery of health care and that
have greater access to capital and management resources which can be employed to
serve the community.
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BUSINESS STRATEGY
LifePoint's strategic goals are centered around the unique patient and
health care provider needs and opportunities in its non-urban markets. LifePoint
manages its facilities so that they operate in accordance with the strategies
described below:
- Develop Facility-Specific Strategies for Non-Urban Markets. LifePoint
has developed facility-specific strategies tailored for its non-urban
markets. These strategies are intended to improve the quality and breadth
of health care services, to provide an outstanding workplace for its
employees, to recognize and expand the hospitals' roles as community
assets and to improve financial performance. By contrast, during
Columbia/HCA's ownership, LifePoint's hospitals were included in
integrated facility networks with large urban facilities as the primary
providers of specialty services.
- Expand Breadth of Service and Reduce Patient Outmigration. LifePoint
strives to increase revenues by broadening the scope of health care
services available at its facilities, particularly in markets where
significant outmigration is occurring, and to recruit physicians with a
broader range of specialties. LifePoint has undertaken projects in the
majority of its hospitals targeted at expanding or renovating specialty
service facilities including emergency room facilities, obstetric care,
surgical capacity and outpatient services. Management believes that this
expansion of available treatments and community focus encourages local
residents in the non-urban markets that LifePoint serves to seek care at
facilities within their communities and limit outmigration.
- Strengthen Physician Recruiting and Retention. LifePoint seeks to
enhance the quality of care available locally, and the revenue derived
therefrom, and believes that recruiting physicians in local communities
is critical to increasing the quality of health care and the breadth of
available services. LifePoint recruited 86 physicians in 1999. LifePoint
believes that these recruiting successes are largely attributable to its
spin-off as an independent company and the community-based focus of its
management team. LifePoint's physician recruitment program is currently
focused primarily on recruiting additional specialty care physicians.
LifePoint's management is focused on working more effectively with
individual physicians and physician practices. Management believes that
expansion of the range of available treatments at its hospitals should
also assist in physician recruiting.
- Retain and Develop Stable Management. Management believes that achieving
long-term retention of executive teams at its hospitals is an important
element in enhancing medical staff relations and maintaining continuity
of relationships within the community. LifePoint has focused its
recruitment of managers and health care professionals on those who wish
to live and practice in the communities in which LifePoint's hospitals
are located. During Columbia/HCA's ownership, managers and health care
professionals employed at LifePoint hospitals sometimes relocated to
advance their careers elsewhere within the Columbia/HCA system. LifePoint
believes that its ability to provide equity-based compensation linked to
its performance should assist in management retention.
- Improve Managed Care Position. As part of Columbia/HCA, LifePoint's
facilities typically were included in managed care contracts negotiated
by Columbia/HCA on a market-wide basis emphasizing large urban
facilities. LifePoint believes that independence from Columbia/HCA and
the lower managed care penetration in the Company's markets have enabled
it to negotiate contract terms that are generally more favorable for its
facilities and to decrease the level of discount arrangements in which it
participates.
- Improve Expense Management. LifePoint has begun to implement cost
control initiatives designed to reduce labor costs and improve labor
productivity, control supplies expense and reduce uncollectible revenues.
These initiatives include adjusting staffing levels according to patient
volumes, modifying supply purchases according to usage patterns and
providing training to hospital staff in more efficient billing and
collection processes.
- Acquire Other Hospitals. Management intends to pursue a disciplined
acquisition strategy that will seek to identify and acquire attractive
hospitals in non-urban markets. LifePoint will seek to acquire hospitals
that are located in non-urban markets with above average population
growth, a strong
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economic base and a favorable payor mix. The competition to acquire
non-urban hospitals is significant. There can be no assurance that
suitable acquisitions can be accomplished on terms favorable to LifePoint
or that financing, if necessary, can be obtained for such acquisitions.
LifePoint believes that often the acquiror will be selected for a variety
of reasons and not exclusively on the basis of price. LifePoint believes
that its strategic goals align its interests with those of the local
communities served by its hospitals. LifePoint believes that its
commitment to maintaining the local availability of health care services,
together with the reputation of LifePoint's hospitals for providing
market-specific, high quality health care, its focus on physician
recruiting and retention, its management's operating experience, and its
access to capital will enable LifePoint to compete successfully for
acquisitions.
OPERATIONS
LifePoint's general, acute care hospitals usually provide the range of
medical and surgical services commonly available in hospitals in non-urban
markets. These hospitals also provide diagnostic and emergency services, as well
as outpatient and ancillary services such as outpatient surgery, laboratory,
radiology, respiratory therapy and physical therapy.
Each of LifePoint's hospitals is governed by a board of trustees, which
includes members of the hospital's medical staff as well as community leaders.
The board of trustees establishes policies concerning medical, professional and
ethical practices, monitors such practices, and is responsible for ensuring that
these practices conform to established standards. LifePoint maintains quality
assurance programs to support and monitor quality of care standards and to meet
accreditation and regulatory requirements. Patient care evaluations and other
quality of care assessment activities are monitored on a continuing basis.
Like most hospitals located in non-urban areas, LifePoint's hospitals do
not engage in extensive medical research and medical education programs.
However, a number of LifePoint's hospitals have an affiliation with medical
schools, including the clinical rotation of medical students.
In addition to providing capital resources, LifePoint makes available a
variety of management services to its health care facilities. These services
include information systems; ethics and compliance programs; leasing contracts;
accounting, financial and clinical systems; legal support; personnel management;
internal auditing; and resource management. Some of these services initially are
being provided through transitional arrangements made with Columbia/HCA.
LifePoint also participates and has an equity interest, along with Columbia/HCA
and Triad Hospitals, Inc., a publicly-traded company comprising the former
Pacific Group of Columbia/HCA ("Triad"), in a group purchasing organization
which makes certain national supply and equipment contracts available to
LifePoint's facilities. See "-- Arrangements Relating to the Distribution."
SERVICES AND UTILIZATION
LifePoint believes that two important factors relating to the overall
utilization of a hospital are the quality and market position of the hospital
and the number, quality and specialties of physicians providing patient care
within the facility. Generally, LifePoint believes that the ability of a
hospital to meet the health care needs of its community is determined by its
breadth of services, level of technology, emphasis on quality of care and
convenience for patients and physicians. Other factors which impact utilization
include the size of and growth in local population, local economic conditions,
the availability of reimbursement programs such as Medicare and Medicaid and
market penetration of managed care programs. Utilization across the industry
also is being affected by improved treatment protocols as a result of advances
in medical technology and pharmacology.
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The following table sets forth certain operating statistics for
consolidated hospitals owned by LifePoint for each of the past five years ended
December 31. Medical/surgical hospital operations are subject to certain
seasonal fluctuations, including decreases in patient utilization during holiday
periods and increases in patient utilization during the cold weather months.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
1999 1998(H) 1997 1996 1995
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Number of hospitals at end of period........... 23 23 22 22 20
Number of licensed beds at end of period(a).... 2,169 2,169 2,080 2,074 1,881
Weighted average licensed beds(b).............. 2,169 2,127 2,078 2,060 1,862
Admissions(c).................................. 64,237 62,269 60,487 59,381 54,549
Equivalent admissions(d)....................... 114,599 110,029 105,126 98,869 88,915
Average length of stay (days)(e)............... 4.2 4.4 4.4 4.7 4.8
Average daily census(f)........................ 739 742 733 755 713
Occupancy rate(g).............................. 34% 35% 35% 37% 38%
</TABLE>
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(a) Licensed beds are those beds for which a facility has been granted approval
to operate from the applicable state licensing agency.
(b) Represents the average number of licensed beds weighted based on periods
owned.
(c) Represents the total number of patients admitted (in the facility for a
period in excess of 23 hours) to LifePoint's hospitals and is used by
management and certain investors as a general measure of inpatient volume.
(d) Equivalent admissions is used by management and certain investors as a
general measure of combined inpatient and outpatient volume. Equivalent
admissions is computed by multiplying admissions (inpatient volume) by the
sum of gross inpatient revenue and gross outpatient revenue and then
dividing the resulting amount by gross inpatient revenue. The equivalent
admissions computation "equates" outpatient revenue to the volume measure
(admissions) used to measure inpatient volume resulting in a general measure
of combined inpatient and outpatient volume.
(e) Represents the average number of days admitted patients stay in LifePoint's
hospitals. Average length of stay has declined due to the continuing
pressures from managed care and other payers to restrict admissions and
reduce the number of days that are covered by the payers for certain
procedures, and by technological and pharmaceutical improvements.
(f) Represents the average number of patients in LifePoint's hospital beds each
day.
(g) Represents the percentage of hospital licensed beds occupied by patients.
Both average daily census and occupancy rate provide measures of the
utilization of inpatient rooms. The declining occupancy rate is primarily
attributed to the trend toward more services that were previously performed
in an inpatient setting being performed on an outpatient basis and the
decline in average length of stay per admission.
(h) Certain prior year information has been restated to conform to current year
definitions.
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LifePoint's hospitals have experienced significant shifts from inpatient to
outpatient care as well as decreases in average lengths of inpatient stay. These
shifts are primarily as a result of improvements in technology and clinical
practices and hospital payment changes by Medicare, insurance carriers and self-
insured employers. These hospital payment changes generally encourage the
utilization of outpatient, rather than inpatient, services whenever possible,
and shortened lengths of stay for inpatient care. In response to this shift
toward outpatient care, LifePoint is reconfiguring certain hospitals to more
effectively accommodate outpatient services and restructuring existing surgical
capacity in certain hospitals to permit additional outpatient volume and a
greater variety of outpatient services.
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SOURCES OF REVENUE
LifePoint receives payment for patient services from the federal government
primarily under the Medicare program, state governments under their respective
Medicaid programs, HMOs, PPOs and other private insurers, as well as directly
from patients. The approximate percentages of net patient revenues from
continuing operations of LifePoint's facilities from such sources during the
periods specified below were as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Medicare.................................................... 34.8% 37.8% 39.4%
Medicaid.................................................... 12.6% 11.1% 11.1%
Other sources............................................... 52.6% 51.1% 49.5%
----- ----- -----
Total............................................. 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
Medicare is a federal program that provides certain hospital and medical
insurance benefits to persons age 65 and over, some disabled persons and persons
with end-stage renal disease. Medicaid is a joint federal-state program
administered by the states that provides hospital benefits to qualifying
individuals who are unable to afford care. All of LifePoint's hospitals are
certified as providers of Medicare and Medicaid services. Amounts received under
the Medicare and Medicaid programs are generally significantly less than the
hospital's customary charges for the services provided.
To attract additional volume, most of LifePoint's hospitals offer discounts
from established charges to certain large group purchasers of health care
services, including private insurance companies, employers, HMOs, PPOs and other
managed care plans. These discount programs often limit LifePoint's ability to
increase charges in response to increasing costs. See "-- Competition."
In addition to government programs, LifePoint is reimbursed by private
payers including HMOs, PPOs, private insurance companies, employers and
individual private payers. Patients are generally not responsible for any
difference between customary hospital charges and amounts reimbursed for such
services under Medicare, Medicaid, some private insurance plans, HMOs or PPOs,
but are responsible for services not covered by such plans, exclusions,
deductibles or co-insurance features of their coverage. The amount of such
exclusions, deductibles and co-insurance has generally been increasing each
year. Collection of amounts due from individuals is typically more difficult
than from governmental or business payers. For more information on the
reimbursement programs on which LifePoint's revenues are dependent, see
"-- Reimbursement."
COMPETITION
The primary bases of competition among hospitals in non-urban markets are
the quality and scope of medical services, availability of physicians, location,
community reputation and, to a lesser extent, price. Generally, LifePoint serves
markets in which its hospital is the only hospital in the community. Therefore,
most of LifePoint's hospitals face less competition in their immediate patient
service areas than would be expected in larger communities. While LifePoint's
hospitals are generally the primary provider of institutional health care
services in their respective communities, its hospitals face competition from
hospitals in surrounding communities, including larger tertiary care centers
and, in some cases, other non-urban hospitals. Some of the hospitals that
compete with LifePoint are owned by tax-supported governmental agencies or by
not-for-profit entities supported by endowments and charitable contributions
which can finance capital expenditures on a tax-exempt basis.
One of the most significant factors in the competitive position of a
hospital is the number and quality of physicians affiliated with the hospital.
Although physicians may at any time terminate their affiliation with a hospital
operated by LifePoint, LifePoint's hospitals seek to retain physicians of varied
specialties on the hospitals' medical staffs and to attract other qualified
physicians. LifePoint believes that physicians refer patients to a hospital
primarily on the basis of the quality of services it renders to patients and
physicians, the
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quality of other physicians on the medical staff, the location of the hospital
and the quality of the hospital's facilities, equipment and employees.
Accordingly, LifePoint strives to maintain high ethical and professional
standards and quality facilities, equipment, employees and services for
physicians and their patients.
Another factor in the competitive position of a hospital is management's
ability to negotiate service contracts with purchasers of group health care
services. HMOs and PPOs attempt to direct and control the use of hospital
services through managed care programs and to obtain discounts from hospitals'
established charges. In addition, employers and traditional health insurers are
increasingly interested in containing costs through negotiations with hospitals
for managed care programs and discounts from established charges. Generally,
hospitals compete on the basis of market reputation, geographic location,
quality and range of services, quality of the medical staff, convenience and
price for service contracts with group health care service purchasers. The
importance of obtaining contracts with managed care organizations varies from
market to market, depending on the market strength of such organizations.
Managed care contracts generally are less important in the non-urban markets
served by LifePoint than they are in urban and suburban markets where there is
typically a higher level of managed care penetration.
State certificate of need ("CON") laws, which place limitations on a
hospital's ability to expand hospital services and add new equipment, also may
have the effect of restricting competition. Every state in which LifePoint
operates has CON laws except Kansas, Louisiana, Utah and Wyoming. The
application process for approval of covered services, facilities, changes in
operations and capital expenditures is, therefore, highly competitive. In those
states which have no CON laws or which set relatively high thresholds before
expenditures become reviewable by state authorities, competition in the form of
new services, facilities and capital spending may be more prevalent. LifePoint
has not experienced, and does not expect to experience, any material adverse
effects from state CON requirements or from the imposition, elimination or
relaxation of such requirements. See "-- Government Regulation and Other
Factors."
LifePoint and the health care industry as a whole face the challenge of
continuing to provide quality patient care while dealing with rising costs,
strong competition for patients and a general reduction of reimbursement rates
by both private and government payers. As both private and government payers
reduce the scope of what may be reimbursed and reduce reimbursement levels for
what is covered, federal and state efforts to reform the health care system may
further impact reimbursement rates. Changes in medical technology, existing and
future legislation, regulations and interpretations and competitive contracting
for provider services by private and government payers may require changes in
LifePoint's facilities, equipment, personnel, rates and/or services in the
future.
The hospital industry and LifePoint's hospitals continue to have
significant unused capacity. Inpatient utilization, average lengths of stay and
average inpatient occupancy rates continue to be negatively affected by
payer-required pre-admission authorization, utilization review, and payment
mechanisms to maximize outpatient and alternative health care delivery services
for less acutely ill patients. Admissions constraints, payer pressures and
increased competition are expected to continue. LifePoint will endeavor to meet
these challenges by expanding its facilities' outpatient services, offering
appropriate discounts to private payer groups, upgrading facilities and
equipment, and offering new programs and services.
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PROPERTIES
The following table lists the hospitals owned, except as otherwise
indicated, by LifePoint as of December 31, 1999:
<TABLE>
<CAPTION>
LICENSED
FACILITY NAME CITY STATE BEDS
- ------------- ------------ ----- --------
<S> <C> <C> <C>
Andalusia Hospital...................................... Andalusia AL 101
Bartow Memorial Hospital................................ Bartow FL 56
Barrow Medical Center(1)................................ Winder GA 56
Western Plains Regional Hospital(2)..................... Dodge City KS 110
Halstead Hospital(1).................................... Halstead KS 177
Georgetown Community Hospital........................... Georgetown KY 75
Jackson Purchase Medical Center......................... Mayfield KY 107
Meadowview Regional Medical Center...................... Maysville KY 111
Bourbon Community Hospital.............................. Paris KY 58
Logan Memorial Hospital................................. Russellville KY 100
Lake Cumberland Regional Hospital....................... Somerset KY 227
Riverview Medical Center................................ Gonzales LA 104
Springhill Medical Center............................... Springhill LA 63
Smith County Memorial Hospital.......................... Carthage TN 63
Trinity Hospital(3)..................................... Erin TN 40
Crockett Hospital....................................... Lawrenceburg TN 107
Livingston Regional Hospital............................ Livingston TN 112
Hillside Hospital....................................... Pulaski TN 95
Emerald-Hodgson Hospital................................ Sewanee TN 50
Southern Tennessee Medical Center....................... Winchester TN 166
Castleview Hospital..................................... Price UT 82
Ashley Valley Medical Center............................ Vernal UT 39
Riverton Memorial Hospital.............................. Riverton WY 70
</TABLE>
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(1) These facilities are currently held for sale.
(2) LifePoint operates and holds a majority equity interest in a consolidated
joint venture which owns and operates Western Plains Regional Hospital.
(3) LifePoint sold this facility on January 31, 2000.
Medical office buildings also are operated in conjunction with its
hospitals. These office buildings are primarily occupied by physicians who
practice at LifePoint's hospitals.
LifePoint's headquarters are located in approximately 25,500 square feet of
space in one office building in Brentwood, Tennessee. Prior to January 24, 2000,
LifePoint subleased space in an office building in Nashville, Tennessee from
Columbia/HCA. The parties terminated the sublease when LifePoint moved to its
office in Brentwood.
LifePoint's headquarters, hospitals and other facilities are suitable for
their respective uses and are, in general, adequate for LifePoint's present
needs. LifePoint's obligations under its bank credit facilities are secured by a
pledge of substantially all of the assets of LifePoint and its subsidiaries,
including first priority mortgages on each of LifePoint's hospitals. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
EMPLOYEES AND MEDICAL STAFF
At December 31, 1999, LifePoint had approximately 6,500 employees,
including approximately 1,600 part-time employees. No LifePoint employees are
subject to collective bargaining agreements. LifePoint considers its employee
relations to be good. While some of LifePoint's hospitals experience union
organizing activity from time to time, LifePoint does not expect such efforts to
materially affect its future operations.
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<PAGE> 10
LifePoint's hospitals, like most hospitals, have experienced labor costs rising
faster than the general inflation rate. There can be no assurance as to future
availability and cost of qualified medical personnel.
LifePoint's hospitals are staffed by licensed physicians who have been
admitted to the medical staff of individual hospitals. Any licensed physician
may apply to be admitted to the medical staff of any of LifePoint's hospitals,
but admission to the staff must be approved by the hospital's medical staff and
the appropriate governing board of the hospital in accordance with established
credentialing criteria. With certain exceptions, physicians generally are not
employees of LifePoint's hospitals. However, LifePoint has conducted a physician
practice management program pursuant to which some physicians provide services
in LifePoint's hospitals by contract. Since the Distribution, LifePoint has
limited the scope of its physician practice management program.
LIFEPOINT'S REGULATORY COMPLIANCE PROGRAM
It is LifePoint's policy that its business be conducted with integrity and
in compliance with the law. LifePoint has in place and continues to develop a
corporate-wide compliance program, which focuses on all areas of regulatory
compliance, including physician recruitment, reimbursement and cost reporting
practices and laboratory operations.
This regulatory compliance program is intended to ensure that high
standards of conduct are maintained in the operation of LifePoint's business and
to help ensure that policies and procedures are implemented so that employees
act in full compliance with all applicable laws, regulations and company
policies. Under the regulatory compliance program, LifePoint provides initial
and periodic legal compliance and ethics training to every employee, reviews
various areas of LifePoint's operations, and develops and implements policies
and procedures designed to foster compliance with the law. LifePoint regularly
monitors its ongoing compliance efforts. The program also includes a mechanism
for employees to report, without fear of retaliation, any suspected legal or
ethical violations to their supervisors or designated compliance officers in
LifePoint's hospitals.
REIMBURSEMENT
Medicare. Under the Medicare program, acute care hospitals receive
reimbursement under a prospective payment system ("PPS") for inpatient hospital
services. Psychiatric, long-term care, rehabilitation, specially designated
children's hospitals and certain designated cancer research hospitals, as well
as psychiatric or rehabilitation units that are distinct parts of a hospital and
meet Health Care Financing Administration ("HCFA") criteria for exemption, are
currently exempt from PPS and are reimbursed on a cost-based system, subject to
certain cost limits known as Tax Equity and Fiscal Responsibility Act of 1982
("TEFRA") limits. All of LifePoint's hospitals are reimbursed under PPS, and
certain psychiatric, long-term care and rehabilitation units are exempt from
PPS, but many are subject to transition to PPS.
Under the PPS, fixed payment amounts per inpatient discharge are
established based on the patient's assigned diagnosis related group ("DRG").
DRGs classify treatments for illnesses according to the estimated intensity of
hospital resources necessary to furnish care for each principal diagnosis. DRG
rates have been established for each hospital participating in the Medicare
program and are based upon a statistically normal distribution of severity. When
treatments for certain patients fall well outside the normal distribution,
providers receive additional payments. DRG payments do not consider a specific
hospital's costs, but are adjusted for area wage differentials. The majority of
capital costs for acute care facilities are reimbursed on a prospective payment
system based on DRG weights times a federal rate adjusted for a geographic rate.
DRG rates are updated and re-calibrated annually and have been affected by
several recent federal enactments. The index used to adjust the DRG rates, known
as the "market basket index," gives consideration to the inflation experienced
by hospitals and entities outside of the health care industry in purchasing
goods and services. However, for several years the percentage increases to the
DRG rates have been lower than the percentage increases in the costs of goods
and services purchased by hospitals. The DRG rates are adjusted each federal
fiscal year, which begins on October 1. The historical DRG rate increases were
1.5%, 2.0%, 0.0% and 0.5% for federal fiscal years 1996, 1997, 1998 and 1999,
respectively. The budgeted updates for federal
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fiscal years 2000 through 2002 are market basket index minus 1.8%, 1.1% and
1.1%, respectively. LifePoint anticipates that future legislation may further
decrease the future DRG payments, but is not able to predict the amount of the
reduction.
Outpatient services provided at general, acute care hospitals typically are
reimbursed by Medicare at the lower of customary charges or actual cost subject
to payment limitations. Certain other outpatient services are subject to
additional reimbursement limits. The Balanced Budget Act, enacted August 5, 1997
(the "Balanced Budget Act"), mandates a prospective payment system for
outpatient hospital services to begin January 1, 1999. However, implementation
of the PPS has been delayed because of Year 2000 systems concerns and is now
scheduled to commence July 1, 2000. The outpatient prospective payment system
will be further affected by changes mandated by the Medicare Balanced Budget
Refinement Act of 1999 (the "BBA Refinement Act"). In most cases, the BBA
Refinement Act lessens the impact of reimbursement limitations imposed by the
Balanced Budget Act. At such time as the PPS is implemented, the rates will be
based on the rates that would have been in effect January 1, 1999, updated by
the rate of increase in the hospital market basket minus 1.0%. However, the BBA
Refinement Act increases Medicare payments under the PPS system for hospital
outpatient services provided to certain high-cost outlier patients. LifePoint is
not able to predict the effect, if any, that the new payment system will have on
its financial results. After the fee schedule is established for this new
system, the fee schedule is to be updated by the market basket minus 1.0% for
each of federal fiscal years 2000 through 2002. Similarly, effective January 1,
1999, therapy services rendered by hospitals to outpatients and inpatients not
reimbursed under Medicare, Part A are reimbursed according to the Medicare
physician fee schedule.
The Balanced Budget Act also mandates a prospective payment system for
skilled nursing facility services for Medicare cost reporting periods commencing
after June 30, 1998, home health services for Medicare cost reporting periods
beginning after September 30, 1999, and inpatient rehabilitation hospital
services for Medicare cost reporting periods beginning after September 30, 2000.
Prior to the commencement of the respective prospective payment systems, payment
constraints will be applied to PPS-exempt hospitals and units for Medicare cost
reporting periods beginning on or after October 1, 1997.
For the year ended December 31, 1999, LifePoint had seven inpatient
psychiatric units, four inpatient rehabilitation units, nine hospital-based
skilled nursing facility units, nine rural health clinics, one home health
agency, one comprehensive outpatient rehabilitation facility and 11 hospitals
utilizing swing beds.
Prior to the implementation of the PPS payments to PPS-exempt hospitals and
units, such as inpatient psychiatric, rehabilitation and skilled nursing
services, are based upon reasonable cost, subject to a cost per discharge
target. These limits are updated annually by a market basket index. For federal
fiscal years 1996, 1997, 1998 and 1999, the market basket index rate of increase
was 3.4%, 2.5%, 0.0% and 2.4%, respectively. The update for cost reporting
periods from October 1, 1999 to September 30, 2000 ranges from zero to the
market basket index less a percentage point between 0.0% and 2.5% depending on
the hospital's or unit's costs in relation to the ceiling. Furthermore, limits
have been established for the cost per discharge target at the 75th percentile
for each category of PPS-exempt hospitals and hospital units. For federal fiscal
year 1998, these limits were $10,534, $19,104, and $37,688 per discharge,
respectively. For federal fiscal year 1999, these limits were $10,787, $19,562
and $38,593 per discharge, respectively. For federal fiscal year 2000, these
amounts are $11,100, $20,129, and $39,712 per discharge, respectively. In
addition, the cost per discharge for new hospitals/hospital units cannot exceed
110% of the national median target rate for hospitals in the same category. For
federal fiscal year 1998, these amounts were $8,517, $16,738, and $18,947 per
discharge for psychiatric, rehabilitation and long-term hospital services,
respectively. For federal fiscal year 1999, these amounts were $8,686, $17,077
and $22,010 per discharge, respectively. For federal fiscal year 2000, these
amounts are $8,938, $17,573 and $22,649 per discharge, respectively.
Skilled nursing facilities have historically been reimbursed by Medicare on
the basis of actual costs, subject to certain limits. The new prospective
payment system for skilled nursing facilities mandated by the Balanced Budget
Act requires the establishment of a prospective payment system for Medicare
skilled nursing facilities under which facilities will be paid per diem rates
for virtually all covered services will be phased in over three cost reporting
periods, starting with cost reporting periods beginning on or after July 1,
1998. The
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BBA Refinement Act will increase temporarily the federal per diem payment by 20%
for 15 resource utilization groups ("RUGs") in the categories for "extensive
services," "special care," "clinically complex," "high rehabilitation," and
"medium rehabilitation." Increased payments will be made from April 1, 2000 to
the later of October 1, 2000 or the implementation of a refined RUG system. In
fiscal years 2001 and 2002, the federal per diem rate to a facility will
increase by 4% in each year. The Balanced Budget Act also institutes
consolidated billing for skilled nursing facility services, under which payments
for most non-physician Part B services for beneficiaries no longer eligible for
Part A skilled nursing facility care will be made to the facility, regardless of
whether the item or service was furnished by the facility, by others under
arrangement, or under any other contracting or consulting arrangement.
Consolidated billing is being implemented on a transition basis. As of December
31, 1999, nine of LifePoint's hospitals operated skilled nursing facilities.
Currently, physicians are paid by Medicare according to the physician fee
schedule. However, physicians working in rural health clinics, such as those
maintained by LifePoint, are reimbursed for their professional and
administrative services through the rural health clinic subject to per visit
limits unless the rural health clinic is based at a rural hospital with less
than 50 beds. There are nine rural health clinics owned by LifePoint.
Medicare has special payment provisions for "sole community hospitals." A
sole community hospital is generally the only hospital in at least a 35-mile
radius. Five of LifePoint's facilities qualify as sole community hospitals under
Medicare regulations. Special payment provisions related to sole community
hospitals may include a higher reimbursement rate, which is based on a blend of
hospital-specific costs and the national reimbursement rate, and a 90% payment
"floor" for capital costs which guarantees the sole community hospital capital
reimbursement equal to 90% of capital cost. In addition, the TRICARE program
(formerly CHAMPUS) has special payment provisions for hospitals recognized as
sole community hospitals for Medicare purposes.
Medicaid. Most state Medicaid payments are made under a prospective
payment system or under programs which negotiate payment levels with individual
hospitals. Medicaid reimbursement is often less than a hospital's cost of
services. Medicaid is currently funded jointly by the state and federal
governments. The federal government and many states are currently considering
significant reductions in the level of Medicaid funding while at the same time
expanding Medicaid benefits, which could adversely affect future levels of
Medicaid reimbursement received by the hospitals of LifePoint.
On November 27, 1991, Congress enacted the Medicaid Voluntary Contribution
and Provider-Specific Tax Amendments of 1991, which limit the amount of
voluntary contributions and provider-specific taxes that can be used by states
to fund Medicaid and require the use of broad-based taxes for such funding. As a
result of enactment of these amendments, certain states in which LifePoint
operates have adopted broad-based provider taxes to fund their Medicaid
programs. The impact of these new taxes upon LifePoint has not been materially
adverse. However, LifePoint cannot predict whether any additional broad-based
provider taxes will be adopted by the states in which it operates and,
accordingly, it is not able to assess the effect of such additional taxes on its
results of operations or financial position.
Annual Cost Reports. All hospitals participating in the Medicare program,
whether paid on a reasonable cost basis or under PPS, are required to meet
certain financial reporting requirements. Federal regulations require submission
of annual cost reports covering medical costs and expenses associated with the
services provided by each hospital to Medicare beneficiaries. Review of
previously submitted annual cost reports (including cost reports submitted prior
to the Distribution Date by facilities now owned by LifePoint) and the cost
report preparation process are areas included in the ongoing government
investigations of Columbia/HCA. It is too early to predict the outcome of these
investigations, but if LifePoint, or any of its facilities, were found to be in
violation of federal or state laws relating to Medicare, Medicaid or similar
programs, they could be subject to substantial monetary fines, civil and
criminal penalties and exclusion from participation in the Medicare and Medicaid
programs. Any such sanctions could have a material adverse effect on the
financial position and results of operations of LifePoint. Columbia/HCA has
agreed to indemnify LifePoint in respect of any losses arising from such
government investigations. See "-- Arrangements Relating to the Distribution"
and "Legal Proceedings -- Governmental Investigation of Columbia/HCA and Related
Litigation" for more information regarding such arrangement.
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Annual cost reports required under the Medicare and Medicaid programs are
subject to routine audits, which may result in adjustments to the amounts
ultimately determined to be due to LifePoint under these reimbursement programs.
These audits often require several years to reach the final determination of
amounts earned under the programs. Providers also have rights of appeal, and it
is common to contest issues raised in audits of prior years' reports. Pursuant
to the terms of the distribution agreement among LifePoint, Columbia/HCA and
Triad (the "Distribution Agreement"), LifePoint is responsible for the Medicare,
Medicaid and Blue Cross cost reports, and associated receivables and payables,
for its facilities for all periods ending after May 11, 1999 (the "Distribution
Date"). Columbia/HCA agreed to indemnify LifePoint with respect to the Medicare,
Medicaid and Blue Cross cost reports for the LifePoint facilities relating to
periods ending on or prior to the Distribution Date. See "-- Arrangements
Relating to the Distribution."
Managed Care. Pressures to control the cost of health care have resulted
in increases to the percentage of admissions and net revenues attributable to
managed care payers. The percentage of LifePoint's admissions attributable to
managed care payers increased from 18.6% for the year ended December 31, 1998 to
20.2% for the year ended December 31, 1999. The percentage of LifePoint's net
revenue from continuing operations attributable to managed care payers increased
from 20.1% for the year ended December 31, 1998 to 24.3% for the year ended
December 31, 1999. LifePoint expects that the trend toward increasing
percentages related to managed care payers will continue in the future.
LifePoint generally receives lower payments from managed care payers than from
traditional commercial/indemnity insurers; however, as part of its business
strategy, LifePoint is taking steps to improve its managed care position. See
"-- Business Strategy" for a more detailed discussion of such strategy.
Commercial Insurance. The hospitals of LifePoint provide services to some
individuals covered by private health care insurance. Private insurance carriers
make direct payments to such hospitals or, in some cases, reimburse their policy
holders, based upon the particular hospital's established charges and the
particular coverage provided in the insurance policy.
Commercial insurers are continuing efforts to limit the payments for
hospital services by adopting discounted payment mechanisms, including
prospective payment or DRG based payment systems, for more inpatient and
outpatient services. To the extent that such efforts are successful and reduce
the insurers' reimbursement to hospitals and the costs of providing services to
their beneficiaries, such reduced levels of reimbursement may have a negative
impact on the operating results of the hospitals of LifePoint.
GOVERNMENT REGULATION AND OTHER FACTORS
Licensure, Certification and Accreditation. Health care facility
construction and operation is subject to federal, state and local regulations
relating to the adequacy of medical care, equipment, personnel, operating
policies and procedures, fire prevention, rate-setting and compliance with
building codes and environmental protection laws. Facilities are subject to
periodic inspection by governmental and other authorities to assure continued
compliance with the various standards necessary for licensing and accreditation.
All of the health care facilities of LifePoint are properly licensed under
appropriate state laws. All of the hospitals affiliated with LifePoint are
certified under the Medicare program and are accredited by the Joint Commission
on Accreditation of Healthcare Organizations. Should any facility lose its
certification under the Medicare program, the facility would be unable to
receive reimbursement from the Medicare and Medicaid programs. The facilities of
LifePoint are in substantial compliance with current applicable federal, state,
local and independent review body regulations and standards. The requirements
for licensure, certification and accreditation are subject to change and, in
order to remain qualified, it may be necessary for LifePoint to effect changes
in their facilities, equipment, personnel and services.
Certificates of Need. The construction of new facilities, the acquisition
of existing facilities, and the addition of new beds or services may be subject
to review by state regulatory agencies under a CON program. LifePoint operates
hospitals in states that require approval under a CON program. Such laws
generally require appropriate state agency determination of public need and
approval prior to the addition of beds or services or certain other capital
expenditures. Failure to obtain necessary state approval can result in the
inability to
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expand facilities, add services, complete an acquisition or change ownership.
Further, violation may result in the imposition of civil sanctions or the
revocation of a facility's license.
Utilization Review. Federal law contains numerous provisions designed to
ensure that services rendered by hospitals to Medicare and Medicaid patients
meet professionally recognized standards, are medically necessary and that
claims for reimbursement are properly filed. These provisions include a
requirement that a sampling of admissions of Medicare and Medicaid patients must
be reviewed by peer review organizations, which review the appropriateness of
Medicare and Medicaid patient admissions and discharges, the quality of care
provided, the validity of DRG classifications and the appropriateness of cases
of extraordinary length of stay or cost. Peer review organizations may deny
payment for services provided, may assess fines and also have the authority to
recommend to United States Department of Health and Human Services ("HHS") that
a provider which is in substantial noncompliance with the standards of the peer
review organization be excluded from participation in the Medicare program.
Utilization review is also a requirement of most non-governmental managed care
organizations.
Medicare Regulations and Fraud and Abuse. Participation in the Medicare
program is heavily regulated by federal statute and regulation. If a hospital
provider fails substantially to comply with the numerous conditions of
participation in the Medicare program or performs certain prohibited acts, such
hospital's participation in the Medicare program may be terminated or civil or
criminal penalties may be imposed upon it under certain provisions of the Social
Security Act. Prohibited acts include:
- making false claims to Medicare, including claims for services not
rendered, misrepresenting actual services rendered in order to obtain
higher reimbursement or cost report fraud;
- making claims for items or services that are "medically unnecessary;"
- routinely waiving co-payments or deductibles to induce patients to order
items or services from a specific provider;
- contracting with individuals that they know or should know have been
excluded from participation in a federal healthcare program;
- offering, paying or receiving any remuneration (including kickbacks,
bribes or rebates) in return for referrals or purchasing items or
services reimbursable under a federal health program;
- failing to stabilize any individual who comes to a hospital's emergency
room with an "emergency medical condition," within the scope of services
available from the facility; and
- transferring any stabilized patient to another health care facility
before the other facility has agreed to the transfer of the patient, if
the other facility does not have sufficient room and staff to treat the
patient, without the patient's emergency department medical records, or
without appropriate life support equipment.
The provisions of the Anti-Kickback Statute prohibit providers and others
from soliciting, receiving, offering or paying, directly or indirectly, any
remuneration in return for either making a referral for a service or item
covered by a federal or state healthcare program or ordering any covered service
or item. Violations of this statute may be punished by a fine of up to $50,000
or imprisonment for each violation and damages up to three times the total
amount of remuneration. In addition, the Medicare Patient and Program Protection
Act of 1987, as amended by the Health Insurance Portability and Accountability
Act of 1996 ("HIPAA") and the Balanced Budget Act (as so amended, the
"Protection Act"), imposes civil penalties for a violation of these
prohibitions, including exclusion from participation in federal or state
healthcare programs, such as Medicare and Medicaid.
The Protection Act authorized the Office of the Inspector General ("OIG")
to publish regulations outlining certain categories of activities that would be
deemed not to violate the Anti-Kickback Statute. In 1991, and then again in
1999, the OIG published final safe harbor regulations implementing the
Congressional intent expressed in the Protection Act. Currently there are safe
harbors for certain physician investments, rental of space or equipment,
personal services and management contracts, warranties, discounts, payments to
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employees, group repurchasing organizations, waivers of deductibles, physician
investments in entities located in rural areas, physician recruitment, and
physician investments in free standing ambulatory surgery centers. The preambles
to the Safe Harbor regulations state that the failure of a particular business
arrangement to comply with the regulations does not mean that the arrangement
violates the Anti-Kickback Statute because the regulations do not make conduct
illegal. Any conduct that could be construed to be illegal after the
promulgation of this rule would have been illegal prior to the publication of
the regulations.
HIPAA, which became effective January 1, 1997, amends, among other things,
Title XI (42 U.S.C. sec. 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, and creates new enforcement mechanisms to
combat fraud and abuse, including an incentive program under which individuals
can receive up to $1,000 for providing information on Medicare fraud and abuse
that leads to the recovery of at least $100 of Medicare funds. Under HIPAA,
health care fraud, now defined as knowingly and willfully executing or
attempting to execute a "scheme or device" to defraud any health care benefit
program, is made a federal criminal offense. In addition, for the first time,
federal enforcement officials will have the ability to exclude from Medicare and
Medicaid certain owners, officers and managing employees associated with
business entities that have committed health care fraud, even if the owner,
officer or employee had no knowledge of the fraud. HIPAA also establishes a new
violation for the payment of inducements to Medicare or Medicaid beneficiaries
in order to influence those beneficiaries to order or receive services from a
particular provider or practitioner. The Balanced Budget Act also allows civil
monetary penalties to be imposed on a provider contracting with individuals or
entities that the provider knows or should know is excluded from a federal
healthcare program.
The OIG at HHS is responsible for identifying and eliminating fraud, abuse
and waste in HHS programs and for promoting efficiency and economy in HHS
departmental operations. The OIG carries out this mission through a nationwide
program of audits, investigations and inspections. In order to provide guidance
to health care providers, the OIG has from time to time issued "fraud alerts"
which, although they do not have the force of law, identify features of
transactions, which may indicate that the transaction could violate the Anti-
Kickback Statute or other federal healthcare laws. The OIG has identified the
following incentive arrangements as potential violations:
- "gainsharing," or the practice of giving physicians a percentage share of
any reduction in the hospital's costs for patient care attributable in
part to the physician's efforts;
- payment of any sort of incentive by the hospital each time a physician
refers a patient to the hospital;
- the use of free or significantly discounted office space or equipment, in
facilities usually located close to the hospital;
- provision of free or significantly discounted billing, nursing or other
staff services;
- free training for a physician's office staff in areas such as management
techniques and laboratory techniques;
- guarantees which provide that, if the physician's income fails to reach a
predetermined level, the hospital will supplement the remainder up to a
certain amount;
- low-interest or interest-free loans, or loans which may be forgiven if a
physician refers patients, or some number of patients, to the hospital;
- coverage on the hospital's group health insurance plans at an
inappropriately low cost to the physician; or
- payment for services, which may include consultations at the hospital,
which require few, if any, substantive duties by the physician, or
payment for services in excess of the fair market value of services
rendered.
The OIG has encouraged persons having information about hospitals who offer
the above types of incentives to physicians to report such information to the
OIG.
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Section 1877 of the Social Security Act, commonly known as the "Stark Law,"
prohibits referrals of Medicare and Medicaid patients by physicians to entities
with which the physician has a financial relationship and which provide certain
"designated health services" which are reimbursable by Medicare or Medicaid.
"Designated health services" include, among other things, clinical laboratory
services, physical and occupational therapy services, radiology services,
durable medical equipment, home health services, and inpatient and outpatient
hospital services. Sanctions for violating the Stark Law include civil money
penalties up to $15,000 per prohibited service provided, assessments equal to
twice the dollar value of each such service provided and exclusion from the
Medicare and Medicaid programs. There are a number of exceptions to the
self-referral prohibition, including an exception if the physician has an
ownership interest in the entire hospital. In addition, a physician may have an
ownership interest in and refer patients to an entity providing designated
health services if the entity is located in a rural area. The requirements of
the "rural provider" exception are:
(1) the provider is located in an area that is not considered a
metropolitan statistical area, and
(2) at least 75 percent of the patients served by the facility reside
in a rural area.
Proposed regulations implementing the Stark Law, as amended, have not been
implemented. LifePoint cannot predict the final form that such regulations will
take or the effect that the Stark Law or the regulations promulgated thereunder
will have on LifePoint.
LifePoint provides financial incentives to recruit physicians into the
communities served by its hospitals, including loans and minimum revenue
guarantees. The limited partner of one Lifepoint hospital is owned in part by
physician investors. LifePoint also enters into employment agreements,
independent contractor agreements, leases and other agreements with physicians.
Although LifePoint believes that its arrangements with physicians comply with
current law, since some of these arrangements do not meet all of the
requirements for safe harbor protection there can be no assurance that
regulatory authorities who enforce such laws will not determine that such
physician recruiting activities or other physician arrangements violate the
Anti-Kickback Statute or other applicable laws. Such a determination could
subject LifePoint to liabilities under the Social Security Act, including
criminal penalties, civil monetary penalties and/or exclusion from participation
in Medicare, Medicaid or other federal health care programs, any of which could
have a material adverse effect on the business, financial condition or results
of operations of LifePoint.
Evolving interpretations of current, or the adoption of new, federal or
state laws or regulations could affect many of the arrangements entered into by
each of LifePoint's hospitals. There is increasing scrutiny by law enforcement
authorities, HHS, OIG, 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.
The Social Security Act also imposes criminal and civil penalties for
submitting false claims to Medicare and Medicaid. False claims include, but are
not limited to, billing for services not rendered, misrepresenting actual
services rendered in order to obtain higher reimbursement and cost report fraud.
Like the Anti-Kickback Statute, this statute is very broad. Careful and accurate
coding of claims for reimbursement, including cost reports, must be performed to
avoid liability under the false claims statutes.
Many of the states in which LifePoint operates also have adopted, or are
considering adopting, laws that prohibit payments to physicians in exchange for
referrals similar to the Anti-Kickback Statute, some of which apply regardless
of the source of payment for care. These statutes typically provide criminal and
civil penalties as well as loss of licensure. Many states also have passed
self-referral legislation similar to the Stark Law, prohibiting the referral of
patients to entities with which the physician has a financial relationship
regardless of the source of payment for care. Little precedent exists for the
interpretation or enforcement of these state laws.
Corporate Practice of Medicine. Some of the states in which LifePoint
operates have laws that prohibit corporations and other entities from employing
physicians or that prohibit certain direct and indirect payments or
fee-splitting arrangements between health care providers. In addition, some
states restrict certain business relationships between physicians and
pharmacies. Possible sanctions for violation of these restrictions include
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loss of a physician's license and civil and criminal penalties. These statutes
vary from state to state, are often vague and have seldom been interpreted by
the courts or regulatory agencies. Although LifePoint exercises care to
structure its arrangements with health care providers to comply with the
relevant state law, and believes such arrangements comply with applicable laws
in all material respects, there can be no assurance that governmental officials
charged with responsibility for enforcing these laws will not assert that
LifePoint, or certain transactions in which it is involved, are in violation of
such laws, or that such laws ultimately will be interpreted by the courts in a
manner consistent with the interpretations of LifePoint.
EMTALA. LifePoint is subject to the Emergency Treatment and Active Labor
Act ("EMTALA"), which is a federal law that requires any hospital that
participates in the Medicare program to conduct an appropriate screening
examination of every person who presents to the hospital's emergency room to
determine if that person is suffering from an emergency condition and, if the
patient is suffering from an emergency condition, to either stabilize that
condition or make an appropriate transfer of the patient to a facility that can
handle the condition. The hospital's obligation to screen and stabilize
emergency conditions exists regardless of the patient's ability to pay for
treatment. In fact, there are severe penalties under EMTALA if a hospital
refuses to screen or appropriately stabilize or transfer a patient, or if the
hospital delays appropriate treatment in order to first inquire about the
patient's ability to pay. Penalties for violation of EMTALA include fines and
possibly the expulsion of the hospital from further participation in the
Medicare program. In addition, an injured patient or his family can bring a
civil suit against the hospital.
The government has tried to expand the scope of EMTALA in recent years to
cover situations in which patients do not actually present to a hospital's
emergency room but present to a hospital based clinic or are transported in a
hospital owned ambulance. In addition, the government has expressed its intent
to actively investigate, uncover, and enforce EMTALA violations in the future.
Moreover, there is a growing trend for patients bringing malpractice lawsuits to
also allege an EMTALA violation almost as a matter of course.
LifePoint believes its hospitals operate in compliance with EMTALA.
However, there can be no assurance that a patient will not bring a claim under
EMTALA or that the government will not conduct investigations in the future. Any
such lawsuit or investigation could have an adverse financial impact on the
Company.
Health Care Reform. Health care, as one of the largest industries in the
United States, continues to attract much legislative interest and public
attention. In recent years, an increasing number of 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. Proposals that have been considered include cost controls on
hospitals, insurance market reforms to increase the availability of group health
insurance to small businesses, patients' bill of rights and requirements that
all businesses offer health insurance coverage to their employees. The costs of
certain proposals would be funded in significant part by reductions in payments
by governmental programs, including Medicare and Medicaid, to health care
providers such as hospitals. 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
business, financial condition or results of operations of LifePoint.
Conversion Legislation. Many states have enacted or are considering
enacting laws affecting the conversion or sale of not-for-profit hospitals.
These laws, in general, include provisions relating to attorney general
approval, advance notification and community involvement. In addition, state
attorneys general in states without specific conversion legislation may exercise
authority over these transactions based upon existing law. In many states there
has been an increased interest in the oversight of not-for-profit conversions.
The adoption of conversion legislation and the increased review of
not-for-profit hospital conversions may increase the cost and difficulty or
prevent the completion of transactions with not-for-profit organizations in
certain states in the future.
Revenue Ruling 98-15. During March 1998, the IRS issued guidance regarding
the tax consequences of joint ventures between for-profit and not-for-profit
hospitals. LifePoint will consult with its tax advisers to develop an
appropriate course of action in connection with any such joint ventures. The tax
ruling could limit joint venture development with not-for-profit hospitals,
require the restructuring of certain existing joint
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ventures with not-for-profits and influence the exercise of "put agreements"
(agreements that require the purchase of the partner's interest in the joint
venture) by certain existing joint venture partners. LifePoint is not currently
a party to any transaction or arrangement that would be affected by this revenue
ruling.
Environmental Matters. LifePoint is subject to various federal, state and
local statutes and ordinances regulating the discharge of materials into the
environment. LifePoint does not expect that it will be required to expend any
material amounts in order to comply with these laws and regulations or that
compliance will materially affect its capital expenditures, earnings or
competitive position.
Insurance. As is typical in the health care industry, LifePoint is subject
to claims and legal actions by patients in the ordinary course of business. To
cover these claims, LifePoint maintains professional malpractice liability
insurance and general liability insurance in amounts which it believes to be
sufficient for its operations, although some claims may exceed the scope of the
coverage in effect. LifePoint 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 reasonable prices which will allow LifePoint to
maintain adequate levels of coverage. Substantially all losses from such claims
arising in periods prior to the Distribution are insured through a wholly owned
insurance subsidiary of Columbia/HCA and excess loss policies maintained by
Columbia/HCA. Columbia/HCA has agreed to indemnify LifePoint in respect of
claims covered by such insurance policies and workers compensation claims
arising prior to the Distribution. See "-- Arrangements Relating to the
Distribution -- Insurance Allocation and Administration Agreement" for a more
detailed discussion of such arrangements.
The Company purchases insurance for its professional and general liability
risks incurred after the Distribution, subject to a substantial deductible, for
which a reserve is recorded on the balance sheets of LifePoint. There can be no
assurance that the cash flow of LifePoint will be adequate to provide for
professional and general liability claims in the future. Columbia/HCA has
indemnified LifePoint for professional and general liability claims incurred
prior to the Distribution. See "-- Arrangements Relating to the
Distribution -- Allocation of Financial Responsibility."
ARRANGEMENTS RELATING TO THE DISTRIBUTION
General. Immediately prior to the Distribution, LifePoint was a wholly
owned subsidiary of Columbia/HCA and, until the Distribution, the results of
operations of the assets and entities that constitute LifePoint were included in
Columbia/HCA's consolidated financial statements. Columbia/HCA no longer has any
ownership interest in LifePoint, although certain Columbia/HCA benefit plans
received shares of LifePoint in the Distribution.
Immediately prior to the Distribution, Columbia/HCA and LifePoint entered
into certain agreements to define their ongoing relationships after the
Distribution and to allocate tax, employee benefits and certain other
liabilities and obligations arising from periods prior to the Distribution Date.
A copy of each of these agreements has previously been filed with the Securities
and Exchange Commission (the "Commission") by LifePoint, and each agreement is
incorporated by reference to this report. The following descriptions include a
summary of the material terms of these agreements but do not purport to be
complete and are qualified in their entirety by reference to the complete text
of the agreements.
Distribution Agreement. Columbia/HCA, LifePoint and Triad entered into the
Distribution Agreement which provided for, among other things, certain corporate
transactions required to effect the Distribution and other arrangements among
Columbia/HCA, LifePoint and Triad subsequent to the Distribution.
Transfers of Assets to LifePoint. Pursuant to the Distribution Agreement,
Columbia/HCA transferred all of its right, title and interest in the assets
constituting the America Group business to LifePoint. All assets were
transferred without any representation or warranty, on an "as is-where is" basis
and the relevant transferee assumed the risk that any necessary consent to
transfer was not obtained.
Allocation of Financial Responsibility. The Distribution Agreement
provided for, among other things, assumptions of liabilities and
cross-indemnities designed to allocate, effective as of the Distribution Date,
financial responsibility for the liabilities arising out of or in connection
with the assets and entities that
17
<PAGE> 19
constitute LifePoint and its subsidiaries, including liabilities arising in
respect of the transfer of such assets and entities to LifePoint, subject to
limited exceptions, to LifePoint.
Pursuant to the Distribution Agreement, Columbia/HCA agreed to indemnify
LifePoint for any losses which it may incur arising from the pending
governmental investigations of certain of Columbia/HCA's business practices.
Columbia/HCA also agreed to indemnify LifePoint for any losses which it may
incur arising from stockholder actions and other legal proceedings related to
the governmental investigations which are currently pending against
Columbia/HCA, and from proceedings which may be commenced by government
authorities or by private parties in the future that arise from acts, practices
or omissions engaged in prior to the Distribution Date and relate to the pending
proceedings. Columbia/HCA has also agreed that, in the event that any hospital
owned by LifePoint is permanently excluded from participation in the Medicare
and Medicaid programs as a result of the proceedings described above, then
Columbia/HCA will make a cash payment to LifePoint in an amount (if positive)
equal to five times the excluded hospital's 1998 income from continuing
operations before depreciation and amortization, interest expense, management
fees, impairment of long-lived assets, minority interests and income taxes, as
set forth on a schedule to the Distribution Agreement less the net proceeds of
the sale or other disposition of the excluded hospital. LifePoint has agreed
that, in connection with the government investigations described above, it will
participate with Columbia/HCA in negotiating one or more compliance agreements
setting forth its agreement to comply with applicable laws and regulations.
Columbia/HCA will not indemnify LifePoint for losses relating to any acts,
practices and omissions engaged in by LifePoint after the Distribution Date,
whether or not LifePoint is indemnified for similar acts, practices and
omissions occurring prior to the Distribution Date. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Risk
Factors -- Potential Adverse Impact of Columbia/HCA Investigations and
Litigation" and "Legal Proceedings -- Governmental Investigation of Columbia/HCA
and Related Litigation."
Prior to the Distribution, Columbia/HCA, through its wholly owned insurance
subsidiary and through third party carriers, maintained insurance for the
business of LifePoint. The Distribution Agreement provides that Columbia/HCA
also will be solely responsible for:
- claims against LifePoint covered by an insurance policy maintained
by Columbia/HCA, without regard to deductible amounts, coinsurance
amounts and policy limits, which are based upon facts and
circumstances occurring prior to the Distribution Date; and
- workers' compensation claims against LifePoint if the underlying
injury or condition was incurred before the Distribution.
Government Programs. LifePoint is responsible for the Medicare, Medicaid
and Blue Cross cost reports, and associated receivables and payables, for its
facilities for all periods ending after the Distribution Date. Columbia/HCA
agreed to indemnify LifePoint with respect to the Medicare, Medicaid and Blue
Cross cost reports, and associated receivables and payables, for the LifePoint
facilities relating to periods ending on or prior to the Distribution Date.
LifePoint is responsible for its own cost report functions after the
Distribution Date, as well as for any terminating cost reports required to be
filed in respect of the Distribution.
Other Matters. Each of Columbia/HCA, LifePoint and Triad generally agreed
to provide to the other parties reasonable access to certain corporate records
and information reasonably requested by another party. Each of Columbia/HCA,
LifePoint and Triad is generally required to maintain the confidentiality of
confidential information it possesses regarding another party. The parties will
endeavor to resolve any disputes which may arise through discussion among senior
management of the affected parties. If such discussions do not succeed in
resolving a disputed matter, the parties retain the right to commence a legal
action.
The Distribution Agreement also provides that, generally, the costs and
expenses incurred through the Distribution Date in connection with the
Distribution were properly allocable to, and were paid by, Columbia/HCA. Except
as set forth in the Distribution Agreement or any related agreement, each party
bears its own costs and expenses after the Distribution.
Tax Sharing and Indemnification Agreement. Columbia/HCA, LifePoint and
Triad entered into a tax sharing and indemnification agreement, which allocated
tax liabilities among Columbia/HCA, LifePoint and
18
<PAGE> 20
Triad and addresses certain other tax matters such as responsibility for filing
tax returns, control of and cooperation in tax litigation, and qualification of
the Distribution as a tax-free transaction. Generally, Columbia/HCA is
responsible for taxes that are allocable to periods prior to the Distribution
Date, and each of Columbia/HCA and LifePoint are responsible for its own tax
liabilities, including its allocable share of taxes shown on any consolidated,
combined or other tax return filed by Columbia/HCA, for periods after the
Distribution Date. The tax sharing and indemnification agreement prohibits
LifePoint from taking actions that could jeopardize the tax treatment of either
the Distribution or the internal restructuring that preceded the Distribution,
and requires LifePoint and Triad to indemnify each other and Columbia/HCA for
any taxes or other losses that result from any such actions. In connection with
preserving the tax treatment of the Distribution and the internal restructuring
that preceded the Distribution, LifePoint agreed to take such actions as
Columbia/HCA may request and made certain covenants including covenants that,
for a period of three years following the Distribution, it generally will not
authorize, undertake or facilitate any of the following absent the consent of
Columbia/HCA:
(1) an issuance of additional stock or other equity instrument,
(2) any merger, dissolution, consolidation, redemption or complete or
partial liquidation,
(3) a transfer or disposition of assets, other than the disposition of
certain assets that have been identified for divestiture, or
(4) a recapitalization or other change in capital structure.
Benefits and Employment Matters Agreement. Columbia/HCA, LifePoint and
Triad entered into a benefits and employment matters agreement, which allocated
responsibilities for employee compensation, benefits, labor, benefit plan
administration and certain other employment matters on and after the
Distribution Date.
General Allocation. LifePoint assumed responsibility as employer in
respect of its employees from and after the Distribution Date. Subject to
specific exceptions, Columbia/HCA retained the liabilities in respect of former
employees associated with the facilities and operations of LifePoint who
terminated employment on or prior to the Distribution Date. Benefit plans
established by LifePoint generally recognize past service with Columbia/HCA.
Defined Contribution and Welfare Benefit Plans. The benefits and
employment matters agreement required LifePoint to adopt a new defined
contribution plan for its employees, as well as for the former employees
associated with its facilities and operations. Generally, assets of the
Columbia/HCA money purchase pension, stock bonus and salary deferral plans that
were attributable to current and former employees of LifePoint were transferred,
effective immediately prior to the Distribution Date, to the new plan, and
LifePoint thereafter provides benefits under its plan to its current and former
employees. Except for such transferred assets, Columbia/HCA retained sole
responsibility for all liabilities and obligations under the existing
Columbia/HCA defined contribution plans.
LifePoint adopted welfare benefit plans for its employees that are
substantially identical to the benefit plans of Columbia/HCA. Generally,
Columbia/HCA is responsible for all liabilities and obligations relating to
claims incurred or premiums owed in respect of welfare plans for periods prior
to the Distribution Date and LifePoint assumed such responsibility for periods
thereafter with respect to its current or former employees.
Columbia/HCA provided certain administrative services through May 31, 1999
in respect of LifePoint welfare plans. LifePoint agreed to indemnify
Columbia/HCA and its agents in respect of the services performed for such plans,
so long as Columbia/HCA and its agents shall have acted in good faith in
performing such services.
The LifePoint Employee Stock Ownership Plan ("ESOP"). In connection with
the Distribution, LifePoint established an ESOP. On June 10, 1999, the LifePoint
ESOP purchased, at fair market value, 2,796,719 newly issued shares of LifePoint
Common Stock. The purchase was financed primarily by issuing a promissory note
to LifePoint. The loan will be amortized over a period of not more than 10
years.
19
<PAGE> 21
Treatment of Columbia/HCA Common Stock Options. Pursuant to the benefits
and employment matters agreement, LifePoint established a new stock option plan,
and adjusted outstanding Columbia/HCA Common Stock options to reflect the
Distribution. The nature of the adjustment depended on the type of option, as
follows:
- Incentive Stock Options: The option spread, whether positive or
negative, at the Distribution Date with respect to each of the
existing Columbia/HCA options intended to qualify as incentive stock
options under Section 422 of the Code ("ISOs") was preserved by
having each such ISO replaced entirely by an ISO issued by
LifePoint.
- Vested Nonqualified Stock Options: Except in the case of vested
Columbia/HCA nonqualified stock options to acquire a small number of
shares, the option spread, whether positive or negative, at the
Distribution Date with respect to each of the existing vested
Columbia/HCA nonqualified stock options was preserved by adjusting
the exercise price of such Columbia/HCA options and having LifePoint
issue additional vested nonqualified stock options. Similar
adjustments were made with respect to vested Columbia/HCA
nonqualified stock options held by non-employee directors. In the
case of vested Columbia/HCA nonqualified stock options to acquire a
small number of shares, such Columbia/HCA options were adjusted in a
manner that preserved the pre-Distribution value of such
Columbia/HCA options.
- Non-Vested Nonqualified Stock Options: Non-vested nonqualified
options to acquire LifePoint stock were issued to certain employees
of Columbia/HCA.
Insurance Allocation and Administration Agreement. Columbia/HCA has
maintained various insurance policies for the benefit of the America Group
Division. Substantially all losses in periods prior to the Distribution are
insured through a wholly owned insurance subsidiary of Columbia/HCA and excess
loss policies maintained by Columbia/HCA. In connection with the Distribution,
Columbia/HCA and LifePoint entered into an insurance allocation and
administration agreement to provide for their continuing rights and obligations
in respect of such insurance after the Distribution Date and to define their
relationship regarding the insurance on their respective properties.
The insurance allocation and administration agreement provides that any
claims against insurers outstanding on the Distribution Date will be for the
benefit of the party who will own the asset which is the basis for the claim,
or, in the case of a liability claim, which is the owner of the facility at
which the activity which is the subject of the claim occurred. Columbia/HCA
agreed to pay to LifePoint any portion of such a claim that is unpaid by an
insurer to satisfy deductible, co-insurance or self-insurance amounts, unless
such amounts were paid to or accounted for by the affected entity prior to the
Distribution Date. Columbia/HCA and LifePoint agreed to do all things necessary
to ensure that all of the insurance policies which provide coverage to LifePoint
remain available after the Distribution Date to the same extent they were
available prior to the Distribution Date. Any retroactive rate adjustments for
periods ending on or before the Distribution Date in respect of such insurance
policies will be paid or received by Columbia/HCA.
Columbia/HCA and LifePoint have cooperated with each other in the purchase
of insurance coverage for periods after the Distribution Date, although each
retains the right to obtain separate insurance under certain circumstances.
LifePoint has purchased continuous coverage under extensions or renewals of
policies issued by Health Care Indemnity, Inc., a subsidiary of Columbia/HCA.
Columbia/HCA agreed to defend any claim made against two or more of the
parties, if indemnification for the claim is available to LifePoint under the
Distribution Agreement. If indemnification under the Distribution Agreement is
not available and there is no other agreement or indemnification in respect of
such claim, the parties to the claim will jointly defend the claim and will
attempt to agree upon an appropriate allocation of liability, subject to
arbitration in the event the parties disagree.
Columbia/HCA, or an affiliate of Columbia/HCA, has continued to administer
all claims under the insurance policies in effect prior to the Distribution Date
and, for an interim period, has also administered claims under the new policies
that cover periods after the Distribution Date.
20
<PAGE> 22
Computer and Data Processing Services Agreement. Columbia/HCA's wholly
owned subsidiary Columbia Information Systems, Inc. entered into a computer and
data processing services agreement with LifePoint. Pursuant to this agreement,
Columbia Information Systems provides computer installation, support, training,
maintenance, data processing and other related services to LifePoint. The
initial term of the agreement is seven years, which will be followed by a
wind-down period of up to one year. Columbia Information Systems charges fees to
LifePoint for services provided under this agreement that are market competitive
based on Columbia Information Systems's costs incurred in providing such
services. In the event the agreement is terminated by LifePoint, it will be
required to pay a termination fee equal to the first month's billed fees,
multiplied by the remaining number of months in the agreement.
Transitional Services Agreement. Columbia/HCA entered into a transitional
services agreement with LifePoint. Pursuant to this agreement, Columbia/HCA may
furnish various administrative services to LifePoint. These services include
support in various aspects of payroll processing and tax reporting for employees
of LifePoint, real estate design and construction management, and legal, human
resources, insurance and accounting matters. The agreement will terminate on
December 31, 2000, but may be terminated by LifePoint as to specific services
before December 31, 2000. LifePoint pays fees to Columbia/ HCA for services
provided in amounts equal to Columbia/HCA's costs incurred in providing such
services.
Other Agreements. Columbia/HCA entered into agreements with LifePoint
whereby Columbia/HCA shares telecommunications services with LifePoint under
Columbia/HCA's agreements with its telecommunications services provider and
whereby Columbia/HCA makes certain account collection services available to
LifePoint. LifePoint also participates, along with Columbia/HCA, in a group
purchasing organization which makes certain national supply and equipment
contracts available to its facilities. Pursuant to a Year 2000 professional
services agreement Columbia/HCA inspected medical equipment at each of
LifePoint's hospitals to assure Year 2000 compliance. Under such agreement,
LifePoint remains solely responsible for any lack of Year 2000 compliance. The
agreement terminates on June 30, 2000.
The business of LifePoint is subject to various risks and uncertainties,
including those described in Item 7 of this report under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Risk Factors."
ITEM 2. PROPERTIES
Information with respect to the Company's hospital facilities and other
properties can be found in Item 1 of this report under the caption,
"Business -- Properties."
ITEM 3. LEGAL PROCEEDINGS
General. The Company is, from time to time, subject to claims and suits
arising in the ordinary course of business, including claims for damages for
personal injuries, breach of management contracts, for wrongful restriction of
or interference with physicians' staff privileges and employment related claims.
In certain of these actions, plaintiffs request punitive or other damages
against the Company that may not be covered by insurance. The Company is
currently not a party to any proceeding which, in management's opinion, would
have a material adverse effect on the Company's business, financial condition or
results of operations.
Governmental Investigation of Columbia/HCA and Related Litigation. Based
upon its review of public filings and statements made by Columbia/HCA,
LifePoint's management understands that Columbia/HCA and its subsidiaries are
subject to various claims, suits and investigations for periods prior to the
Distribution Date and that Columbia/HCA may be, either currently or in the
future, subject to various claims, suits or investigations for periods after the
Distribution Date. Any discussion contained in this report regarding such
matters is based solely upon such public filings and statements.
In March 1997, various facilities of Columbia/HCA's El Paso, Texas
operations were searched by federal authorities pursuant to search warrants, and
government agents removed various records and documents. In February 1998, an
additional warrant was executed and a single computer was seized.
21
<PAGE> 23
In July 1997, various Columbia/HCA affiliated facilities and offices were
searched pursuant to search warrants. During July, September and November 1997,
Columbia/HCA also was served with subpoenas requesting records and documents
related to laboratory billing and DRG coding in various states and home health
operations in various jurisdictions, including, but not limited to, Florida. In
January 1998, Columbia/ HCA received a subpoena which requested records and
documents relating to physician relationships. In June 1999, Columbia/HCA
received a subpoena seeking records related to home health operations. In March
2000, Columbia/HCA received a subpoena that requested records relating to wound
care centers.
The United States District Court for the Middle District of Florida, in
Fort Myers, issued an indictment against three employees of a subsidiary of
Columbia/HCA in July 1997. The indictment related to the alleged false
characterization of interest payments on certain debt resulting in Medicare and
TRICARE (formerly CHAMPUS) overpayments since 1986 to Columbia Fawcett Memorial
Hospital, a Port Charlotte, Florida hospital that was acquired by Columbia/HCA
in 1992. Columbia/HCA was served with subpoenas for various records and
documents. In July 1998, a fourth employee of a subsidiary of Columbia/HCA was
indicted by a superseding indictment. According to published reports, on July 2,
1999, a federal jury in Tampa, Florida found two Columbia/HCA employees guilty
of conspiracy and making false statements on Medicare and TRICARE cost reports
for the years 1992 and 1993 and on a Medicaid cost report for 1993. Both were
found not guilty of obstructing a federal auditor. One other employee was
acquitted on all counts for which he had been charged and the jury was unable to
reach a verdict with respect to another employee. This employee and the
government executed an agreement to defer prosecution for 18 months after which
charges will be dismissed. The two convicted employees were sentenced in
December 1999 and both have appealed to the 11th Circuit.
Several hospital facilities affiliated with Columbia/HCA in various states
have received individual federal and/or state government inquiries, both
informal and formal, requesting information related to reimbursement from
government programs. Management of LifePoint understands that Columbia/HCA is
cooperating in these investigations and that Columbia/HCA understands, through
written notice and other means, that it is a target in these investigations.
Columbia/HCA may be subject to additional subpoenas and other investigative and
prosecutorial activity in these and other jurisdictions in the future.
Columbia/HCA also is the subject of a formal order of investigation by the
Commission. Columbia/HCA understands that the investigation includes the
anti-fraud, periodic reporting and internal accounting control provisions of the
federal securities laws.
Columbia/HCA is a defendant in several qui tam actions, or actions under
state statutes which are brought by private parties on behalf of the United
States of America, which have been unsealed and served on Columbia/HCA. The
actions allege, in general, that Columbia/HCA and certain subsidiaries and/or
affiliated partnerships violated the False Claims Act, 31 U.S.C. sec. 3729 et
seq., for improper claims submitted to the government for reimbursement. The
lawsuits generally seek damages of three times the amount of all Medicare or
Medicaid claims (involving false claims) presented by the defendants to the
federal government, civil penalties of not less than $5,000 nor more than
$10,000 for each such Medicare or Medicaid claim, attorneys' fees and costs. The
government has intervened in six unsealed qui tam actions against Columbia/HCA.
Columbia/HCA is aware of additional qui tam actions that remain under seal and
believes that there may be other sealed qui tam cases of which Columbia/HCA is
unaware.
Since April 1997, numerous federal securities class action and derivative
lawsuits have been brought against Columbia/HCA and a number of its current and
former directors, officers and employees. On October 10, 1997, all of the
securities class action claims were consolidated into a single-captioned case
which seeks the certification of a class of persons or entities who acquired
Columbia/HCA's Common Stock from April 9, 1994 to September 9, 1997. The lawsuit
alleges, among other things, that the defendants committed violations of the
federal securities laws by materially inflating Columbia/HCA's revenues and
earnings through a number of practices, including upcoding, maintaining reserve
cost reports, disseminating false and misleading statements, cost shifting,
illegal reimbursements, improper billing, unbundling and violating various
Medicare laws. The lawsuit seeks compensatory damages, costs and expenses.
22
<PAGE> 24
On October 10, 1997, all derivative law claims filed in federal court were
consolidated into a single-captioned case. The lawsuit alleges, among other
things, derivative claims against the individual defendants that they
intentionally or negligently breached their fiduciary duties to Columbia/HCA by
authorizing, permitting or failing to prevent Columbia/HCA from engaging in
various schemes to improperly increase revenue, upcoding, improper cost
reporting, improper referrals, improper acquisition practices and overbilling.
In addition, the lawsuit asserts a derivative claim against some of the
individual defendants for breaching their fiduciary duties by engaging in
insider trading. The lawsuit seeks restitution, damages, recoupment of fines or
penalties paid by Columbia/HCA, restitution and pre-judgment interest against
the alleged insider trading defendants, and costs and disbursements. In
addition, the lawsuit seeks orders prohibiting Columbia/HCA from paying
individual defendants employment benefits, terminating all improper business
relationships with individual defendants, and requiring Columbia/HCA to
implement effective corporate governance and internal control mechanisms
designed to monitor compliance with federal and state laws and ensure reports to
the Board of material violations of law.
Several derivative actions have been filed in state court by certain
purported stockholders of Columbia/ HCA against certain of Columbia/HCA's
current and former officers and directors alleging breach of fiduciary duty and
failure to take reasonable steps to ensure that Columbia/HCA did not engage in
illegal practices which exposed Columbia/HCA to significant damages.
Columbia/HCA and/or certain of its current and/or former officers and/or
directors are defendants in a number of federal and state court actions filed by
patients and/or payers, alleging, in general, improper and fraudulent billing,
overcharging, coding and physician referrals, as well as other violations of
law, and also are defendants in certain general liability and other claims.
Certain of the lawsuits have been conditionally certified as class actions and
others are purported class actions.
It is too early to predict the effect or outcome of any of the ongoing
investigations or qui tam, stockholder derivative and class action lawsuits, or
whether any additional investigations or litigation will be commenced. If
Columbia/HCA is found to have violated federal or state laws relating to
Medicare, Medicaid or similar programs, then Columbia/HCA could be subject to
substantial monetary fines, civil and criminal penalties, and exclusion from
participation in the Medicare and Medicaid programs. Similarly, the amounts in
question in the qui tam, stockholder derivative and class action lawsuits are
substantial and Columbia/HCA could be subject to substantial costs resulting
from an adverse outcome of one or more of such lawsuits. Any such sanctions or
losses could have a material adverse effect on Columbia/HCA's financial position
and results of operations.
In general, management understands that the investigations, actions and
claims described above relate to Columbia/HCA and its subsidiaries, including
subsidiaries that, prior to the Distribution Date, owned the facilities now
owned by the Company. Pursuant to the Distribution Agreement entered into by and
among Columbia/HCA, LifePoint and Triad, Columbia/HCA has agreed to indemnify
LifePoint in respect of any losses which it may incur as a result of the
proceedings described above. Columbia/HCA has also agreed to indemnify LifePoint
in respect of any losses which it may incur as a result of proceedings which may
be commenced by government authorities or by private parties in the future that
arise from acts, practices or omissions engaged in prior to the Distribution
Date and relate to the proceedings described above. Columbia/HCA has also agreed
that, in the event that any hospital owned by LifePoint is permanently excluded
from participation in the Medicare and Medicaid programs as a result of the
proceedings described above, Columbia/HCA will make a cash payment to LifePoint
in an amount (if positive) equal to five times the excluded hospital's 1998
income from continuing operations before depreciation and amortization, interest
expense, management fees, impairment of long-lived assets, minority interests
and income taxes, as set forth on a schedule to the Distribution Agreement, less
the net proceeds of the sale or other disposition of the excluded hospital.
LifePoint has agreed that, in connection with the government investigations
described above, it will participate with Columbia/HCA in negotiating one or
more compliance agreements setting forth each of their agreements to comply with
applicable laws and regulations. See "Business -- Arrangements Relating to the
Distribution" for a more detailed discussion of such arrangement. If any of such
indemnified matters were successfully asserted against LifePoint, or any of its
facilities, and Columbia/HCA failed to meet its indemnification obligations,
then such losses could have a material adverse effect on the business,
23
<PAGE> 25
financial position, results of operations or prospects of LifePoint.
Columbia/HCA has not indemnified LifePoint for losses relating to any acts,
practices and omissions engaged in by LifePoint after the Distribution Date,
whether or not LifePoint is indemnified for similar acts, practices and
omissions occurring prior to the Distribution Date. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Risk Factors."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the stockholders during the fourth
quarter ended December 31, 1999.
24
<PAGE> 26
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the Nasdaq National Market
("Nasdaq") under the symbol "LPNT." The Company's Common Stock began publicly
trading on May 11, 1999. From May 11, 1999 through December 31, 1999, the high
and low sales prices for the Company's Common Stock as reported by Nasdaq, were
as follows:
<TABLE>
<CAPTION>
HIGH LOW
1999 ------ -----
<S> <C> <C>
Second Quarter (beginning May 11, 1999)..................... $17.50 $9.13
Third Quarter............................................... 14.38 6.88
Fourth Quarter.............................................. 12.63 7.69
</TABLE>
On March 17, 2000 the last reported sale price of the Common Stock was
$15.50 per share. As of March 17, 2000 there were approximately 11,865 holders
of record of the Company's Common Stock.
Since its formation, the Company has not declared or paid dividends on its
Common Stock. The Company expects that future earnings will be retained to
finance the growth and development of the Company's business and, accordingly,
does not intend to declare or pay any dividends on the Common Stock for the
foreseeable future. The declaration, payment and amount of future dividends, if
any, will be subject to the discretion of the Company's Board of Directors and
will depend upon the future earnings, results of operations, financial condition
and capital requirements of the Company, among other factors. Under Delaware
law, the Company is prohibited from paying any dividends unless it has capital
surplus or net profits available for this purpose. In addition, the Company's
credit facilities impose restrictions on the ability of the Company to pay
dividends. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
25
<PAGE> 27
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical financial data of the
Company for each of the years in the five year period ended December 31, 1999.
The selected financial data at December 31, 1996 and 1995 and for the year ended
December 31, 1995 has been derived from unaudited financial statements. The
table should be read in conjunction with the Company's Consolidated Financial
Statements and related notes included elsewhere in this report and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1999 1998(J) 1997 1996 1995
-------- -------- -------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Revenues...................................... $ 515.2 $ 498.4 $ 487.6 $ 464.0 $ 395.8
Salaries and benefits......................... 217.4 220.8 196.6 175.2 158.1
Supplies...................................... 64.2 62.0 55.0 50.9 48.8
Other operating expenses...................... 117.3 117.2 119.5 99.3 83.3
Provision for doubtful accounts............... 38.2 41.6 34.5 28.0 23.2
Depreciation and amortization................. 31.4 28.3 27.4 23.5 20.3
Interest expense.............................. 23.4 19.1 15.4 14.1 11.3
Management fees............................... 3.2 8.9 8.2 6.2 8.1
ESOP expense.................................. 2.9 -- -- -- --
Impairment of long-lived assets............... 25.4 26.1 -- -- --
-------- -------- -------- ------- -------
523.4 524.0 456.6 397.2 353.1
-------- -------- -------- ------- -------
Income (loss) from continuing operations
before minority interests and income
taxes....................................... (8.2) (25.6) 31.0 66.8 42.7
Minority interests in earnings of consolidated
entities.................................... 1.9 1.9 2.2 1.2 --
-------- -------- -------- ------- -------
Income (loss) from continuing operations
before income taxes......................... (10.1) (27.5) 28.8 65.6 42.7
Provision (benefit) for income taxes.......... (2.7) (9.8) 11.7 26.3 17.1
-------- -------- -------- ------- -------
Income (loss) from continuing operations(a)... $ (7.4) $ (17.7) $ 17.1 $ 39.3 $ 25.6
======== ======== ======== ======= =======
Net income (loss)(a)................... $ (7.4) $ (21.8) $ 12.5 $ 41.2 $ 27.4
======== ======== ======== ======= =======
Basic earnings (loss) per share:
Income (loss) from continuing
operations(a)............................ $ (0.24) $ (0.59) $ 0.57 $ 1.31 $ 0.85
Net income (loss)(a)........................ $ (0.24) $ (0.73) $ 0.41 $ 1.37 $ 0.91
Shares used in computing basic earnings
(loss) per share (in millions)........... 30.5 30.0 30.0 30.0 30.0
Diluted earnings (loss) per share:
Income (loss) from continuing
operations(a)............................ $ (0.24) $ (0.59) $ 0.57 $ 1.30 $ 0.84
Net income (loss)(a)........................ $ (0.24) $ (0.73) $ 0.41 $ 1.36 $ 0.90
Shares used in computing diluted earnings
(loss) per share (in millions)........... 30.5 30.0 30.2 30.3 30.4
FINANCIAL POSITION:
Assets........................................ $ 420.4 $ 355.0 $ 397.9 $ 376.0 $ 324.5
Long-term debt, including amounts due within
one year.................................... 260.2 0.6 1.6 1.6 2.1
Intercompany balances payable to
Columbia/HCA................................ -- 167.6 182.5 176.3 181.3
Working capital............................... 42.2 26.9 41.1 39.0 24.4
Capital expenditures.......................... 64.8 29.3 51.8 53.4 28.6
</TABLE>
26
<PAGE> 28
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1999 1998(J) 1997 1996 1995
-------- -------- -------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OTHER OPERATING DATA:
EBITDA(b)................................... $ 78.1 $ 56.8 $ 82.0 $ 110.6 $ 82.4
Number of hospitals at end of period........ 23 23 22 22 20
Number of licensed beds at end of
period(c)................................ 2,169 2,169 2,080 2,074 1,881
Weighted average licensed beds(d)........... 2,169 2,127 2,078 2,060 1,862
Admissions(e)............................... 64,237 62,269 60,487 59,381 54,549
Equivalent admissions(f).................... 114,599 110,029 105,126 98,869 88,915
Average length of stay (days)(g)............ 4.2 4.4 4.4 4.7 4.8
Average daily census(h)..................... 739 742 733 755 713
Occupancy rate(i)........................... 34% 35% 35% 37% 38%
</TABLE>
- ---------------
(a) Includes charges related to impairment of long-lived assets of $25.4 million
($16.2 million after-tax) and $26.1 million ($15.9 million after-tax) for
the years ended December 31, 1999 and 1998, respectively.
(b) EBITDA is defined as income from continuing operations before depreciation
and amortization, interest expense, management fees, impairment of
long-lived assets, ESOP expense, minority interests in earnings of
consolidated entities and income taxes. EBITDA is commonly used as an
analytical indicator within the health care industry, and also serves as a
measure of leverage capacity and debt service ability. EBITDA should not be
considered as a measure of financial performance under generally accepted
accounting principles, and the items excluded from EBITDA are significant
components in understanding and assessing financial performance. EBITDA
should not be considered in isolation or as an alternative to net income,
cash flows generated by operating, investing or financing activities or
other financial statement data presented in the consolidated financial
statements as an indicator of financial performance or liquidity. Because
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.
(c) Licensed beds are those beds for which a facility has been granted approval
to operate from the applicable state licensing agency.
(d) Represents the average number of licensed beds weighted based on periods
owned.
(e) Represents the total number of patients admitted (in the facility for a
period in excess of 23 hours) to the Company's hospitals and is used by
management and certain investors as a general measure of inpatient volume.
(f) Equivalent admissions is used by management and certain investors as a
general measure of combined inpatient and outpatient volume. Equivalent
admissions is computed by multiplying admissions (inpatient volume) by the
sum of gross inpatient revenue and gross outpatient revenue and then
dividing the resulting amount by gross inpatient revenue. The equivalent
admissions computation "equates" outpatient revenue to the volume measure
(admissions) used to measure inpatient volume resulting in a general measure
of combined inpatient and outpatient volume.
(g) Represents the average number of days admitted patients stay in the
Company's hospitals. Average length of stay has declined as a result of the
continuing pressures from managed care and other payers to restrict
admissions and reduce the number of days that are covered by the payers for
certain procedures, and by technological and pharmaceutical improvements.
(h) Represents the average number of patients in the Company's hospital beds
each day.
(i) Represents the percentage of hospital licensed beds occupied by patients.
Both average daily census and occupancy rate provide measures of the
utilization of inpatient rooms. The declining occupancy rate is primarily
attributed to the trend toward more services, that were previously performed
in an inpatient setting, being performed on an outpatient basis and the
decline in average length of stay per admission.
(j) Certain prior year amounts have been restated to conform to current year
definitions.
27
<PAGE> 29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion should be read together with the historical financial
statements of LifePoint included elsewhere herein and the notes thereto and the
information set forth under "Selected Consolidated Financial Data" and the notes
thereto.
A discussion and analysis of financial condition and results of operations
of Holdings has not been provided as management believes that this information
would not enhance the quality of the information provided nor enhance an
assessment of the financial condition and results of operations of LifePoint's
business as a whole. LifePoint has limited independent operations and net assets
other than through its ownership of Holdings and indirect ownership of Holdings'
subsidiaries. For more information regarding Holdings, please see the related
financial statements and accompanying notes appearing elsewhere herein.
OVERVIEW
On May 11, 1999, Columbia/HCA completed the Distribution. A description of
the Distribution and certain transactions with Columbia/HCA is included in Note
2 of the Notes to the Consolidated Financial Statements included elsewhere in
this report.
At December 31, 1999, the Company was comprised of 23 general, acute care
hospitals and related health care entities. The entities are located in
non-urban areas in the states of Alabama, Florida, Georgia, Kansas, Kentucky,
Louisiana, Tennessee, Utah and Wyoming.
FORWARD-LOOKING STATEMENTS
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contains disclosures which are forward-looking
statements. Forward-looking statements include all statements that do not relate
solely to historical or current facts, and can be identified by the use of words
such as "may," "believe," "will," "expect," "project," "estimate," "anticipate,"
"plan" or "continue." These forward-looking statements are based on the current
plans and expectations of the Company and are subject to a number of
uncertainties and risks that could significantly affect current plans and
expectations and the Company's future financial condition and results. These
factors include, but are not limited to, (i) the highly competitive nature of
the health care business, (ii) the efforts of insurers, health care providers
and others to contain health care costs, (iii) possible changes in the Medicare
program that may further limit reimbursements to health care providers and
insurers, (iv) changes in federal, state or local regulation affecting the
health care industry, (v) the possible enactment of federal or state health care
reform, (vi) the ability to attract and retain qualified management and
personnel, including physicians, (vii) liabilities and other claims asserted
against the Company, including without limitation, liabilities for which the
Company may be indemnified by Columbia/HCA, (viii) fluctuations in the market
value of the Company's Common Stock, (ix) changes in accounting practices, (x)
changes in general economic conditions, and (xi) other risk factors. As a
consequence, current plans, anticipated actions and future financial condition
and results may differ from those expressed in any forward-looking statements
made by or on behalf of the Company. You are cautioned not to unduly rely on
such forward-looking statements when evaluating the information presented in
this "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
CONTINGENCIES
Columbia/HCA is currently the subject of several federal investigations
into certain of its business practices, as well as governmental investigations
by various states. Management of LifePoint understands that Columbia/HCA is
cooperating in these investigations and that Columbia/HCA understands, through
written notice and other means, that it is a target in these investigations.
Given the breadth of the ongoing investigations, Columbia/HCA expects additional
investigative and prosecutorial activity to occur in these and other
jurisdictions in the future. Columbia/HCA is the subject of a formal order of
investigation by the Commission. The Commission investigation includes the
anti-fraud, insider trading, periodic reporting and internal accounting control
provisions of the federal securities laws. According to published reports, on
July 2, 1999, a federal jury in Tampa, Florida found two Columbia/HCA employees
guilty of conspiracy and making
28
<PAGE> 30
false statements on Medicare and TRICARE cost reports for the years 1992 and
1993 and on the Medicaid cost report for 1993. Both were found not guilty of
obstructing a federal auditor. One other employee was acquitted on all counts
for which he had been charged and the jury was unable to reach a verdict with
respect to another employee. This employee and the government executed an
agreement to defer prosecution for 18 months after which charges will be
dismissed. The two convicted employees were sentenced in December 1999 and both
have appealed to the 11th Circuit.
Columbia/HCA is a defendant in several qui tam actions brought by private
parties on behalf of the United States of America, which have been unsealed and
served on Columbia/HCA. The actions allege, in general, that Columbia/HCA and
certain subsidiaries and/or affiliated partnerships violated the False Claims
Act by submitting improper claims to the government for reimbursement. The
lawsuits generally seek damages of three times the amount of all Medicare or
Medicaid claims (involving false claims) presented by the defendants to the
federal government, civil penalties of not less than $5,000 nor more than
$10,000 for each such Medicare or Medicaid claim, attorneys' fees and costs. The
government has intervened in six unsealed qui tam actions against Columbia/HCA.
Columbia/HCA is aware of additional qui tam actions that remain under seal and
believes that there are other sealed qui tam cases of which it is unaware.
Columbia/HCA is a defendant in a number of other suits, which allege, in
general, improper and fraudulent billing, overcharging, coding and physician
referrals, as well as other violations of law. Certain of the suits have been
conditionally certified as class actions.
It is too early to predict the effect or outcome of any of the ongoing
investigations or qui tam and other actions, or whether any additional
investigations or litigations will be commenced. If Columbia/HCA is found to
have violated federal or state laws relating to Medicare, Medicaid or similar
programs, Columbia/HCA could be subject to substantial monetary fines, civil and
criminal penalties, and exclusion from participation in the Medicare and
Medicaid programs. Similarly, the amounts in question in the qui tam and other
actions are substantial, and Columbia/HCA could be subject to substantial costs
resulting from an adverse outcome of one or more of such actions. In addition, a
number of derivative actions have been brought by purported stockholders of
Columbia/HCA against certain current and former officers and directors of
Columbia/HCA alleging breach of fiduciary duty and failure to take reasonable
steps to ensure that Columbia/HCA did not engage in illegal practices.
Management believes that the ongoing governmental investigations and
related media coverage may have had a negative effect on Columbia/HCA's results
of operations (which include the Company for the periods prior to the
Distribution Date which are presented herein). The extent to which the Company
may or may not continue to be affected after the Distribution by the ongoing
investigations of Columbia/HCA, the initiation of additional investigations, if
any, and the related media coverage cannot be predicted. It is possible that
these matters could have a material adverse effect on the financial condition or
results of operations of the Company in future periods.
In connection with the Distribution, Columbia/HCA has agreed to indemnify
the Company in respect of any losses which it may incur arising from the
proceedings described above. Columbia/HCA has also agreed to indemnify the
Company in respect of any losses, which it may incur as a result of proceedings
which may be commenced by government authorities or by private parties in the
future that arise from acts, practices or omissions engaged in prior to the date
of the Distribution and relate to the proceedings described above. Columbia/HCA
has also agreed that, in the event that any hospital owned by the Company as of
the date of the Distribution is permanently excluded from participation in the
Medicare and Medicaid programs as a result of the proceedings described above,
then Columbia/HCA will make cash payments to the Company based on amounts as
defined in the Distribution Agreement by and among Columbia/HCA and the Company.
The Company has agreed with Columbia/HCA that, in connection with the pending
governmental investigations, it will negotiate with the government with respect
to a compliance agreement setting forth the Company's agreement to comply with
applicable laws and regulations. If any of such indemnified matters were
successfully asserted against the Company, or any of its facilities, and
Columbia/HCA failed to meet its indemnification obligations, then such losses
could have a material adverse effect on the business, financial position,
results of operations or prospects of the Company. Columbia/HCA has not
indemnified the
29
<PAGE> 31
Company for losses relating to any acts, practices and omissions engaged in by
the Company after the Distribution, whether or not the Company is indemnified
for similar acts, practices and omissions occurring prior to the date of the
Distribution.
RESULTS OF OPERATIONS
Revenue/Volume Trends
The Company has experienced an increase in revenues and volume growth
during 1999 compared to prior year. However, the Company's revenue per
equivalent admission decreased in 1999 compared to 1998. Management believes the
decline in revenue per equivalent admission is primarily attributable to the
impact of reductions in Medicare payments mandated by the Federal Balanced
Budget Act of 1997 (the "Balanced Budget Act"), the increasing percentage of
patient volume related to patients participating in managed care plans and the
continuing trend toward the conversion of more services to an outpatient basis.
The Company's revenues continue to be affected by an increasing proportion
of revenue being derived from fixed payment, higher discount sources, including
Medicare, Medicaid and managed care plans. In addition, insurance companies,
government programs (other than Medicare) and employers purchasing health care
services for their employees are also negotiating discounted amounts that they
will pay health care providers rather than paying standard prices. The Company
expects patient volumes from Medicare and Medicaid to continue to increase as a
result of the general aging of the population and the expansion of state
Medicaid programs. However, under the Balanced Budget Act, the Company's
reimbursement from the Medicare and Medicaid programs was reduced in 1999 and
1998 and will be further reduced as some reductions in reimbursement levels are
phased in over the next two to three years. The Company generally receives lower
payments per patient under managed care plans than under traditional indemnity
insurance plans. With an increasing proportion of services being reimbursed
based upon prospective payment amounts regardless of the cost incurred,
revenues, earnings and cash flows are being reduced. Admissions related to
Medicare, Medicaid and managed care plan patients were 89.2% and 87.7% of total
admissions for the years ended December 31, 1999 and 1998, respectively.
The Company's revenues also continue to be adversely affected by the trend
toward certain services being performed more frequently on an outpatient basis.
Generally, the payments received for an outpatient procedure are less than for a
similar procedure performed in an inpatient setting. The Company believes that
further payment reductions could occur as a result of the implementation of a
prospective payment system for Medicare outpatient services (pursuant to the
Balanced Budget Act and scheduled for implementation in July 1, 2000). Growth in
outpatient services is expected to continue in the health care industry as
procedures performed on an inpatient basis are converted to outpatient
procedures through continuing advances in pharmaceutical and medical
technologies. The redirection of certain procedures to an outpatient basis is
also influenced by pressures from payers to perform certain procedures as
outpatient care rather than inpatient care.
Reductions in Medicare and Medicaid reimbursement, the increasing
percentage of the patient volume being related to patients participating in
managed care plans and continuing trends toward more services being performed on
an outpatient basis are expected to present ongoing challenges. The challenges
presented by these trends are magnified by the Company's inability to control
these trends and the associated risks. To maintain and improve its operating
margins in future periods, the Company must, among other things, increase
patient volumes while controlling the costs of providing services. If the
Company is not able to achieve these improvements and the trend toward declining
reimbursements and payments continues, results of operations and cash flow will
deteriorate.
Management believes that the proper response to these challenges includes
the delivery of a broad range of quality health care services to patients by
assuring that physicians with appropriate specializations practice in the
hospitals, that the appropriate equipment and range of specialized services are
available within the hospitals, and that the hospitals are positioned as
community assets.
As part of Columbia/HCA, the Company's facilities were included in managed
care contracts negotiated by Columbia/HCA on a market-wide basis emphasizing
large urban facilities. The Company's management
30
<PAGE> 32
believes that independence from Columbia/HCA has helped and will continue to
help the Company negotiate contract terms that are generally more favorable for
its facilities.
Operating Results Summary
The following are summaries of results from continuing operations for the
years ended December 31, 1999, 1998 and 1997 (dollars in millions):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------
1999 1998 1997
---------------------- ---------------------- ----------------------
AMOUNT % OF REVENUES AMOUNT % OF REVENUES AMOUNT % OF REVENUES
------ ------------- ------ ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues.......................... $515.2 100.0% $498.4 100.0% $487.6 100.0%
Salaries and benefits............. 217.4 42.2 220.8 44.3 196.6 40.3
Supplies.......................... 64.2 12.5 62.0 12.4 55.0 11.3
Other operating expenses.......... 117.3 22.7 117.2 23.5 119.5 24.5
Provision for doubtful accounts... 38.2 7.4 41.6 8.4 34.5 7.1
Depreciation and amortization..... 31.4 6.2 28.3 5.7 27.4 5.6
Interest expense.................. 23.4 4.5 19.1 3.8 15.4 3.2
Management fees................... 3.2 0.6 8.9 1.8 8.2 1.7
ESOP expense...................... 2.9 0.6 -- -- -- --
Impairment of long-lived assets... 25.4 4.9 26.1 5.2 -- --
------ ------ ------ ------ ------ ------
523.4 101.6 524.0 105.1 456.6 93.7
------ ------ ------ ------ ------ ------
Income (loss) from continuing
operations before minority
interests and income taxes...... (8.2) (1.6) (25.6) (5.1) 31.0 6.3
Minority interests in earnings of
consolidated entities........... 1.9 0.4 1.9 0.4 2.2 0.4
------ ------ ------ ------ ------ ------
Income (loss) from continuing
operations before income
taxes........................... (10.1) (2.0) (27.5) (5.5) 28.8 5.9
Provision (benefit) for income
taxes........................... (2.7) (0.6) (9.8) (2.0) 11.7 2.4
------ ------ ------ ------ ------ ------
Income (loss) from continuing
operations...................... $ (7.4) (1.4) $(17.7) (3.5) $ 17.1 3.5
====== ====== ====== ====== ====== ======
% changes from prior year:
Revenues........................ 3.4% 2.2%
Income (loss) from continuing
operations before income
taxes........................ 63.1 (195.4)
Income (loss) from continuing
operations................... 58.4 (204.0)
Admissions(a)................... 3.2 2.9
Equivalent admissions(b)........ 4.2 4.7
Revenues per equivalent
admission.................... (0.8) (2.3)
Same facility % changes from prior
year(c):
Revenues........................ 3.4 (1.8)
Admissions(a)................... 3.2 (0.8)
Equivalent admissions(b)........ 4.2 0.2
Revenues per equivalent
admission.................... (0.8) (2.0)
</TABLE>
- ---------------
(a) Represents the total number of patients admitted (in the facility for a
period in excess of 23 hours) to the Company's hospitals and is used by
management and certain investors as a general measure of inpatient volume.
(b) Equivalent admissions are used by management and certain investors as a
general measure of combined inpatient and outpatient volume. Equivalent
admissions are computed by multiplying admissions (inpatient volume) by the
sum of gross inpatient revenue and gross outpatient revenue and then
dividing the resulting amount by gross inpatient revenue. The equivalent
admissions computation "equates"
31
<PAGE> 33
outpatient revenue to the volume measure (admissions) used to measure
inpatient volume resulting in a general measure of combined inpatient and
outpatient volume.
(c) "Same facility" information excludes the operations of hospitals and their
related facilities which were either acquired, consolidated or divested
during the current and prior year. The facilities that the Company intends
to divest will continue to be included in "same facility" until the date
they are divested.
For the Years Ended December 31, 1999 and 1998
Revenues increased 3.4% to $515.2 million for the year ended December 31,
1999 compared to $498.4 million for the year ended December 31, 1998 primarily
as a result of increases in the volume of patients treated at the Company's
facilities. Inpatient admissions increased 3.2% and equivalent admissions
(adjusted to reflect combined inpatient and outpatient volume) increased 4.2%
for the year ended December 31, 1999 compared to the year ended December 31,
1998. Revenues per equivalent admission decreased 0.8% for the year ended
December 31, 1999 compared to the prior year. The decline in revenues per
equivalent admission resulted from several factors, including decreases in
Medicare reimbursement rates mandated by the Balanced Budget Act which became
effective October 1, 1997 (such rates lowered revenues by approximately $10.1
million for the year ended December 31, 1999 compared to periods prior to the
effective date of the Balanced Budget Act), and continued increases in the
number of managed care payers (managed care as a percentage of total admissions
increased to 20.2% for the year ended December 31, 1999 compared to 18.6% for
the year ended December 31, 1998). In addition, favorable cost report
adjustments of $0.7 million were recorded during the year ended December 31,
1999 compared to $1.2 million recorded during the year ended December 31, 1998.
Salaries and benefits decreased as a percentage of revenues to 42.2% for
the year ended December 31, 1999 from 44.3% for the year ended December 31, 1998
primarily as a result of improvements in labor productivity. Man-hours per
equivalent admission decreased 9.2% over the prior year.
Supply costs increased slightly to 12.5% as a percentage of revenues for
the year ended December 31, 1999 from 12.4% for the year ended December 31,
1998.
Other operating expenses decreased as a percentage of revenues to 22.7% for
the year ended December 31, 1999 from 23.5% for the year ended December 31,
1998. Other operating expenses consist primarily of contract services, physician
recruitment, professional fees, repairs and maintenance, rents and leases,
utilities, insurance, marketing and non-income taxes. The decrease was primarily
due to decreases in professional fees and contract services.
Provision for doubtful accounts decreased as a percentage of revenues to
7.4% for the year ended December 31, 1999 from 8.4% for the year ended December
31, 1998. In fiscal year 1998, a majority of the Company's facilities were
undergoing computer information system conversions (including patient
accounting) which hampered the business office billing functions. As a result,
accounts were not billed timely and the Company's allowance for bad debt
increased in 1998. During 1999, the Company began to recover from the
conversions and focus more on collections of accounts receivable.
Depreciation and amortization expense increased to $31.4 million for the
year ended December 31, 1999 from $28.3 million for the year ended December 31,
1998 primarily due to increased capital expenditures related to computer
information system conversions. The majority of the Company's facilities began
depreciating the systems in the fourth quarter of 1998.
Interest expense increased to $23.4 million for the year ended December 31,
1999 from $19.1 million for the year ended December 31, 1998. This increase is
primarily due to the interest expense incurred on the debt obligations assumed
from Columbia/HCA in connection with the Distribution. See Note 8 of the Notes
to the Consolidated Financial Statements included elsewhere in this report. For
the year ended December 31, 1998, interest expense was primarily represented by
interest incurred on the net intercompany balance with Columbia/HCA; however,
upon the Distribution, the intercompany amounts payable by the Company to
Columbia/HCA were eliminated.
32
<PAGE> 34
Management fees allocated by Columbia/HCA were $3.2 million for the year
ended December 31, 1999 and $8.9 million for the year ended December 31, 1998.
These amounts represented allocations, using revenues as the allocation basis,
of the corporate, general and administrative expenses of Columbia/HCA; however,
Columbia/HCA stopped allocating management fees to the Company after the
Distribution. The elimination of management fee allocations by Columbia/HCA was
offset by increases in salaries, supplies and other operating costs related to
the establishment and operation of the Company's corporate office during 1999.
During the fourth quarter of 1998, the Company decided to sell three
hospital facilities that were identified as not compatible with the Company's
operating plans based upon management's review of all facilities and giving
consideration to current and expected market conditions and the current and
expected capital needs in each market. At December 31, 1998, the carrying value
before the impairment charge of the long-lived assets related to these hospital
facilities was approximately $47.0 million. The carrying value was reduced to
fair value, based on estimates of selling values at that time, for a total
non-cash charge of $24.8 million. During the fourth quarter of 1999, the Company
recorded an additional non-cash charge of $25.4 million (comprised of $22.4
million in further impairment charges for these facilities and $3.0 million in
anticipated selling/closing costs). The remaining carrying value of the
long-lived assets related to these hospital facilities was written down based on
revised selling values. Severance costs, if any, will be expensed when incurred
at a later date. One of these three hospital facilities held for sale was sold
subsequent to December 31, 1999. See Note 16 of the Notes to the Consolidated
Financial Statements included elsewhere in this report. For the years ended
December 31, 1999, 1998 and 1997, respectively, these facilities to be divested
had net revenues of approximately $42.6 million, $48.0 million and $50.6 million
and incurred income (loss) from continuing operations before income taxes
(benefit) and the asset impairment charges of approximately $(3.8) million,
$(2.9) million and $0.7 million.
The Company recorded, during the third quarter of 1998, an impairment loss
of approximately $1.3 million related to the write-off of intangibles and other
long-lived assets of certain physician practices where the recorded asset values
were not deemed to be fully recoverable based upon the operating results trends
and projected future cash flows. These assets being held and used are now
recorded at estimated fair value based upon discounted, estimated future cash
flows.
The impairment charges did not have a significant impact on the Company's
cash flows and are not expected to significantly impact cash flows for future
periods. As a result of the write-downs, depreciation and amortization expense
related to these assets will decrease in future periods. In the aggregate, the
net effect of the change in depreciation and amortization expense is not
expected to have a material effect on operating results for future periods.
ESOP expense of $2.9 million during 1999 relates to the newly established
Employee Stock Ownership Plan discussed in Note 9 of the Notes to the
Consolidated Financial Statements included elsewhere in this report.
Minority interests in earnings of consolidated entities remained unchanged
as a percentage of revenues at 0.4% compared to the prior year.
Loss from continuing operations before income taxes was $10.1 million for
the year ended December 31, 1999 compared to a loss of $27.5 million for the
year ended December 31, 1998 primarily due to increases in revenue and decreases
in certain expenses as described above. The three facilities held for sale
contributed significantly to the decline in results of operations. These
facilities incurred losses from continuing operations before income tax benefit
of approximately $3.8 million and $2.9 million for the years ended December 31,
1999 and 1998, respectively.
Net loss was $7.4 million for the year ended December 31, 1999 compared to
a loss of $21.8 million for the year ended December 31, 1998. The year ended
December 31, 1998 included a $4.1 million after-tax loss from the Company's
discontinued home health operations, primarily due to declines in Medicare rates
of reimbursement under the Balanced Budget Act and declines in home health
visits. The Company's home health operations were divested during 1998.
33
<PAGE> 35
Years Ended December 31, 1998 and 1997
Revenues increased 2.2% to $498.4 million in 1998 compared to $487.6
million in 1997. Inpatient admissions increased 2.9%, equivalent admissions
(adjusted to reflect combined inpatient and outpatient volume) increased 4.7%
and revenues per equivalent admission decreased 2.3% from 1997. On a same
facility basis, revenues decreased 1.8%, inpatient admissions decreased 0.8%,
equivalent admissions increased 0.2% and revenues per equivalent admission
decreased 2.0%. The decline in revenues (on a same facility basis) and revenues
per equivalent admission resulted from several factors, including decreases in
Medicare reimbursement rates mandated by the Balanced Budget Act which became
effective October 1, 1997 (such rates lowered 1998 revenues by approximately
$7.0 million), continued increases in the number of managed care payers (managed
care as a percentage of total admissions increased to 18.6% in 1998 compared to
16.7% in 1997) and delays experienced in obtaining Medicare cost report
settlements (cost report filings and settlements resulted in favorable revenue
adjustments of $1.2 million in 1998 compared to favorable adjustments of $3.3
million in 1997).
Operating expenses increased as a percentage of revenues in every expense
category except for other operating expenses, which decreased 1.0%. The primary
reason for the increases, as a percentage of revenues, was the Company's
inability to adjust expenses in line with the decreases experienced in same
facility volume and reimbursement trends. The level of management's attention
being devoted to the governmental investigations, reactions by certain
physicians and patients to the related negative media coverage and management
changes at several levels and locations throughout the Company contributed to
the Company's inability to implement changes to reduce operating expenses in
response to the revenue and volume growth rate declines on a same facility
basis.
Salaries and benefits, as a percentage of revenues, increased to 44.3% in
1998 from 40.3% in 1997. The increase was due to cost pressures on labor
(salaries and benefits per equivalent admission increased 8.0% over 1997) and a
decline in productivity (man-hours per equivalent admission increased 2.9% over
1997).
Supply costs increased to 12.4% as a percentage of revenues in 1998 from
11.3% in 1997 primarily due to the 1.7% decline in revenues per equivalent
admission, while the cost of supplies per equivalent admission increased 8.4%.
The higher cost of supplies per equivalent admission resulted from significant
increases in pharmaceutical costs and other increases in new product development
costs and general inflation.
Other operating expenses decreased as a percentage of revenues to 23.5% in
1998 from 24.5% in 1997. The decrease was due to small decreases in several
expense categories as a percentage of revenues, including lower marketing costs
being incurred due to the cancellation of a national branding campaign.
Provision for doubtful accounts, as a percentage of revenues, increased to
8.4% in 1998 from 7.1% in 1997 due to internal factors such as computer
information system conversions (including patient accounting systems) at various
facilities and external factors such as payer mix shifts to managed care plans
(resulting in increased amounts of patient co-payments and deductibles) and
payer remittance slowdowns. The information system conversions hampered the
business office billing functions and collection efforts in those facilities as
some resources were directed to installing and converting systems and building
new data files, rather than devoting full effort to billing and collecting
receivables. The information systems conversion was substantially completed in
1998. The Company experienced an increased occurrence of charge audits from
certain payers due to the negative publicity surrounding the government
investigations which resulted in delays in the collection of receivables. The
delays in collection resulted in an increase in receivables reserved under the
Company's bad debt allowance policy.
Interest expense, which is primarily represented by interest incurred on
the net intercompany balance with Columbia/HCA, increased to $19.1 million in
1998 from $15.4 million in 1997 primarily as a result of an increase in the
average balance of the advances from Columbia/HCA during 1998 compared to the
same period in 1997.
During the fourth quarter of 1998, the Company decided to sell three
hospital facilities that were identified as not compatible with the Company's
operating plans based upon management's review of all facilities and giving
consideration to current and expected market conditions and the current and
expected
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capital needs in each market. At December 31, 1998, the carrying value before
the impairment charge of the long-lived assets related to these hospital
facilities was approximately $47.0 million. The carrying value was reduced to
fair value, based on estimates of selling values, for a total non-cash charge of
$24.8 million. The Company recorded, during the third quarter of 1998, an
impairment loss of approximately $1.3 million related to the write-off of
intangibles and other long-lived assets of certain physician practices where the
recorded asset values were not deemed to be fully recoverable based upon the
operating results trends and projected future cash flows.
Management fees allocated by Columbia/HCA were $8.9 million in 1998 and
$8.2 million in 1997. These amounts represented allocations, using revenues as
the allocation basis, of the corporate, general and administrative expenses of
Columbia/HCA.
Income (loss) from continuing operations before income taxes (benefit)
declined to a loss of $27.5 million in 1998 from income of $28.8 million in 1997
primarily due to the $26.1 million pre-tax charge related to impairment of
long-lived assets. Also, the three facilities that management has determined as
held for sale contributed significantly to the decline in results of operations.
These facilities to be divested incurred income (loss) from continuing
operations before income taxes (benefit) of approximately ($2.9) million and
$0.7 million for the years ended December 31, 1998 and 1997, respectively.
Net income declined to a loss of $21.8 million in 1998 compared to income
of $12.5 million in 1997. In addition to the decline in income from continuing
operations, the Company incurred a $4.1 million after-tax loss from its
discontinued home health operations in 1998 compared to a $0.6 million after-tax
loss in 1997, primarily due to declines in Medicare rates of reimbursement under
the Balanced Budget Act and declines in home health visits.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the Distribution, the Company relied upon Columbia/HCA for
liquidity and sources of capital to supplement any needs not met by operations.
As an independent, publicly-traded company, the Company must now rely upon the
bank credit facilities and other traditional funding sources to supplement needs
not met by operations. At December 31, 1999, the Company had working capital of
$42.2 million compared to $26.9 million at December 31, 1998. The increase in
working capital was primarily due to a $12.5 million increase in cash resulting
from net cash collections since the Distribution. In addition, accounts
receivable increased approximately $10.3 million primarily as a result of
Columbia/HCA's agreement to indemnify the Company with respect to Medicare,
Medicaid, and cost-based Blue Cross receivables and payables relating to cost
reporting periods ending on or prior to the Distribution. The increase in
working capital was partially offset by increases in accounts payable.
Cash provided by operating activities was $57.5 million for the year ended
December 31, 1999 compared to $45.3 million for the year ended December 31,
1998. This increase was primarily attributable to less of a net loss in 1999
than in 1998.
Cash used in investing activities was $67.0 million for the year ended
December 31, 1999 compared to $29.3 million for the year ended December 31,
1998. The increase was primarily due to capital expenditures of $64.8 million in
1999 (of which $29.1 million related to the construction of a replacement
hospital located in Florida that was completed in December 1999) compared to
$29.3 million in 1998. At December 31, 1999, there were construction projects
committed by the Company which had an estimated cost of approximately $15.9
million. These projects are scheduled for completion by the end of 2000.
Management believes that its capital expenditure program is adequate to expand,
improve and equip the Company's existing health care facilities. The Company
expects to make total capital expenditures in 2000 of approximately $47.0
million, excluding acquisitions.
Cash provided by financing activities was $22.0 million for the year ended
December 31, 1999 compared to cash used in financing activities of $16.0 million
for the year ended December 31, 1998. The increase was primarily due to
increases in the intercompany amounts payable by the Company to Columbia/HCA
prior to the Distribution. Intercompany amounts payable by the Company to
Columbia/HCA were eliminated in
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connection with the Distribution and the Company assumed certain indebtedness
from Columbia/HCA (as discussed below).
Management does not consider the sale of any assets to be necessary to
repay the Company's indebtedness or to provide working capital. However, for
other reasons, certain of the Company's hospitals may be sold in the future from
time to time. At December 31, 1999, three of the Company's hospitals were held
for sale. One of the hospitals was sold subsequent to December 31, 1999. See
Note 16 of the Notes to the Consolidated Financial Statements included elsewhere
in this report. Although the Company's indebtedness is much more significant
than was the case for its predecessor entities prior to the Distribution,
management expects that operations and amounts available under the Company's
Credit Agreement (as discussed below) will provide sufficient liquidity in 2000.
The Company intends to acquire additional hospitals and are 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. In order to ensure the tax-free treatment of
the Distribution, however, LifePoint is limited in the amount of stock it may
issue in consideration of acquisitions.
The Company does not expect to pay dividends on its Common Stock in the
foreseeable future.
LONG-TERM DEBT
Bank Credit Agreement
On May 11, 1999, the Company assumed from Columbia/HCA the obligations
under a bank credit agreement (the "Credit Agreement") with a group of lenders
with commitments aggregating $210 million. The Credit Agreement consists of a
$60 million term loan facility, an $85 million term loan facility, and a $65
million revolving credit facility (collectively the "Bank Facilities").
As of December 31, 1999, $25 million of the $60 million term loan facility
was drawn, with the remaining $35 million available for limited purposes to be
drawn by May 11, 2000. The final payment under this term loan facility is due
November 11, 2004.
The $85 million term loan facility was drawn in full at the time of the
Distribution. The final payment under this term loan is due November 11, 2005.
The $65 million revolving credit facility is available for working capital
and other general corporate purposes, and any outstanding amounts thereunder
will be due and payable on November 11, 2004. No amounts were outstanding under
this facility as of February 29, 2000.
Repayments under the term loan facilities are due in quarterly installments
with quarterly amortization based on annual amounts. Interest on the Bank
Facilities is currently based on LIBOR plus 3.0% for the revolving credit
facility and the $60 million term loan facility, and LIBOR plus 3.5% for the $85
million term loan facility. The weighted average interest rate on the Bank
Facilities was approximately 9.9% at December 31, 1999. The Company also pays a
commitment fee equal to 0.5% of the average daily amount available under the
revolving credit facility and on the undrawn portion of the $60 million term
loan facility.
The Company's obligations under the Bank Facilities are guaranteed by its
subsidiaries. These guarantees are secured by a pledge of substantially all of
the subsidiaries' assets. The Credit Agreement requires that the Company comply
with various financial ratios and tests and contains covenants, including but
not limited to restrictions on new indebtedness, the ability to merge or
consolidate, asset sales, capital expenditures and dividends.
Senior Subordinated Notes
On May 11, 1999, the Company assumed from Columbia/HCA $150 million in
Senior Subordinated Notes maturing on May 15, 2009 and bearing interest at
10.75%. In November 1999, in a registered exchange
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offer, the Company issued a like aggregate principal amount of notes in exchange
for these notes (the "Notes"). Interest is payable semi-annually. The Notes are
unsecured obligations and are subordinated in right of payment to all existing
and future senior indebtedness. The Company's obligations under the Notes are
guaranteed by its subsidiaries.
The indenture pursuant to which the Notes were made contains certain
covenants, including but not limited to restrictions on new indebtedness, the
ability to merge or consolidate, asset sales, capital expenditures and
dividends.
Market Risks Associated with Financial Instruments
The Company's interest expense is sensitive to changes in the general level
of interest rates. No derivatives are currently used to alter the interest rate
characteristics of the Company's debt instruments.
With respect to the Company's interest-bearing liabilities, approximately
$110.0 million of long-term debt (including current portion) at December 31,
1999 is subject to variable rates of interest, while the remaining balance in
long-term debt (including current portion) of $150.2 million at December 31,
1999 is subject to fixed rates of interest. The fair value of the Company's
total long-term debt (including current portion) was $264.7 million at December
31, 1999. The fair value of the Notes has been determined using the quoted
market price at December 31, 1999. The fair values of the remaining long-term
debt are estimated using discounted cash flows, based on the Company's
incremental borrowing rates. Based on a hypothetical 1% increase in interest
rates on the Company's variable rate debt, the potential annualized losses in
future pretax earnings would be approximately $1.1 million. The impact of such a
change in interest rates on the carrying value of long-term debt would not be
significant. The estimated changes to interest expense and the fair value of
long-term debt are determined considering the impact of hypothetical interest
rates on the Company's borrowing cost and long-term debt balances. These
analyses do not consider the effects, if any, of the potential changes in the
Company's credit ratings or the overall level of economic activity. Further, in
the event of a change of significant magnitude, management would expect to take
actions intended to further mitigate its exposure to such change. For further
information, see above discussion of the Company's long-term debt.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which was required to be adopted in years
beginning after June 15, 1999. In June 1999, SFAS No. 137 was issued, deferring
the effective date of SFAS No. 133 for one year. Management does not anticipate
that the adoption of the new statement will have a material effect on the
financial condition or results of operations of the Company.
YEAR 2000 COMPLIANCE
The Company did not experience any material disruptions or other effects
caused by the Year 2000 problem, nor does the Company expect to experience any
material disruptions or other effects caused by the Year 2000 problem in the
future.
INFLATION
The health care industry is labor intensive. Wages and other expenses
increase during periods of inflation and when shortages in marketplaces occur.
In addition, suppliers pass along rising costs to the Company in the form of
higher prices. The Company's ability to pass on these increased costs is limited
due to increasing regulatory and competitive pressures, as discussed above. In
the event the Company experiences inflationary pressures, there can be no
assurance that the Company's results of operations will not be materially
effected.
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RISK FACTORS
High Degree of Leverage and Debt Service Obligations May Adversely Affect
LifePoint
LifePoint is highly leveraged. At December 31, 1999, LifePoint's
consolidated long-term debt was approximately $260.2 million. LifePoint also may
draw upon an additional term loan commitment of $35 million available for
limited purposes and a revolving credit commitment of up to $65 million under
its credit agreement. LifePoint also has the ability to incur additional debt,
subject to limitations imposed by its credit agreement and the indenture
governing the notes issued by Holdings. While LifePoint believes that future
operating cash flow, together with available financing arrangements, will be
sufficient to fund operating requirements, leverage and debt service
requirements could have important consequences to LifePoint, including the
following:
- such requirements may make LifePoint more vulnerable to economic
downturns and to adverse changes in business conditions, such as further
limitations on reimbursement under Medicare and Medicaid programs;
- LifePoint's ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions, general corporate
purposes or other purposes may be impaired;
- a substantial portion of LifePoint's cash flow from operations may have
to be dedicated to the payment of principal and interest on its
indebtedness, thereby reducing the funds available for operations;
- certain of the borrowings may be at variable rates of interest, which
would make LifePoint vulnerable to increases in interest rates; and
- the indebtedness of LifePoint contains numerous financial and other
restrictive covenants, including restrictions on payments of dividends,
incurrences of indebtedness and sale 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.
Any substantial increase in LifePoint's debt levels or the inability to
borrow funds at favorable interest rates or to comply with the financial or
other restrictive covenants could have a material adverse effect on the
business, financial condition, results of operations or prospects of LifePoint.
Loss of Physicians or Other Key Personnel Could Adversely Affect LifePoint's
Business
Since physicians generally direct the majority of hospital admissions, the
success of LifePoint, in part, is dependent upon the number and quality of
physicians on its hospitals' medical staffs, the admissions practices of such
physicians and the maintenance of good relations with such physicians. Hospital
physicians are generally not employees. Only a limited number of physicians
practice in the non-urban communities in which LifePoint's hospitals are
located. Consequently, the loss of physicians in these communities, the
inability of LifePoint to recruit and to retain physicians in these communities
or the inability of LifePoint to maintain good relations with the physicians on
its hospitals' medical staffs could have a material adverse effect on its
business, financial condition, results of operations or prospects. The
operations of LifePoint's hospitals could also be materially adversely affected
by the shortage of nurses and certain other health care professionals in these
communities.
LifePoint is also dependent upon the continued services and management
experience of Scott L. Mercy, James M. Fleetwood, Jr. and other of its executive
officers. If Messrs. Mercy or Fleetwood or any of such other executive officers
were to resign their positions or otherwise be unable to serve, the operating
results of LifePoint could be adversely affected. In addition, the success of
LifePoint depends on its ability to attract and retain managers at its hospitals
and related facilities, on the ability of its officers and key employees to
manage growth successfully and on its ability to attract and retain skilled
employees.
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Limited Operating History as an Independent Company; Net Losses
Prior to May 11, 1999, LifePoint operated as the America Group division of
Columbia/HCA. Accordingly, LifePoint does not have a long operating history as
an independent, publicly-traded company and, prior to the Distribution,
LifePoint had historically relied on Columbia/HCA for various financial,
administrative and managerial expertise relevant to the conduct of its business.
LifePoint maintains its own lines of credit and banking relationships, employs
its own senior executives and performs its own administrative functions, except
that Columbia/HCA continues to provide certain support services to LifePoint on
a contractual basis. LifePoint did not generate a profit for 1999. There can be
no assurance that LifePoint will not continue to have net losses in the future.
See "Business -- Arrangements Relating to the Distribution" for more information
regarding LifePoint's arrangements with Columbia/HCA and see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
certain factors that could affect LifePoint's ability to generate profits.
Limits on Reimbursement and Health Care Reform Legislation May Reduce
Profitability
A significant portion of the revenues of LifePoint are derived from the
Medicare and Medicaid programs, which are highly regulated and subject to
frequent and substantial changes. In recent years, fundamental changes in the
Medicare and Medicaid programs, including the implementation of a PPS for
inpatient services at medical/surgical hospitals, 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, which establishes a
plan to balance the federal budget by fiscal year 2002, includes significant
additional reductions in spending levels for the Medicare and Medicaid programs.
These include, among others, payment reductions for inpatient and outpatient
hospital services, establishment of a PPS for hospital outpatient services,
skilled nursing facilities and home health agencies under Medicare, and repeal
of the federal payment standard (the so-called "Boren Amendment") for hospitals
and nursing facilities under Medicaid. A number of states also are considering
legislation designed to reduce their Medicaid expenditures and to provide
universal coverage and additional care, including enrolling Medicaid recipients
in managed care programs and imposing additional taxes on hospitals to help
finance or expand the states' Medicaid systems. In addition, private payers
increasingly are attempting to control health care costs through direct
contracting with hospitals to provide services on a discounted basis, increased
utilization review and greater enrollment in managed care programs such as
health maintenance organizations and preferred provider organizations. LifePoint
believes that hospital operating margins have been, and may continue to be,
under significant pressure because of deterioration in pricing flexibility and
payer mix, and growth in operating expenses in excess of the increase in
prospective payments under the Medicare program.
In recent years, an increasing number of legislative proposals have been
introduced or proposed in Congress and in some state legislatures that would
effect major changes in the health care system, either nationally or at the
state level. Among the proposals under consideration or already enacted are
price controls on hospitals, insurance market reforms to increase the
availability of group health insurance to small businesses, Medicare and
Medicaid managed care programs and requirements that all businesses offer health
insurance coverage to their employees. While LifePoint anticipates that the rate
of increase in 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 business, financial
condition, results of operations or prospects of LifePoint.
Reimbursement by Managed Care Organizations May Reduce Hospital Profitability
The competitive position of LifePoint's hospitals also is affected by the
increasing number of initiatives undertaken during the past several years by
major purchasers of health care, including federal and state governments,
insurance companies and employers, to revise payment methodologies and monitor
health care expenditures in order to contain health care costs. As a result of
these initiatives, managed care organizations
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offering prepaid and discounted medical services packages represent an
increasing portion of LifePoint's admissions, resulting in reduced hospital
revenue growth. If LifePoint is unable to lower costs through increased
operational efficiencies and the trend toward declining reimbursements and
payments continues, LifePoint's results of operations and cash flows will be
adversely affected. One managed care organization in Tennessee has been placed
in receivership by the state of Tennessee. There can be no assurances that other
managed care organizations with which LifePoint has contracts will not encounter
similar difficulties in paying claims in the future.
Competition
The health care business is highly competitive and competition among
hospitals and other health care providers for patients has intensified in recent
years. Almost all of LifePoint's hospitals operate in geographic areas where
they are currently the sole provider of hospital services in their communities.
While these hospitals face less direct competition in their immediate service
areas than would be expected in larger communities, they do face competition
from other hospitals, including larger tertiary care centers. Although these
competing hospitals may be in excess of 30 to 50 miles away, patients in these
markets may migrate to, may be referred by local physicians to, or may be lured
by incentives from managed care plans to travel to, such distant hospitals.
Risks Associated with Acquisition Strategy and Potential Acquisitions
One element of LifePoint's business strategy is expansion through the
acquisition of acute care hospitals in growing non-urban markets. The
competition to acquire non-urban hospitals is significant. There can be no
assurance that suitable acquisitions can be accomplished on terms favorable to
LifePoint, or that financing, if necessary, can be obtained for such
acquisitions. The consummation of acquisitions may result in the incurrence or
assumption by LifePoint of additional indebtedness. In addition, in order to
ensure the tax-free treatment of the Distribution, LifePoint is limited in the
amount of stock it may issue as consideration for acquisitions.
Acquired businesses may have unknown or contingent liabilities, including
liabilities for failure to comply with health care laws and regulations.
Although LifePoint has policies to conform the practices of acquired facilities
to its standards, and generally will seek indemnification from prospective
sellers covering these matters, there can be no assurance that LifePoint will
not become liable for past activities of acquired businesses or that any such
liabilities will not be material.
In recent years, the legislatures and attorneys general of several states
have increased their level of interest in transactions involving the sale of
hospitals by not-for-profit entities. Such heightened scrutiny may increase the
cost and difficulty or prevent the completion of transactions with
not-for-profit organizations in certain states in the future.
Geographic Concentration of Operations Could Adversely Affect LifePoint
After certain intended divestitures, six of LifePoint's remaining 20
general, acute care hospitals will be located in the Commonwealth of Kentucky,
and six of LifePoint's remaining 20 general, acute care hospitals will be
located in the state of Tennessee. After giving effect to such intended
divestitures, for the year ended December 31, 1999, 42.7% of LifePoint's revenue
was generated by LifePoint's Kentucky hospitals and 22.2% of LifePoint's revenue
was generated by LifePoint's Tennessee hospitals. Accordingly, any change in the
current demographic, economic, competitive, regulatory, Medicaid reimbursement
rates or legislative conditions in Kentucky or Tennessee could have a material
adverse effect on the business, financial condition, results of operations or
prospects of LifePoint.
Extensive Regulation Could Adversely Affect LifePoint
The health care industry is subject to extensive federal, state and local
laws and regulations relating to licensure, conduct of operations, ownership of
facilities, addition of facilities and services, payment for services and prices
for services that are extremely complex and for which, in many instances, the
industry does not
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have the benefit of significant regulatory or judicial interpretation. In
particular, Medicare and Medicaid antifraud and abuse amendments, codified under
Section 1128B(b) of the Social Security Act (the "Anti-Kickback Statute"),
prohibit certain business practices and relationships related to items or
services reimbursable under Medicare, Medicaid and other federal health care
programs, including the payment or receipt of remuneration to induce or arrange
for the referral of patients covered by a federal or state healthcare program.
Sanctions for violating the Anti-Kickback Statute include criminal penalties and
civil sanctions, including civil money penalties 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 HHS has issued
regulations which describe some of the conduct and business relationships immune
from prosecution under the Anti-Kickback Statute. The fact that a given business
arrangement does not fall within a safe harbor does not render the arrangement
illegal. However, business arrangements of health care service providers that
fail to satisfy the applicable safe harbor criteria risk scrutiny by enforcement
authorities. Certain of the current business arrangements of LifePoint do not
qualify for a safe harbor.
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. sec. 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, and creates new enforcement mechanisms to combat fraud and
abuse, including an incentive program under which individuals can receive up to
$1,000 for providing information on Medicare fraud and abuse that leads to the
recovery of at least $100 of Medicare funds.
LifePoint provides financial incentives to recruit physicians into the
communities served by its hospitals, including loans and minimum revenue
guarantees. One LifePoint hospital has physician investors. LifePoint also
enters into employment agreements, independent contractor agreements, leases and
other agreements with physicians. Although the Company believes that these
agreements comply with applicable law, there can be no assurance that regulatory
authorities who enforce the Anti-Kickback Statute will not determine that such
arrangements of any of the hospitals owned and operated by LifePoint violate the
Anti-Kickback Statute or other federal laws. Such a determination could subject
LifePoint to liabilities under the Social Security Act, including criminal
penalties, civil monetary penalties and/or exclusion from participation in
Medicare, Medicaid or other federal health care programs, any of which could
have a material adverse effect on the business, financial condition, results of
operations or prospects of LifePoint.
In addition, Section 1877 of the Social Security Act, commonly known as the
"Stark Law," was amended, effective January 1, 1995, to significantly broaden
the scope of prohibited referrals by physicians under the Medicare and Medicaid
programs to providers of designated health services with which such physicians
have ownership or certain other financial arrangements. Certain exceptions are
available for physicians maintaining an ownership interest in an entire
hospital, employment agreements, leases, physician recruitment and certain other
physician arrangements. Final implementing regulations have not yet been
adopted, and there can be no assurance that the physician arrangements of
LifePoint will be found to be in compliance with the Stark Law, as such law
ultimately may be interpreted. Many states have adopted or are considering
similar anti-kickback and physician self-referral legislation, some of which
extends beyond the scope of the federal law 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. Both federal and state
government agencies have announced heightened and coordinated civil and criminal
enforcement efforts. In addition, the Office of the Inspector General of the
United States Department of Health and Human Services and the 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. LifePoint is cooperating with the government agencies which are
responsible for such initiatives where such initiatives involve its hospitals.
LifePoint exercises care in structuring its arrangements with physicians
and other referral sources to comply in all material respects with applicable
laws. It is possible, however, that government officials charged with
responsibility for enforcing such laws could assert that LifePoint or certain
transactions in which it is
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involved, are in violation of such laws. It is also possible that such laws
ultimately could be interpreted by the courts in a manner inconsistent with the
interpretations of LifePoint.
Many states have enacted or are considering enacting laws affecting the
conversion or sale of not-for-profit hospitals. These laws, in general, include
provisions relating to state attorney general approval, advance notification and
community involvement. In addition, state attorneys general in states without
specific conversion legislation may exercise authority over these transactions
based upon existing law. In many states there has been an increased interest in
the oversight of not-for-profit conversions. The adoption of conversion
legislation and the increased review of not-for-profit hospital conversions may
limit the ability of LifePoint to acquire not-for-profit hospitals.
Some states require prior approval for the purchase, construction and
expansion of health care facilities, based upon a state's determination of need
for additional or expanded health care facilities or services. Such
determinations, embodied in certificates of need 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. Five states in which LifePoint currently owns
hospitals, Alabama, Florida, Georgia, Kentucky and Tennessee, have enacted CON
legislation. There can be no assurance that LifePoint will be able to obtain
CONs required for expansion activities in the future or that the failure to
obtain any required CON will not have a material adverse effect on the business,
financial condition, results of operations or prospects of LifePoint.
The laws, rules and regulations described above are complex and subject to
interpretation. In the event of a determination that LifePoint 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 business, financial condition, results of operations or prospects of
LifePoint. See "Business -- Government Regulation and Other Factors" for a
detailed discussion of laws and regulations affecting LifePoint.
Potential Adverse Impact of Columbia/HCA Investigations and Litigation
Columbia/HCA is currently facing significant legal challenges. Columbia/HCA
is the subject of various federal and state investigations, qui tam actions,
shareholder derivative and class action suits filed in federal court,
shareholder derivative actions filed in state courts, patient/payer actions and
general liability claims. In general, management understands that these
investigations, actions and claims relate to Columbia/HCA and its subsidiaries,
including subsidiaries that, prior to the Distribution Date, owned the
facilities now owned by the Company. It is too early to predict the effect or
outcome of any of the ongoing investigations or qui tam and other actions, or
whether any additional investigations or litigation will be commenced. The
amounts in question in the qui tam and other actions are substantial, and
Columbia/HCA could be subject to substantial costs resulting from an adverse
outcome of one or more of such actions. Any such sanctions or losses could have
a material adverse effect on Columbia/HCA's financial position and results of
operations. In addition, if any of such matters were asserted against LifePoint
or any of its facilities, and Columbia/HCA failed to meet its indemnification
obligations under the Distribution Agreement, then such losses could have a
material adverse effect on the business, financial position, results of
operations or prospects of LifePoint. Columbia/HCA has not indemnified LifePoint
for losses relating to any acts, practices and omissions engaged in by LifePoint
after the Distribution Date, whether or not LifePoint is indemnified for similar
acts, practices and omissions occurring prior to the Distribution Date.
Columbia/HCA believes that the ongoing governmental investigations and
related media coverage may have had a negative effect on Columbia/HCA's results
of operations, which includes LifePoint for the periods prior to the
Distribution Date which are presented herein. The extent to which LifePoint may
or may not continue to be affected by the ongoing investigations of
Columbia/HCA, the initiation of additional investigations, if any, and the
related media coverage cannot be predicted. It is possible that these matters
could have a material adverse effect on the business, financial condition,
results of operations or prospects of LifePoint in future periods.
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Professional Liability Risks Could Adversely Affect Results of Operations and
Cash Flow
As is typical in the health care industry, LifePoint is subject to claims
and legal actions by patients and others in the ordinary course of business.
Columbia/HCA and LifePoint have cooperated in the purchase of insurance coverage
for professional and general liability risks for periods ending on or after the
Distribution Date. Substantially all losses in periods prior to the Distribution
are insured through a wholly owned insurance subsidiary of Columbia/HCA and
excess loss policies maintained by Columbia/HCA. See "Business -- Arrangements
Relating to the Distribution -- Insurance Allocation and Administration
Agreement" for a more detailed discussion of such arrangement.
The Company purchases insurance for its professional and general liability
risks incurred after the Distribution, subject to a substantial deductible, for
which a reserve is recorded on the balance sheets of LifePoint. There can be no
assurance that the cash flow of LifePoint will be adequate to provide for
professional and general liability claims in the future. Columbia/HCA has
indemnified LifePoint for professional and general liability claims incurred
prior to the Distribution.
Liability of LifePoint if the Distribution Is Taxable
On March 30, 1999, Columbia/HCA received a ruling from the IRS concerning
the United States federal income tax consequences of the Distribution. The tax
ruling provides that, because the Distribution qualifies under Section 355 of
the Internal Revenue Code of 1986, the Distribution generally will be tax-free
to Columbia/HCA and to Columbia/HCA's stockholders, except for any cash received
instead of fractional shares. The tax ruling is based upon the accuracy of
representations made by Columbia/HCA as to numerous factual matters and as to
the intention to take, or to refrain from taking, certain future actions. The
inaccuracy of any of those factual representations or the failure to take the
intended actions, or the taking of actions which were represented would not be
taken, could cause the IRS to revoke all or part of the tax ruling
retroactively.
If the Distribution were not to qualify for tax-free treatment under
Section 355 of the Code, then, in general, additional corporate tax (which would
be substantial) would be payable by the consolidated group of which Columbia/HCA
is the common parent. Under the consolidated return rules, each member of the
consolidated group, including LifePoint, would be jointly and severally liable
for such tax liability. If the Distribution did not qualify for tax-free
treatment under Section 355 of the Code, the resulting tax liability would have
a material adverse effect on the business, financial position, results of
operations or prospects of Columbia/HCA and, possibly, also of LifePoint.
Columbia/HCA, LifePoint and Triad entered into a tax sharing and
indemnification agreement, which allocates tax liabilities among Columbia/HCA,
LifePoint and Triad and addresses certain other tax matters such as
responsibility for filing tax returns, control of and cooperation in tax
litigation, and the tax treatment of the Distribution. Generally, Columbia/HCA
will be responsible for taxes that are allocable to periods prior to the
Distribution Date, and each of Columbia/HCA, LifePoint and Triad will be
responsible for its own tax liabilities, including its allocable share of taxes
shown on any consolidated, combined or other tax return filed by Columbia/HCA
for periods after the Distribution Date. The tax sharing and indemnification
agreement prohibits LifePoint and Triad from taking actions that could
jeopardize the tax treatment of either the Distribution or the restructuring
that preceded the Distribution, and requires LifePoint and Triad to indemnify
each other and Columbia/HCA for any taxes or other losses that result from any
such actions.
Holding Company Structure Risks
Holdings is a holding company and holds most of its assets at, and conducts
most of its operations through, direct and indirect subsidiaries. As a holding
company, the results of operations of Holdings depend on the results of
operations of its subsidiaries. Moreover, Holdings is dependent on dividends or
other intercompany transfers of funds from such subsidiaries to meet its debt
service and other obligations, including payment of principal and interest on
the Notes. The ability of Holdings' subsidiaries to pay dividends or make other
payments or advances to Holdings will depend on their operating results and will
be subject to applicable laws and restrictions contained in agreements governing
indebtedness of such subsidiaries.
43
<PAGE> 45
The claims of creditors of the subsidiaries of Holdings, including trade
creditors, will generally have priority as to the assets of such subsidiaries
over the claims of creditors of Holdings, including the holders of the Notes. As
of December 31, 1999, on a pro forma basis after giving effect to the
elimination of the facilities to be divested, the aggregate amount of
indebtedness and other obligations of Holdings' subsidiaries, including trade
payables and lease obligations, was approximately $285.0 million, including the
guarantees of the Notes.
Anti-Takeover Provisions
Certain provisions of the Certificate of Incorporation and By-Laws of
LifePoint may have the effect of discouraging an acquisition of control not
approved by its Board of Directors. These provisions include, for example, terms
providing for:
- the issuance of "blank check" preferred stock by the Board of Directors
without stockholder approval;
- higher stockholder voting requirements for certain transactions such as
business combinations with certain related parties (i.e., a "fair price
provision");
- a prohibition on taking actions by the written consent of stockholders;
- restrictions on the persons eligible to call a special meeting of
stockholders;
- classification of the Board of Directors into three classes; and
- the removal of directors only for cause and by a vote of 80% of the
outstanding voting power.
These provisions may also have the effect of discouraging third parties
from making proposals involving an acquisition or change of control of
LifePoint, although such proposals, if made, might be considered desirable by a
majority of the stockholders of LifePoint. These provisions could further have
the effect of making it more difficult for third parties to cause the
replacement of the Board of Directors of LifePoint. These provisions have been
designed to enable LifePoint to develop its business and foster its long-term
growth without disruptions caused by the threat of a takeover not deemed by its
Board of Directors to be in the best interests of the Company and its
stockholders. LifePoint also has adopted a stockholder rights plan. This
stockholder rights plan is designed to protect stockholders in the event of an
unsolicited offer and other takeover tactics which, in the opinion of the Board
of Directors, could impair its ability to represent stockholder interests. The
provisions of this stockholder rights plan may render an unsolicited takeover of
LifePoint more difficult or less likely to occur or might prevent such a
takeover. LifePoint is subject to provisions of Delaware corporate law which may
restrict certain business combination transactions.
Certain provisions in the Tax Sharing and Indemnification Agreement entered
into among Columbia/ HCA, LifePoint and Triad, which are intended to preserve
the tax-free status of the Distribution for federal income tax purposes, could
discourage certain takeover proposals or make them more expensive. See
"Business -- Arrangements Relating to the Distribution -- Tax Sharing and
Indemnification Agreement."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information with respect to this Item is contained under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Market Risks Associated with Financial Instruments."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this Item is contained in the Company's
consolidated financial statements indicated in the Index on Page F-1 of this
Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
44
<PAGE> 46
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS AND KEY EMPLOYEES
Information with respect to the executive officers of the Company is
incorporated by reference to the information contained under the caption
"Executive Compensation -- Executive Officers of the Company" included in the
Company's Proxy Statement relating to its Annual Meeting of Stockholders to be
held on May 11, 2000.
DIRECTORS
Information with respect to the Company's directors is incorporated by
reference to the information contained under the caption "Election of Directors"
included in the Company's Proxy Statement relating to its Annual Meeting of
Stockholders to be held on May 11, 2000.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Information with respect to compliance with Section 16(a) of the Securities
Exchange Act of 1934 is incorporated by reference to the information contained
under the heading "Section 16(a) Beneficial Ownership Reporting Compliance"
included in the Company's Proxy Statement relating to its Annual Meeting of
Stockholders to be held on May 11, 2000.
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference to the information contained
under the heading "Executive Compensation" included in the Company's Proxy
Statement relating to its Annual Meeting of Stockholders to be held on May 11,
2000, except that the Comparative Performance Graph and the Compensation
Committee Report on Executive Compensation included in the Proxy Statement are
expressly not incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated by reference to the information contained
under the caption "Voting Securities and Principal Holders Thereof" included in
the Company's Proxy Statement relating to its Annual Meeting of Stockholders to
be held on May 11, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated by reference to the information contained
under the caption "Certain Transactions" included in the Company's Proxy
Statement relating to its Annual Meeting of Stockholders to be held on May 11,
2000.
45
<PAGE> 47
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Index to Consolidated Financial Statements, Financial Statement Schedules
and Exhibits:
(1) Consolidated Financial Statements: See Item 8 herein.
The Consolidated Financial Statements of the Company required to be
included in Part II, Item 8, are indexed on Page F-1 and submitted as a
separate section of this report.
(2) Consolidated Financial Statement Schedules:
All schedules are omitted, because they are not applicable or not
required, or because the required information is included in the
consolidated financial statements or notes thereto.
(3) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <C> <S>
2.1 -- Distribution Agreement dated May 11, 1999 by and among
Columbia/HCA, Triad Hospitals, Inc. and LifePoint Hospitals,
Inc., incorporated by reference from Exhibit 2.1 to
LifePoint Hospitals' Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999, File No. 0-29818.
3.1 -- Certificate of Incorporation of LifePoint Hospitals,
incorporated by reference from Exhibit 3.1 to LifePoint
Hospitals' Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999, File No. 0-29818.
3.2 -- Bylaws of LifePoint Hospitals, incorporated by reference
from Exhibit 3.2 to LifePoint Hospitals' Quarterly Report on
Form 10-Q, for the quarter ended March 31, 1999, File No.
0-29818.
3.3 -- Certificate of Incorporation of LifePoint Holdings.
3.4 -- Bylaws of LifePoint Holdings.
4.1 -- Form of Specimen Certificate for LifePoint Hospitals Common
Stock, incorporated by reference from Exhibit 4.1 to
LifePoint Hospitals' Registration Statement on Form 10 under
the Securities Exchange Act of 1934, as amended, File No.
0-29818.
4.2 -- Indenture (including form of 10 3/4% Senior Subordinated
Notes due 2009) dated as of May 11, 1999, between
HealthTrust, Inc.-The Hospital Company and Citibank N.A. as
Trustee, incorporated by reference from Exhibit 4.2(a) to
LifePoint Hospitals' Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999, File No. 0-29818.
4.3 -- Form of 10 3/4% Senior Subordinated Notes due 2009 (filed as
part of Exhibit 4.2).
4.4 -- Registration Rights Agreement dated as of May 11, 1999
between HealthTrust and the Initial Purchasers named
therein, incorporated by reference from Exhibit 4.4(a) to
LifePoint Hospitals' Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999, File No. 0-29818.
4.5 -- LifePoint Assumption Agreement dated May 11, 1999 between
HealthTrust and LifePoint Hospitals, incorporated by
reference from Exhibit 4.4(b) to LifePoint Hospitals'
Quarterly Report on Form 10-Q for the quarter ended March
31, 1999, File No. 0-29818.
4.6 -- Holdings Assumption Agreement dated May 11, 1999 between
LifePoint Hospitals and LifePoint Holdings, incorporated by
reference from Exhibit 4.4(c) to LifePoint Hospitals'
Quarterly Report on Form 10-Q for the quarter ended March
31, 1999, File No. 0-29818.
4.7 -- Guarantor Assumption Agreements dated May 11, 1999 between
LifePoint Holdings and the Guarantors signatory thereto,
incorporated by reference from Exhibit 4.4(d) to LifePoint
Hospitals' Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999, File No. 0-29818.
4.8 -- Rights Agreement dated as of May 11, 1999 between the
Company and National City Bank as Rights Agent, incorporated
by reference from Exhibit 4.1 to LifePoint Hospitals'
Quarterly Report on Form 10-Q for the quarter ended March
31, 1999, File No. 0-29818.
</TABLE>
46
<PAGE> 48
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <C> <S>
10.1 -- Tax Sharing and Indemnification Agreement, dated May 11,
1999, by and among Columbia/HCA, LifePoint Hospitals and
Triad Hospitals, incorporated by reference from Exhibit 10.1
to LifePoint Hospitals' Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999, File No. 0-29818.
10.2 -- Benefits and Employment Matters Agreement, dated May 11,
1999 by and among Columbia/HCA, LifePoint Hospitals and
Triad Hospitals, incorporated by reference from Exhibit 10.2
to LifePoint Hospitals' Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999, File No. 0-29818.
10.3 -- Insurance Allocation and Administration Agreement, dated May
11, 1999, by and among Columbia/HCA, LifePoint Hospitals and
Triad Hospitals, incorporated by reference from Exhibit 10.3
to LifePoint Hospitals' Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999, File No. 0-29818.
10.4 -- Transitional Services Agreement dated May 11, 1999 by and
between Columbia/HCA and LifePoint Hospitals, incorporated
by reference from Exhibit 10.4 to LifePoint Hospitals'
Quarterly Report on Form 10-Q for the quarter ended March
31, 1999, File No. 0-29818.
10.5 -- Computer and Data Processing Services Agreement dated May
11, 1999 by and between Columbia Information Systems, Inc.
and LifePoint Hospitals, incorporated by reference from
Exhibit 10.5 to LifePoint Hospitals' Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999, File No.
0-29818.
10.6 -- Agreement to Share Telecommunications Services dated May 11,
1999 by and between Columbia Information Systems, Inc. and
LifePoint Hospitals, incorporated by reference from Exhibit
10.6 to LifePoint Hospitals' Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999, File No. 0-29818.
10.7 -- Year 2000 Professional Services Agreement dated May 11, 1999
by and between CHCA Management Services, L.P. and LifePoint
Hospitals, incorporated by reference from Exhibit 10.7 to
LifePoint Hospitals' Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999, File No. 0-29818.
10.8 -- Sub-Lease Agreement dated May 11, 1999 by and between
HealthTrust and LifePoint Hospitals, incorporated by
reference from Exhibit 10.8 to LifePoint Hospitals'
Quarterly Report on Form 10-Q for the quarter ended March
31, 1999, File No. 0-29818.
10.9 -- Lease Agreement dated as of November 22, 1999 by and between
LifePoint Hospitals and W. Fred Williams, Trustee for the
Benefit of Highwoods/Tennessee Holdings, L.P.
10.10 -- LifePoint Hospitals, Inc. 1998 Long-Term Incentive Plan,
incorporated by reference from Exhibit 10.9 to LifePoint
Hospitals' Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999, File No. 0-29818.
10.11 -- LifePoint Hospitals, Inc. Executive Stock Purchase Plan,
incorporated by reference from Exhibit 10.10 to LifePoint
Hospitals' Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999, File No. 0-29818.
10.12 -- Form of Share Purchase Loan and Note Agreement between
LifePoint Hospitals and certain executive officers in
connection with purchases of Common Stock pursuant to the
Executive Stock Purchase Plan.
10.13 -- LifePoint Hospitals, Inc. Management Stock Purchase Plan,
incorporated by reference from Exhibit 10.11 to LifePoint
Hospitals' Quarterly Report on Form 10-Q, for the quarter
ended March 31, 1999, File No. 0-29818.
10.14 -- LifePoint Hospitals, Inc. Outside Directors Stock and
Incentive Compensation Plan, incorporated by reference from
Exhibit 10.12 to LifePoint Hospitals' Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999, File No.
0-29818.
10.15 -- LifePoint Hospitals, Inc. Retirement Plan, dated as of May
19, 1999.
</TABLE>
47
<PAGE> 49
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <C> <S>
10.16 -- Credit Agreement dated as of May 11, 1999 among HealthTrust,
Inc.-The Hospital Company, as Borrower, the several lenders
from time to time party thereto, Fleet National Bank as
arranger and administrative agent, ScotiaBanc, Inc. as
documentation agent and co-arranger, Deutsche Bank
Securities, Inc. as syndication agent and co-arranger, and
SunTrust Bank, Nashville, N.A. as co-agent, incorporated by
reference from Exhibit 10.13 to LifePoint Hospitals'
Quarterly Report on Form 10-Q, for the quarter ended March
31, 1999, File No. 0-29818.
10.17 -- First Amendment to Credit Agreement dated as of December 31,
1999 among LifePoint Holdings, as Borrower, the several
lenders which are parties to the Credit Agreement, Fleet
National Bank as arranger and administrative agent,
ScotiaBanc, Inc. as documentation agent and co-arranger,
Deutsche Bank Securities, Inc. as syndication agent and
co-arranger, and SunTrust Bank, Nashville, N.A. as co-agent.
10.18 -- Assumption Agreement dated as of May 11, 1999 by and between
Fleet National Bank and LifePoint Hospitals, incorporated by
reference from Exhibit 10.14 to LifePoint Hospitals'
Quarterly Report on Form 10-Q for the quarter ended March
31, 1999, File No. 0-29818.
10.19 -- Assumption Agreement dated as of May 11, 1999 by and between
Fleet National Bank and LifePoint Holdings, incorporated by
reference from Exhibit 10.15 to LifePoint Hospitals'
Quarterly Report on Form 10-Q for the quarter ended March
31, 1999, File No. 0-29818.
10.20 -- Employment Agreement of Scott Mercy, incorporated by
reference from Exhibit 10.12 to LifePoint Hospitals'
Registration Statement on Form 10 under the Securities
Exchange Act of 1934, as amended, File No. 0-29818.
21.1 -- List of the Subsidiaries of LifePoint Hospitals.
21.2 -- List of the Subsidiaries of LifePoint Holdings.
23.1 -- Consent of Ernst & Young LLP.
27.1 -- Financial Data Schedule for LifePoint Hospitals (for SEC use
only).
27.2 -- Financial Data Schedule for LifePoint Holdings (for SEC use
only).
</TABLE>
48
<PAGE> 50
MANAGEMENT COMPENSATION PLANS AND ARRANGEMENTS
The following is a list of all executive compensation plans and
arrangements filed as exhibits to this Annual Report on Form 10-K:
<TABLE>
<C> <C> <S>
10.10 -- LifePoint Hospitals, Inc. 1998 Long-Term Incentive Plan,
incorporated by reference from Exhibit 10.9 to LifePoint
Hospitals' Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999.
10.11 -- LifePoint Hospitals, Inc. Executive Stock Purchase Plan,
incorporated by reference from Exhibit 10.10 to LifePoint
Hospitals' Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999.
10.12 -- Form of Share Purchase Loan and Note Agreement between
LifePoint Hospitals and certain executive officers in
connection with purchases of Common Stock pursuant to the
Executive Stock Purchase Plan.
10.13 -- LifePoint Hospitals, Inc. Management Stock Purchase Plan,
incorporated by reference from Exhibit 10.11 to LifePoint
Hospitals' Quarterly Report on Form 10-Q, for the quarter
ended March 31, 1999.
10.14 -- LifePoint Hospitals, Inc. Outside Directors Stock and
Incentive Compensation Plan, incorporated by reference from
Exhibit 10.12 to LifePoint Hospitals' Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999.
10.15 -- LifePoint Hospitals, Inc. Retirement Plan, dated as of May
19, 1999.
10.20 -- Employment Agreement of Scott Mercy, incorporated by
reference from Exhibit 10.12 to LifePoint Hospitals'
Registration Statement on Form 10 under the Securities
Exchange Act of 1934, as amended.
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the reporting
period.
49
<PAGE> 51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Brentwood, State of Tennessee, on March 29, 2000.
LIFEPOINT HOSPITALS, INC.
By: /s/ SCOTT L. MERCY
-------------------------------------
Scott L. Mercy
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ SCOTT L. MERCY Chairman and Chief Executive March 29, 2000
- ----------------------------------------------------- Officer; Director (Principal
Scott L. Mercy Executive Officer)
/s/ KENNETH C. DONAHEY Senior Vice President and Chief March 29, 2000
- ----------------------------------------------------- Financial Officer (Principal
Kenneth C. Donahey Financial and Accounting
Officer)
/s/ RICKI TIGERT HELFER Director March 29, 2000
- -----------------------------------------------------
Ricki Tigert Helfer
/s/ JOHN E. MAUPIN, JR., D.D.S. Director March 29, 2000
- -----------------------------------------------------
John E. Maupin, Jr., D.D.S.
/s/ DEWITT EZELL, JR. Director March 29, 2000
- -----------------------------------------------------
DeWitt Ezell, Jr.
/s/ WILLIAM V. LAPHAM Director March 29, 2000
- -----------------------------------------------------
William V. Lapham
</TABLE>
50
<PAGE> 52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Brentwood, State of Tennessee, on March 29, 2000.
LIFEPOINT HOSPITALS HOLDINGS, INC.
By: /s/ SCOTT L. MERCY
-------------------------------------
Scott L. Mercy
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ SCOTT L. MERCY Chairman and Chief Executive March 29, 2000
- ----------------------------------------------------- Officer; Director (Principal
Scott L. Mercy Executive Officer)
/s/ JAMES M. FLEETWOOD, JR. President and Chief Operating March 29, 2000
- ----------------------------------------------------- Officer; Director
James M. Fleetwood, Jr.
/s/ KENNETH C. DONAHEY Senior Vice President and Chief March 29, 2000
- ----------------------------------------------------- Financial Officer (Principal
Kenneth C. Donahey Financial and Accounting
Officer)
</TABLE>
51
<PAGE> 53
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
LIFEPOINT HOSPITALS, INC.
Report of Independent Auditors.............................. F-2
Consolidated Statements of Operations -- for the years ended
December 31, 1999, 1998 and 1997.......................... F-3
Consolidated Balance Sheets -- December 31, 1999 and 1998... F-4
Consolidated Statements of Cash Flows -- for the years ended
December 31, 1999, 1998 and 1997.......................... F-5
Consolidated Statements of Stockholders' Equity -- for the
years ended December 31, 1999, 1998 and 1997.............. F-6
Notes to Consolidated Financial Statements.................. F-7
LIFEPOINT HOSPITALS HOLDINGS, INC.
Report of Independent Auditors.............................. F-25
Consolidated Statements of Operations -- for the years ended
December 31, 1999, 1998 and 1997.......................... F-26
Consolidated Balance Sheets -- December 31, 1999 and 1998... F-27
Consolidated Statements of Cash Flows -- for the years ended
December 31, 1999, 1998 and 1997.......................... F-28
Consolidated Statements of Stockholder's Equity -- for the
years ended December 31, 1999, 1998 and 1997.............. F-29
Notes to Consolidated Financial Statements.................. F-30
DODGE CITY HEALTHCARE GROUP, L.P.
Report of Independent Auditors.............................. F-48
Statements of Income -- for the years ended December 31,
1999, 1998 and 1997....................................... F-49
Balance Sheets -- December 31, 1999 and 1998................ F-50
Statements of Cash Flows -- for the years ended December 31,
1999, 1998 and 1997....................................... F-51
Statements of Partners' Capital -- for the years ended
December 31, 1999, 1998 and 1997.......................... F-52
Notes to Financial Statements............................... F-53
</TABLE>
F-1
<PAGE> 54
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
LifePoint Hospitals, Inc.
We have audited the accompanying consolidated balance sheets of LifePoint
Hospitals, Inc. as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1999. These consolidated financial
statements are the responsibility of the management of LifePoint Hospitals, Inc.
(the "Company"). Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits 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 LifePoint
Hospitals, Inc. at December 31, 1999 and 1998, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
As explained in Note 7 to the consolidated financial statements, effective
January 1, 1997, the Company changed its method of accounting for start-up
costs.
ERNST & YOUNG LLP
Nashville, Tennessee
January 31, 2000
F-2
<PAGE> 55
LIFEPOINT HOSPITALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Revenues.................................................... $515.2 $498.4 $487.6
Salaries and benefits....................................... 217.4 220.8 196.6
Supplies.................................................... 64.2 62.0 55.0
Other operating expenses.................................... 117.3 117.2 119.5
Provision for doubtful accounts............................. 38.2 41.6 34.5
Depreciation and amortization............................... 31.4 28.3 27.4
Interest expense............................................ 23.4 19.1 15.4
Management fees............................................. 3.2 8.9 8.2
ESOP expense................................................ 2.9 -- --
Impairment of long-lived assets............................. 25.4 26.1 --
------ ------ ------
523.4 524.0 456.6
------ ------ ------
Income (loss) from continuing operations before minority
interests and income taxes................................ (8.2) (25.6) 31.0
Minority interests in earnings of consolidated entities..... 1.9 1.9 2.2
------ ------ ------
Income (loss) from continuing operations before income
taxes..................................................... (10.1) (27.5) 28.8
Provision (benefit) for income taxes........................ (2.7) (9.8) 11.7
------ ------ ------
Income (loss) from continuing operations.................... (7.4) (17.7) 17.1
Discontinued operations:
Loss from operations, net of income tax benefit of $2.6
and $0.1 for the years ended December 31, 1998 and 1997
respectively........................................... -- (4.1) (0.6)
Estimated loss on disposal, net of income tax benefit of
$2.4................................................... -- -- (3.4)
Cumulative effect of accounting change, net of income tax
benefit of $0.4........................................... -- -- (0.6)
------ ------ ------
Net income (loss)...................................... $ (7.4) $(21.8) $ 12.5
====== ====== ======
Basic earnings (loss) per share (see Note 13):
Income (loss) from continuing operations.................. $(0.24) $(0.59) $ 0.57
Loss from discontinued operations......................... -- (0.14) (0.14)
Cumulative effect of accounting change.................... -- -- (0.02)
------ ------ ------
Net income (loss)...................................... $(0.24) $(0.73) $ 0.41
====== ====== ======
Diluted earnings (loss) per share (see Note 13):
Income (loss) from continuing operations.................. $(0.24) $(0.59) $ 0.57
Loss from discontinued operations......................... -- (0.14) (0.14)
Cumulative effect of accounting change.................... -- -- (0.02)
------ ------ ------
Net income (loss)...................................... $(0.24) $(0.73) $ 0.41
====== ====== ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 56
LIFEPOINT HOSPITALS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 12.5 $ --
Accounts receivable, less allowances for doubtful accounts
of $50.3 and $48.3 at December 31, 1999 and 1998....... 46.7 36.4
Inventories............................................... 14.3 14.0
Deferred taxes and other current assets................... 25.9 18.6
------- -------
99.4 69.0
Property and equipment, at cost:
Land...................................................... 7.9 7.2
Buildings................................................. 204.1 203.1
Equipment................................................. 260.6 221.9
Construction in progress (estimated cost to complete and
equip after December 31, 1999 -- $15.9)................ 20.2 10.4
------- -------
492.8 442.6
Accumulated depreciation.................................... (198.4) (176.2)
------- -------
294.4 266.4
Intangible assets, net of accumulated amortization of $8.6
and $6.9 at December 31, 1999 and 1998.................... 26.4 15.2
Other....................................................... 0.2 4.4
------- -------
$ 420.4 $ 355.0
======= =======
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable.......................................... $ 26.5 $ 15.5
Accrued salaries.......................................... 14.7 11.7
Other current liabilities................................. 12.9 14.6
Current maturities of long-term debt...................... 3.1 0.3
------- -------
57.2 42.1
Intercompany balances payable to Columbia/HCA............... -- 167.6
Long-term debt.............................................. 257.1 0.3
Deferred taxes.............................................. 12.5 21.3
Professional liability risks and other liabilities.......... 3.4 0.1
Minority interests in equity of consolidated entities....... 4.5 4.9
Stockholders' equity:
Preferred stock, $0.01 par value; 10,000,000 shares
authorized; no shares issued........................... -- --
Common stock, $0.01 par value; 90,000,000 shares
authorized; 31,184,160 shares outstanding at December
31, 1999............................................... 0.3 --
Capital in excess of par value............................ 137.9 --
Unearned ESOP compensation................................ (28.9) --
Notes receivable for shares sold to employees............. (10.2) --
Accumulated deficit....................................... (13.4) --
Equity, investments by Columbia/HCA....................... -- 118.7
------- -------
85.7 118.7
------- -------
$ 420.4 $ 355.0
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 57
LIFEPOINT HOSPITALS, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ -----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (7.4) $(21.8) $12.5
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
ESOP expense......................................... 2.9 -- --
Provision for doubtful accounts...................... 38.2 41.6 34.5
Depreciation and amortization........................ 31.4 28.3 27.4
Amortization of deferred loan costs.................. 0.9 -- --
Deferred income taxes (benefit)...................... (13.8) (12.4) 4.1
Impairment of long-lived assets...................... 25.4 26.1 --
Loss from discontinued operations.................... -- 4.1 4.0
Cumulative affect of accounting change............... -- -- 0.6
Reserve for professional liability risk.............. 3.3 -- --
Increase (decrease) in cash from operating assets and
liabilities:
Accounts receivable............................... (29.8) (21.3) (37.9)
Inventories and other assets...................... (1.1) 0.2 0.1
Accounts payable and accrued expenses............. 7.1 0.9 (0.1)
Income taxes payable.............................. (0.3) -- --
Other................................................ 0.7 (0.4) 0.2
------ ------ -----
Net cash provided by operating activities......... 57.5 45.3 45.4
Cash flows from investing activities:
Purchase of property and equipment........................ (64.8) (29.3) (51.8)
Investments in and advances to affiliates................. (2.0) 0.1 (7.2)
Other..................................................... (0.2) (0.1) 7.1
------ ------ -----
Net cash used in investing activities............. (67.0) (29.3) (51.9)
Cash flows from financing activities:
Increase (decrease) in long-term debt, net................ (0.4) (1.1) --
Increase (decrease) in intercompany balances with
Columbia/HCA, net...................................... 22.4 (14.9) 6.5
------ ------ -----
Net cash provided by (used in) financing
activities...................................... 22.0 (16.0) 6.5
------ ------ -----
Change in cash and cash equivalents......................... 12.5 -- --
Cash and cash equivalents at beginning of year.............. -- -- --
------ ------ -----
Cash and cash equivalents at end of year.................... $ 12.5 $ -- $ --
====== ====== =====
Interest payments........................................... $ 21.2 $ 19.1 $15.4
Income tax payments......................................... $ 15.4 $ -- $ 4.7
Supplemental non-cash financing activities:
Assumption of debt from Columbia/HCA...................... $260.0 $ -- $ --
Elimination of intercompany amounts payable to
Columbia/HCA........................................... $224.9 $ -- $ --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 58
LIFEPOINT HOSPITALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS AND SHARES IN MILLIONS)
<TABLE>
<CAPTION>
NOTES
CAPITAL IN RECEIVABLE
COMMON STOCK EXCESS OF EQUITY, FOR SHARES UNEARNED
--------------- PAR ACCUMULATED INVESTMENTS BY SOLD TO ESOP
SHARES AMOUNT VALUE DEFICIT COLUMBIA/HCA EMPLOYEES COMPENSATION TOTAL
------ ------ ---------- ----------- -------------- ---------- ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... -- $ -- $ -- $ -- $128.0 $ -- $ -- $128.0
Net income............. 12.5 12.5
---- ---- ------- ------ ------ ------ ------ ------
Balance at December 31,
1997................... 140.5 140.5
Net loss............... (21.8) (21.8)
---- ---- ------- ------ ------ ------ ------ ------
Balance at December 31,
1998................... 118.7 118.7
Net income before spin-
off.................. 6.0 6.0
Stock issued in
connection with:
Executive Stock
Purchase Plan...... 1.0 10.2 (10.2) --
Employee Stock
Ownership Plan..... 0.3 31.8 (28.9) 2.9
Issuance of stock
options............ 1.6 1.6
Assumption of debt from
Columbia/HCA......... (260.0) (260.0)
Elimination of
intercompany debt to
Columbia/HCA......... 229.9 229.9
Spin-off
capitalization....... 29.9 0.3 124.4 (124.7) --
Net loss after
spin-off............. (13.4) (13.4)
---- ---- ------- ------ ------ ------ ------ ------
Balance at December 31,
1999................... 31.2 $0.3 $ 137.9 $(13.4) $ -- $(10.2) $(28.9) $ 85.7
==== ==== ======= ====== ====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 59
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND ACCOUNTING POLICIES
Organization
On May 11, 1999, Columbia/HCA Healthcare Corporation ("Columbia/HCA")
completed the spin-off of its operations comprising the America Group to its
shareholders by distributing all outstanding shares of LifePoint Hospitals, Inc.
(the "Distribution"). LifePoint Hospitals, Inc., together with its subsidiaries,
as appropriate, is hereinafter referred to as the "Company". A description of
the Distribution and certain transactions with Columbia/HCA is included in Note
2.
At December 31, 1999, the Company was comprised of 23 general, acute care
hospitals and related health care entities. The entities are located in
non-urban areas in the states of Alabama, Florida, Georgia, Kansas, Kentucky,
Louisiana, Tennessee, Utah and Wyoming.
On May 11, 1999, Columbia/HCA also completed the spin-off of a separate,
independent company named Triad Hospitals, Inc.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and all subsidiaries and entities controlled by the Company through the
Company's direct or indirect ownership of a majority voting interest or
exclusive rights granted to the Company by contract as the sole general partner
to manage and control the ordinary course of the affiliates' business. All
significant intercompany accounts and transactions within the Company have been
eliminated in consolidation. Investments in entities which the Company does not
control, but in which it has a substantial ownership interest and can exercise
significant influence, are accounted for using the equity method.
Use of Estimates
The preparation of the accompanying consolidated financial statements in
conformity with accounting principles generally accepted in the United States
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.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
Equity
Equity for periods prior to the Distribution represents the net investment
in the Company by Columbia/HCA. It includes Common Stock, additional
paid-in-capital and net earnings.
Revenues
The Company's health care facilities have entered into agreements with
third-party payers, including government programs and managed care health plans,
under which the facilities are paid based upon established charges, the cost of
providing services, predetermined rates per diagnosis, fixed per diem rates or
discounts from established charges.
Revenues are recorded at estimated amounts due from patients and
third-party payers for the health care services provided. Settlements under
reimbursement agreements with third-party payers are estimated and recorded in
the period the related services are rendered and are adjusted in future periods
as final settlements are determined. The net adjustments to estimated
settlements resulted in increases to revenues of $0.7 million, $1.2 million and
$3.3 million for the years ended December 31, 1999, 1998 and 1997, respectively.
F-7
<PAGE> 60
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Management believes that adequate provisions have been made for adjustments that
may result from final determination of amounts earned under these programs.
Columbia/HCA retains sole responsibility for, and will be entitled to, any
Medicare, Medicaid or cost-based Blue Cross settlements relating to cost
reporting periods ending on or prior to the Distribution. The net settlement
payable estimated as of December 31, 1999 and 1998 and included in accounts
receivable in the accompanying balance sheets approximated $5.1 million and
$17.8 million, respectively.
The Company provides care without charge to patients who are financially
unable to pay for the health care services they receive. Because the Company
does not pursue collection of amounts determined to qualify as charity care,
they are not reported in revenues.
Accounts Receivable
The Company receives payment for services rendered from federal and state
agencies (under the Medicare, Medicaid and TRICARE programs), managed care
health plans, commercial insurance companies, employers and patients. During the
years ended December 31, 1999, 1998 and 1997, approximately 47.4%, 48.9% and
50.5%, respectively, of the Company's revenues related to patients participating
in the Medicare and Medicaid programs. Management recognizes that revenues and
receivables from government agencies are significant to its operations, but it
does not believe that there are significant credit risks associated with these
government agencies. Management does not believe that there are any other
significant concentrations of revenues from any particular payer that would
subject it to any significant credit risks in the collection of its accounts
receivable.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Long-Lived Assets
(a) Property and Equipment
Property and equipment are stated at cost. Routine maintenance and repairs
are charged to expense as incurred. Expenditures that increase capacities or
extend useful lives are capitalized.
Depreciation expense, computed using the straight-line method, was $30.6
million, $27.1 million and $25.1 million for the years ended December 31, 1999,
1998 and 1997, respectively. Buildings and improvements are depreciated over
estimated useful lives ranging generally from 10 to 40 years. Estimated useful
lives of equipment vary generally from 3 to 10 years.
(b) Intangible Assets
Intangible assets consist primarily of costs in excess of the fair value of
identifiable net assets of acquired entities and are amortized using the
straight-line method, generally over periods ranging from 30 to 40 years for
hospital acquisitions. Noncompete agreements and debt issuance costs are
amortized based upon the terms of the respective contracts or loans.
(c) Deferred Loan Costs
Deferred loan costs are included in intangible assets on the balance sheet
and are amortized over the term of the related debt. In 1999, in connection with
the Distribution, the Company recorded $9.8 million of deferred loan costs (net
of accumulated amortization of $0.9 million).
When events, circumstances and operating results indicate that the carrying
values of certain long-lived assets and the related identifiable intangible
assets might be impaired, the Company prepares projections of
F-8
<PAGE> 61
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the undiscounted future cash flows expected to result from the use of the assets
and their eventual disposition. If the projections indicate that the recorded
amounts are not expected to be recoverable, such amounts are reduced to
estimated fair value.
Income Taxes
For the periods prior to the Distribution, Columbia/HCA filed consolidated
federal and state income tax returns which included all of its eligible
subsidiaries, including the Company. The provisions for income taxes (benefits)
in the consolidated statements of operations for periods prior to the
Distribution were computed on a separate return basis (i.e., assuming the
Company had not been included in a consolidated income tax return with
Columbia/HCA). All income tax payments for these periods were made by the
Company through Columbia/HCA.
Professional and General Liability Risks
The Company is primarily self-insured for its professional and general
liability risks. At December 31, 1999, the reserve for professional and general
liability risks was $3.4 million. The reserves for self-insured professional and
general liability losses and loss adjustment expenses are based on actuarially
projected estimates discounted to their present value using a rate of 6%.
Columbia/HCA assumed the liability for all professional and general
liability claims incurred prior to the Distribution. Accordingly, at December
31, 1998, no reserve was recorded for professional and general liability risks.
The cost of self-insurance for the years ended December 31, 1999, 1998 and
1997 was approximately $7.1 million, $6.8 million and $6.1 million,
respectively.
Intercompany Balances Payable to Columbia/HCA
Intercompany balances for periods prior to the Distribution represent the
net excess of funds transferred to or paid on behalf of the Company over funds
transferred to the centralized cash management account of Columbia/HCA.
Generally, this balance was increased by cash transfers from and payments of
debt made by Columbia/HCA, construction project additions paid by Columbia/HCA,
and certain fees and services provided by Columbia/HCA, including information
systems services and other operating expenses, such as payroll, interest,
insurance and income taxes. Generally, the balance was decreased through daily
cash deposits by the Company to the account. The Company charged interest on the
intercompany balances at various rates ranging from 6% to 10% and the interest
computations were based on the outstanding balance at month end.
In connection with the Distribution, all intercompany amounts payable by
the Company to Columbia/ HCA were eliminated, and the Company assumed certain
indebtedness from Columbia/HCA.
Management Fees
For the years ended December 31, 1998 and 1997 and for the period prior to
the Distribution in 1999, Columbia/HCA incurred various corporate general and
administrative expenses. These corporate overhead expenses were allocated to the
Company based on net revenues. In the opinion of management, this allocation
method was reasonable.
Stock Based Compensation
The Company accounts for stock option grants in accordance with APB Opinion
No. 25, "Accounting for Stock Issued to Employees." The Company recognizes no
compensation expense for grants when the exercise price equals or exceeds the
market price of the underlying stock on the date of grant.
F-9
<PAGE> 62
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Earnings Per Share
Earnings per share ("EPS") is based on the weighted average number of
common shares outstanding and dilutive stock options.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which was required to be adopted in years
beginning after June 15, 1999. In June 1999, SFAS No. 137 was issued, deferring
the effective date of SFAS No. 133 for one year. Management does not anticipate
that the adoption of the new statement will have a material effect on the
financial condition or the results of operations of the Company.
NOTE 2 -- THE DISTRIBUTION AND TRANSACTIONS WITH COLUMBIA/HCA
As a result of the Distribution, the Company became an independent,
publicly-traded company. Owners of Columbia/HCA Common Stock received one share
of the Company's Common Stock for every 19 shares of Columbia/HCA Common Stock
held which resulted in approximately 29.9 million shares of the Company's Common
Stock outstanding immediately after the Distribution. After the Distribution,
Columbia/ HCA had no ownership in the Company. Immediately after the
Distribution, however, certain Columbia/ HCA benefit plans received shares of
the Company on behalf of Columbia/HCA employees.
In connection with the Distribution, all intercompany amounts payable by
the Company to Columbia/ HCA were eliminated and the Company assumed certain
indebtedness from Columbia/HCA (see Note 8). In addition, the Company entered
into various agreements with Columbia/HCA which are intended to facilitate
orderly changes for both companies in a way which would be minimally disruptive
to each entity. These agreements provide certain indemnities to the parties (see
Note 3), and provide for the allocation of tax and other assets, liabilities,
and obligations arising from periods prior to the Distribution.
In connection with the Distribution, Columbia/HCA received a ruling from
the Internal Revenue Service (the "IRS") to the effect, among other things, that
the Distribution would qualify as a tax-free reorganization under Section 355
and 368 of the Internal Revenue Code of 1986, as amended. Such a ruling, while
generally binding upon the IRS, is subject to certain factual representations
and assumptions provided by Columbia/HCA. The Company has agreed to certain
restrictions on its future actions to provide further assurances that the
Distribution will qualify as tax-free. Restrictions include, among other things,
limitations on the liquidation, merger or consolidation with another company,
certain issuances and redemptions of the Company's Common Stock and the sale or
other disposition of assets. If the Company fails to abide by such restrictions
and, as a result, the Distribution fails to qualify as a tax-free
reorganization, the Company will be obligated to indemnify Columbia/HCA for any
resulting tax liability, which could have a material adverse effect on the
Company's financial position and results of operations.
NOTE 3 -- COLUMBIA/HCA INVESTIGATIONS, LITIGATION AND INDEMNIFICATION
RIGHTS
Columbia/HCA is currently the subject of several federal investigations
into certain of its business practices, as well as governmental investigations
by various states. Management of Lifepoint understands that Columbia/HCA is
cooperating in these investigations and that Columbia/HCA understands, through
written notice and other means, that it is a target in these investigations.
Given the breadth of the ongoing investigations, Columbia/HCA expects additional
investigative and prosecutorial activity to occur in these and other
jurisdictions in the future. Columbia/HCA is the subject of a formal order of
investigation by the Securities and Exchange Commission (the "Commission"). The
Commission investigation includes the anti-fraud, periodic reporting and
internal accounting control provisions of the federal securities laws. According
to
F-10
<PAGE> 63
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
published reports, on July 2, 1999, a federal jury in Tampa, Florida found two
Columbia/HCA employees guilty of conspiracy and making false statements on
Medicare and TRICARE cost reports for the years 1992 and 1993 and on a Medicaid
cost report for 1993. Both were found not guilty of obstructing a federal
auditor. One other employee was acquitted on all counts for which he had been
charged and the jury was unable to reach a verdict with respect to another
employee. This employee and the government executed an agreement to defer
prosecution for 18 months after which charges will be dismissed. The two
convicted employees were sentenced in December 1999 and both have appealed to
the 11th Circuit.
Columbia/HCA is a defendant in several qui tam actions brought by private
parties on behalf of the United States of America, which have been unsealed and
served on Columbia/HCA. The actions allege, in general, that Columbia/HCA and
certain subsidiaries and/or affiliated partnerships violated the False Claims
Act by submitting improper claims to the government for reimbursement. The
lawsuits seek damages of three times the amount of all Medicare or Medicaid
claims (involving false claims) presented by the defendants to the federal
government, civil penalties of not less than $5,000 nor more than $10,000 for
each such Medicare or Medicaid claim, attorneys' fees and costs. The government
has intervened in six unsealed qui tam actions against Columbia/HCA.
Columbia/HCA is aware of additional qui tam actions that remain under seal and
believes that there are other sealed qui tam cases of which it is unaware.
Columbia/HCA is a defendant in a number of other suits, which allege, in
general, improper and fraudulent billing, overcharging, coding and physician
referrals, as well as other violations of law. Certain of the suits have been
conditionally certified as class actions.
It is too early to predict the effect or outcome of any of the ongoing
investigations or qui tam and other actions, or whether any additional
investigations or litigations will be commenced. If Columbia/HCA is found to
have violated federal or state laws relating to Medicare, Medicaid or similar
programs, Columbia/HCA could be subject to substantial monetary fines, civil and
criminal penalties, and exclusion from participation in the Medicare and
Medicaid programs. Similarly, the amounts in question in the qui tam and other
actions are substantial, and Columbia/HCA could be subject to substantial costs
resulting from an adverse outcome of one or more of such actions. In addition, a
number of derivative actions have been brought by purported stockholders of
Columbia/HCA against certain current and former officers and directors of
Columbia/HCA alleging breach of fiduciary duty and failure to take reasonable
steps to ensure that Columbia/HCA did not engage in illegal practices.
Management believes that the ongoing governmental investigations and
related media coverage may have had a negative effect on Columbia/HCA's results
of operations (which include the Company for the periods prior to the date of
the Distribution which are presented herein). The extent to which the Company
may or may not continue to be affected after the Distribution by the ongoing
investigations of Columbia/HCA, the initiation of additional investigations, if
any, and the related media coverage cannot be predicted. It is possible that
these matters could have a material adverse effect on the financial condition or
results of operations of the Company in future periods.
In connection with the Distribution, Columbia/HCA has agreed to indemnify
the Company in respect of any losses which it may incur arising from the
proceedings described above. Columbia/HCA has also agreed to indemnify the
Company in respect of any losses, which it may incur as a result of proceedings
which may be commenced by government authorities or by private parties in the
future that arise from acts, practices or omissions engaged in prior to the date
of the Distribution and relate to the proceedings described above. Columbia/HCA
has also agreed that, in the event that any hospital owned by the Company as of
the date of the Distribution is permanently excluded from participation in the
Medicare and Medicaid programs as a result of the proceedings described above,
then Columbia/HCA will make cash payments to the Company based on amounts as
defined in the Distribution Agreement by and among Columbia/HCA and the Company.
The Company has agreed with Columbia/HCA that, in connection with the pending
governmental investigations, it will negotiate with the government with respect
to a compliance agreement setting forth the
F-11
<PAGE> 64
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's agreement to comply with applicable laws and regulations. If any of
such indemnified matters were successfully asserted against the Company, or any
of its facilities, and Columbia/HCA failed to meet its indemnification
obligations, then such losses could have a material adverse effect on the
business, financial position, results of operations or prospects of the Company.
Columbia/HCA has not indemnified the Company for losses relating to any acts,
practices and omissions engaged in by the Company after the Distribution,
whether or not the Company is indemnified for similar acts, practices and
omissions occurring prior to the date of the Distribution.
NOTE 4 -- INCOME TAXES
The provision (benefit) for income taxes for the years ended December 31,
1999, 1998 and 1997 consists of the following (dollars in millions):
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ -----
<S> <C> <C> <C>
Current:
Federal................................................... $ 9.6 $ 2.6 $ 6.5
State..................................................... 1.5 -- 1.1
------ ------ -----
11.1 2.6 7.6
Deferred:
Federal................................................... (13.3) (10.5) 3.6
State..................................................... (1.6) (1.9) 0.5
------ ------ -----
(14.9) (12.4) 4.1
Increase in Valuation Allowance............................. 1.1 -- --
------ ------ -----
Total............................................. $ (2.7) $ (9.8) $11.7
====== ====== =====
</TABLE>
The valuation allowance increased by $1.1 million primarily as a result of
state net operating loss carryforwards that management believes may not be fully
utilized because of the uncertainty regarding the Company's ability to generate
taxable income in certain states. Various subsidiaries have state net operating
loss carryforwards of approximately $9.5 million with expiration dates through
the year 2019.
A reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate on income (loss) from continuing operations before
income taxes for the years ended December 31, 1999, 1998 and 1997 follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ---- ----
<S> <C> <C> <C>
Federal statutory rate...................................... 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit....... 10.6 3.9 4.1
Non-deductible intangible assets............................ (3.0) (2.6) 1.1
Valuation allowance......................................... (10.8) -- --
Other items, net............................................ (5.1) (0.7) 0.5
----- ---- ----
Effective income tax rate................................... 26.7% 35.6% 40.7%
===== ==== ====
</TABLE>
F-12
<PAGE> 65
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes result from temporary differences in the recognition
of assets, liabilities, revenues and expenses for financial accounting and tax
purposes. Sources of these differences and the related tax effects are as
follows (dollars in millions):
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Deferred tax liabilities:
Depreciation and fixed asset basis differences............ $(18.4) $(24.8)
Other..................................................... (0.6) (0.6)
------ ------
Total deferred tax liabilities.................... (19.0) (25.4)
------ ------
Deferred tax assets:
Provision for doubtful accounts........................... 14.3 11.4
Employee compensation..................................... 5.9 2.6
Other..................................................... 6.8 4.5
------ ------
Total deferred tax assets......................... 27.0 18.5
Valuation allowance......................................... (1.1) --
------ ------
Net deferred tax assets........................... 25.9 18.5
------ ------
Net deferred tax assets (liabilities)............. $ 6.9 $ (6.9)
====== ======
</TABLE>
The balance sheet classification of deferred income tax assets
(liabilities) is as follows (in millions):
<TABLE>
<CAPTION>
1999 1998
----- -----
<S> <C> <C>
Current..................................................... $19.4 $14.4
Long-term................................................... (12.5) (21.3)
----- -----
Total....................................................... $ 6.9 $(6.9)
===== =====
</TABLE>
Columbia/HCA and the Company entered into a tax sharing and indemnification
agreement. Under the agreement, Columbia/HCA maintains full control and absolute
discretion with regard to any combined or consolidated tax filings for periods
prior to the Distribution. In addition, the agreement provides that Columbia/HCA
will generally be responsible for all taxes that are allocable to periods prior
to the Distribution and Columbia/HCA and the Company will each be responsible
for its own tax liabilities for periods after the Distribution.
The agreement does not have an impact on the realization of deferred tax
assets or the payment of deferred tax liabilities of the Company except to the
extent that the temporary differences give rise to such deferred tax assets and
liabilities after the Distribution and are adjusted as a result of final tax
settlements after the Distribution. In the event of such adjustments, the tax
sharing and indemnification agreement provides for certain payments between
Columbia/HCA and the Company as appropriate.
NOTE 5 -- IMPAIRMENT OF LONG-LIVED ASSETS
The Company has adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of". SFAS
No. 121 addresses accounting for the impairment of long-lived assets and
long-lived assets to be disposed of, certain identifiable intangibles and
goodwill related to those assets, and provides guidance for recognizing and
measuring impairment losses. The statement requires that the carrying amount of
impaired assets be reduced to fair value.
During the fourth quarter of 1998, the Company decided to sell three
hospital facilities that were identified as not compatible with the Company's
operating plans, based upon management's review of all facilities, and giving
consideration to current and expected market conditions and the current and
expected capital needs in each market. At December 31, 1998, the carrying value
before the impairment charge of the long-lived assets related to these hospital
facilities was approximately $47.0 million. The carrying value was reduced to
fair value, based on estimates of selling values at that time, for a total
non-cash charge of $24.8
F-13
<PAGE> 66
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
million. During the fourth quarter of 1999, the Company recorded an additional
non-cash charge of $25.4 million (comprised of $22.4 million in further
impairment charges for these facilities and $3.0 million in anticipated
selling/closing costs, The remaining carrying value of the long-lived assets
related to these hospital facilities of approximately $22.4 million was written
down based on the revised selling values. Severance costs, if any, will be
expensed when incurred at a later date. One of these three hospital facilities
held for sale was sold subsequent to December 31, 1999 (see Note 16). The
Company anticipates that the sales of the two remaining facilities will be
completed during 2000. For the years ended December 31, 1999, 1998 and 1997,
respectively, these facilities to be divested had net revenues of approximately
$42.6 million, $48.0 million and $50.6 million and incurred income (loss) from
continuing operations before income taxes (benefit) and the asset impairment
charges of approximately $(3.8) million, $(2.9) million and $0.7 million.
The Company recorded, during the third quarter of 1998, an impairment loss
of approximately $1.3 million related to the write-off of intangibles and other
long-lived assets of certain physician practices where the recorded asset values
were not deemed to be fully recoverable based upon the operating results trends
and projected future cash flows. These assets being held and used are now
recorded at estimated fair value based upon discounted, estimated future cash
flows.
The impairment charges did not have a significant impact on the Company's
cash flows and are not expected to significantly impact cash flows for future
periods. As a result of the write-downs, depreciation and amortization expense
related to these assets will decrease in future periods. In the aggregate, the
net effect of the change in depreciation and amortization expense is not
expected to have a material effect on operating results for future periods.
NOTE 6 -- DISCONTINUED OPERATIONS
During 1998, the Company completed the divestiture of home health
businesses for amounts approximating their carrying value. The Company
implemented plans to sell the home health businesses during 1997 resulting in an
estimated after-tax loss on sale of $3.4 million in 1997. The estimated loss on
sale and operating results of the home health businesses are reflected as
discontinued operations in the consolidated statement of operations.
Revenues for the home health businesses disposed of were approximately
$18.9 million and $55.3 million for the years ended December 31, 1998 and 1997,
respectively.
NOTE 7 -- ACCOUNTING CHANGE
During 1997, the Company changed its method of accounting for start-up
costs. The change involved expensing these costs as incurred, rather than
capitalizing and subsequently amortizing such costs. The Company believes the
new method is preferable due to certain changes in business strategy and reviews
of then emerging accounting guidance on accounting for similar (i.e., start-up,
software system training and process reengineering) costs.
The change in accounting principle resulted in the write-off of the costs
capitalized as of January 1, 1997. The cumulative effect of the write-off, which
totals $0.6 million (net of tax benefit), has been expensed and reflected in the
statement of operations for the year ended December 31, 1997. The pro forma
effect on the year ended December 31, 1997 follows (dollars in millions):
<TABLE>
<CAPTION>
1997
-----------------------
AS REPORTED PRO FORMA
----------- ---------
<S> <C> <C>
Income from continuing operations........................... $17.1 $17.1
Net income.................................................. $12.5 $13.1
</TABLE>
F-14
<PAGE> 67
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- LONG-TERM DEBT
Long-term debt consists of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER
--------------
1999 1998
------ -----
<S> <C> <C>
Bank Facilities............................................. $110.0 $ --
Senior Subordinated Notes................................... 150.0 --
Other debt.................................................. 0.2 0.6
------ -----
260.2 0.6
Less current maturities..................................... (3.1) (0.3)
------ -----
$257.1 $ 0.3
====== =====
</TABLE>
Maturities of long-term debt at December 31, 1999 are as follows (in
millions):
<TABLE>
<S> <C>
2000........................................................ $ 3.1
2001........................................................ 5.0
2002........................................................ 7.1
2003........................................................ 7.1
2004........................................................ 7.1
Thereafter.................................................. 230.8
------
$260.2
======
</TABLE>
Bank Credit Agreement
On May 11, 1999, the Company assumed from Columbia/HCA the obligations
under a bank credit agreement (the "Credit Agreement") with a group of lenders
with commitments aggregating $210 million. The Credit Agreement consists of a
$60 million term loan facility, an $85 million term loan facility, and a $65
million revolving credit facility (collectively the "Bank Facilities").
As of December 31, 1999, $25 million of the $60 million term loan facility
was drawn, with the remaining $35 million available for limited purposes to be
drawn by May 11, 2000. The final payment under this term loan facility is due
November 11, 2004.
The $85 million term loan facility was drawn in full at the time of the
Distribution. The final payment under this term loan is due November 11, 2005.
The $65 million revolving credit facility is available for working capital
and other general corporate purposes, and any outstanding amounts thereunder
will be due and payable on November 11, 2004. No amounts were outstanding under
this facility as of December 31, 1999.
Repayments under the term loan facilities are due in quarterly installments
with quarterly amortization based on annual amounts. Interest on the Bank
Facilities is currently based on LIBOR plus 3.0% for the revolving credit
facility and the $60 million term loan facility, and LIBOR plus 3.5% for the $85
million term loan facility. The weighted average interest rate on the Bank
Facilities was approximately 9.9% at December 31, 1999. The Company also pays a
commitment fee equal to 0.5% of the average daily amount available under the
revolving credit facility and on the undrawn portion of the $60 million term
loan facility.
The Company's obligations under the Bank Facilities are guaranteed by its
subsidiaries. These guarantees are secured by a pledge of substantially all of
the subsidiaries' assets. The Credit Agreement requires that the Company comply
with various financial ratios and tests and contains covenants, including but
not limited to restrictions on new indebtedness, the ability to merge or
consolidate, asset sales, capital expenditures and dividends.
F-15
<PAGE> 68
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Senior Subordinated Notes
On May 11, 1999, the Company assumed from Columbia/HCA $150 million in
Senior Subordinated Notes maturing on May 15, 2009 and bearing interest at
10.75%. In November 1999, in a registered exchange offer, the Company issued a
like aggregate principal amount of notes in exchange for these notes (the
"Notes"). Interest is payable semi-annually. The Notes are unsecured obligations
and are subordinated in right of payment to all existing and future senior
indebtedness.
The indenture pursuant to which the Notes were made contains certain
covenants, including but not limited to restrictions on new indebtedness, the
ability to merge or consolidate, asset sales, capital expenditures and
dividends.
The Notes are guaranteed jointly and severally on a full and unconditional
basis by all of the Company's operating subsidiaries ("Subsidiary Guarantors").
The Company is a holding company with no operations apart from its ownership of
the Subsidiary Guarantors. The aggregate assets, liabilities, equity and
earnings of the Subsidiary Guarantors are substantially equivalent to the total
assets, liabilities, equity and earnings of the Company and its subsidiaries on
a consolidated basis.
At December 31, 1999, all but one of the Subsidiary Guarantors were wholly
owned and fully and unconditionally guaranteed the Notes. Separate financial
statements and other disclosures of the wholly owned Subsidiary Guarantors are
not presented because management believes that such separate financial
statements and disclosures would not provide additional material information to
investors.
As of May 11, 1999, two of the Subsidiary Guarantors were not wholly owned
and the guarantees of such non-wholly owned entities were limited. During the
fourth quarter of 1999, the Company acquired ownership of the remaining interest
in one such Subsidiary Guarantor, and the limitations on the guarantee of such
Subsidiary Guarantor, as well as the limitations on the guarantee of the
remaining non-wholly owned Subsidiary Guarantor, were eliminated. Therefore, at
December 31, 1999, only one of the Company's consolidating subsidiaries, Dodge
City Healthcare Group, L.P., was not wholly owned, although all assets,
liabilities, equity and earnings of this entity fully and unconditionally,
jointly and severally guarantee the Notes. The Company owns approximately 70% of
the partnership interests in this mostly owned limited partnership.
A summarized condensed consolidating balance sheet at December 31, 1999 and
condensed consolidating statement of operations and condensed consolidating
statement of cash flows for the year ended December 31, 1999 for the Company
segregating the parent company, the issuer of the Notes, the combined wholly
owned guarantor subsidiaries, the mostly owned guarantor subsidiary and
eliminations are found below. Separate audited financial statements of the
issuer of the Notes, LifePoint Hospitals Holdings, Inc. and the mostly owned
guarantor subsidiary, Dodge City Healthcare Group, L.P., are included elsewhere
in this filing. In addition, separate audited financial statements of Dodge City
Healthcare Group, L.P. are being filed with the Securities and Exchange
Commission.
F-16
<PAGE> 69
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LifePoint Hospitals, Inc.
Condensed Consolidating Statement of Operations
For The Year Ended December 31, 1999
(in millions)
<TABLE>
<CAPTION>
WHOLLY OWNED MOSTLY OWNED
ISSUER OF GUARANTOR GUARANTOR CONSOLIDATED
PARENT NOTES SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
------ --------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues...................... $ -- $ -- $482.5 $32.7 $ -- $515.2
Salaries and benefits......... -- -- 206.2 11.2 -- 217.4
Supplies...................... -- -- 60.0 4.2 -- 64.2
Other operating expenses...... 0.2 -- 112.3 4.8 -- 117.3
Provision for doubtful
accounts.................... -- -- 35.4 2.8 -- 38.2
Depreciation and
amortization................ -- -- 29.7 1.7 -- 31.4
Interest expense.............. -- 17.7 5.1 0.6 -- 23.4
Management fees............... -- -- 2.5 0.7 -- 3.2
ESOP expense.................. -- -- 2.9 -- -- 2.9
Equity in earnings of
affiliates.................. 7.3 (7.0) -- -- (0.3) --
Impairment of long-lived
assets...................... -- -- 25.4 -- -- 25.4
------ ------ ------ ----- ------ ------
7.5 10.7 479.5 26.0 (0.3) 523.4
------ ------ ------ ----- ------ ------
Income (loss) before minority
interests and income
taxes....................... (7.5) (10.7) 3.0 6.7 0.3 (8.2)
Minority interests in earnings
of consolidated entities.... -- 1.9 -- -- -- 1.9
------ ------ ------ ----- ------ ------
Income (loss) before income
taxes....................... (7.5) (12.6) 3.0 6.7 0.3 (10.1)
Provision (benefit) for income
taxes....................... (0.1) (5.3) 2.7 -- -- (2.7)
------ ------ ------ ----- ------ ------
Net income (loss)... $ (7.4) $ (7.3) $ 0.3 $ 6.7 $ 0.3 $ (7.4)
====== ====== ====== ===== ====== ======
</TABLE>
F-17
<PAGE> 70
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LifePoint Hospitals, Inc.
Condensed Consolidating Balance Sheet
December 31, 1999
(in millions)
<TABLE>
<CAPTION>
WHOLLY OWNED MOSTLY OWNED
ISSUER OF GUARANTOR GUARANTOR CONSOLIDATED
PARENT NOTES SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
------ --------- ------------ ------------ ------------ ------------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.... $ -- $ -- $ 12.5 $ -- $ -- $ 12.5
Accounts receivable, net..... -- -- 41.4 5.3 -- 46.7
Inventories.................. -- -- 13.1 1.2 -- 14.3
Deferred taxes and other
current assets............ -- -- 25.8 0.1 -- 25.9
----- ------ ------- ------ ------- -------
-- -- 92.8 6.6 -- 99.4
Property and equipment, at
cost:
Land......................... -- -- 7.6 0.3 -- 7.9
Buildings.................... -- -- 194.2 9.9 -- 204.1
Equipment.................... -- -- 250.3 10.3 -- 260.6
Construction in progress..... -- -- 20.2 -- -- 20.2
----- ------ ------- ------ ------- -------
-- -- 472.3 20.5 -- 492.8
Accumulated depreciation....... -- -- (187.2) (11.2) -- (198.4)
----- ------ ------- ------ ------- -------
-- -- 285.1 9.3 -- 294.4
Net investment in and advances
to subsidiaries.............. 85.7 333.2 -- -- (418.9) --
Intangible assets, net......... -- 9.8 6.1 10.5 -- 26.4
Other.......................... -- -- 0.2 -- -- 0.2
----- ------ ------- ------ ------- -------
$85.7 $343.0 $ 384.2 $ 26.4 $(418.9) $ 420.4
===== ====== ======= ====== ======= =======
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable............. $ -- $ -- $ 25.9 $ 0.6 $ -- $ 26.5
Accrued salaries............. -- -- 14.7 -- -- 14.7
Other current liabilities.... -- 2.5 10.1 0.3 12.9
Current maturities of
long-term debt............ -- 2.9 0.2 -- -- 3.1
----- ------ ------- ------ ------- -------
-- 5.4 50.9 0.9 -- 57.2
Intercompany balances to
affiliates................... -- (9.7) (1.0) 10.7 -- --
Long-term debt................. -- 257.1 -- -- -- 257.1
Deferred income taxes.......... -- -- 12.5 -- -- 12.5
Professional liability risks
and other liabilities........ -- -- 3.4 -- -- 3.4
Minority interests in equity of
consolidated entities........ -- 4.5 -- -- -- 4.5
Stockholders' equity........... 85.7 85.7 318.4 14.8 (418.9) 85.7
----- ------ ------- ------ ------- -------
$85.7 $343.0 $ 384.2 $ 26.4 $(418.9) $ 420.4
===== ====== ======= ====== ======= =======
</TABLE>
F-18
<PAGE> 71
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LifePoint Hospitals, Inc.
Condensed Consolidating Statement of Cash Flows
For The Year Ended December 31, 1999
(in millions)
<TABLE>
<CAPTION>
WHOLLY OWNED MOSTLY OWNED
ISSUER OF GUARANTOR GUARANTOR CONSOLIDATED
PARENT NOTES SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
------ --------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income........................ $ (7.4) $ (7.3) $ 0.3 $6.7 $ 0.3 $(7.4)
Adjustments to reconcile net
income to net cash provided by
operating activities:
ESOP expense.................... -- -- 2.9 -- -- 2.9
Equity in earnings of
affiliates.................... 7.3 (7.0) -- -- (0.3) --
Provision for doubtful
accounts...................... -- -- 35.4 2.8 -- 38.2
Depreciation and amortization... -- -- 29.7 1.7 -- 31.4
Amortization of deferred loan
costs......................... -- -- 0.9 -- -- 0.9
Deferred income taxes
(benefit)..................... -- -- (13.8) -- -- (13.8)
Impairment of long-lived
assets........................ -- -- 25.4 -- -- 25.4
Reserve for professional
liability risk................ -- -- 3.3 -- -- 3.3
Increase (decrease) in cash from
operating assets and
liabilities:
Accounts receivable........... -- -- (27.5) (2.3) -- (29.8)
Inventories and other current
assets..................... -- -- (0.8) (0.3) -- (1.1)
Accounts payable and accrued
expenses................... -- 17.7 (10.3) (0.3) -- 7.1
Income taxes payable.......... -- -- (0.3) -- -- (0.3)
Other........................... 0.1 1.9 (1.3) -- -- 0.7
------ ------ ----- ---- ----- -----
Net cash provided by
operating activities..... -- 5.3 43.9 8.3 -- 57.5
Cash flows from investing
activities:
Purchase of property and
equipment, net.................. -- -- (63.6) (1.2) -- (64.8)
Investments in and advances to
affiliates...................... -- -- (2.0) -- -- (2.0)
Other............................. -- -- (0.2) -- -- (0.2)
------ ------ ----- ---- ----- -----
Net cash provided by (used
in) investing
activities............... -- -- (65.8) (1.2) -- (67.0)
Cash flows from financing
activities:
Decrease in long-term debt, net... -- -- (0.1) (0.3) -- (0.4)
Distributions..................... -- -- 6.0 (6.0) -- --
Increase (decrease) in
intercompany balances with
affiliates, net................. -- (5.3) 6.1 (0.8) -- --
Increase (decrease) in
intercompany balances with
Columbia/HCA, net............... -- -- 22.4 -- -- 22.4
------ ------ ----- ---- ----- -----
Net cash provided by (used
in) financing
activities............... -- (5.3) 34.4 (7.1) -- 22.0
------ ------ ----- ---- ----- -----
Change in cash and cash
equivalents....................... -- -- 12.5 -- -- 12.5
Cash and cash equivalents at
beginning of period............... -- -- -- -- -- --
------ ------ ----- ---- ----- -----
Cash and cash equivalents at end of
period............................ $ -- $ -- $12.5 $ -- $ -- $12.5
====== ====== ===== ==== ===== =====
</TABLE>
F-19
<PAGE> 72
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- STOCK BENEFIT PLANS
In connection with the Distribution, the Company adopted the 1998 Long-Term
Incentive Plan, for which 5,425,000 shares of the Company's Common Stock have
been reserved for issuance. The 1998 Long-Term Incentive Plan authorizes the
grant of stock options, stock appreciation rights and other stock based awards
to officers and employees of the Company. On the Distribution Date,
approximately 591,900 stock options were granted under this plan, relating to
pre-existing vested Columbia/HCA options. These options were granted at various
prices, were exercisable on the date of grant, and expire at various dates not
to exceed 10 years. Options to purchase an additional 2,740,000 shares were
granted to the Company's employees under this plan with an exercise price of the
fair market value on the date of grant. These options are exercisable beginning
in part from the date of grant to five years after the date of grant. All
options granted under this plan expire in 10 years from the date of grant. The
Company also granted 340,000 options to Columbia/HCA executives with an exercise
price of the fair market value on the date of grant. These options were
exercisable on the date of grant and Columbia/HCA paid the Company $1.5 million
in exchange for the issuance of these options.
The Company also adopted the Executive Stock Purchase Plan, in which
1,000,000 shares of the Company's Common Stock were reserved and subsequently
issued. The Executive Stock Purchase Plan grants a right to specified executives
of the Company to purchase shares of Common Stock from the Company. The Company
loaned each participant in the plan 100% of the purchase price of the Company's
Common Stock at the fair value based on the date of purchase (approximately
$10.2 million), on a full recourse basis at interest rates ranging from 5.2% to
5.3%. The loans are reflected as a reduction to stockholders' equity as "Notes
receivable for shares sold to employees". In addition, such executives have been
granted options equal to three-quarters of a share for each share purchased. As
of December 31, 1999, options to purchase 750,000 shares had been issued
pursuant to the 1998 Long-Term Incentive Plan. The exercise price of these stock
options is equal to the fair value on the date of grant. The options expire in
10 years and are exercisable 50% on the date of grant and 50% five years after
the Distribution.
In addition, the Company has a Management Stock Purchase Plan which
provides to certain designated employees an opportunity to purchase restricted
shares of its Common Stock at a discount through payroll deductions over six
month intervals. Shares of Common Stock reserved for this plan were 250,000 at
December 31, 1999. Approximately 54,000 restricted shares will be issued to
employees in the first quarter of 2000 under this plan.
The Company also adopted an Outside Directors Plan for which 175,000 shares
of the Company's Common Stock have been reserved for issuance. In June 1999,
approximately 20,000 options were granted under such plan to non-employee
directors. These options are exercisable beginning in part from the date of
grant to three years after the date of grant and expire 10 years after grant.
In addition, the Company granted an option to purchase 50,000 shares of the
Company to The LifePoint Community Foundation. The exercise price of the stock
option is equal to the fair value on the date of grant.
In connection with the Distribution, the Company established the LifePoint
Employee Stock Ownership Plan ("ESOP"). The ESOP purchased from the Company
approximately 8.3% of the Company's Common Stock at fair market value
(approximately 2.8 million shares at $11.50 per share). Shares will be allocated
ratably to employee accounts over the next 10 years beginning in fiscal year
1999. The shares held by the ESOP which have not yet been allocated to employee
accounts are included in shareholders' equity as "Unearned ESOP Compensation".
Unearned ESOP shares are released at historical cost upon being allocated to
employee accounts. The fair value of unearned ESOP shares was $29.7 million at
December 31, 1999. ESOP expense is recognized using the average market price of
shares committed to be released during the accounting period with any difference
between the average market price and the cost being charged or credited to
capital in excess of par value. As the shares are committed to be released, the
shares become outstanding for earnings per share calculations.
F-20
<PAGE> 73
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Presented below is a summary of stock option activity for 1999:
<TABLE>
<CAPTION>
STOCK OPTION PRICE WEIGHTED AVERAGE
OPTIONS PER SHARE EXERCISE PRICE
--------- ------------ ----------------
<S> <C> <C> <C>
Balances, December 31, 1998..................... -- $ -- $ --
Conversion of Columbia/HCA options............ 591,900 0.07-18.38 12.12
Granted....................................... 3,900,000 7.63-12.00 10.62
Exercised..................................... (9,300) 0.18-12.33 9.01
Cancelled..................................... (71,200) 0.18-18.38 12.63
---------
Balances, December 31, 1999..................... 4,411,400 0.07-18.38 10.79
=========
</TABLE>
At December 31, 1999, there were 1,179,300 options available for grant.
The following table summarizes information regarding the options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGED
OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICES AT 12/31/99 LIFE PRICE AT 12/31/99 PRICE
- ------------------------ ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.07 to $ 7.18 18,200 1 $ 0.53 18,200 $0.53
0.18 to 5.81 11,700 2 0.74 11,700 0.74
3.56 to 8.76 78,700 3 5.64 78,700 5.64
5.56 to 10.99 14,000 4 6.96 14,000 6.96
11.67 to 13.21 105,500 5 11.89 105,500 11.89
12.18 to 14.98 93,900 6 12.34 93,900 12.34
14.16 to 17.73 133,500 7 16.51 133,500 16.51
12.99 to 18.38 44,800 8 18.35 44,800 18.35
12.20 to 15.64 29,100 9 13.03 29,100 13.03
7.63 to 12.00 3,882,000 10 10.62 1,266,100 10.61
--------- ---------
4,411,400 1,795,500
========= =========
</TABLE>
If the Company had measured compensation cost for the stock options granted
during 1999 under the fair value based method prescribed by SFAS No. 123, the
net loss would have been changed to the pro forma amounts set forth below:
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
----------- ---------
<S> <C> <C>
Net loss (in millions)...................................... $ (7.4) $ (8.1)
Earnings (loss) per share:
Basic..................................................... (0.24) (0.26)
Diluted................................................... (0.24) (0.26)
</TABLE>
The fair values of options converted and granted used to compute pro forma
net loss disclosures were estimated on the date of grant using the Black-Scholes
option-pricing model based on the following weighted average assumptions:
<TABLE>
<CAPTION>
1999
---------
<S> <C>
Risk free interest rate..................................... 5.2-7.6%
Expected life............................................... 4.7 years
Expected volatility......................................... 35.0%
Expected dividend yield..................................... 0.0%
</TABLE>
The weighted-average fair value of options converted and granted during
1999 was $3.73.
F-21
<PAGE> 74
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- RETIREMENT PLANS
The Company sponsors defined contribution employee benefit plans covering
substantially all employees. These plans require the Company to make matching
contributions with the Company's stock at certain percentages from the ESOP that
was established upon the Distribution (see Note 9). ESOP expense was $2.9
million for the year ended December 31, 1999.
Prior to the Distribution, the Company participated in Columbia/HCA's
defined contribution retirement plans, which covered substantially all
employees. Benefits were determined primarily as a percentage of a participant's
earned income and were vested over specific periods of employee service. Certain
plans also required the Company to make matching contributions at certain
percentages. The cost of these plans was $5.3 million, and $5.9 million during
1998, and 1997, respectively. Amounts approximately equal to expense for these
plans were funded annually. After the Distribution, the Company no longer
participated in these plans.
NOTE 11 -- CONTINGENCIES
Significant Legal Proceedings
Various lawsuits, claims and legal proceedings have been and are expected
to be instituted or asserted against Columbia/HCA and the Company, including
those relating to shareholder derivative and class action complaints; purported
class action lawsuits filed by patients and payers alleging, in general,
improper and fraudulent billing, coding and physician referrals, as well as
other violations of law; certain qui tam or "whistleblower" actions alleging, in
general, unlawful claims for reimbursement or unlawful payments to physicians
for the referral of patients, as well as other violations and litigation
matters. While the amounts claimed may be substantial, the ultimate liability
cannot be determined or reasonably estimated at this time due to the
considerable uncertainties that exist. Therefore, it is possible that the
Company's results of operations, financial position and liquidity in a
particular period could be materially, adversely affected upon the resolution of
certain of these contingencies. (See Note 3, for a description of the ongoing
government investigations and Columbia/HCA's obligations to indemnify the
Company with respect to losses incurred by the Company arising from such
governmental investigations and related proceedings.)
General Liability Claims
The Company is subject to claims and suits arising in the ordinary course
of business, including claims for personal injuries or wrongful restriction of,
or interference with, physicians' staff privileges. In certain of these actions
claimants may ask for punitive damages against the Company which are usually not
covered by insurance. It is management's opinion that the ultimate resolution of
pending claims and legal proceedings will not have a material adverse effect on
the Company's results of operations or financial position.
Physician Commitments
The Company has committed to provide certain financial assistance pursuant
to recruiting agreements with various physicians practicing in the communities
it serves. In consideration for a physician relocating to one of its communities
and agreeing to engage in private practice for the benefit of the respective
community, the Company may loan certain amounts of money to a physician normally
over a period of one year to assist in establishing his or her practice. Amounts
committed to be advanced approximated $11.6 million at December 31, 1999. The
actual amount of such commitments to be subsequently advanced to physicians
often depends upon the financial results of a physician's private practice
during the guaranteed period. Generally, amounts advanced under the recruiting
agreements may be forgiven prorata over a period of 48 months contingent upon
the physician continuing to practice in the respective community. It is
management's opinion that amounts actually advanced and not repaid will not have
a material adverse effect on the Company's results of operations or financial
position.
F-22
<PAGE> 75
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- OTHER CURRENT LIABILITIES AND ALLOWANCES FOR DOUBTFUL ACCOUNTS
A summary of other current liabilities as of December 31 follows (in
millions):
<TABLE>
<CAPTION>
1999 1998
----- -----
<S> <C> <C>
Employee benefit plan....................................... $ 2.7 $ 7.0
Accrued interest related to long-term debt.................. 2.6 --
Taxes, other than income.................................... 0.3 3.6
Other....................................................... 7.3 4.0
----- -----
$12.9 $14.6
===== =====
</TABLE>
A summary of activity in the Company's allowances for doubtful accounts
follows (in millions):
<TABLE>
<CAPTION>
ADDITIONS ACCOUNTS
BALANCES AT CHARGED TO WRITTEN OFF, BALANCE
BEGINNING COSTS AND NET OF AT END
OF PERIOD EXPENSES RECOVERIES OF PERIOD
----------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1997........................ $29.5 $34.5 $(26.5) $37.5
Year ended December 31, 1998........................ 37.5 41.6 (30.8) 48.3
Year ended December 31, 1999........................ 48.3 38.2 (36.2) 50.3
</TABLE>
NOTE 13 -- EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share from continuing operations (dollars and shares in millions,
except per share amounts):
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ -----
<S> <C> <C> <C>
Numerator (a):
Income (loss) from continuing operations.................. $ (7.4) $(17.7) $17.1
Denominator (b):
Share reconciliation:
Shares used for basic earnings (loss) per share........... 30.5 30.0 30.0
Effect of dilutive securities (c):
Stock options and other.............................. -- -- 0.2
------ ------ -----
Shares used for diluted earnings (loss) per share......... 30.5 30.0 30.2
====== ====== =====
Earnings (loss) per share:
Basic earnings (loss) per share from continuing
operations............................................. $(0.24) $(0.59) $0.57
====== ====== =====
Diluted earnings (loss) per share from continuing
operations............................................. $(0.24) $(0.59) $0.57
====== ====== =====
</TABLE>
- ---------------
(a) Amount is used for both basic and diluted earnings (loss) per share
computations since there is no earnings effect related to the dilutive
securities.
(b) The Company expected to issue 30,000,000 shares of Common Stock at the time
of the Distribution. Earnings per share information has been presented as if
the 30,000,000 shares has been outstanding for the years ended December 31,
1998 and 1997.
(c) The dilutive effect of approximately 0.1 million and 0.2 million shares,
related to stock options, for the years ended December 31, 1999 and 1998,
respectively, was not included in the computation of diluted loss per share
because to do so would have been antidilutive for those periods.
F-23
<PAGE> 76
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for cash,
accounts receivable and accounts payable approximates fair value.
The carrying value of long-term debt (including current portion) was $260.2
million for the year ended December 31, 1999. The fair value of long-term debt
(including current portion) was $264.7 million for the year ended December 31,
1999. The fair value of the Notes has been determined using the quoted market
price at December 31, 1999. The fair values of the remaining long-term debt are
estimated using discounted cash flows, based on the Company's incremental
borrowing rates.
NOTE 15 -- UNAUDITED QUARTERLY FINANCIAL INFORMATION
The quarterly interim financial information shown below has been prepared
by the Company's management and is unaudited. It should be read in conjunction
with the audited consolidated financial statements appearing herein (dollars in
millions, except per share amounts).
<TABLE>
<CAPTION>
1999
---------------------------------
FIRST SECOND THIRD FOURTH
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues.................................................... $134.2 $128.2 $125.4 $127.4
Net income (loss)........................................... 4.0 1.0 1.1 (13.5)(a)
Basic and diluted earnings (loss) per share................. 0.13 0.04 0.03 (0.44)(a)
</TABLE>
<TABLE>
<CAPTION>
1998
-----------------------------------
FIRST SECOND THIRD FOURTH
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues................................................... $130.0 $124.4 $124.7 $119.3
Net income (loss).......................................... 1.6 1.5 (2.2)(b) (22.7)(c)
Basic and diluted earnings (loss) per share................ 0.05 0.05 (0.07)(b) (0.76)(c)
</TABLE>
- ---------------
(a) During the fourth quarter of 1999, the Company recorded a $25.4 million
pre-tax charge ($16.2 million after tax) related to the impairment of
certain long-lived assets (See Note 5 -- Impairment of Long-Lived Assets).
(b) During the third quarter of 1998, the Company recorded a $1.3 million
pre-tax charge ($0.8 million after-tax) related to the impairment of certain
long-lived assets. (See Note 5 -- Impairment of Long-Lived Assets).
(c) During the fourth quarter of 1998, the Company recorded a $24.8 million
pre-tax charge ($15.1 million after-tax) related to the impairment of
certain long-lived assets. (See Note 5 -- Impairment of Long-Lived Assets).
NOTE 16 -- SUBSEQUENT EVENTS
On January 31, 2000, the Company completed an amendment to its Credit
Agreement to revise certain financial definitions and to increase the amount of
permitted investments made by the Company, effective December 31, 1999.
On January 31, 2000, the Company sold Trinity Hospital in Erin, Tennessee.
Trinity Hospital was one of the Company's hospital facilities held for sale as
discussed in Note 5.
F-24
<PAGE> 77
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholder
LifePoint Hospitals Holdings, Inc.
We have audited the accompanying consolidated balance sheets of LifePoint
Hospitals Holdings, Inc., a wholly-owned subsidiary of LifePoint Hospitals,
Inc., as of December 31, 1999 and 1998, and the related consolidated statements
of operations, stockholder's equity and cash flows for each of the three years
in the period ended December 31, 1999. These consolidated financial statements
are the responsibility of the management of LifePoint Hospitals Holdings, Inc.
(the "Company"). Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits 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 LifePoint
Hospitals Holdings, Inc. at December 31, 1999 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
As explained in Note 7 to the consolidated financial statements, effective
January 1, 1997, the Company changed its method of accounting for start-up
costs.
ERNST & YOUNG LLP
Nashville, Tennessee
January 31, 2000
F-25
<PAGE> 78
LIFEPOINT HOSPITALS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Revenues.................................................... $515.2 $498.4 $487.6
Salaries and benefits....................................... 217.4 220.8 196.6
Supplies.................................................... 64.2 62.0 55.0
Other operating expenses.................................... 117.1 117.2 119.5
Provision for doubtful accounts............................. 38.2 41.6 34.5
Depreciation and amortization............................... 31.4 28.3 27.4
Interest expense............................................ 23.4 19.1 15.4
Management fees............................................. 3.2 8.9 8.2
ESOP expense................................................ 2.9 -- --
Impairment of long-lived assets............................. 25.4 26.1 --
------ ------ ------
523.2 524.0 456.6
------ ------ ------
Income (loss) from continuing operations before minority
interests and income taxes................................ (8.0) (25.6) 31.0
Minority interests in earnings of consolidated entities..... 1.9 1.9 2.2
------ ------ ------
Income (loss) from continuing operations before income
taxes..................................................... (9.9) (27.5) 28.8
Provision (benefit) for income taxes........................ (2.6) (9.8) 11.7
------ ------ ------
Income (loss) from continuing operations.................... (7.3) (17.7) 17.1
Discontinued operations:
Loss from operations, net of income tax benefit of $2.6
and $0.1 for the years ended December 31, 1998 and 1997
respectively........................................... -- (4.1) (0.6)
Estimated loss on disposal, net of income tax benefit of
$2.4................................................... -- -- (3.4)
Cumulative effect of accounting change, net of income tax
benefit of $0.4........................................... -- -- (0.6)
------ ------ ------
Net income (loss)...................................... $ (7.3) $(21.8) $ 12.5
====== ====== ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-26
<PAGE> 79
LIFEPOINT HOSPITALS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 12.5 $ --
Accounts receivable, less allowances for doubtful accounts
of $50.3 and $48.3 at December 31, 1999 and 1998....... 46.7 36.4
Inventories............................................... 14.3 14.0
Deferred taxes and other current assets................... 25.9 18.6
------- -------
99.4 69.0
Property and equipment, at cost:
Land...................................................... 7.9 7.2
Buildings................................................. 204.1 203.1
Equipment................................................. 260.6 221.9
Construction in progress (estimated cost to complete and
equip after December 31, 1999 -- $15.9)................ 20.2 10.4
------- -------
492.8 442.6
Accumulated depreciation.................................... (198.4) (176.2)
------- -------
294.4 266.4
Intangible assets, net of accumulated amortization of $8.6
and $6.9 at December 31, 1999 and 1998.................... 26.4 15.2
Other....................................................... 0.2 4.4
------- -------
$ 420.4 $ 355.0
======= =======
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable.......................................... $ 26.5 $ 15.5
Accrued salaries.......................................... 14.7 11.7
Other current liabilities................................. 12.9 14.6
Current maturities of long-term debt...................... 3.1 0.3
------- -------
57.2 42.1
Intercompany balances payable to Columbia/HCA............... -- 167.6
Long-term debt.............................................. 257.1 0.3
Deferred taxes.............................................. 12.5 21.3
Professional liability risks and other liabilities.......... 3.4 0.1
Minority interests in equity of consolidated entities....... 4.5 4.9
Stockholder's equity:
Common stock, $0.01 par value; 1,000 shares authorized;
999 shares outstanding at December 31, 1999............ -- --
Capital in excess of par value............................ 99.0 --
Accumulated deficit....................................... (13.3) --
Equity, investments by Columbia/HCA....................... -- 118.7
------- -------
85.7 118.7
------- -------
$ 420.4 $ 355.0
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-27
<PAGE> 80
LIFEPOINT HOSPITALS HOLDINGS, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ -----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (7.3) $(21.8) $12.5
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
ESOP expense......................................... 2.9 -- --
Provision for doubtful accounts...................... 38.2 41.6 34.5
Depreciation and amortization........................ 31.4 28.3 27.4
Amortization of deferred loan costs.................. 0.9 -- --
Deferred income taxes (benefit)...................... (13.8) (12.4) 4.1
Impairment of long-lived assets...................... 25.4 26.1 --
Loss from discontinued operations.................... -- 4.1 4.0
Cumulative affect of accounting change............... -- -- 0.6
Reserve for professional liability risk.............. 3.3 -- --
Increase (decrease) in cash from operating assets and
liabilities:
Accounts receivable............................... (29.8) (21.3) (37.9)
Inventories and other assets...................... (1.1) 0.2 0.1
Accounts payable and accrued expenses............. 7.1 0.9 (0.1)
Income taxes payable.............................. (0.3) -- --
Other................................................ 0.6 (0.4) 0.2
------ ------ -----
Net cash provided by operating activities......... 57.5 45.3 45.4
Cash flows from investing activities:
Purchase of property and equipment........................ (64.8) (29.3) (51.8)
Investments in and advances to affiliates................. (2.0) 0.1 (7.2)
Other..................................................... (0.2) (0.1) 7.1
------ ------ -----
Net cash used in investing activities............. (67.0) (29.3) (51.9)
Cash flows from financing activities:
Increase (decrease) in long-term debt, net................ (0.4) (1.1) --
Increase (decrease) in intercompany balances with
Columbia/HCA, net...................................... 22.4 (14.9) 6.5
------ ------ -----
Net cash provided by (used in) financing
activities...................................... 22.0 (16.0) 6.5
------ ------ -----
Change in cash and cash equivalents......................... 12.5 -- --
Cash and cash equivalents at beginning of year.............. -- -- --
------ ------ -----
Cash and cash equivalents at end of year.................... $ 12.5 $ -- $ --
====== ====== =====
Interest payments........................................... $ 21.2 $ 19.1 $15.4
Income tax payments......................................... $ 15.4 $ -- $ 4.7
Supplemental non-cash financing activities:
Assumption of debt from Columbia/HCA...................... $260.0 $ -- $ --
Elimination of intercompany amounts payable to
Columbia/HCA........................................... $224.9 $ -- $ --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-28
<PAGE> 81
LIFEPOINT HOSPITALS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
CAPITAL IN
COMMON STOCK EXCESS OF EQUITY,
--------------- PAR ACCUMULATED INVESTMENTS BY
SHARES AMOUNT VALUE DEFICIT COLUMBIA/HCA TOTAL
------ ------ ---------- ----------- -------------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996................ -- $ -- $ -- $ -- $128.0 $128.0
Net income................................ 12.5 12.5
---- ---- ------- ------ ------ ------
Balance at December 31, 1997................ 140.5 140.5
Net loss.................................. (21.8) (21.8)
---- ---- ------- ------ ------ ------
Balance at December 31, 1998................ 118.7 118.7
Net income before spin-off................ 6.0 6.0
Assumption of debt from Columbia/HCA...... (260.0) (260.0)
Elimination of intercompany debt to
Columbia/HCA............................ 229.9 229.9
Spin-off capitalization................... 999 124.7 (124.7) --
Equity contribution from LifePoint........ 4.4 4.4
Net loss after spin-off................... (13.3) (13.3)
---- ---- ------- ------ ------ ------
Balance at December 31, 1999................ 999 $ -- $ 99.0 $(13.3) $ -- $ 85.7
==== ==== ======= ====== ====== ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-29
<PAGE> 82
LIFEPOINT HOSPITALS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND ACCOUNTING POLICIES
Organization
LifePoint Hospitals Holdings, Inc. ("Holdings" or the "Company") is a
wholly owned subsidiary of LifePoint Hospitals, Inc. ("LifePoint"). LifePoint
has limited independent operations and net assets other than through its
ownership of the Company and indirect ownership of the Company's subsidiaries.
On May 11, 1999, Columbia/HCA Healthcare Corporation ("Columbia/HCA")
completed the spin-off of its operations comprising the America Group to its
shareholders by distributing all outstanding shares of LifePoint (the
"Distribution"). A description of the Distribution and certain transactions with
Columbia/HCA is included in Note 2.
At December 31, 1999, the Company was comprised of 23 general, acute care
hospitals and related health care entities. The entities are located in
non-urban areas in the states of Alabama, Florida, Georgia, Kansas, Kentucky,
Louisiana, Tennessee, Utah and Wyoming.
On May 11, 1999, Columbia/HCA also completed the spin-off of a separate,
independent company named Triad Hospitals, Inc.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and all subsidiaries and entities controlled by the Company through the
Company's direct or indirect ownership of a majority voting interest or
exclusive rights granted to the Company by contract as the sole general partner
to manage and control the ordinary course of the affiliates' business. All
significant intercompany accounts and transactions within the Company have been
eliminated in consolidation. Investments in entities which the Company does not
control, but in which it has a substantial ownership interest and can exercise
significant influence, are accounted for using the equity method.
Use of Estimates
The preparation of the accompanying consolidated financial statements in
conformity with accounting principles generally accepted in the United States
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.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
Equity
Equity for periods prior to the Distribution represents the net investment
in the Company by Columbia/HCA. It includes Common Stock, additional
paid-in-capital and net earnings.
Revenues
The Company's health care facilities have entered into agreements with
third-party payers, including government programs and managed care health plans,
under which the facilities are paid based upon established charges, the cost of
providing services, predetermined rates per diagnosis, fixed per diem rates or
discounts from established charges.
Revenues are recorded at estimated amounts due from patients and
third-party payers for the health care services provided. Settlements under
reimbursement agreements with third-party payers are estimated and
F-30
<PAGE> 83
LIFEPOINT HOSPITALS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recorded in the period the related services are rendered and are adjusted in
future periods as final settlements are determined. The net adjustments to
estimated settlements resulted in increases to revenues of $0.7 million, $1.2
million and $3.3 million for the years ended December 31, 1999, 1998 and 1997,
respectively. Management believes that adequate provisions have been made for
adjustments that may result from final determination of amounts earned under
these programs. Columbia/HCA retains sole responsibility for, and will be
entitled to, any Medicare, Medicaid or cost-based Blue Cross settlements
relating to cost reporting periods ending on or prior to the Distribution. The
net settlement payable estimated as of December 31, 1999 and 1998 and included
in accounts receivable in the accompanying balance sheets approximated $5.1
million and $17.8 million, respectively.
The Company provides care without charge to patients who are financially
unable to pay for the health care services they receive. Because the Company
does not pursue collection of amounts determined to qualify as charity care,
they are not reported in revenues.
Accounts Receivable
The Company receives payment for services rendered from federal and state
agencies (under the Medicare, Medicaid and TRICARE programs), managed care
health plans, commercial insurance companies, employers and patients. During the
years ended December 31, 1999, 1998 and 1997, approximately 47.4%, 48.9% and
50.5%, respectively, of the Company's revenues related to patients participating
in the Medicare and Medicaid programs. Management recognizes that revenues and
receivables from government agencies are significant to its operations, but it
does not believe that there are significant credit risks associated with these
government agencies. Management does not believe that there are any other
significant concentrations of revenues from any particular payer that would
subject it to any significant credit risks in the collection of its accounts
receivable.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Long-Lived Assets
(a) Property and Equipment
Property and equipment are stated at cost. Routine maintenance and repairs
are charged to expense as incurred. Expenditures that increase capacities or
extend useful lives are capitalized.
Depreciation expense, computed using the straight-line method, was $30.6
million, $27.1 million and $25.1 million for the years ended December 31, 1999,
1998 and 1997, respectively. Buildings and improvements are depreciated over
estimated useful lives ranging generally from 10 to 40 years. Estimated useful
lives of equipment vary generally from 3 to 10 years.
(b) Intangible Assets
Intangible assets consist primarily of costs in excess of the fair value of
identifiable net assets of acquired entities and are amortized using the
straight-line method, generally over periods ranging from 30 to 40 years for
hospital acquisitions. Noncompete agreements and debt issuance costs are
amortized based upon the terms of the respective contracts or loans.
F-31
<PAGE> 84
LIFEPOINT HOSPITALS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Deferred Loan Costs
Deferred loan costs are included in intangible assets on the balance sheet
and are amortized over the term of the related debt. In 1999, in connection with
the Distribution, the Company recorded $9.8 million of deferred loan costs (net
of accumulated amortization of $0.9 million).
When events, circumstances and operating results indicate that the carrying
values of certain long-lived assets and the related identifiable intangible
assets might be impaired, the Company prepares projections of the undiscounted
future cash flows expected to result from the use of the assets and their
eventual disposition. If the projections indicate that the recorded amounts are
not expected to be recoverable, such amounts are reduced to estimated fair
value.
Income Taxes
For the period subsequent to the Distribution, the Company is included in
the consolidated federal tax return of LifePoint. The Company's tax provision is
determined as if the Company, along with its subsidiaries, prepared its tax
return on a separate return basis.
For the periods prior to the Distribution, Columbia/HCA filed consolidated
federal and state income tax returns which included all of its eligible
subsidiaries, including the Company. The provisions for income taxes (benefits)
in the consolidated statements of operations for periods prior to the
Distribution were computed on a separate return basis (i.e., assuming the
Company had not been included in a consolidated income tax return with
Columbia/HCA). All income tax payments for these periods were made by the
Company through Columbia/HCA.
Professional and General Liability Risks
The Company is primarily self-insured for its professional and general
liability risks. At December 31, 1999, the reserve for professional and general
liability risks was $3.4 million. The reserves for self-insured professional and
general liability losses and loss adjustment expenses are based on actuarially
projected estimates discounted to their present value using a rate of 6%.
Columbia/HCA assumed the liability for all professional and general
liability claims incurred prior to the Distribution. Accordingly, at December
31, 1998, no reserve was recorded for professional and general liability risks.
The cost of self-insurance for the years ended December 31, 1999, 1998 and
1997 was approximately $7.1 million, $6.8 million and $6.1 million,
respectively.
Intercompany Balances Payable to Columbia/HCA
Intercompany balances for periods prior to the Distribution represent the
net excess of funds transferred to or paid on behalf of the Company over funds
transferred to the centralized cash management account of Columbia/HCA.
Generally, this balance was increased by cash transfers from and payments of
debt made by Columbia/HCA, construction project additions paid by Columbia/HCA,
and certain fees and services provided by Columbia/HCA, including information
systems services and other operating expenses, such as payroll, interest,
insurance and income taxes. Generally, the balance was decreased through daily
cash deposits by the Company to the account. The Company charged interest on the
intercompany balances at various rates ranging from 6% to 10% and the interest
computations were based on the outstanding balance at month end.
In connection with the Distribution, all intercompany amounts payable by
the Company to Columbia/ HCA were eliminated, and the Company assumed certain
indebtedness from Columbia/HCA.
F-32
<PAGE> 85
LIFEPOINT HOSPITALS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Equity Contributions from LifePoint
Equity activity of LifePoint which benefits the Company is accounted for as
an equity contribution from LifePoint. Contributions during fiscal 1999
primarily represent the costs associated with the allocation of LifePoint Common
Stock to the Company's employees under the LifePoint Employee Stock Ownership
Plan and equity transactions of LifePoint for which cash was received by the
Company on behalf of LifePoint.
Management Fees
For the years ended December 31, 1998 and 1997 and for the period prior to
the Distribution in 1999, Columbia/HCA incurred various corporate general and
administrative expenses. These corporate overhead expenses were allocated to the
Company based on net revenues. In the opinion of management, this allocation
method was reasonable.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which was required to be adopted in years
beginning after June 15, 1999. In June 1999, SFAS No. 137 was issued, deferring
the effective date of SFAS No. 133 for one year. Management does not anticipate
that the adoption of the new statement will have a material effect on the
financial condition or the results of operations of the Company.
NOTE 2 -- THE DISTRIBUTION AND TRANSACTIONS WITH COLUMBIA/HCA
As a result of the Distribution, LifePoint became an independent,
publicly-traded company. Owners of Columbia/HCA Common Stock received one share
of LifePoint's Common Stock for every 19 shares of Columbia/HCA Common Stock
held which resulted in approximately 29.9 million shares of the LifePoint Common
Stock outstanding immediately after the Distribution. After the Distribution,
Columbia/HCA had no ownership in LifePoint. Immediately after the Distribution,
however, certain Columbia/HCA benefit plans received shares of LifePoint on
behalf of Columbia/HCA employees.
In connection with the Distribution, all intercompany amounts payable by
the Company to Columbia/ HCA were eliminated and the Company assumed certain
indebtedness from Columbia/HCA (see Note 8). In addition, LifePoint, on behalf
of the Company, entered into various agreements with Columbia/HCA which are
intended to facilitate orderly changes for both companies in a way which would
be minimally disruptive to each entity. These agreements provide certain
indemnities to the parties (see Note 3), and provide for the allocation of tax
and other assets, liabilities, and obligations arising from periods prior to the
Distribution.
In connection with the Distribution, Columbia/HCA received a ruling from
the Internal Revenue Service (the "IRS") to the effect, among other things, that
the Distribution would qualify as a tax-free reorganization under Section 355
and 368 of the Internal Revenue Code of 1986, as amended. Such a ruling, while
generally binding upon the IRS, is subject to certain factual representations
and assumptions provided by Columbia/HCA. LifePoint has agreed to certain
restrictions on its future actions to provide further assurances that the
Distribution will qualify as tax-free. Restrictions include, among other things,
limitations on the liquidation, merger or consolidation with another company,
certain issuances and redemptions of LifePoint's Common Stock and the sale or
other disposition of assets. If LifePoint fails to abide by such restrictions
and, as a result, the Distribution fails to qualify as a tax-free
reorganization, LifePoint will be obligated to indemnify Columbia/HCA for any
resulting tax liability, which could have a material adverse effect on
LifePoint's and the Company's financial position and results of operations.
F-33
<PAGE> 86
LIFEPOINT HOSPITALS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- COLUMBIA/HCA INVESTIGATIONS, LITIGATION AND INDEMNIFICATION
RIGHTS
Columbia/HCA is currently the subject of several federal investigations
into certain of its business practices, as well as governmental investigations
by various states. Management of the Company understands that Columbia/HCA is
cooperating in these investigations and that Columbia/HCA understands, through
written notice and other means, that it is a target in these investigations.
Given the breadth of the ongoing investigations, Columbia/HCA expects additional
investigative and prosecutorial activity to occur in these and other
jurisdictions in the future. Columbia/HCA is the subject of a formal order of
investigation by the Securities and Exchange Commission (the "Commission"). The
Commission investigation includes the anti-fraud, periodic reporting and
internal accounting control provisions of the federal securities laws. According
to published reports, on July 2, 1999, a federal jury in Tampa, Florida found
two Columbia/HCA employees guilty of conspiracy and making false statements on
Medicare and TRICARE cost reports for the years 1992 and 1993 and on a Medicaid
cost report for 1993. Both were found not guilty of obstructing a federal
auditor. One other employee was acquitted on all counts for which he had been
charged and the jury was unable to reach a verdict with respect to another
employee. This employee and the government executed an agreement to defer
prosecution for 18 months after which charges will be dismissed. The two
convicted employees were sentenced in December 1999 and both have appealed to
the 11th Circuit.
Columbia/HCA is a defendant in several qui tam actions brought by private
parties on behalf of the United States of America, which have been unsealed and
served on Columbia/HCA. The actions allege, in general, that Columbia/HCA and
certain subsidiaries and/or affiliated partnerships violated the False Claims
Act by submitting improper claims to the government for reimbursement. The
lawsuits seek damages of three times the amount of all Medicare or Medicaid
claims (involving false claims) presented by the defendants to the federal
government, civil penalties of not less than $5,000 nor more than $10,000 for
each such Medicare or Medicaid claim, attorneys' fees and costs. The government
has intervened in six unsealed qui tam actions against Columbia/HCA.
Columbia/HCA is aware of additional qui tam actions that remain under seal and
believes that there are other sealed qui tam cases of which it is unaware.
Columbia/HCA is a defendant in a number of other suits, which allege, in
general, improper and fraudulent billing, overcharging, coding and physician
referrals, as well as other violations of law. Certain of the suits have been
conditionally certified as class actions.
It is too early to predict the effect or outcome of any of the ongoing
investigations or qui tam and other actions, or whether any additional
investigations or litigations will be commenced. If Columbia/HCA is found to
have violated federal or state laws relating to Medicare, Medicaid or similar
programs, Columbia/HCA could be subject to substantial monetary fines, civil and
criminal penalties, and exclusion from participation in the Medicare and
Medicaid programs. Similarly, the amounts in question in the qui tam and other
actions are substantial, and Columbia/HCA could be subject to substantial costs
resulting from an adverse outcome of one or more of such actions. In addition, a
number of derivative actions have been brought by purported stockholders of
Columbia/HCA against certain current and former officers and directors of
Columbia/HCA alleging breach of fiduciary duty and failure to take reasonable
steps to ensure that Columbia/HCA did not engage in illegal practices.
Management believes that the ongoing governmental investigations and
related media coverage may have had a negative effect on Columbia/HCA's results
of operations (which include the Company for the periods prior to the date of
the Distribution which are presented herein). The extent to which LifePoint and
the Company may or may not continue to be affected after the Distribution by the
ongoing investigations of Columbia/HCA, the initiation of additional
investigations, if any, and the related media coverage cannot be predicted. It
is possible that these matters could have a material adverse effect on the
financial condition or results of operations of LifePoint and the Company in
future periods.
F-34
<PAGE> 87
LIFEPOINT HOSPITALS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the Distribution, Columbia/HCA has agreed to indemnify
LifePoint and the Company in respect of any losses which it may incur arising
from the proceedings described above. Columbia/ HCA has also agreed to indemnify
LifePoint and the Company in respect of any losses, which it may incur as a
result of proceedings which may be commenced by government authorities or by
private parties in the future that arise from acts, practices or omissions
engaged in prior to the date of the Distribution and relate to the proceedings
described above. Columbia/HCA has also agreed that, in the event that any
hospital owned by the Company as of the date of the Distribution is permanently
excluded from participation in the Medicare and Medicaid programs as a result of
the proceedings described above, then Columbia/HCA will make cash payments to
LifePoint based on amounts as defined in the Distribution Agreement by and among
Columbia/ HCA and LifePoint. LifePoint, on behalf of the Company, has agreed
with Columbia/HCA that, in connection with the pending governmental
investigations, it will negotiate with the government with respect to a
compliance agreement setting forth the Company's agreement to comply with
applicable laws and regulations. If any of such indemnified matters were
successfully asserted against LifePoint or the Company, or any of its
facilities, and Columbia/HCA failed to meet its indemnification obligations,
then such losses could have a material adverse effect on the business, financial
position, results of operations or prospects of LifePoint and the Company.
Columbia/HCA has not indemnified LifePoint nor the Company for losses relating
to any acts, practices and omissions engaged in by LifePoint and the Company
after the Distribution, whether or not LifePoint or the Company is indemnified
for similar acts, practices and omissions occurring prior to the date of the
Distribution.
NOTE 4 -- INCOME TAXES
The provision (benefit) for income taxes for the years ended December 31,
1999, 1998 and 1997 consists of the following (dollars in millions):
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ -----
<S> <C> <C> <C>
Current:
Federal................................................... $ 9.7 $ 2.6 $ 6.5
State..................................................... 1.5 -- 1.1
------ ------ -----
11.2 2.6 7.6
Deferred:
Federal................................................... (13.3) (10.5) 3.6
State..................................................... (1.6) (1.9) 0.5
------ ------ -----
(14.9) (12.4) 4.1
Increase in Valuation Allowance............................. 1.1 -- --
------ ------ -----
Total............................................. $ (2.6) $ (9.8) $11.7
====== ====== =====
</TABLE>
The valuation allowance increased by $1.1 million primarily as a result of
state net operating loss carryforwards that management believes may not be fully
utilized because of the uncertainty regarding the Company's ability to generate
taxable income in certain states. Various subsidiaries have state net operating
loss carryforwards of approximately $9.5 million with expiration dates through
the year 2019.
F-35
<PAGE> 88
LIFEPOINT HOSPITALS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate on income (loss) from continuing operations before
income taxes for the years ended December 31, 1999, 1998 and 1997 follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ---- ----
<S> <C> <C> <C>
Federal statutory rate...................................... 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit....... 10.7 3.9 4.1
Non-deductible intangible assets............................ (3.1) (2.6) 1.1
Valuation allowance......................................... (10.7) -- --
Other items, net............................................ (5.6) (0.7) 0.5
----- ---- ----
Effective income tax rate................................... 26.3% 35.6% 40.7%
===== ==== ====
</TABLE>
Deferred income taxes result from temporary differences in the recognition
of assets, liabilities, revenues and expenses for financial accounting and tax
purposes. Sources of these differences and the related tax effects are as
follows (dollars in millions):
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Deferred tax liabilities:
Depreciation and fixed asset basis differences............ $(18.4) $(24.8)
Other..................................................... (0.6) (0.6)
------ ------
Total deferred tax liabilities.................... (19.0) (25.4)
------ ------
Deferred tax assets:
Provision for doubtful accounts........................... 14.3 11.4
Employee compensation..................................... 5.9 2.6
Other..................................................... 6.8 4.5
------ ------
Total deferred tax assets......................... 27.0 18.5
Valuation allowance......................................... (1.1) --
------ ------
Net deferred tax assets........................... 25.9 18.5
------ ------
Net deferred tax assets (liabilities)............. $ 6.9 $ (6.9)
====== ======
</TABLE>
The balance sheet classification of deferred income tax assets
(liabilities) is as follows (in millions):
<TABLE>
<CAPTION>
1999 1998
----- -----
<S> <C> <C>
Current..................................................... $19.4 $14.4
Long-term................................................... (12.5) (21.3)
----- -----
Total....................................................... $ 6.9 $(6.9)
===== =====
</TABLE>
Columbia/HCA and LifePoint entered into a tax sharing and indemnification
agreement. Under the agreement, Columbia/HCA maintains full control and absolute
discretion with regard to any combined or consolidated tax filings for periods
prior to the Distribution. In addition, the agreement provides that Columbia/HCA
will generally be responsible for all taxes that are allocable to periods prior
to the Distribution and Columbia/HCA and LifePoint, on behalf of the Company,
will each be responsible for its own tax liabilities for periods after the
Distribution.
The agreement does not have an impact on the realization of deferred tax
assets or the payment of deferred tax liabilities of the Company except to the
extent that the temporary differences give rise to such deferred tax assets and
liabilities after the Distribution and are adjusted as a result of final tax
settlements after the Distribution. In the event of such adjustments, the tax
sharing and indemnification agreement provides for certain payments between
Columbia/HCA and LifePoint, on behalf of the Company, as appropriate.
F-36
<PAGE> 89
LIFEPOINT HOSPITALS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- IMPAIRMENT OF LONG-LIVED ASSETS
The Company has adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of". SFAS
No. 121 addresses accounting for the impairment of long-lived assets and
long-lived assets to be disposed of, certain identifiable intangibles and
goodwill related to those assets, and provides guidance for recognizing and
measuring impairment losses. The statement requires that the carrying amount of
impaired assets be reduced to fair value.
During the fourth quarter of 1998, the Company decided to sell three
hospital facilities that were identified as not compatible with the Company's
operating plans, based upon management's review of all facilities, and giving
consideration to current and expected market conditions and the current and
expected capital needs in each market. At December 31, 1998, the carrying value
before the impairment charge of the long-lived assets related to these hospital
facilities was approximately $47.0 million. The carrying value was reduced to
fair value, based on estimates of selling values at that time, for a total
non-cash charge of $24.8 million. During the fourth quarter of 1999, the Company
recorded an additional non-cash charge of $25.4 million (comprised of $22.4
million in further impairment charges for these facilities and $3.0 million in
anticipated selling/closing costs). The remaining carrying value of the
long-lived assets related to these hospital facilities was written down based on
the revised selling values. Severance costs, if any, will be expensed when
incurred at a later date. One of these three hospital facilities held for sale
was sold subsequent to December 31, 1999 (see Note 16). The Company anticipates
that the sales of the two remaining facilities will be completed during 2000.
For the years ended December 31, 1999, 1998 and 1997, respectively, these
facilities to be divested had net revenues of approximately $42.6 million, $48.0
million and $50.6 million and incurred income (loss) from continuing operations
before income taxes (benefit) and the asset impairment charges of approximately
$(3.8) million, $(2.9) million and $0.7 million.
The Company recorded, during the third quarter of 1998, an impairment loss
of approximately $1.3 million related to the write-off of intangibles and other
long-lived assets of certain physician practices where the recorded asset values
were not deemed to be fully recoverable based upon the operating results trends
and projected future cash flows. These assets being held and used are now
recorded at estimated fair value based upon discounted, estimated future cash
flows.
The impairment charges did not have a significant impact on the Company's
cash flows and are not expected to significantly impact cash flows for future
periods. As a result of the write-downs, depreciation and amortization expense
related to these assets will decrease in future periods. In the aggregate, the
net effect of the change in depreciation and amortization expense is not
expected to have a material effect on operating results for future periods.
NOTE 6 -- DISCONTINUED OPERATIONS
During 1998, the Company completed the divestiture of home health
businesses for amounts approximating their carrying value. The Company
implemented plans to sell the home health businesses during 1997 resulting in an
estimated after-tax loss on sale of $3.4 million in 1997. The estimated loss on
sale and operating results of the home health businesses are reflected as
discontinued operations in the consolidated statement of operations.
Revenues for the home health businesses disposed of were approximately
$18.9 million and $55.3 million for the years ended December 31, 1998 and 1997,
respectively.
NOTE 7 -- ACCOUNTING CHANGE
During 1997, the Company changed its method of accounting for start-up
costs. The change involved expensing these costs as incurred, rather than
capitalizing and subsequently amortizing such costs. The Company believes the
new method is preferable due to certain changes in business strategy and reviews
of
F-37
<PAGE> 90
LIFEPOINT HOSPITALS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
then emerging accounting guidance on accounting for similar (i.e., start-up,
software system training and process reengineering) costs.
The change in accounting principle resulted in the write-off of the costs
capitalized as of January 1, 1997. The cumulative effect of the write-off, which
totals $0.6 million (net of tax benefit), has been expensed and reflected in the
statement of operations for the year ended December 31, 1997. The pro forma
effect on the year ended December 31, 1997 follows (dollars in millions):
<TABLE>
<CAPTION>
1997
-----------------------
AS REPORTED PRO FORMA
----------- ---------
<S> <C> <C>
Income from continuing operations........................... $17.1 $17.1
Net income.................................................. $12.5 $13.1
</TABLE>
NOTE 8 -- LONG-TERM DEBT
Long-term debt consists of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER
--------------
1999 1998
------ -----
<S> <C> <C>
Bank Facilities............................................. $110.0 $ --
Senior Subordinated Notes................................... 150.0 --
Other debt.................................................. 0.2 0.6
------ -----
260.2 0.6
Less current maturities..................................... (3.1) (0.3)
------ -----
$257.1 $ 0.3
====== =====
</TABLE>
Maturities of long-term debt at December 31, 1999 are as follows (in
millions):
<TABLE>
<S> <C>
2000........................................................ $ 3.1
2001........................................................ 5.0
2002........................................................ 7.1
2003........................................................ 7.1
2004........................................................ 7.1
Thereafter.................................................. 230.8
------
$260.2
======
</TABLE>
Bank Credit Agreement
On May 11, 1999, the Company assumed from Columbia/HCA the obligations
under a bank credit agreement (the "Credit Agreement") with a group of lenders
with commitments aggregating $210 million. The Credit Agreement consists of a
$60 million term loan facility, an $85 million term loan facility, and a $65
million revolving credit facility (collectively the "Bank Facilities").
As of December 31, 1999, $25 million of the $60 million term loan facility
was drawn, with the remaining $35 million available for limited purposes to be
drawn by May 11, 2000. The final payment under this term loan facility is due
November 11, 2004.
The $85 million term loan facility was drawn in full at the time of the
Distribution. The final payment under this term loan is due November 11, 2005.
The $65 million revolving credit facility is available for working capital
and other general corporate purposes, and any outstanding amounts thereunder
will be due and payable on November 11, 2004. No amounts were outstanding under
this facility as of December 31, 1999.
F-38
<PAGE> 91
LIFEPOINT HOSPITALS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Repayments under the term loan facilities are due in quarterly installments
with quarterly amortization based on annual amounts. Interest on the Bank
Facilities is currently based on LIBOR plus 3.0% for the revolving credit
facility and the $60 million term loan facility, and LIBOR plus 3.5% for the $85
million term loan facility. The weighted average interest rate on the Bank
Facilities was approximately 9.9% at December 31, 1999. The Company also pays a
commitment fee equal to 0.5% of the average daily amount available under the
revolving credit facility and on the undrawn portion of the $60 million term
loan facility.
The Company's obligations under the Bank Facilities are guaranteed by its
subsidiaries. These guarantees are secured by a pledge of substantially all of
the subsidiaries' assets. The Credit Agreement requires that the Company comply
with various financial ratios and tests and contains covenants, including but
not limited to restrictions on new indebtedness, the ability to merge or
consolidate, asset sales, capital expenditures and dividends.
Senior Subordinated Notes
On May 11, 1999, the Company assumed from Columbia/HCA $150 million in
Senior Subordinated Notes maturing on May 15, 2009 and bearing interest at
10.75%. In November 1999, in a registered exchange offer, the Company issued a
like aggregate principal amount of notes in exchange for these notes (the
"Notes"). Interest is payable semi-annually. The Notes are unsecured obligations
and are subordinated in right of payment to all existing and future senior
indebtedness.
The indenture pursuant to which the Notes were made contains certain
covenants, including but not limited to restrictions on new indebtedness, the
ability to merge or consolidate, asset sales, capital expenditures and
dividends.
The Notes are guaranteed jointly and severally on a full and unconditional
basis by all of the Company's operating subsidiaries ("Subsidiary Guarantors").
The Company is a holding company with limited operations apart from its
ownership of the Subsidiary Guarantors. The aggregate assets, liabilities,
equity and earnings of the Subsidiary Guarantors are substantially equivalent to
the total assets, liabilities, equity and earnings of the Company and its
subsidiaries on a consolidated basis.
At December 31, 1999, all but one of the Subsidiary Guarantors were wholly
owned and fully and unconditionally guaranteed the Notes. Separate financial
statements and other disclosures of the wholly owned Subsidiary Guarantors are
not presented because management believes that such separate financial
statements and disclosures would not provide additional material information to
investors.
As of May 11, 1999, two of the Subsidiary Guarantors were not wholly owned
and the guarantees of such non-wholly owned entities were limited. During the
fourth quarter of 1999, the Company acquired ownership of the remaining interest
in one such Subsidiary Guarantor, and the limitations on the guarantee of such
Subsidiary Guarantor, as well as the limitations on the guarantee of the
remaining non-wholly owned Subsidiary Guarantor, were eliminated. Therefore, at
December 31, 1999, only one of the Company's consolidating subsidiaries, Dodge
City Healthcare Group, L.P., was not wholly owned, although all assets,
liabilities, equity and earnings of this entity fully and unconditionally,
jointly and severally guarantee the Notes. The Company owns approximately 70% of
the partnership interests in this mostly owned limited partnership.
A summarized condensed consolidating balance sheet at December 31, 1999 and
condensed consolidating statement of operations and condensed consolidating
statement of cash flows for the year ended December 31, 1999 for the Company
segregating the parent company, the combined wholly owned guarantor
subsidiaries, the mostly owned guarantor subsidiary and eliminations are found
below. Separate audited financial statements of the mostly owned guarantor
subsidiary, Dodge City Healthcare Group, L.P., are being filed with the
Securities and Exchange Commission and are included elsewhere in this filing.
F-39
<PAGE> 92
LIFEPOINT HOSPITALS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LifePoint Hospitals Holdings, Inc.
Condensed Consolidating Statement of Operations
For the Year Ended December 31, 1999
(in millions)
<TABLE>
<CAPTION>
WHOLLY OWNED MOSTLY OWNED
GUARANTOR GUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues.............................. $ -- $482.5 $32.7 $ -- $515.2
Salaries and benefits................. -- 206.2 11.2 -- 217.4
Supplies.............................. -- 60.0 4.2 -- 64.2
Other operating expenses.............. -- 112.3 4.8 -- 117.1
Provision for doubtful accounts....... -- 35.4 2.8 -- 38.2
Depreciation and amortization......... -- 29.7 1.7 -- 31.4
Interest expense...................... 17.7 5.1 0.6 -- 23.4
Management fees....................... -- 2.5 0.7 -- 3.2
ESOP expense.......................... -- 2.9 -- -- 2.9
Equity in earnings of affiliates...... (7.0) -- -- 7.0 --
Impairment of long-lived assets....... -- 25.4 -- -- 25.4
------ ------ ----- ------ ------
10.7 479.5 26.0 7.0 523.2
------ ------ ----- ------ ------
Income (loss) before minority
interests and income taxes.......... (10.7) 3.0 6.7 (7.0) (8.0)
Minority interests in earnings of
consolidated entities............... 1.9 -- -- -- 1.9
------ ------ ----- ------ ------
Income (loss) before income taxes..... (12.6) 3.0 6.7 (7.0) (9.9)
Provision (benefit) for income
taxes............................... (5.3) 2.7 -- -- (2.6)
------ ------ ----- ------ ------
Net income (loss)........... $ (7.3) $ 0.3 $ 6.7 $ (7.0) $ (7.3)
====== ====== ===== ====== ======
</TABLE>
F-40
<PAGE> 93
LIFEPOINT HOSPITALS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LifePoint Hospitals Holdings, Inc.
Condensed Consolidating Balance Sheet
December 31, 1999
(in millions)
<TABLE>
<CAPTION>
WHOLLY OWNED MOSTLY OWNED
GUARANTOR GUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
ASSETS ------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents........... $ -- $ 12.5 $ -- $ -- $ 12.5
Accounts receivable, net............ -- 41.4 5.3 -- 46.7
Inventories......................... -- 13.1 1.2 -- 14.3
Deferred taxes and other current
assets........................... -- 25.8 0.1 -- 25.9
------ ------- ------ ------- -------
-- 92.8 6.6 -- 99.4
Property and equipment, at cost:
Land................................ -- 7.6 0.3 -- 7.9
Buildings........................... -- 194.2 9.9 -- 204.1
Equipment........................... -- 250.3 10.3 -- 260.6
Construction in progress............ -- 20.2 -- -- 20.2
------ ------- ------ ------- -------
-- 472.3 20.5 -- 492.8
Accumulated depreciation.............. -- (187.2) (11.2) -- (198.4)
------ ------- ------ ------- -------
-- 285.1 9.3 -- 294.4
Net investment in and advances to
subsidiaries........................ 333.2 -- -- (333.2) --
Intangible assets, net................ 9.8 6.1 10.5 -- 26.4
Other................................. -- 0.2 -- -- 0.2
------ ------- ------ ------- -------
$343.0 $ 384.2 $ 26.4 $(333.2) $ 420.4
====== ======= ====== ======= =======
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable.................... $ -- $ 25.9 $ 0.6 $ -- $ 26.5
Accrued salaries.................... -- 14.7 -- -- 14.7
Other current liabilities........... 2.5 10.1 0.3 12.9
Current maturities of long-term
debt............................. 2.9 0.2 -- -- 3.1
------ ------- ------ ------- -------
5.4 50.9 0.9 -- 57.2
Intercompany balances to affiliates... (9.7) (1.0) 10.7 -- --
Long-term debt........................ 257.1 -- -- -- 257.1
Deferred income taxes................. -- 12.5 -- -- 12.5
Professional liability risks and other
liabilities......................... -- 3.4 -- -- 3.4
Minority interests in equity of
consolidated entities............... 4.5 -- -- -- 4.5
Stockholders' equity.................. 85.7 318.4 14.8 (333.2) 85.7
------ ------- ------ ------- -------
$343.0 $ 384.2 $ 26.4 $(333.2) $ 420.4
====== ======= ====== ======= =======
</TABLE>
F-41
<PAGE> 94
LIFEPOINT HOSPITALS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LifePoint Hospitals Holdings, Inc.
Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 1999
(in millions)
<TABLE>
<CAPTION>
WHOLLY OWNED MOSTLY OWNED
GUARANTOR GUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.......................... $ (7.3) $ 0.3 $6.7 ($7.0) $(7.3)
Adjustments to reconcile net income
to net cash provided by operating
activities:
ESOP expense..................... -- 2.9 -- -- 2.9
Provision for doubtful
accounts....................... -- 35.4 2.8 -- 38.2
Depreciation and amortization.... -- 29.7 1.7 -- 31.4
Amortization of deferred loan
costs.......................... -- 0.9 -- -- 0.9
Deferred income taxes
(benefit)...................... -- (13.8) -- -- (13.8)
Impairment of long-lived
assets......................... -- 25.4 -- -- 25.4
Reserve for professional
liability risk................. -- 3.3 -- -- 3.3
Equity in earnings of
affiliates..................... (7.0) -- -- 7.0 --
Increase (decrease) in cash from
operating assets and
liabilities:
Accounts receivable............ -- (27.5) (2.3) -- (29.8)
Inventories and other current
assets...................... -- (0.8) (0.3) -- (1.1)
Accounts payable and accrued
expenses.................... 17.7 (10.3) (0.3) -- 7.1
Income taxes payable........... -- (0.3) -- -- (0.3)
Other............................ 1.9 (1.3) -- -- 0.6
------ ----- ---- ----- -----
Net cash provided by
operating activities...... 5.3 43.9 8.3 -- 57.5
Cash flows from investing activities:
Purchase of property and equipment,
net.............................. -- (63.6) (1.2) -- (64.8)
Investments in and advances to
affiliates....................... -- (2.0) -- -- (2.0)
Other............................... -- (0.2) -- -- (0.2)
------ ----- ---- ----- -----
Net cash used in investing
activities................ -- (65.8) (1.2) -- (67.0)
Cash flows from financing activities:
Decrease in long-term debt, net..... -- (0.1) (0.3) -- (0.4)
Distributions....................... -- 6.0 (6.0) -- --
Increase (decrease) in intercompany
balances with affiliates, net.... (5.3) 6.1 (0.8) -- --
Increase (decrease) in intercompany
balances with Columbia/HCA,
net.............................. -- 22.4 -- -- 22.4
------ ----- ---- ----- -----
Net cash provided by (used
in) financing
activities................ (5.3) 34.4 (7.1) -- 22.0
------ ----- ---- ----- -----
Change in cash and cash equivalents... -- 12.5 -- -- 12.5
Cash and cash equivalents at beginning
of period........................... -- -- -- -- --
------ ----- ---- ----- -----
Cash and cash equivalents at end of
period.............................. $ -- $12.5 $ -- $ -- $12.5
====== ===== ==== ===== =====
</TABLE>
F-42
<PAGE> 95
LIFEPOINT HOSPITALS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- PARTICIPATION IN STOCK BENEFIT PLANS OF LIFEPOINT
In connection with the Distribution, LifePoint adopted the 1998 Long-Term
Incentive Plan, for which 5,425,000 shares of LifePoint's Common Stock have been
reserved for issuance. The 1998 Long-Term Incentive Plan authorizes the grant of
stock options, stock appreciation rights and other stock based awards to
officers and employees of the Company. On the Distribution Date, approximately
591,900 stock options were granted under this plan, relating to pre-existing
vested Columbia/HCA options. These options were granted at various prices, were
exercisable on the date of grant, and expire at various dates not to exceed 10
years. Options to purchase an additional 2,740,000 shares were granted to the
Company's employees under this plan with an exercise price of the fair market
value on the date of grant. These options are exercisable beginning in part from
the date of grant to five years after the date of grant. All options granted
under this plan expire in 10 years from the date of grant. LifePoint also
granted 340,000 options to Columbia/HCA executives with an exercise price of the
fair market value on the date of grant. These options were exercisable on the
date of grant and Columbia/HCA paid the Company, on behalf of LifePoint, $1.5
million in exchange for LifePoint's issuance of these options.
LifePoint also adopted the Executive Stock Purchase Plan, in which
1,000,000 shares of LifePoint's Common Stock were reserved and subsequently
issued. The Executive Stock Purchase Plan grants a right to specified executives
of the Company to purchase shares of Common Stock from LifePoint. LifePoint
loaned each participant in the plan 100% of the purchase price of LifePoint's
Common Stock at the fair value based on the date of purchase (approximately
$10.2 million), on a full recourse basis at interest rates ranging from 5.2% to
5.3%. The loans are reflected as a reduction to stockholders' equity as "Notes
receivable for shares sold to employees". In addition, such executives have been
granted options equal to three-quarters of a share for each share purchased. As
of December 31, 1999, options to purchase 750,000 shares had been issued
pursuant to the 1998 Long-Term Incentive Plan. The exercise price of these stock
options is equal to the fair value on the date of grant. The options expire in
10 years and are exercisable 50% on the date of grant and 50% five years after
the Distribution.
In addition, LifePoint has a Management Stock Purchase Plan which provides
to certain designated employees an opportunity to purchase restricted shares of
LifePoint's Common Stock at a discount through payroll deductions over six month
intervals. Shares of Common Stock reserved for this plan were 250,000 at
December 31, 1999. Approximately 54,000 restricted shares will be issued to
employees in the first quarter of 2000 under this plan.
LifePoint also adopted an Outside Directors Plan for which 175,000 shares
of LifePoint's Common Stock have been reserved for issuance. In June 1999,
approximately 20,000 options were granted under such plan to non-employee
directors. These options are exercisable beginning in part from the date of
grant to three years after the date of grant and expire 10 years after grant.
In addition, LifePoint granted an option to purchase 50,000 shares of
LifePoint to The LifePoint Community Foundation. The exercise price of the stock
option is equal to the fair value on the date of grant.
In connection with the Distribution, LifePoint established the LifePoint
Employee Stock Ownership Plan ("ESOP"). The ESOP purchased from LifePoint
approximately 8.3% of LifePoint's Common Stock at fair market value
(approximately 2.8 million shares at $11.50 per share). Shares will be allocated
ratably to employee accounts over the next 10 years beginning in fiscal year
1999. The shares held by the ESOP which have not yet been allocated to employee
accounts are included in LifePoint's shareholders' equity as "Unearned ESOP
Compensation". Unearned ESOP shares are released at historical cost upon being
allocated to employee accounts. The fair value of unearned ESOP shares were
$29.7 million at December 31, 1999. ESOP expense is allocated by LifePoint to
the Company and is recognized by using the average market price of LifePoint
shares committed to be released during the accounting period.
F-43
<PAGE> 96
LIFEPOINT HOSPITALS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Presented below is a summary of LifePoint's stock option activity for 1999:
<TABLE>
<CAPTION>
STOCK OPTION PRICE WEIGHTED AVERAGE
OPTIONS PER SHARE EXERCISE PRICE
--------- ------------ ----------------
<S> <C> <C> <C>
Balances, December 31, 1998..................... -- $ -- $ --
Conversion of Columbia/HCA options............ 591,900 0.07-18.38 12.12
Granted....................................... 3,900,000 7.63-12.00 10.62
Exercised..................................... (9,300) 0.18-12.33 9.01
Cancelled..................................... (71,200) 0.18-18.38 12.63
---------
Balances, December 31, 1999..................... 4,411,400 0.07-18.38 10.79
=========
</TABLE>
At December 31, 1999, there were 1,179,300 LifePoint options available for
grant.
The following table summarizes information regarding LifePoint's options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGED
OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICES AT 12/31/99 LIFE PRICE AT 12/31/99 PRICE
- ------------------------ ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.07 to $ 7.18 18,200 1 $ 0.53 18,200 $0.53
0.18 to 5.81 11,700 2 0.74 11,700 0.74
3.56 to 8.76 78,700 3 5.64 78,700 5.64
5.56 to 10.99 14,000 4 6.96 14,000 6.96
11.67 to 13.21 105,500 5 11.89 105,500 11.89
12.18 to 14.98 93,900 6 12.34 93,900 12.34
14.16 to 17.73 133,500 7 16.51 133,500 16.51
12.99 to 18.38 44,800 8 18.35 44,800 18.35
12.20 to 15.64 29,100 9 13.03 29,100 13.03
7.63 to 12.00 3,882,000 10 10.62 1,266,100 10.61
--------- ---------
4,411,400 1,795,500
========= =========
</TABLE>
If the Company issued the above noted options during 1999 under the same
terms and conditions and had measured compensation cost for the stock options
granted under the fair value based method prescribed by SFAS No. 123, the net
loss of the Company would have been changed to the pro forma amounts set forth
below:
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
----------- ---------
<S> <C> <C>
Net loss (in millions)...................................... $ (7.3) $ (8.0)
</TABLE>
The fair values of options converted and granted used to compute pro forma
net loss disclosures were estimated on the date of grant using the Black-Scholes
option-pricing model based on the following weighted average assumptions:
<TABLE>
<CAPTION>
1999
---------
<S> <C>
Risk free interest rate..................................... 5.2-7.6%
Expected life............................................... 4.7 years
Expected volatility......................................... 35.0%
Expected dividend yield..................................... 0.0%
</TABLE>
The weighted-average fair value of options converted and granted during
1999 was $3.73.
F-44
<PAGE> 97
LIFEPOINT HOSPITALS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- RETIREMENT PLANS
The Company participates in defined contribution employee benefit plans
sponsored by LifePoint which cover substantially all employees. These plans
require LifePoint to make matching contributions with LifePoint's stock at
certain percentages from the ESOP that was established upon the Distribution
(see Note 9). ESOP expense was $2.9 million for the year ended December 31,
1999.
Prior to the Distribution, the Company participated in Columbia/HCA's
defined contribution retirement plans, which covered substantially all
employees. Benefits were determined primarily as a percentage of a participant's
earned income and were vested over specific periods of employee service. Certain
plans also required the Company to make matching contributions at certain
percentages. The cost of these plans was $5.3 million, and $5.9 million during
1998, and 1997, respectively. Amounts approximately equal to expense for these
plans were funded annually. After the Distribution, the Company no longer
participated in these plans.
NOTE 11 -- CONTINGENCIES
Significant Legal Proceedings
Various lawsuits, claims and legal proceedings have been and are expected
to be instituted or asserted against Columbia/HCA and LifePoint, including those
relating to shareholder derivative and class action complaints; purported class
action lawsuits filed by patients and payers alleging, in general, improper and
fraudulent billing, coding and physician referrals, as well as other violations
of law; certain qui tam or "whistleblower" actions alleging, in general,
unlawful claims for reimbursement or unlawful payments to physicians for the
referral of patients, as well as other violations and litigation matters. While
the amounts claimed may be substantial, the ultimate liability cannot be
determined or reasonably estimated at this time due to the considerable
uncertainties that exist. Therefore, it is possible that LifePoint's and the
Company's results of operations, financial position and liquidity in a
particular period could be materially, adversely affected upon the resolution of
certain of these contingencies. (See Note 3, for a description of the ongoing
government investigations and Columbia/HCA's obligations to indemnify LifePoint
and the Company with respect to losses incurred by LifePoint and the Company
arising from such governmental investigations and related proceedings.)
General Liability Claims
The Company is subject to claims and suits arising in the ordinary course
of business, including claims for personal injuries or wrongful restriction of,
or interference with, physicians' staff privileges. In certain of these actions
claimants may ask for punitive damages against the Company which are usually not
covered by insurance. It is management's opinion that the ultimate resolution of
pending claims and legal proceedings will not have a material adverse effect on
the Company's results of operations or financial position.
Physician Commitments
The Company has committed to provide certain financial assistance pursuant
to recruiting agreements with various physicians practicing in the communities
it serves. In consideration for a physician relocating to one of its communities
and agreeing to engage in private practice for the benefit of the respective
community, the Company may loan certain amounts of money to a physician normally
over a period of one year to assist in establishing his or her practice. Amounts
committed to be advanced approximated $11.6 million at December 31, 1999. The
actual amount of such commitments to be subsequently advanced to physicians
often depends upon the financial results of a physician's private practice
during the guaranteed period. Generally, amounts advanced under the recruiting
agreements may be forgiven prorata over a period of 48 months contingent upon
the physician continuing to practice in the respective community. It is
management's opinion
F-45
<PAGE> 98
LIFEPOINT HOSPITALS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
that amounts actually advanced and not repaid will not have a material adverse
effect on the Company's results of operations or financial position.
NOTE 12 -- OTHER CURRENT LIABILITIES AND ALLOWANCES FOR DOUBTFUL ACCOUNTS
A summary of other current liabilities as of December 31 follows (in
millions):
<TABLE>
<CAPTION>
1999 1998
----- -----
<S> <C> <C>
Employee benefit plan....................................... $ 2.7 $ 7.0
Accrued interest related to long-term debt.................. 2.6 --
Taxes, other than income.................................... 0.3 3.6
Other....................................................... 7.3 4.0
----- -----
$12.9 $14.6
===== =====
</TABLE>
A summary of activity in the Company's allowances for doubtful accounts
follows (in millions):
<TABLE>
<CAPTION>
ADDITIONS ACCOUNTS
BALANCES AT CHARGED TO WRITTEN OFF, BALANCE
BEGINNING COSTS AND NET OF AT END
OF PERIOD EXPENSES RECOVERIES OF PERIOD
----------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1997........................ $29.5 $34.5 $(26.5) $37.5
Year ended December 31, 1998........................ 37.5 41.6 (30.8) 48.3
Year ended December 31, 1999........................ 48.3 38.2 (36.2) 50.3
</TABLE>
NOTE 13 -- EARNINGS PER SHARE
Because the Company is a wholly owned subsidiary of LifePoint, earnings
(loss) per share is not meaningful and, therefore, is not presented.
NOTE 14 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for cash,
accounts receivable and accounts payable approximates fair value.
The carrying value of long-term debt (including current portion) was $260.2
million for the year ended December 31, 1999. The fair value of long-term debt
(including current portion) was $264.7 million for the year ended December 31,
1999. The fair value of the Notes has been determined using the quoted market
price at December 31, 1999. The fair values of the remaining long-term debt are
estimated using discounted cash flows, based on the Company's incremental
borrowing rates.
F-46
<PAGE> 99
LIFEPOINT HOSPITALS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15 -- UNAUDITED QUARTERLY FINANCIAL INFORMATION
The quarterly interim financial information shown below has been prepared
by the Company's management and is unaudited. It should be read in conjunction
with the audited consolidated financial statements appearing herein (dollars in
millions, except per share amounts).
<TABLE>
<CAPTION>
1999
---------------------------------
FIRST SECOND THIRD FOURTH
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues.................................................... $134.2 $128.2 $125.4 $127.4
Net income (loss)........................................... 4.0 1.0 1.2 (13.5)(a)
</TABLE>
<TABLE>
<CAPTION>
1998
-----------------------------------
FIRST SECOND THIRD FOURTH
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues................................................... $130.0 $124.4 $124.7 $119.3
Net income (loss).......................................... 1.6 1.5 (2.2)(b) (22.7)(c)
</TABLE>
- ---------------
(a) During the fourth quarter of 1999, the Company recorded a $25.4 million
pre-tax charge ($16.2 million after tax) related to the impairment of
certain long-lived assets (See Note 5 -- Impairment of Long-Lived Assets).
(b) During the third quarter of 1998, the Company recorded a $1.3 million
pre-tax charge ($0.8 million after-tax) related to the impairment of certain
long-lived assets. (See Note 5 -- Impairment of Long-Lived Assets).
(c) During the fourth quarter of 1998, the Company recorded a $24.8 million
pre-tax charge ($15.1 million after-tax) related to the impairment of
certain long-lived assets. (See Note 5 -- Impairment of Long-Lived Assets).
NOTE 16 -- SUBSEQUENT EVENTS
On January 31, 2000, the Company completed an amendment to its Credit
Agreement to revise certain financial definitions and to increase the amount of
permitted investments made by the Company, effective December 31, 1999.
On January 31, 2000, the Company sold Trinity Hospital in Erin, Tennessee.
Trinity Hospital was one of the Company's hospital facilities held for sale as
discussed in Note 5.
F-47
<PAGE> 100
REPORT OF INDEPENDENT AUDITORS
The Partners
Dodge City Healthcare Group, L.P.
We have audited the accompanying balance sheets of Dodge City Healthcare
Group, L.P. (a Kansas limited partnership) (the "Partnership") as of December
31, 1999 and 1998, and the related statements of income, partners' capital, and
cash flows for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits 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 Dodge City Healthcare Group,
L.P. (a Kansas limited partnership) at December 31, 1999 and 1998, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
ERNST & YOUNG LLP
Nashville, Tennessee
March 2, 2000
F-48
<PAGE> 101
DODGE CITY HEALTHCARE GROUP, L.P.
STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Revenues.................................................... $32,737 $32,154 $31,777
Allocation of personnel costs............................... 11,204 11,820 10,465
Supplies.................................................... 4,179 3,871 3,921
Other operating expenses.................................... 4,819 5,318 6,115
Provision for doubtful accounts............................. 2,841 2,295 1,588
Depreciation and amortization............................... 1,741 1,634 1,303
Interest expense............................................ 619 601 408
Management fees............................................. 657 646 613
------- ------- -------
26,060 26,185 24,413
------- ------- -------
Net income........................................ $ 6,677 $ 5,969 $ 7,364
======= ======= =======
</TABLE>
See accompanying notes.
F-49
<PAGE> 102
DODGE CITY HEALTHCARE GROUP, L.P.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable, less allowance for doubtful accounts
of $2,997 and $3,185 as of December 31, 1999 and
1998................................................... $ 5,304 $ 4,467
Inventories............................................... 1,215 966
Prepaid expenses and other................................ 118 68
-------- --------
6,637 5,501
Property and equipment, at cost:
Land...................................................... 319 319
Buildings and improvements................................ 9,858 9,481
Equipment................................................. 10,308 9,551
Construction in progress.................................. -- 22
-------- --------
20,485 19,373
Accumulated depreciation.................................. (11,182) (9,838)
-------- --------
9,303 9,535
Intangible assets, net of accumulated amortization of $1,444
and $1,145 at December 31, 1999 and 1998.................. 10,503 10,802
-------- --------
$ 26,443 $ 25,838
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable.......................................... $ 585 $ 791
Accrued expenses.......................................... 274 336
Current maturities of long-term debt...................... -- 19
-------- --------
859 1,146
Intercompany balances payable to affiliate.................. 10,740 11,515
Long-term debt.............................................. -- 301
Partners' capital:
Limited partners (990 units authorized and 890 units
issued and outstanding)................................ 13,377 12,732
General partner (10 units authorized, issued and
outstanding)........................................... 1,467 144
-------- --------
14,844 12,876
-------- --------
$ 26,443 $ 25,838
======== ========
</TABLE>
See accompanying notes.
F-50
<PAGE> 103
DODGE CITY HEALTHCARE GROUP, L.P.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 6,677 $ 5,969 $ 7,364
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for doubtful accounts........................ 2,841 2,295 1,588
Depreciation and amortization.......................... 1,741 1,634 1,303
Increase (decrease) in cash from operating assets and
liabilities:
Accounts receivable.................................. (2,361) (3,444) (1,541)
Inventories, prepaid expenses and other current
assets.............................................. (299) (22) 69
Accounts payable and accrued expenses................ (268) (340) 38
------- ------- -------
Net cash provided by operating activities......... 8,331 6,092 8,821
Cash flows from investing activities:
Purchases of property and equipment, net.................. (1,210) (1,658) (1,659)
------- ------- -------
Net cash used in investing activities..................... (1,210) (1,658) (1,659)
Cash flows from financing activities:
Decrease in long-term debt, net........................... (320) (940) (83)
Increase (decrease) in intercompany balances payable to
affiliate, net......................................... (775) 3,974 (227)
Distributions............................................. (6,026) (7,468) (6,852)
------- ------- -------
Net cash used in financing activities............. (7,121) (4,434) (7,162)
------- ------- -------
Change in cash.............................................. -- -- --
Cash at beginning of year................................... -- -- --
------- ------- -------
Cash at end of year......................................... $ -- $ -- $ --
======= ======= =======
Supplemental information:
Interest payments......................................... $ 619 $ 601 $ 408
======= ======= =======
Supplemental schedule of noncash transactions:
Contribution from Columbia/HCA............................ $ 1,317 $ -- $ --
======= ======= =======
</TABLE>
See accompanying notes
F-51
<PAGE> 104
DODGE CITY HEALTHCARE GROUP, L.P.
STATEMENTS OF PARTNERS' CAPITAL
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
WESTERN PLAINS
REGIONAL
HOSPITAL, INC./ DODGE CITY
MANAGING WESTERN PLAINS OUTPATIENT
GENERAL REGIONAL SURGICAL
PARTNER HOSPITAL, LLC FACILITY, INC. TOTAL
-------- --------------- -------------- -------
<S> <C> <C> <C> <C>
Partners' capital at January 1, 1997............... $ 154 $ 9,531 $ 4,178 $13,863
Net income....................................... 81 5,074 2,209 7,364
Distributions.................................... (75) (4,722) (2,055) (6,852)
------ ------- ------- -------
Partners' capital at December 31, 1997............. 160 9,883 4,332 14,375
Net income....................................... 66 4,112 1,791 5,969
Distributions.................................... (82) (5,146) (2,240) (7,468)
------ ------- ------- -------
Partners' capital at December 31, 1998............. 144 8,849 3,883 12,876
Net income....................................... 73 4,601 2,003 6,677
Distributions.................................... (67) (4,151) (1,808) (6,026)
Contribution from Columbia/HCA................... 1,317 -- -- 1,317
------ ------- ------- -------
PARTNERS' CAPITAL AT DECEMBER 31, 1999............. $1,467 $ 9,299 $ 4,078 $14,844
====== ======= ======= =======
</TABLE>
See accompanying notes.
F-52
<PAGE> 105
DODGE CITY HEALTHCARE GROUP, L.P.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND ACCOUNTING POLICIES
Dodge City Healthcare Group, L.P., a Kansas limited partnership (the
"Partnership"), was organized on March 1, 1995. Dodge City Healthcare Partner,
Inc., a Kansas corporation ("DCHP"), is the general partner of the Partnership
with a 1.1% partnership interest. The limited partners of the Partnership are
Western Plains Regional Hospital, LLC, a Delaware limited liability company
("WPRH"), and Dodge City Outpatient Surgical Facility Inc., a Kansas corporation
("DCOSF"), with partnership interests of 68.9% and 30.0%, respectively. DCHP and
WPRH are indirect wholly owned subsidiaries of LifePoint Hospitals, Inc., a
Delaware corporation ("LifePoint"), through its direct wholly owned subsidiary,
LifePoint Hospitals Holdings, Inc. ("Holdings").
On May 11, 1999, Columbia/HCA Healthcare Corporation ("Columbia/HCA")
completed the tax-free spin-off of its operations comprising the America Group
by distributing all outstanding shares of LifePoint to its shareholders (the
"Distribution"). As a result, Columbia/HCA's combined 70.0% interest in the
Partnership was transferred to LifePoint and LifePoint assumed the rights as
sole general partner of the Partnership. Information regarding Columbia/HCA
included in this report on Form 10-K is derived from reports and other
information filed by Columbia/HCA with the Securities and Exchange Commission.
The Partnership owns and operates Western Plains Regional Hospital, a
110-bed acute care hospital, and an outpatient surgery center which provide
health care services to patients in and around Dodge City, Kansas. The
Partnership receives payment for patient services from the federal government
primarily under the Medicare program, state governments under their respective
Medicaid programs, preferred provider organizations and other private insurers
and directly from patients.
The partnership agreement provides that the Partnership is to distribute,
in quarterly installments to the general and limited partners in accordance with
their respective ownership interests, an amount equal to 90% of its annual
income. The partnership agreement further provides that profits and losses of
the Partnership will be allocated to the partners in accordance with their
respective ownership interests.
As further defined in the partnership agreement, the general partner is
obligated to manage and supervise the Partnership business and affairs. The
Partnership shall be dissolved on December 31, 2050, unless sooner dissolved by
law or pursuant to the partnership agreement or unless extended by amendment to
the partnership agreement.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.
Partners' Capital
Subsequent to the Distribution, partners' capital of the managing general
partner and of Western Plains Regional Hospital, LLC represent the collective
capital of the Partnership owned by LifePoint. Prior to the Distribution,
partners' capital of the managing general partner and of Western Plains Regional
Hospital, Inc. represent the collective capital of the Partnership owned by
Columbia/HCA.
Revenues
The Partnership has entered into agreements with third-party payers,
including government programs and managed care health plans, under which the
Partnership is paid based upon established charges, the cost of providing
services, predetermined rates per diagnosis, fixed per diem rates or discounts
from established charges.
F-53
<PAGE> 106
DODGE CITY HEALTHCARE GROUP, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revenues are recorded at estimated amounts due from patients and
third-party payers for the healthcare services provided. Settlements under
reimbursement agreements with third-party payers are estimated and recorded in
the period the related services are rendered and are adjusted in future periods
as final settlements are determined. The net adjustments to estimated
settlements resulted in increases/(decreases) to revenues of approximately
($99,000), $217,000 and $1,100,000 for the years ended December 31, 1999, 1998
and 1997, respectively. Management believes that adequate provisions have been
made for adjustments that may result from final determination of amounts earned
under these programs. Pursuant to the terms of the distribution agreement
between LifePoint and Columbia/HCA, LifePoint and its subsidiaries, including
the Partnership, are responsible for the Medicare, Medicaid and Blue Cross cost
reports, and associated receivables and payables, for all periods ending after
May 11, 1999. Columbia/HCA agreed to indemnify LifePoint and its subsidiaries,
including the Partnership, with respect to cost reports relating to periods
ending on or prior to the Distribution. Net settlement liabilities of
approximately $1,317,000 recorded by the Partnership as of May 11, 1999 were
deemed to be assumed by Columbia/HCA and, accordingly, recorded as a
contribution from Columbia/HCA to the capital of the Partnership. The net
settlement payable estimated as of December 31, 1999 and 1998, which is included
in accounts receivable in the accompanying balance sheets, approximated $0 and
$352,000, respectively.
The Partnership provides care without charge to patients who are
financially unable to pay for the health care services they receive. Because the
Partnership does not pursue collection of amounts determined to qualify as
charity care, they are not reported in revenues.
Accounts Receivable
The Partnership receives payment for services rendered from federal and
state agencies (under the Medicare, Medicaid and TRICARE programs), managed care
health plans, commercial insurance companies, employers and patients. During the
years ended December 31, 1999, 1998 and 1997, approximately 21%, 27% and 24%,
respectively, of the Partnership's revenues related to patients participating in
the Medicare program. Management recognizes that revenues and receivables from
government agencies are significant to the Partnership's operations, but
management does not believe that there are significant credit risks associated
with these government agencies. Management of the Partnership does not believe
that there are any other significant concentrations of revenues from any
particular payer that would subject the Partnership to any significant credit
risks in the collection of its accounts receivable.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Long-Lived Assets
(a) Property and Equipment
Property and equipment are stated at cost. Routine maintenance and repairs
are charged to expense as incurred. Expenditures that increase capacities or
extend useful lives are capitalized.
Depreciation expense, computed by the straight-line method, was
approximately $1,442,000, $1,335,000 and $994,000 for the years ended December
31, 1999, 1998 and 1997, respectively. Buildings and improvements are
depreciated over estimated useful lives ranging from 10 to 40 years. Estimated
useful lives of equipment vary generally from 3 to 10 years.
(b) Intangible Assets
Intangible assets consists primarily of costs in excess of the fair value
of identifiable net assets acquired and are amortized using the straight-line
method over 40 years. When events, circumstances and operating
F-54
<PAGE> 107
DODGE CITY HEALTHCARE GROUP, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
results indicate that the carrying values of certain long-lived assets and the
related identifiable intangible assets might be impaired, the Partnership
prepares projections of the undiscounted future cash flows expected to result
from the use of the assets and their eventual disposition. If the projections
indicate that the recorded amounts are not expected to be recoverable, such
amounts are reduced to estimated fair value.
Income Taxes
The Partnership is not an income tax paying entity. No provision is made in
the accounts of the Partnership since such taxes are liabilities of the
individual partners of the Partnership, and the amounts thereof depend on their
respective tax situations.
The Partnership's tax returns and the amounts of distributable Partnership
income or loss are subject to examination by the federal and state taxing
authorities. In the event of an examination of the Partnership's tax return, the
tax liability of the partners could be changed if any adjustment to the
Partnership taxable income or loss is ultimately sustained by the taxing
authorities.
Professional and General Liability Risks
The cost of professional and general liability coverage is allocated to the
Partnership by LifePoint post-Distribution, and by Columbia/HCA
pre-Distribution, based on actuarially determined estimates. The actuarially
determined estimate of cost allocated to the Partnership by LifePoint is
discounted to its present value using a rate of 6%. LifePoint, as well as
Columbia/HCA, maintains reserves for professional and general liability risks.
Accordingly, no reserve for liability risks is recorded on the accompanying
balance sheets. Columbia/HCA assumed the liability for all professional and
general liability claims of the Partnership incurred prior to the Distribution.
The cost for the years ended December 31, 1999, 1998 and 1997 was approximately,
$214,000, $188,000 and $211,000, respectively.
Personnel assigned to the Partnership participate in a self-insured program
for health insurance administered by LifePoint post-Distribution and by
Columbia/HCA pre-Distribution. Cost for health insurance is allocated to the
Partnership based upon claims paid and an estimate of claims incurred but not
reported. LifePoint, as well as Columbia/HCA, maintains reserves for incurred
but not reported health claims. Accordingly, no reserve for incurred but not
reported health claims is recorded on the accompanying balance sheets.
Columbia/HCA assumed the liability for all health claims incurred prior to the
Distribution. The cost for the years ended December 31, 1999, 1998 and 1997,
based on the Partnership's experience, was approximately $1,031,000, $974,000,
and $541,000, respectively.
Intercompany Balances to Affiliate
Intercompany balances payable to affiliate represent the net excess of
funds transferred to or paid on behalf of the Partnership over funds transferred
to the centralized cash management account of LifePoint post-Distribution and
Columbia/HCA pre-Distribution. Generally, this balance is increased by
partnership distributions and disbursements made by LifePoint on behalf of the
Partnership for operating expenses and to pay the Partnership's debt, completed
construction project additions, fees and services provided by LifePoint,
including information systems services and other operating expenses, such as
personnel costs, interest and insurance. Generally, the balance is decreased
through daily cash deposits by the Partnership to the account. Prior to the
Distribution, the Partnership was charged interest on the outstanding
intercompany balance at each month end at various rates ranging from 6% to 10%.
For periods after the Distribution, the Partnership is being charged interest at
prime rates which approximated 8.5% at December 31, 1999. In the opinion of
LifePoint management, the interest rate charged has been at prevailing market
rates. Interest expense under this arrangement is included in the Statements of
Income.
F-55
<PAGE> 108
DODGE CITY HEALTHCARE GROUP, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Management Fees
In accordance with the terms of the partnership agreement, the general
partner receives a monthly management fee based upon the Partnership's net
patient revenues. The management fee charged to the Partnership is not
necessarily indicative of the actual costs which may have been incurred had the
Partnership operated as an entity unaffiliated with LifePoint post-Distribution
or Columbia/HCA pre-Distribution; however, in the opinion of the Partnership's
management, the management fee charged is reasonable.
NOTE 2 -- LONG-TERM DEBT
Long-term debt of the Partnership consisted of the following at December
31, (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
9.38% note payable; principal and interest payable in
monthly installments through June 2009.................... $-- $320
Less current portion of long-term debt...................... -- 19
--- ----
$-- $301
=== ====
</TABLE>
In June 1999, the Partnership repaid the outstanding balance of the 9.38%
note payable.
Guarantee of Long-Term Debt
On May 11, 1999, Holdings assumed from Columbia/HCA $150 million in Senior
Subordinated Notes maturing on May 15, 2009. In November 1999, in a registered
exchange offer, Holdings issued a like aggregate principal amount of notes in
exchange for these notes (the "Notes"). The Notes are unsecured obligations and
are subordinated in right of payment to all existing and future senior
indebtedness. The Notes are guaranteed jointly, severally and unconditionally by
all of Holdings' operating subsidiaries including the Partnership.
On May 11, 1999, Holdings also assumed from Columbia/HCA the obligations
under a Bank Credit Agreement (the "Credit Agreement") with a group of lenders
with commitments aggregating $210 million. The Credit Agreement consists of a
$60 million term loan facility, an $85 million term loan facility, and a $65
million revolving credit facility (collectively the "Bank Facilities").
As of December 31, 1999, $25 million of the $60 million term loan facility
was drawn, with the remaining $35 million available for limited purposes to be
drawn by May 11, 2000. The final payment under this term loan facility is due
November 11, 2004.
The $85 million term loan facility was drawn in full at the time of the
Distribution. The final payment under this term loan is due November 11, 2005.
The $65 million revolving credit facility is available for working capital
and other general corporate purposes, and any outstanding amounts thereunder
will be due and payable on November 11, 2004. No amounts were outstanding under
this facility as of December 31, 1999.
Holdings' obligations under the Bank Facilities are guaranteed by its
subsidiaries including the Partnership.
The subsidiary guarantees of the Notes and the Bank Facilities are secured
by a pledge of substantially all of the subsidiaries' assets including all of
the assets of the Partnership.
F-56
<PAGE> 109
DODGE CITY HEALTHCARE GROUP, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- LEASES
Operating lease rental expense relating primarily to the rental of
buildings and equipment for the years ended December 31, 1999, 1998 and 1997 was
approximately $136,000, $163,000 and $580,000, respectively.
NOTE 4 -- RETIREMENT PLANS
Personnel assigned to the Partnership subsequent to the Distribution
participate in LifePoint's employee stock ownership plan ("ESOP"). Under the
ESOP, shares of LifePoint common stock will be allocated ratably to participants
over the next ten years, beginning in fiscal year 1999. ESOP expense is
allocated to the Partnership based upon the average market price of shares
committed to be released during the accounting period. ESOP expense allocated to
the Partnership was approximately $145,000 for the year ended December 31, 1999
and is included in "Allocation of Personnel Costs" in the accompanying
Statements of Income.
Personnel assigned to the Partnership during the year ended December 31,
1998 and 1997 participated in Columbia/HCA's defined contribution retirement
plans which covered substantially all personnel assigned to the Partnership. The
Partnership reimbursed a Columbia/HCA affiliate for personnel costs, including
contributions to the plan. Benefits were determined primarily as a percentage of
a participant's earned income. The cost of these plans was approximately
$307,000 and $370,000 during 1998 and 1997, respectively.
NOTE 5 -- RELATED PARTIES
To facilitate payroll administration, all personnel assigned to perform
duties for the Partnership are employed by a LifePoint affiliate
post-Distribution and a Columbia/HCA affiliate pre-Distribution. The Partnership
reimburses the affiliate for the direct costs (i.e., salaries and related
benefits) associated with such personnel. Such reimbursements are recorded as
"Allocation of Personnel Costs" in the accompanying Statements of Income.
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
Columbia/HCA Investigations, Litigation and Indemnification Rights
Columbia/HCA is currently the subject of several federal investigations
into certain of its business practices, as well as governmental investigations
by various states. Management of the Partnership understands that Columbia/HCA
is cooperating in these investigations and that Columbia/HCA understands,
through written notice and other means, that it is a target in these
investigations. Given the breadth of the ongoing investigations, Columbia/HCA
expects additional investigative and prosecutorial activity to occur in these
and other jurisdictions in the future. Columbia/HCA is the subject of a formal
order of investigation by the Securities and Exchange Commission (the
"Commission"). The Commission investigation includes the anti-fraud, periodic
reporting and internal accounting control provisions of the federal securities
laws. According to published reports, on July 2, 1999, a federal jury in Tampa,
Florida found two Columbia/HCA employees guilty of conspiracy and making false
statements on Medicare and TRICARE cost reports for the years 1992 and 1993 and
on a Medicaid cost report for 1993. Both were found not guilty of obstructing a
federal auditor. One other employee was acquitted on all counts for which he had
been charged and the jury was unable to reach a verdict with respect to another
employee. This employee and the government executed an agreement to defer
prosecution for 18 months after which charges will be dismissed. The two
convicted employees were sentenced in December 1999 and both have appealed to
the 11th Circuit.
Columbia/HCA is a defendant in several qui tam actions brought by private
parties on behalf of the United States of America, which have been unsealed and
served on Columbia/HCA. The actions allege, in general, that Columbia/HCA and
certain subsidiaries and/or affiliated partnerships violated the False Claims
Act by submitting improper claims to the government for reimbursement. The
lawsuits seek damages of three
F-57
<PAGE> 110
DODGE CITY HEALTHCARE GROUP, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
times the amount of all Medicare or Medicaid claims (involving false claims)
presented by the defendants to the federal government, civil penalties of not
less than $5,000 nor more than $10,000 for each such Medicare or Medicaid claim,
attorneys' fees and costs. The government has intervened in six unsealed qui tam
actions against Columbia/HCA. Columbia/HCA is aware of additional qui tam
actions that remain under seal and believes that there are other sealed qui tam
cases of which it is unaware.
Columbia/HCA is a defendant in a number of other suits, which allege, in
general, improper and fraudulent billing, overcharging, coding and physician
referrals, as well as other violations of law. Certain of the suits have been
conditionally certified as class actions.
It is too early to predict the effect or outcome of any of the ongoing
investigations or qui tam and other actions, or whether any additional
investigations or litigations will be commenced. If Columbia/HCA is found to
have violated federal or state laws relating to Medicare, Medicaid or similar
programs, Columbia/HCA could be subject to substantial monetary fines, civil and
criminal penalties, and exclusion from participation in the Medicare and
Medicaid programs. Similarly, the amounts in question in the qui tam and other
actions are substantial, and Columbia/HCA could be subject to substantial costs
resulting from an adverse outcome of one or more of such actions. In addition, a
number of derivative actions have been brought by purported stockholders of
Columbia/HCA against certain current and former officers and directors of
Columbia/HCA alleging breach of fiduciary duty and failure to take reasonable
steps to ensure that Columbia/HCA did not engage in illegal practices.
Management believes that the ongoing governmental investigations and
related media coverage may have had a negative effect on Columbia/HCA's results
of operations (which include LifePoint for the periods prior to the date of the
Distribution which are presented herein). The extent to which LifePoint may or
may not continue to be affected after the Distribution by the ongoing
investigations of Columbia/HCA, the initiation of additional investigations, if
any, and the related media coverage cannot be predicted. It is possible that
these matters could have a material adverse effect on the financial condition or
results of operations of LifePoint in future periods.
In connection with the Distribution, Columbia/HCA has agreed to indemnify
LifePoint and its subsidiaries, including the Partnership, in respect of any
losses which it may incur arising from the proceedings described above.
Columbia/HCA has also agreed to indemnify LifePoint in respect of any losses,
which it may incur as a result of proceedings which may be commenced by
government authorities or by private parties in the future that arise from acts,
practices or omissions engaged in prior to the date of the Distribution and
relate to the proceedings described above. Columbia/HCA has also agreed that, in
the event that any hospital owned by LifePoint, including Western Plains
Regional Hospital, as of the date of the Distribution is permanently excluded
from participation in the Medicare and Medicaid programs as a result of the
proceedings described above, then Columbia/HCA will make cash payments to
LifePoint based on amounts as defined in the Distribution Agreement by and among
Columbia/HCA and LifePoint. LifePoint has agreed with Columbia/HCA that, in
connection with the pending governmental investigations, it will negotiate with
the government with respect to a compliance agreement setting forth LifePoint's
agreement to comply with applicable laws and regulations. If any of such
indemnified matters were successfully asserted against LifePoint, or any of its
facilities, including the Partnership, and Columbia/HCA failed to meet its
indemnification obligations, then such losses could have a material adverse
effect on the business, financial position, results of operations or prospects
of LifePoint and the Partnership. Columbia/HCA has not indemnified LifePoint or
the Partnership for losses relating to any acts, practices and omissions engaged
in by LifePoint or the Partnership after the Distribution, whether or not
LifePoint or the Partnership is indemnified for similar acts, practices and
omissions occurring prior to the date of the Distribution.
F-58
<PAGE> 111
DODGE CITY HEALTHCARE GROUP, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
General Liability Claims
The Partnership is subject to claims and suits arising in the ordinary
course of business. The Partnership is currently not a party to any proceeding
which, in the opinion of management, would have a material adverse effect on the
Partnership's business, financial condition or results of operations.
Other
Final determination of amounts earned under prospective payment and
cost-reimbursement activities is subject to review by appropriate governmental
authorities or their agents.
NOTE 7 -- ALLOWANCE FOR DOUBTFUL ACCOUNTS
A summary of activity in the Partnership's allowance for doubtful accounts
follows (in thousands):
<TABLE>
<CAPTION>
ADDITIONS ACCOUNTS
BALANCES AT CHARGED TO WRITTEN OFF, BALANCE AT
BEGINNING COSTS AND NET OF THE END OF
OF PERIOD EXPENSES RECOVERIES THE PERIOD
----------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1997............... $3,496 $1,588 $(2,897) $2,187
Year ended December 31, 1998............... 2,187 2,295 (1,297) 3,185
Year ended December 31, 1999............... 3,185 2,841 (3,029) 2,997
</TABLE>
NOTE 8 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheets for accounts
receivable, accounts payable and long-term debt approximate fair value because
of the short-term maturity of these instruments.
F-59
<PAGE> 112
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <C> <S>
2.1 -- Distribution Agreement dated May 11, 1999 by and among
Columbia/HCA, Triad Hospitals, Inc. and LifePoint Hospitals,
Inc., incorporated by reference from Exhibit 2.1 to
LifePoint Hospitals' Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999, File No. 0-29818.
3.1 -- Certificate of Incorporation of LifePoint Hospitals,
incorporated by reference from Exhibit 3.1 to LifePoint
Hospitals' Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999, File No. 0-29818.
3.2 -- Bylaws of LifePoint Hospitals, incorporated by reference
from Exhibit 3.2 to LifePoint Hospitals' Quarterly Report on
Form 10-Q, for the quarter ended March 31, 1999, File No.
0-29818.
3.3 -- Certificate of Incorporation of LifePoint Holdings.
3.4 -- Bylaws of LifePoint Holdings.
4.1 -- Form of Specimen Certificate for LifePoint Hospitals Common
Stock, incorporated by reference from Exhibit 4.1 to
LifePoint Hospitals' Registration Statement on Form 10 under
the Securities Exchange Act of 1934, as amended, File No.
0-29818.
4.2 -- Indenture (including form of 10 3/4% Senior Subordinated
Notes due 2009) dated as of May 11, 1999, between
HealthTrust, Inc. -- The Hospital Company and Citibank N.A.
as Trustee, incorporated by reference from Exhibit 4.2(a) to
LifePoint Hospitals' Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999, File No. 0-29818.
4.3 -- Form of 10 3/4% Senior Subordinated Notes due 2009 (filed as
part of Exhibit 4.2).
4.4 -- Registration Rights Agreement dated as of May 11, 1999
between HealthTrust and the Initial Purchasers named
therein, incorporated by reference from Exhibit 4.4(a) to
LifePoint Hospitals' Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999, File No. 0-29818.
4.5 -- LifePoint Assumption Agreement dated May 11, 1999 between
HealthTrust and LifePoint Hospitals, incorporated by
reference from Exhibit 4.4(b) to LifePoint Hospitals'
Quarterly Report on Form 10-Q for the quarter ended March
31, 1999, File No. 0-29818.
4.6 -- Holdings Assumption Agreement dated May 11, 1999 between
LifePoint Hospitals and LifePoint Holdings, incorporated by
reference from Exhibit 4.4(c) to LifePoint Hospitals'
Quarterly Report on Form 10-Q for the quarter ended March
31, 1999, File No. 0-29818.
4.7 -- Guarantor Assumption Agreements dated May 11, 1999 between
LifePoint Holdings and the Guarantors signatory thereto,
incorporated by reference from Exhibit 4.4(d) to LifePoint
Hospitals' Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999, File No. 0-29818.
4.8 -- Rights Agreement dated as of May 11, 1999 between the
Company and National City Bank as Rights Agent, incorporated
by reference from Exhibit 4.1 to LifePoint Hospitals'
Quarterly Report on Form 10-Q for the quarter ended March
31, 1999, File No. 0-29818.
10.1 -- Tax Sharing and Indemnification Agreement, dated May 11,
1999, by and among Columbia/HCA, LifePoint Hospitals and
Triad Hospitals, incorporated by reference from Exhibit 10.1
to LifePoint Hospitals' Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999, File No. 0-29818.
10.2 -- Benefits and Employment Matters Agreement, dated May 11,
1999 by and among Columbia/HCA, LifePoint Hospitals and
Triad Hospitals, incorporated by reference from Exhibit 10.2
to LifePoint Hospitals' Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999, File No. 0-29818.
</TABLE>
<PAGE> 113
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <C> <S>
10.3 -- Insurance Allocation and Administration Agreement, dated May
11, 1999, by and among Columbia/HCA, LifePoint Hospitals and
Triad Hospitals, incorporated by reference from Exhibit 10.3
to LifePoint Hospitals' Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999, File No. 0-29818.
10.4 -- Transitional Services Agreement dated May 11, 1999 by and
between Columbia/HCA and LifePoint Hospitals, incorporated
by reference from Exhibit 10.4 to LifePoint Hospitals'
Quarterly Report on Form 10-Q for the quarter ended March
31, 1999, File No. 0-29818.
10.5 -- Computer and Data Processing Services Agreement dated May
11, 1999 by and between Columbia Information Systems, Inc.
and LifePoint Hospitals, incorporated by reference from
Exhibit 10.5 to LifePoint Hospitals' Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999, File No.
0-29818.
10.6 -- Agreement to Share Telecommunications Services dated May 11,
1999 by and between Columbia Information Systems, Inc. and
LifePoint Hospitals, incorporated by reference from Exhibit
10.6 to LifePoint Hospitals' Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999, File No. 0-29818.
10.7 -- Year 2000 Professional Services Agreement dated May 11, 1999
by and between CHCA Management Services, L.P. and LifePoint
Hospitals, incorporated by reference from Exhibit 10.7 to
LifePoint Hospitals' Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999, File No. 0-29818.
10.8 -- Sub-Lease Agreement dated May 11, 1999 by and between
HealthTrust and LifePoint Hospitals, incorporated by
reference from Exhibit 10.8 to LifePoint Hospitals'
Quarterly Report on Form 10-Q for the quarter ended March
31, 1999, File No. 0-29818.
10.9 -- Lease Agreement dated as of November 22, 1999 by and between
LifePoint Hospitals and W. Fred Williams, Trustee for the
Benefit of Highwoods/Tennessee Holdings, L.P.
10.10 -- LifePoint Hospitals, Inc. 1998 Long-Term Incentive Plan,
incorporated by reference from Exhibit 10.9 to LifePoint
Hospitals' Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999, File No. 0-29818.
10.11 -- LifePoint Hospitals, Inc. Executive Stock Purchase Plan,
incorporated by reference from Exhibit 10.10 to LifePoint
Hospitals' Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999, File No. 0-29818.
10.12 -- Form of Share Purchase Loan and Note Agreement between
LifePoint Hospitals and certain executive officers in
connection with purchases of Common Stock pursuant to the
Executive Stock Purchase Plan.
10.13 -- LifePoint Hospitals, Inc. Management Stock Purchase Plan,
incorporated by reference from Exhibit 10.11 to LifePoint
Hospitals' Quarterly Report on Form 10-Q, for the quarter
ended March 31, 1999, File No. 0-29818.
10.14 -- LifePoint Hospitals, Inc. Outside Directors Stock and
Incentive Compensation Plan, incorporated by reference from
Exhibit 10.12 to LifePoint Hospitals' Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999, File No.
0-29818.
10.15 -- LifePoint Hospitals, Inc. Retirement Plan, dated as of May
19, 1999.
10.16 -- Credit Agreement dated as of May 11, 1999 among HealthTrust,
Inc. -- The Hospital Company, as Borrower, the several
lenders from time to time party thereto, Fleet National Bank
as arranger and administrative agent, ScotiaBanc, Inc. as
documentation agent and co-arranger, Deutsche Bank
Securities, Inc. as syndication agent and co-arranger, and
SunTrust Bank, Nashville, N.A. as co-agent, incorporated by
reference from Exhibit 10.13 to LifePoint Hospitals'
Quarterly Report on Form 10-Q, for the quarter ended March
31, 1999, File No. 0-29818.
</TABLE>
<PAGE> 114
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <C> <S>
10.17 -- First Amendment to Credit Agreement dated as of December 31,
1999 among LifePoint Holdings, as Borrower, the several
lenders which are parties to the Credit Agreement, Fleet
National Bank as arranger and administrative agent,
ScotiaBanc, Inc. as documentation agent and co-arranger,
Deutsche Bank Securities, Inc. as syndication agent and
co-arranger, and SunTrust Bank, Nashville, N.A. as co-agent.
10.18 -- Assumption Agreement dated as of May 11, 1999 by and between
Fleet National Bank and LifePoint Hospitals, incorporated by
reference from Exhibit 10.14 to LifePoint Hospitals'
Quarterly Report on Form 10-Q for the quarter ended March
31, 1999, File No. 0-29818.
10.19 -- Assumption Agreement dated as of May 11, 1999 by and between
Fleet National Bank and LifePoint Holdings, incorporated by
reference from Exhibit 10.15 to LifePoint Hospitals'
Quarterly Report on Form 10-Q for the quarter ended March
31, 1999, File No. 0-29818.
10.20 -- Employment Agreement of Scott Mercy, incorporated by
reference from Exhibit 10.12 to LifePoint Hospitals'
Registration Statement on Form 10 under the Securities
Exchange Act of 1934, as amended, File No. 0-29818.
21.1 -- List of the Subsidiaries of LifePoint Hospitals.
21.2 -- List of the Subsidiaries of LifePoint Holdings.
23.1 -- Consent of Ernst & Young LLP.
27.1 -- Financial Data Schedule for LifePoint Hospitals (for SEC use
only).
27.2 -- Financial Data Schedule for LifePoint Holdings (for SEC use
only).
</TABLE>
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF INCORPORATION
of
LIFEPOINT HOSPITALS HOLDINGS, INC.
THE UNDERSIGNED, in order to form a corporation for the
purposes hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, does hereby certify as follows:
ARTICLE I
The name of the Corporation is: LifePoint Hospitals Holdings,
Inc. (hereinafter referred to as the "Corporation").
ARTICLE II
The address of the registered office of the Corporation in the
State of Delaware is Corporation Service Company, 1013 Centre Road, Wilmington,
DE 19805, in the City of Wilmington, County of New Castle. The name of the
Corporation's registered agent at such address is Corporation Service Company.
ARTICLE III
The purpose for which the Corporation is organized is to
engage in any lawful acts and activities for which corporations may be organized
under the General Corporation Law of the State of Delaware.
ARTICLE IV
The total number of shares of stock which the Corporation
shall have authority to issue is one thousand (1,000) shares of common stock,
par value $.01 per share.
ARTICLE V
Elections of directors need not be by written ballot unless
required by the by-laws of the Corporation. Any director may be removed from
office either with or without cause at any time by the affirmative vote of the
holders of a majority of the outstanding stock of the Corporation entitled to
vote, given at a meeting of the stockholders called for that purpose, or by the
consent of the holders of a majority of the outstanding stock of the Corporation
entitled to vote, given in accordance with Section 228 of the General
Corporation Law of the State of Delaware.
<PAGE> 2
ARTICLE VI
In furtherance and not in limitation of the power conferred
upon the Board of Directors by law, the Board of Directors shall have power to
make, adopt, alter, amend and repeal from time to time the By-laws of the
Corporation, subject to the right of the stockholders entitled to vote with
respect thereto to alter, amend and repeal by-laws adopted by the Board of
Directors.
ARTICLE VII
No director shall be liable to the Corporation or any of its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that the foregoing shall not eliminate or limit any liability that may
exist with respect to (1) a breach of the director's duty of loyalty to the
Corporation or its stockholders, (2) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (3)
liability under Section 174 of the Delaware General Corporation Law or (4) a
transaction from which the director derived an improper personal benefit, it
being the intention of the foregoing provision to eliminate the liability of the
Corporation's directors to the Corporation or its stockholders to the fullest
extent permitted by Section 102(b)(7) of the Delaware General Corporation Law,
as in effect on the date hereof and as such Section may be amended after the
date hereof to the extent such amendment permits such liability to be further
eliminated or limited. The Corporation shall indemnify to the fullest extent
permitted by Section 145 of the Delaware General Corporation Law (as in effect
on the date hereof and as such Section may be amended after the date hereof)
each person that such Section grants the Corporation the power to indemnify.
ARTICLE VIII
The name and address of the sole incorporator is as follows:
Jennifer Meyer
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019
2
<PAGE> 3
IN WITNESS WHEREOF, the undersigned has executed this document
as of the ________ day of April, 1999.
-----------------------------------
Jennifer Meyer
Sole Incorporator
3
<PAGE> 1
EXHIBIT 3.4
LIFEPOINT HOSPITALS HOLDINGS, INC.
BYLAWS
ARTICLE I
Meetings of Stockholders
Section 1.1 Annual Meetings. The annual meeting of the stockholders for
the election of directors and for the transaction of such other business as
properly may come before such meeting shall be held each year on such date, and
at such time and place within or without the State of Delaware, as may be
designated by the Board of Directors.
Section 1.2 Special Meetings. Special meetings of the stockholders for
any proper purpose or purposes may be called at any time by the Board of
Directors, the President or the Secretary, to be held on such date, and at such
time and place within or without the State of Delaware, as the Board of
Directors, the President or the Secretary, whichever has called the meeting,
shall direct. A special meeting of the stockholders shall be called by the
President or the Secretary whenever stockholders owning a majority of the shares
of the Corporation then issued and outstanding and entitled to vote on matters
to be submitted to stockholders of the Corporation shall make application
therefor in writing. Any such written request shall state a proper purpose or
purposes of the meeting and shall be delivered to the President or the
Secretary.
Section 1.3 Notice of Meeting. Written notice, signed by the President,
the Secretary or any Assistant Secretary, of every meeting of stockholders
stating the date and time when, and the place where, such meeting is to be held,
shall be delivered either personally or by mail to each stockholder entitled to
vote at such meeting not less than ten nor more than sixty days before the date
of such meeting, except as otherwise provided by law. The purpose or purposes
for which such meeting is called may, in the case of an annual meeting, and
shall in the case of a special meeting, also be stated in such notice. If
mailed, such notice shall be directed to
<PAGE> 2
a stockholder at such stockholder's address as it shall appear on the stock
books of the Corporation, unless such stockholder shall have filed with the
Secretary a written request that notices intended for such stockholder be mailed
to some other address, in which case it shall be mailed to the address
designated in such request. Whenever any notice is required to be given under
the provisions of the General Corporation Law of the State of Delaware, the
Certificate of Incorporation or these Bylaws, a waiver thereof, signed by the
stockholder entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent thereto. Attendance of a stockholder at the
meeting shall be deemed equivalent to a written waiver of notice of such
meeting.
Section 1.4 Quorum. The presence at any meeting of stockholders, in
person or by proxy, of the holders of record of a majority of the shares then
issued and outstanding and entitled to vote shall be necessary and sufficient to
constitute a quorum for the transaction of business, except as otherwise
provided by law.
Section 1.5 Adjournments. In the absence of a quorum, a majority in
interest of the stockholders entitled to vote, present in person or by proxy,
or, if no stockholder entitled to vote is present in person or by proxy, any
officer entitled to preside at or act as secretary of a meeting of stockholders,
may adjourn such meeting from time to time until a quorum shall be present.
Section 1.6 Voting. Directors shall be chosen by a plurality of the
votes cast at the election, and, except as otherwise provided by law or by the
Certificate of Incorporation, all other questions shall be determined by a
majority of the votes cast on such question.
Section 1.7 Proxies. Any stockholder entitled to vote may vote by
proxy, provided that the instrument authorizing such proxy to act shall have
been executed in writing (which shall include telegraphing or cabling) by the
stockholder himself or by such stockholder's duly authorized attorney.
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Section 1.8 Judges of Election. The Board of Directors may appoint
judges of election to serve at any election of directors and at balloting on any
other matter that may properly come before a meeting of stockholders. If no such
appointment shall be made, or if any of the judges so appointed shall fail to
attend, or refuse or be unable to serve, then such appointment may be made by
the presiding officer at the meeting.
ARTICLE II
Board of Directors
Section 2.1 Number. The number of directors which shall constitute the
whole Board of Directors shall be fixed from time to time by resolution of the
Board of Directors or stockholders (any such resolution of either the Board of
Directors or stockholders being subject to any later resolution of either of
them). The first Board of Directors shall consist of one (1) director, and
subsequent Boards of Directors shall consist of eight (8) directors until
changed as herein provided.
Section 2.2 Election and Term of Office. Directors shall be elected at
the annual meeting of the stockholders, except as provided in Section 2.3. Each
director (whether elected at an annual meeting or to fill a vacancy or
otherwise) shall continue in office until such Director's successor shall have
been elected and qualified or until such Director's earlier death, resignation
or removal in the manner hereinafter provided.
Section 2.3 Vacancies and Additional Directorships. If any vacancy
shall occur among the directors by reason of death, resignation or removal, or
as the result of an increase in the number of directorships, a majority of the
directors then in office, or a sole remaining director, though less than a
quorum, may fill any such vacancy.
Section 2.4 Regular Meetings. A regular meeting of the Board of
Directors shall be held for organization, for the election of officers and for
the transaction of such other
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business as may properly come before such meeting, within thirty days after each
annual meeting of stockholders. The Board of Directors by resolution may provide
for the holding of other regular meetings and may fix the times and places at
which such meetings shall be held. Notice of regular meetings shall not be
required to be given, provided that whenever the time or place of regular
meetings shall be fixed or changed, notice of such action shall be mailed
promptly to each director who shall not have been present at the meeting at
which such action was taken, addressed to such director at such director's
residence or usual place of business.
Section 2.5 Special Meetings. Special meetings of the Board of
Directors shall be held upon call by or at the direction of the President or the
Secretary. Except as otherwise required by law, notice of each special meeting
shall be mailed to each director, addressed to such director at such director's
residence or usual place of business, at least two days before the day on which
the meeting is to be held, or shall be sent to such director at such place by
telex, facsimile transmission, telegram, radio or cable, or telephoned or
delivered to him personally, not later than the day before the day on which the
meeting is to be held. Such notice shall state the time and place of such
meeting, but need not state the purposes thereof, unless otherwise required by
law, the Certificate of Incorporation or these Bylaws.
Section 2.6 Waiver of Notice. Whenever any notice is required to be
given under the provisions of the General Corporation Law of the State of
Delaware, the Certificate of Incorporation or these Bylaws, a waiver thereof,
signed by the director entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. Attendance of a director at
a meeting shall be deemed equivalent to a written waiver of notice of such
meeting.
Section 2.7 Quorum and Manner of Acting. At each meeting of the Board
of Directors the presence of a majority of the total number of members of the
Board of Directors as constituted from time to time, shall be necessary and
sufficient to constitute a quorum for the transaction of business, except that
when the Board of Directors consists of one or two directors, then the one or
two directors, respectively, shall constitute a quorum. In the absence of a
quorum,
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a majority of those present at the time and place of any meeting may adjourn the
meeting from time to time until a quorum shall be present and the meeting may be
held as so adjourned without further notice or waiver. A majority of those
present at any meeting at which a quorum is present may decide any question
brought before such meeting, except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws.
Section 2.8 Resignation of Directors. Any director may resign at any
time by giving written notice of such resignation to the Board of Directors, the
President or the Secretary. Unless otherwise specified in such notice, such
resignation shall take effect upon receipt thereof by the Board of Directors or
any such officer, and the acceptance of such resignation shall not be necessary
to make it effective.
Section 2.9 Removal of Directors. At any special meeting of the
stockholders, duly called as provided in these Bylaws, any director or directors
may be removed from office, either with or without cause, as provided by law. At
such meeting a successor or successors may be elected by a plurality of the
votes cast, or if any such vacancy is not so filled, it may be filled by the
directors as provided in Section 2.3.
Section 2.10 Compensation of Directors. Directors shall receive such
reasonable compensation for their services as such, whether in the form of
salary or a fixed fee for attendance at meetings, with expenses, if any, as the
Board of Directors may from time to time determine. Nothing herein contained
shall be construed to preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor.
ARTICLE III
Committees of the Board
Section 3.1 Designation, Power, Alternate Members and Term of Office.
The Board of Directors may, by resolution passed by a majority of the whole
Board of Directors,
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designate one or more committees, each committee to consist of one or more of
the directors of the Corporation. Any such committee, to the extent provided in
such resolution and permitted by law, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation or a
facsimile thereof to be affixed to or reproduced on all such papers as said
committee shall designate. The Board of Directors may designate one or more
directors as alternate members of any committee who, in the order specified by
the Board of Directors, may replace any absent or disqualified member at any
meeting of such committee. If at a meeting of any committee one or more of the
members thereof should be absent or disqualified, and if either the Board of
Directors has not so designated any alternate member or members, or the number
of absent or disqualified members exceeds the number of alternate members who
are present at such meeting, then the member or members of such committee
(including alternates) present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
director to act at such meeting in the place of any such absent or disqualified
member. The term of office of the members of each committee shall be as fixed
from time to time by the Board of Directors, subject to these Bylaws; provided,
however, that any committee member who ceases to be a member of the Board of
Directors shall ipso facto cease to be a committee member. Each committee shall
appoint a secretary, who may be a Director or an officer of the Corporation.
Section 3.2 Executive Committee. If an Executive Committee is
designated by the Board of Directors in accordance with the provisions of
Section 3.1 hereof, the Executive Committee shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it; but the Executive Committee shall
not have power or authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or
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exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, amending the Bylaws of the Corporation, declaring a
dividend or authorizing the issuance of stock. The provisions of Article III of
these Bylaws shall apply to the Executive Committee.
Section 3.3 Meetings, Notices and Records. Each committee may provide
for the holding of regular meetings, with or without notice, and may fix the
times and places at which such meetings shall be held. Special meetings of each
committee shall be held upon call by or at the direction of its chairman or, if
there be no chairman, by or at the direction of any one of its members. Except
as otherwise provided by law, notice of each special meeting of a committee
shall be mailed to each member of such committee, addressed to such member at
such member's residence or usual place of business, at least two days before the
day on which the meeting is to be held, or shall be sent to him at such place by
telex, facsimile transmission, telegram, radio or cable, or telephoned or
delivered to such member personally, not later than the day before the day on
which the meeting is to be held. Such notice shall state the time and place of
such meeting, but need not state the purposes thereof, unless otherwise required
by law, the Certificate of Incorporation of the Corporation or these Bylaws.
Notice of any meeting of a committee need not be given to any
member thereof who shall attend such meeting in person or who shall waive notice
thereof, before or after such meeting, in a signed writing. Each committee shall
keep a record of its proceedings.
Section 3.4 Quorum and Manner of Acting. At each meeting of any
committee the presence of a majority of its members then in office shall be
necessary and sufficient to constitute a quorum for the transaction of business,
except that when a committee consists of one member, then the one member shall
constitute a quorum. In the absence of a quorum, a majority of the members
present at the time and place of any meeting may adjourn the meeting from time
to time until a quorum shall be present and the meeting may be held as so
adjourned without further notice or waiver. The act of a majority of the members
present at any
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<PAGE> 8
meeting at which a quorum is present shall be the act of such committee. Subject
to the foregoing and other provisions of these ByLaws and except as otherwise
determined by the Board of Directors, each committee may make rules for the
conduct of its business.
Section 3.5 Resignations. Any member of a committee may resign at any
time by giving written notice of such resignation to the Board of Directors, the
President or the Secretary. Unless otherwise specified in such notice, such
resignation shall take effect upon receipt thereof by the Board of Directors or
any such officer, and the acceptance of such resignation shall not be necessary
to make it effective.
Section 3.6 Removal. Any member of any committee may be removed at any
time with or without cause by the Board of Directors.
Section 3.7 Vacancies. If any vacancy shall occur in any committee by
reason of death, resignation, disqualification, removal or otherwise, the
remaining member or members of such committee, so long as a quorum is present,
may continue to act until such vacancy is filled by the Board of Directors.
Section 3.8 Compensation. Committee members shall receive such
reasonable compensation for their services as such, whether in the form of
salary or a fixed fee for attendance at meetings, with expenses, if any, as the
Board of Directors may from time to time determine. Nothing herein contained
shall be construed to preclude any committee member from serving the Corporation
in any other capacity and receiving compensation therefor.
ARTICLE IV
Officers
Section 4.1 Officers. The officers of the Corporation shall be a
President, a Secretary, a Treasurer, and such other officers as may be appointed
in accordance with the provisions of Section 4.3.
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Section 4.2 Election, Term of Office and Qualifications. Each officer
(except such officers as may be appointed in accordance with the provisions of
Section 4.3) shall be elected by the Board of Directors. Each such officer shall
hold such office until such officer's successor shall have been elected and
shall qualify, or until such officer's death, or until such officer shall have
resigned in the manner provided in Section 4.4 or shall have been removed in the
manner provided in Section 4.5.
Section 4.3 Subordinate Officers and Agents. The Board of Directors
from time to time may appoint other officers or agents (including one or more
Vice-Presidents, one or more Assistant Secretaries and one or more Assistant
Treasurers), to hold office for such periods, have such authority and perform
such duties as are provided in these Bylaws or as may be provided in the
resolutions appointing them. The Board of Directors may delegate to any officer
or agent the power to appoint any such subordinate officers or agents and to
prescribe their respective terms of office, authorities and duties.
Section 4.4 Resignations. Any officer may resign at any time by giving
written notice of such resignation to the Board of Directors, the President or
the Secretary. Unless otherwise specified in such written notice, such
resignation shall take effect upon receipt thereof by the Board of Directors or
any such officer, and the acceptance of such resignation shall not be necessary
to make it effective.
Section 4.5 Removal. Any officer specifically designated in Section 4.1
may be removed with or without cause at any meeting of the Board of Directors by
the affirmative vote of a majority of the directors then in office. Any officer
or agent appointed in accordance with the provisions of Section 4.3 may be
removed with or without cause at any meeting of the Board of Directors by
affirmative vote of a majority of the directors present at such meeting, or at
any time by any superior officer or agent upon whom such power of removal shall
have been conferred by the Board of Directors.
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Section 4.6 Vacancies. A vacancy in any office by reason of death,
resignation, removal, disqualification or any other cause shall be filled for
the unexpired portion of the term in the manner prescribed by these Bylaws for
regular election or appointment to such office.
Section 4.7 The President. The President shall have those powers and
perform those duties as are given him by these Bylaws or as from time to time
may be assigned to him by the Board of Directors. He shall be the chief
executive officer and shall have the responsibility for carrying out the
policies of the Board of Directors and, subject to the control of the Board,
shall provide general leadership in matters of policy and planning and have
general and active charge, control and supervision of the business employees,
property and affairs of the Corporation.
Section 4.8 Vice Presidents. Vice Presidents shall have those powers
and shall perform those duties as from time to time may be assigned by the Board
of Directors.
Section 4.9 Treasurer. The Treasurer shall have custody of all the
funds and securities of the corporation and shall perform those other duties as
the President may assign to him.
Section 4.10 Secretary. The Secretary shall give all required notices
of the meetings of the stockholder and of the Board of Directors, attend and act
as a secretary at all meetings of the stockholders and the Board of Directors,
keep records thereof and be the custodian of the seal of the corporation. He
shall perform those other duties as the President may assign to him.
Section 4.11 General Duties of Officers. Each officer, other than the
President, in addition to those other powers and duties as are given to him by
these Bylaws, shall perform those duties and have such powers as from time to
time may be assigned to him by the Board of Directors or the President.
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Section 4.12 Salaries. The salaries of the officers of the Corporation
shall be fixed from time to time by the Board of Directors, except that the
Board of Directors may delegate to any person the power to fix the salaries or
other compensation of any officers or agents appointed in accordance with the
provisions of Section 4.3. No officer shall be prevented from receiving such
salary by reason of the fact that such officer is also a director of the
Corporation.
ARTICLE V
Execution of Instruments and
Deposit of Corporate Funds
Section 5.1 Execution of Instruments Generally. The President, any
Vice-President, the Secretary or the Treasurer, subject to the approval of the
Board of Directors, may enter into any contract or execute and deliver any
instrument in the name and on behalf of the Corporation. The Board of Directors
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute and deliver any instrument in the name and on behalf of the
Corporation, and such authorization may be general or confined to specific
instances.
Section 5.2 Borrowing. No loans or advance shall be obtained or
contracted for, by or on behalf of the Corporation and no negotiable paper shall
be issued in its name, unless and except as authorized by the Board of
Directors. Such authorization may be general or confined to specific instances.
Any officer or agent of the Corporation thereunto so authorized may obtain loans
and advances for the Corporation, and for such loans and advances may make,
execute and deliver promissory notes, bonds, or other evidences of indebtedness
of the Corporation. Any officer or agent of the Corporation thereunto so
authorized may pledge, hypothecate or transfer as security for the payment of
any and all loans, advances, indebtedness and liabilities of the Corporation,
any and all stocks, bonds, other securities and other personal
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property at any time held by the Corporation, and to that end may endorse,
assign and deliver the same and do every act and thing necessary or proper in
connection therewith.
Section 5.3 Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to its credit in such banks or
trust companies or with such bankers or other depositaries as the Board of
Directors may select, or as may be selected by any officer or officers or agent
or agents authorized so to do by the Board of Directors. Endorsements for
deposit to the credit of the Corporation in any of its duly authorized
depositaries shall be made in such manner as the Board of Directors from time to
time may determine.
Section 5.4 Checks, Drafts, etc. All checks, drafts or other orders for
the payment of money, and all notes or other evidences of indebtedness issued in
the name of the Corporation, shall be signed by such officer or officers or
agent or agents of the Corporation, and in such manner, as from time to time
shall be determined by the Board of Directors.
Section 5.5 Proxies. Proxies to vote with respect to shares of stock of
other corporations owned by or standing in the name of the Corporation may be
executed and delivered from time to time on behalf of the Corporation by the
President or by any other person or persons thereunto authorized by the Board of
Directors.
Section 5.6 Other Contracts and Instruments. All other contracts and
instruments binding the Corporation shall be executed in the name and on the
behalf of the Corporation by those officers, employees or agents of the
Corporation as may be authorized by the board of Directors. That authorization
may be general or confirmed to specific instances.
ARTICLE VI
Record Dates
Section 6.1 Record Dates. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment
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thereof, or to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
be not more than sixty nor less than ten days before the date of such meeting,
nor more than sixty days prior to any other action. Only those stockholders of
record on the date so fixed shall be entitled to any of the foregoing rights,
notwithstanding the transfer of any such stock on the books of the Corporation
after any such record date fixed by the Board of Directors.
ARTICLE VII
Corporate Seal
Section 7.1 Corporate Seal. The corporate seal shall be circular in
form and shall bear the name of the Corporation and words and figures denoting
its organization under the laws of the State of Delaware and the year thereof
and otherwise shall be in such form as shall be approved from time to time by
the Board of Directors.
ARTICLE VIII
Fiscal Year
Section 8.1 Fiscal Year. The fiscal year of the Corporation shall be
the calendar year.
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ARTICLE IX
Amendments
Section 9.1 Amendments. All Bylaws of the Corporation may be amended or
repealed, and new Bylaws may be made, by an affirmative majority of the votes
cast at any annual or special stockholders' meeting by holders of outstanding
shares of stock of the Corporation entitled to vote, or by an affirmative vote
of a majority of the directors present at any organizational, regular, or
special meeting of the Board of Directors.
ARTICLE X
Action Without A Meeting
Section 10.1 Action Without A Meeting. Any action which might have been
taken under these Bylaws by a vote of the stockholders at a meeting thereof may
be taken without a meeting, without prior notice and without a vote, if a
consent in writing setting forth the action so taken, shall be individually
signed and dated by the holders of outstanding shares of stock of the
Corporation having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted, provided that no written
consent will be effective unless the necessary number of written consents is
delivered to the Corporation within sixty days of the earliest delivered consent
to the Corporation, and provided further that prompt notice shall be given to
those stockholders who have not so consented if less than unanimous written
consent is obtained. Any action which might have been taken under these Bylaws
by vote of the directors at any meeting of the Board of Directors or any
committee thereof may be taken without a meeting if all the members of the Board
of Directors or such committee, as the case may be, consent thereto in writing,
and the writing or writings are filed with the minutes of the Board of Directors
or such committee.
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ARTICLE XI
Indemnification
Section 11.1 Indemnification. The Corporation shall indemnify, in the
manner and to the full extent permitted by law, any person (or the estate of any
person) who was or is a party to, or is threatened to be made a party to, any
threatened, pending or completed action, suit or proceeding, whether or not by
or in the right of the Corporation, and whether civil, criminal, administrative,
investigative or otherwise, by reason of the fact that such person is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise.
Where required by law, the indemnification provided for herein shall be made
only as authorized in the specific case upon a determination, in the manner
provided by law, that indemnification of the director, officer, employee or
agent is proper in the circumstances. The Corporation may, to the full extent
permitted by law, purchase and maintain insurance on behalf of any such person
against any liability which may be asserted against such person. To the full
extent permitted by law, the indemnification provided herein shall include
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, and, in the manner provided by law, any such expenses may be paid by
the Corporation in advance of the final disposition of such action, suit or
proceeding. The indemnification provided herein shall not be deemed to limit the
right of the Corporation to indemnify any other person for any such expenses to
the full extent permitted by law, nor shall it be deemed exclusive of any other
rights to which any person seeking indemnification from the Corporation may be
entitled under any agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office. Such indemnification shall continue
as to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such
person.
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EXHIBIT 10.9
OFFICE LEASE
STATE OF TENNESSEE
COUNTY OF WILLIAMSON
THIS LEASE (the "Lease") is made this the 22nd day of November, 1999,
by and between W. FRED WILLIAMS, TRUSTEE FOR THE BENEFIT OF HIGHWOODS/TENNESSEE
HOLDINGS, L.P., hereinafter "Landlord" and LIFEPOINT HOSPITALS, INC., a
Tennessee corporation hereinafter "Tenant":
W I T N E S S E T H:
Upon the terms and conditions hereinafter set forth, Landlord leases to
Tenant and Tenant leases from Landlord property referred to as the Premises, all
as follows:
1. PREMISES. The property hereby leased to Tenant is that area shown on
EXHIBIT A hereto attached, which consists of approximately 25,481 rentable
square feet, (measured in accordance with Building Owners and Managers
Association International ("BOMA") American National Standard ANSI 265.1 - 1996,
for usable area) together with the non-exclusive right in common with other
tenants, to use and occupy the "Common Areas" (as hereinafter defined) located
in what is sometimes called the Highwoods Plaza II Building (the "Building"),
located at 103 Powell Court, Suite 200, Brentwood, Williamson County, State of
Tennessee (the "Premises"). As used herein the term "Common Areas" shall mean
and include all entrances, lobbies, corridors, stairways, stairwells, public
restrooms, elevators, parking areas, loading and unloading areas, trash areas,
roadways, walkways, sidewalks, driveways, and landscaped areas, located in, on,
adjacent to or under the Building.
If Landlord and Tenant desire for improvements to be made to the
Premises prior to the Commencement Date such improvements shall be made pursuant
to the workletter attached hereto as EXHIBIT A-1 (the "Workletter").
2. TERM. This Lease Term (the "Term") shall be for the period
commencing on the date Tenant takes occupancy of the Premises with the Tenant
Improvements (as defined in the Workletter) Substantially Complete (as defined
in the Workletter) ("Commencement Date"), and shall expire (unless sooner
terminated or extended as herein provided) at noon on April 30, 2008
("Expiration Date"). In the event Landlord shall permit Tenant to take
possession of the Premises prior to the Commencement Date referenced above, all
the terms and conditions of this Lease except payment of Rent shall apply.
If Landlord, for any reason whatsoever, cannot deliver possession of
the Premises to Tenant on the Commencement Date, then this Lease shall not be
void or voidable, no obligation of Tenant shall be affected thereby, and neither
Landlord nor Landlord's agents shall be liable to Tenant for any loss or damage
resulting from the delay in delivery of possession; provided, however, that in
such event, the Commencement Date and Expiration Date of this Lease, and all
other dates that may be affected by their change, shall be revised to conform to
the date of Landlord's delivery of possession to Tenant. The above, however, is
subject to the provision that the period permitted for the delay of delivery of
possession of the Premises shall not exceed sixty (60) days after the
Commencement Date set forth in the first sentence of this SECTION 2 (except that
those delays beyond Landlord's control, including, without limitation, those
encompassed in the meaning of the term "force majeure," delays due to permits
and governmental approvals to be obtained by Landlord shall not be deemed "force
majeure," or caused by Tenant (the "Delays") shall be excluded in calculating
such period). If Landlord does not deliver possession to Tenant within such
period, then Tenant may terminate this Lease by written notice to Landlord;
provided, that written notice shall be ineffective if given after Tenant takes
possession of any part of the Premises, or if given more than one hundred (100)
days after the original Commencement Date plus the time of any Delays. Unless
expressly otherwise provided herein, Rent (as hereinafter defined) shall
commence on the later of: (i) May 1, 2000; (ii) the date Tenant takes occupancy
of the Premises; (iii) the date Landlord has the Premises ready for occupancy by
Tenant, as such date is adjusted under the Workletter, if any, attached hereto;
or (iv) the date Landlord could have had the Premises ready had there been no
Delays attributable to Tenant ("Rent Commencement Date"). Notwithstanding the
foregoing, Tenant's "Access During Construction", as provided in SECTION 11 of
the Workletter, shall not be considered occupancy of the Premises by Tenant.
Unless the context
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otherwise so requires, the term "Rent" as used herein includes both Base Rent
and Additional Rent as set forth in SECTION 4.
If the Expiration Date, as determined herein, does not occur on the
last day of a calendar month, then Landlord, at its option, may extend the Term
by the number of days necessary to cause the Expiration Date to occur on the
last day of the last calendar month of the Term. Tenant shall pay Base Rent and
Additional Rent for such additional days at the same rate payable for the
portion of the last calendar month immediately preceding such extension. The
Commencement Date, Term (including any extension by Landlord pursuant to this
SECTION 2) and Expiration Date may be set forth in a commencement letter (the
"Commencement Letter") prepared by Landlord and executed by Tenant.
3. USE. The Premises may be used for general office purposes and any
use incidental to or in connection with such use, and for any use permitted by
applicable zoning regulations (the "Permitted Use"). The Premises shall be
occupied by no more than four (4) persons per 1,000 rentable square feet. Tenant
shall never make any use of the Premises which is in violation of any
governmental laws, rules or regulations, whether now existing or hereafter
enacted or which is in violation of the general rules and regulations for
tenants (a copy of the present rules are attached as EXHIBIT B) as may be
developed or modified from time to time by Landlord effective as of the date
delivered to Tenant or posted on the Premises providing such rules are uniformly
applicable to all tenants in the Building (the "Rules and Regulations"), nor may
Tenant make any use of the Premises not permitted, or otherwise prohibited, by
any restrictive covenants which apply to the Premises which Landlord has
provided Tenant with written notice thereof. Tenant may not make any use that is
or may be a nuisance or trespass, which increases any insurance premiums, or
makes such insurance unavailable to Landlord on the Building. Should Tenant's
use conflict with the preceding sentence, Landlord shall notify Tenant in
writing specifying such conflict, and within thirty (30) days of Tenant's
receipt of such notice, Landlord and Tenant shall meet and agree in good faith
to a resolution of such conflict. In the event of an increase in any of
Landlord's insurance premiums which results from Tenant's use or occupancy of
the Premises, if Tenant does not pay Landlord within thirty (30) days of
Tenant's receipt of written notice the amount of such increase, Landlord may
treat such use as a default hereunder.
4. RENT. As used herein, the term "Rent" shall mean Base Rent (as
hereinafter defined) plus Additional Rent (as hereinafter defined). Tenant shall
pay to Landlord Rent, on or before the first day of each calendar month during
the Term, without previous demand or notice therefor by Landlord and without set
off or deduction; provided, however, if the Rent Commencement Date is on a day
other than the first day of a calendar month, then Rent for such month shall be
(i) prorated for the period between the Rent Commencement Date and the last day
of the month in which the Rent Commencement Date falls, and (ii) due and payable
on the Rent Commencement Date. Notwithstanding anything contained herein to the
contrary, Tenant's obligation to pay Rent under this Lease is completely
separate and independent from any of Landlord's obligations under this Lease.
For each monthly Rent payment Landlord receives after the tenth (10th) day of
the month, Landlord shall be entitled to all remedies provided under SECTION 13
and SECTION 14 below, and a late charge in the amount of five percent (5%) of
all Rent due for such month. If Landlord presents Tenant's check to any bank and
Tenant has insufficient funds to pay for such check, then Landlord shall be
entitled to all remedies provided under SECTIONS 13 below and a lawful bad check
fee or five percent (5%) of the amount of such check, whichever amount is less.
4.1 BASE RENT. As used herein, "Base Rent" shall refer to the
following schedule:
<TABLE>
<CAPTION>
FROM THROUGH RATE/SF MONTHLY ANNUALLY
Rent Commencement Date 4/30/01 $14.47 $30,721.50 $368,658.00
<S> <C> <C> <C> <C>
5/1/01 4/30/02 $16.56 $35,160.93 $421,931.16
5/1/02 4/30/03 $18.73 $39,771.59 $477,259.08
5/1/03 4/30/04 $19.10 $40,557.26 $486,687.12
5/1/04 4/30/05 $19.48 $41,364.16 $496,369.92
5/1/05 4/30/06 $19.87 $42,192.29 $506,307.48
5/1/06 4/30/07 $20.27 $43,041.66 $516,499.92
5/1/07 4/30/08 $20.68 $43,912.26 $526,947.12
</TABLE>
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<PAGE> 3
4.2 ADDITIONAL RENT. As used in this Lease, the term "Additional
Rent" shall mean all sums and charges, excluding Base Rent, due and payable by
Tenant under this Lease, including, but not limited to, the following:
(a) sales or use tax imposed on rents collected by Landlord or
any tax on rents in lieu of ad valorem taxes on the Building ("Alternative
Taxes"), even though laws imposing such Alternative Taxes attempt to require
Landlord to pay the same; provided, however, if any such Alternative Taxes shall
be imposed on Landlord and Landlord shall be prohibited by applicable law from
collecting such Alternative Taxes from Tenant as Additional Rent, then unless,
legally, (i) Tenant can and does reimburse Landlord for such Alternative Taxes,
or (ii) in the event applicable law prohibits Tenant from reimbursing Landlord
for such Alternative Taxes, Landlord and Tenant, during the one hundred eighty
(180) day period commencing upon the date the Alternative Taxes are imposed upon
Landlord, enter into a new lease having the same economic terms as would have
existed under this Lease for the remainder of the then existing Term if the
Alternative Taxes had not been imposed upon Landlord (with both Landlord and
Tenant being obligated to negotiate in good faith), Landlord may terminate this
Lease at any time after the expiration of such one hundred eighty (180) day
period by giving written notice of same to Tenant.
(b) Tenant's Proportionate Share (as hereinafter defined) of the
increase in Landlord's Operating Expenses (as hereinafter defined) as set forth
in the attached Addendum.
5. SERVICES BY LANDLORD. Landlord shall cause to be furnished to the
Building, or as applicable, the Premises, in common with other tenants, during
business hours of 7:00 A.M. to 6:00 P.M. Monday through Friday and 8:00 A.M. to
12:00 P.M. on Saturday (excluding Memorial Day, Fourth of July, Labor Day,
Christmas day, New Years day and Thanksgiving day), the following services;
janitorial services (five (5) days a week after normal working hours in
accordance with the cleaning specifications attached hereto as EXHIBIT B-1), hot
and cold water (if available from city mains) for drinking, lavatory and toilet
purposes, operatorless elevator service (accessible 24 hours, 7 days per week)
and heating and air conditioning for the reasonably comfortable use and
occupancy of the Premises at times and temperatures comparable to other Class
"A" office buildings in the Maryland Farms Office Park in Brentwood, Tennessee,
provided heating and cooling conforming to any governmental regulation mandating
limitations thereon shall be deemed to comply with this service. Landlord shall
use it commercially reasonable efforts to promptly remove snow and ice from the
Common Areas. Landlord shall furnish the Premises with electricity for the
maintenance of building standard fluorescent lighting composed of 2' x 4'
fixtures. Incandescent fixtures, table lamps, all lighting other than the
aforesaid building standard fluorescent light, dimmers and all lighting controls
other than controls for the aforesaid building standard fluorescent lighting
shall be serviced, replaced and maintained at Tenant's expense. Landlord shall
also furnish the Premises with electricity for lighting for the aforesaid
building standard fluorescent lighting and for the operation of general office
machines, such as electric typewriters, desk top computers, word processing
equipment, dictating equipment, adding machines and calculators, and general
service non-production type office copy machines. Landlord shall have the right
to enter and inspect the Premises and all electrical devices therein from time
to time, provided that Landlord shall have no obligation to provide more than
five (5) watts per usable square foot of electricity serving the Premises.
Landlord reserves the right to separately meter the Premises should Tenant's use
of electricity be determined by Landlord in its reasonable discretion to be
excessive. After hours heating and air conditioning is available at a charge of
$30.00 per hour, per zone, with a minimum of one (1) hour per occurrence. All
additional costs resulting from Tenant's extraordinary usage of heating, air
conditioning or electricity shall be paid by Tenant within thirty (30) days as
Additional Rent for each month or portion thereof, and Tenant shall not install
equipment with unusual demands for any of the foregoing without Landlord's prior
written consent, which Landlord may withhold if it determines that in its
reasonable opinion such equipment may not be safely used in the Premises or that
electrical service is not adequate therefor. Provided that the heating and air
conditioning system serving the Premises is operating in good working order and
repair, if heat generating machines or equipment or other intensive activities
shall be used or carried on in the Premises by Tenant which affect the
temperature otherwise maintained by the heating and air conditioning system,
Landlord shall have the right, and Tenant may request in writing for Landlord,
to install supplemental air conditioning units in the Premises. All costs
incurred in connection with the installation of such supplemental air
conditioning units shall be paid by Tenant at the time of such installation. The
cost of operating and maintaining such supplemental air
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<PAGE> 4
conditioning units shall be paid monthly by Tenant during the remaining Term.
Landlord shall further provide free parking, in common with the other tenants,
for Tenant's employees and visitors in the parking area shown on EXHIBIT "C"
attached hereto and incorporated herein. Landlord warrants that as of the
Commencement Date the number of parking areas serving the Building satisfies
applicable Brentwood, Tennessee codes requirements.
To the extent the services described above require electricity, gas and
water supplied by public utilities, Landlord shall use its commercially
reasonable efforts to cause the applicable public utilities to furnish same.
Notwithstanding anything herein to the contrary, in the event Tenant's ability
to reasonably conduct Tenant's business at the Premises during normal operating
hours as contemplated by this Lease is interrupted for 96 continuous hours as a
result of any of the foregoing services not being continuously provided to
Tenant, Base Rent shall abate for the period commencing on the expiration of
such 96 hour period and ending at such time as Tenant is able to reasonably
conduct Tenant's business at the Premises during normal operating hours as
contemplated by this Lease, provided that such abatement shall only be available
to Tenant in the event such interruption is within Landlord's dominion and
control and not beyond Landlord's power as contemplated by the concept of "force
majeure." Landlord agrees to use its commercially reasonable efforts to promptly
restore said services.
Tenant shall report to Landlord with reasonable promptness any material
defective condition in or about the Premises known to Tenant and if such defect
is not so reported and such failure to promptly report results in other damage,
Tenant shall be liable for same. Landlord shall not be liable to Tenant for any
damage caused to Tenant and its property due to the Building or any part or
appurtenance thereof being improperly constructed or being or becoming out of
repair, or arising from the leaking of gas, water, sewer or steam pipes, or from
problems with electrical service, unless due to the gross negligence or willful
misconduct of Landlord or Landlord's agents, contractors or employees, or
Landlord's failure to maintain the Premises, Building, or Common Areas as
required by this Lease.
6. TENANT'S ACCEPTANCE AND MAINTENANCE OF PREMISES; LANDLORD'S DUTIES
AND RIGHTS. Tenant's occupancy of the Premises is Tenant's acknowledgment to
Landlord that Tenant has examined and inspected the same, finds the Premises to
be as represented by Landlord and satisfactory for Tenant's intended use, and
constitutes Tenant's acceptance "as is" expressly subject, however, to the terms
and provisions of the Workletter attached hereto. Landlord otherwise makes no
representation or warranty as to the condition of said Premises except the same
shall be delivered to Tenant in accordance with all applicable codes, laws, and
regulations. During Tenant's move-in, a representative of Tenant must be on-site
with Tenant's moving company to insure proper treatment of the Building and the
Premises. Elevators in multi-story office buildings must remain in use for the
general public during business hours as defined herein in SECTION 5. Any
specialized use of elevators must be coordinated with Landlord's property
manager. Tenant must properly dispose of all packing material and refuse in
accordance with the Rules and Regulations. Any damage or destruction to the
Building or the Premises due to moving will be the sole responsibility of
Tenant. Tenant shall deliver at the end of this Lease each and every part of the
Premises in good repair and condition, ordinary wear and tear and damage by
casualty excepted. The delivery of a key or other such tender of possession of
the Premises to Landlord or to an employee of Landlord shall not operate as a
termination of this Lease or a surrender of the Premises except upon written
notice by Landlord. Tenant shall: (i) keep the Premises and fixtures in good
order; (ii) make repairs and replacements to the Premises or Building needed
because of Tenant's misuse or primary negligence; (iii) repair and replace
special equipment or decorative treatments installed by or at Tenant's request
and that serve the Premises only, except if this Lease is ended because of
casualty loss or condemnation; and (iv) not commit waste. Tenant may make
non-structural alternations or modifications costing Five Thousand and 00/100
Dollars ($5,000.00) or less without the necessity of Landlord's consent, but
agrees to give notice to Landlord of such alterations or modifications.
Alterations or modifications costing in excess of Five Thousand and 00/100
Dollars ($5,000.00) may only be made upon Landlord's prior approval based upon
plans and specifications provided to Landlord by Tenant, which approval shall
not be unreasonably withheld, conditioned or delayed. On termination of this
Lease or vacation of the Premises by Tenant, Tenant shall, at Tenant's sole
expense, ordinary wear and tear and damage by insured casualty only excepted,
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<PAGE> 5
remove alterations performed by Tenant if (i) such alterations were subject to
Landlord's prior consent and (ii) Landlord advised Tenant that removal upon
termination would be required at the time of approval of such alterations by
Landlord. Landlord, however, may elect to require Tenant to leave alterations
performed for Tenant unless at the time of such alterations Landlord agreed in
writing such alterations could be removed on the Expiration Date, upon the
termination of this Lease or upon Tenant's vacation of the Premises.
Tenant may, without Landlord's consent, install temporary partitions,
shelves, bins, equipment, trade fixtures and other personal property in the
Premises. These items shall remain Tenant's property and may be removed by
Tenant prior to the expiration or earlier termination of this Lease. Tenant
shall repair any damage to the Premises caused by such removal.
Tenant shall keep the Premises and the Building free from any liens
arising out of any work performed, materials furnished, or obligations incurred
by or on behalf of Tenant other than work performed by Landlord or Landlord's
agents, contractors, or employees. Should any claim of lien or other lien be
filed against the Premises or the Building by reason of any act or omission of
Tenant or any of Tenant's agents, employees, contractors or representatives,
then Tenant shall cause the same to be canceled and discharged of record by bond
or otherwise within fifteen (15) days after Tenant's receipt of notice thereof,
however, should Tenant contest the validity of such lien, Tenant may post a bond
in the amount of such lien with Landlord pending resolution. Should Tenant fail
to discharge such lien within such fifteen (15) day period, then Landlord may
discharge the same, in which event Tenant shall reimburse Landlord, on demand,
as Additional Rent, for the amount of the lien or the amount of the bond, if
greater, plus all reasonable administrative costs incurred by Landlord in
connection therewith. The remedies provided herein shall be in addition to all
other remedies available to Landlord under this Lease or otherwise. Tenant shall
have no power to do any act or make any contract that may create or be the
foundation of any lien, mortgage or other encumbrance upon the reversionary or
other estate of Landlord, or any interest of Landlord in the Premises. NO
CONSTRUCTION LIENS OR OTHER LIENS FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED
TO THE PREMISES SHALL ATTACH TO OR AFFECT THE INTEREST OF LANDLORD IN AND TO THE
PREMISES OR THE BUILDING.
Notwithstanding anything to the contrary set forth above in this
SECTION 6, if Tenant does not perform its maintenance obligations in a timely
manner as set forth in this Lease, commencing the same within seven (7) days
after receipt of notice from Landlord specifying the work needed and thereafter
diligently and continuously pursuing completion of unfulfilled maintenance
obligations, then Landlord shall have the right, but not the obligation, to
perform such maintenance, and any amounts so expended by Landlord shall be paid
by Tenant to Landlord within thirty (30) days after written demand, with
interest at the maximum rate allowed by law (or the rate of twelve percent (12%)
per annum, whichever is less) accruing from the date of expenditure through the
date paid.
Except for repairs and replacements that Tenant must make under this
SECTION 6, Landlord shall pay for and make all other repairs and replacements to
the Premises, Common Areas and Building (including Building fixtures and
equipment). Without limiting the generality of the foregoing, this maintenance
shall include (i) all of the doors and the windows of the Premises, all of the
doors and the windows of the Common Areas, the roof, exterior walls, interior
structural walls, foundations and other structural components of the Building;
(ii) all mechanical (including, but not limited to, heating, air conditioning,
plumbing, electrical, elevator and fire protection systems) elements and
components of the Building; (iii) cracked or broken glass or any vandalism to
the Common Areas; (iv) the interior walls, wall coverings, ceilings, ceiling
tiles, light fixtures, floors, and floor coverings located in the Common Areas;
and (v) any exterior improvements to the land containing the Common Areas
including all sidewalks, driveways, parking areas, fences, landscaping, exterior
lighting and signage. Landlord shall keep all of the foregoing clean and free of
all refuse and rubbish and otherwise in a sightly first class condition and
appearance in keeping with other Class "A" office buildings in the Maryland
Farms Office Park in Brentwood, Tennessee. Landlord's obligations under this
SECTION 6 shall be made within a reasonable time (depending on the nature of the
repair or replacement needed) after Landlord's receipt of notice from Tenant or
Landlord's having actual knowledge of the need for a repair or replacement.
All of the obligations set forth in this SECTION 6 shall be performed
in a good and workman-like manner.
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<PAGE> 6
7. DAMAGES TO PREMISES. If the Building or Premises shall be partially
damaged by fire or other casualty insured under Landlord's insurance policies,
and if Landlord's lender(s) shall permit insurance proceeds paid as a result
thereof to be so used, then upon receipt of the insurance proceeds, Landlord
shall, except as otherwise provided herein, promptly repair and restore the
Premises (exclusive of improvements made by Tenant, Tenant's trade fixtures,
decorations, signs, and contents) to a condition at least equal to the condition
thereof immediately prior to such damage or destruction; limited, however, to
the extent of the insurance proceeds received by Landlord. If by reason of such
occurrence: (i) the Premises is rendered wholly untenantable; (ii) the Premises
is damaged in whole or in part as a result of a risk which is not covered by
Landlord's insurance policies; (iii) Landlord's lender does not permit a
sufficient amount of the insurance proceeds to be used for restoration purposes;
(iv) the Premises is damaged in whole or in part during the last two years of
the Term; or (v) the Building containing the Premises is damaged (whether or not
the Premises is damaged) to an extent of fifty percent (50%) or more of the
replacement cost thereof, then Landlord may elect either to repair the damage as
aforesaid, or to cancel this Lease by written notice of cancellation given to
Tenant within sixty (60) days after the date of such occurrence, and thereupon
this Lease shall terminate. Tenant shall vacate and surrender the Premises to
Landlord within thirty (30) days after receipt of such notice of termination. In
addition, Tenant may also terminate this Lease by (x) written notice given to
Landlord within thirty (30) days of the date of such occurrence if the Premises
is damaged in whole or in part during the last twelve (12) months of the Term
and the period for repair to the Premises shall exceed ninety (90) days; or (y)
written notice given to Landlord at any time between the one hundred fifty-first
day (151st) and one hundred sixty-sixty (166th) days after the occurrence of any
such casualty, if Landlord has failed to restore the damaged portions of the
Building (including the Premises) within one hundred fifty (150) days of such
casualty. However, if Landlord is prevented by Delays as defined in SECTION 2,
from completing the restoration within said one hundred fifty (150) day period,
and if Landlord provides Tenant with written notice of the cause for the Delays
within fifteen (15) days after the occurrence thereof, such notice to contain
the reason for the Delays and a good faith estimate of the period of the Delays
caused thereby, then Landlord shall have an additional period beyond said one
hundred fifty (150) days, equal to the Delays in which to restore the damaged
areas of the Building including the Premises; and Tenant may not elect to
terminate this Lease until said additional period required for completion has
expired with the Building not having been substantially restored. In such case,
Tenant's fifteen (15) day notice of termination period shall begin to run upon
the expiration of Landlord's additional period for restoration set forth in the
preceding sentence. Upon the termination of this Lease as aforesaid, Tenant's
liability for the Rent and other charges reserved hereunder shall cease as of
the effective date of the termination of this Lease, subject, however, to the
provisions for abatement of Rent hereinafter set forth and any prepaid Rent
shall be refunded to Tenant upon the termination of this Lease.
Unless this Lease is terminated as aforesaid, this Lease shall remain
in full force and effect, and Tenant shall with reasonable promptness repair,
restore, or replace Tenant's improvements, trade fixtures, decorations, signs,
and contents in the Premises to a condition comparable to other Class "A" office
buildings in the Maryland Farms Office Park in Brentwood, Tennessee.
If, by reason of such fire or other casualty, the Premises is rendered
wholly untenantable or inaccessible to Tenant for Tenant's Permitted Use, then
the Rent payable by Tenant shall be fully abated, or if only partially damaged,
such Rent and other charges shall be abated proportionately as to that portion
of the Premises rendered untenantable or inaccessible to Tenant for Tenant's
Permitted Use, in either event (unless this Lease is terminated as aforesaid)
from the date of such casualty until the Premises are Substantially Complete (as
determined by the standards set forth in the Workletter). Tenant shall continue
the operation of Tenant's business in the Premises or any part thereof not so
damaged during any such period to the extent reasonably practicable as
determined by Tenant in Tenant's reasonable judgment. However, if such damages
or other casualty shall be caused by the negligence or other wrongful conduct of
Tenant or of Tenant's subtenants, licensees, contractors, or invitees, or their
respective agents or employees, there shall be no abatement of Rent. Except for
the abatement of the Rent hereinabove set forth, Tenant shall not be entitled
to, and hereby waives, all claims against Landlord for any compensation or
damage for loss of use of the whole or any part of the Premises and/or for any
inconvenience or annoyance occasioned by any such damage, destruction, repair,
or restoration.
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<PAGE> 7
8. ASSIGNMENT - SUBLEASE. Tenant may not assign or encumber this Lease
or its interest in the Premises arising under this Lease, and may not sublet any
part or all of the Premises without first obtaining the written consent of
Landlord, which consent shall not be unreasonably withheld, conditioned, or
delayed. Any assignment or sublease to which Landlord may consent (one consent
not being any basis that Landlord should grant any further consent) shall not
relieve Tenant of any or all of its obligations hereunder. For the purpose of
this SECTION 8, the word "assignment" shall be defined and deemed to include the
following: (i) if Tenant is a partnership, the withdrawal or change, whether
voluntary, involuntary or by operation of law, of partners owning thirty percent
(30%) or more of the partnership, or the dissolution of the partnership; (ii) if
Tenant consists of more than one person, an assignment, whether voluntary,
involuntary, or by operation of law, by one person to one of the other persons
that is a Tenant; (iii) if Tenant is a corporation, any dissolution or
reorganization of Tenant, or the sale or other transfer of a controlling
percentage (hereafter defined) of capital stock of Tenant other than to an
affiliate or subsidiary or the sale of fifty-one percent (51 %) in value of the
assets of Tenant; (iv) if Tenant is a limited liability company, the change of
members whose interest in the company is fifty percent (50%) or more. The phrase
"controlling percentage" means the ownership of, and the right to vote, stock
possessing at least fifty-one percent (51%) of the total combined voting power
of all classes of Tenant's capital stock issued, outstanding and entitled to
vote for the election of directors, or such lesser percentage as is required to
provide actual control over the affairs of the corporation. Acceptance of Rent
by Landlord after any non-permitted assignment shall not constitute approval
thereof by Landlord. Notwithstanding the foregoing provisions of this SECTION 8,
Tenant may assign or sublease part or all of the Premises without Landlord's
consent to: (i) any corporation that controls, is controlled by, or is under
common control with, Tenant; or (ii) any corporation resulting from the merger
or consolidation with Tenant or to any entity that acquires all of Tenant's
assets as a going concern of the business that is being conducted on the
Premises, as long as the assignee or sublessee is a bona fide entity and assumes
the obligations of Tenant, and continues the same Permitted Use as provided
under SECTION 3, and may, without Landlord's consent, sublease (but not assign
this Lease) any portion of the Premises to any company that provides
professional or administrative support services for Tenant on the Premises on a
regular basis. However, Landlord must be given prior written notice of any such
assignment or subletting, and failure to do so shall be a default hereunder.
Landlord shall not be required to consent to an assignment or sublease that
results in a use that violates the rights of a Building tenant under its lease.
In no event shall this Lease be assignable by operation of any law, and
Tenant's rights hereunder may not become, and shall not be listed by Tenant as
an asset under any bankruptcy, insolvency or reorganization proceedings. Tenant
is not, may not become, and shall never represent itself to be an agent of
Landlord, and Tenant acknowledges that Landlord's title is paramount, and that
it can do nothing to affect or impair Landlord's title.
If Landlord consents to any assignment or subletting, Tenant shall pay
all reasonable out-of-pocket costs and expenses incurred by Landlord in
connection with the assignment or sublease transaction, including Landlord's
reasonable attorneys" fees.
If this Lease shall be assigned or the Premises or any portion thereof
sublet by Tenant at a rental that exceeds the rentals to be paid to Landlord
hereunder, attributable to the Premises or portion thereof so assigned or
sublet, then fifty percent (50%) of any such excess shall be paid over to
Landlord by Tenant. If Landlord assists Tenant in finding a permissible
subtenant, Landlord shall be paid a fee for such assistance in addition to a fee
in an amount necessary to cover the subtenant's improvements to the Premises or
any portion thereof so assigned or sublet.
9. TENANT'S COMPLIANCE; INSURANCE REQUIREMENTS. Tenant shall comply
with all applicable laws, ordinances and regulations affecting the Premises, now
existing or hereafter adopted, including the Rules and Regulations, however,
nothing herein shall require Tenant to improve or alter the Premises where
Landlord would be required to make such improvements or alterations whether or
not Tenant occupied the Premises.
Throughout the Term, Tenant, at its sole cost and expense, shall keep
or cause to be kept for the mutual benefit of Landlord, Landlord's managing
agent, (presently Highwoods Realty Limited Partnership and its affiliates) and
Tenant, Commercial General Liability Insurance (1986 ISO Form or its equivalent)
with a combined single limit, each Occurrence
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<PAGE> 8
and General Aggregate-per location of at least TWO MILLION DOLLARS ($2,000,000),
which policy shall insure against liability of Tenant, arising out of and in
connection with Tenant's use of the Premises, and which shall insure the
indemnity provisions contained herein. Not more frequently than once every three
(3) years, Landlord may require the limits to be increased if in its reasonable
judgment (or that of its mortgagee) the coverage is insufficient. Tenant shall
also carry the equivalent of ISO Special Form Property Insurance on its personal
property and fixtures located in the Premises and any improvements made by
Tenant for their full replacement value and with coinsurance waived, and Tenant
shall neither have, nor make, any claim against Landlord for any loss or damage
to the same, regardless of the cause thereof.
Prior to taking possession of the Premises, and annually thereafter,
Tenant shall deliver to Landlord certificates or other evidence of insurance
satisfactory to Landlord. All such policies shall be non-assessable and shall
contain language to the extent obtainable that: (i) any loss shall be payable
notwithstanding any act or negligence of Landlord or Tenant that might otherwise
result in forfeiture of the insurance, (ii) that the policies are primary and
non-contributing with any insurance that Landlord may carry, and (iii) that the
policies cannot be canceled, non-renewed, or coverage reduced except after
thirty (30) days' prior written notice to Landlord. If Tenant fails to provide
Landlord with such certificates or other evidence of insurance coverage,
Landlord may obtain such coverage and Tenant shall reimburse the cost thereof on
demand.
Anything in this Lease to the contrary notwithstanding, Landlord hereby
releases and waives unto Tenant (including all partners, stockholders, officers,
directors, employees and agents thereof), its successors and assigns, and Tenant
hereby releases and waives unto Landlord (including all partners, stockholders,
officers, directors, employees and agents thereof), its successors and assigns,
all rights to recovery and rights to claim damages for any injury, loss, cost or
damage to persons or to the Premises or any other casualty, as long as the
amount of which injury, loss, cost or damage has been paid either to Landlord,
Tenant, or any other person, firm or corporation, under the terms of any
Property, General Liability, or other policy of insurance, to the extent such
releases or waivers are permitted under applicable law. As respects all policies
of insurance carried or maintained pursuant to this Lease and to the extent
permitted under such policies, Tenant and Landlord each shall cause their
insurance carriers to waive their rights of subrogation.
Subject to the mutual release and waiver of subrogation provisions set
forth in the immediately preceding paragraph, Tenant shall indemnify and hold
Landlord harmless from and against any and all claims of Landlord and third
parties arising out of (i) Tenant's use of the Premises or any part thereof,
(ii) any activity, work, or other thing done, permitted or suffered by Tenant in
or about the Premises or the Building, or any part thereof, (iii) any breach or
default by Tenant in the performance of any of its obligations under this Lease,
or (iv) any act or negligence of Tenant, or any officer, agent, employee,
contractor, servant, invitee or guest of Tenant; and in each case from and
against any and all damages, losses, liabilities, lawsuits, costs and expenses
(including attorneys' fees at all tribunal levels) arising in connection with
any such claim or claims as described in (i) through (iv) above, or any action
brought thereon, provided that Tenant shall not be liable to indemnify Landlord
with respect to claims for personal injury arising out of the negligence or
willful misconduct of Landlord and any of its contractors, agents, employees,
officers, partners or their invitees. Subject to the mutual release and waiver
of subrogation provisions set forth in the immediately preceding paragraph,
Landlord shall indemnify and hold Tenant harmless from and against any and all
claims of Tenant and third parties arising out of (i) Landlord's use of the
Building or any part thereof, (ii) any activity, work, or other thing done by
Landlord in the Building, or any part thereof, (iii) any breach or default by
Landlord in the performance of any of its obligations under this Lease, or (iv)
any act or negligence of Landlord, or any officer, agent, employee, contractor,
servant, invitee or guest of Landlord; and in each case from and against any and
all damages, losses, liabilities, lawsuits, costs and expenses (including
attorneys' fees at all tribunal levels) arising in connection with any such
claim or claims as described in the above (i) through (iv) of this sentence, or
any action brought thereon, provided that Landlord shall not be liable to
indemnify Tenant with respect to claims for personal injury arising out of the
negligence or willful misconduct of Tenant and any of its contractors, agents,
employees, officers, partners or their invitees.
If such action is brought against Landlord, Tenant upon notice from
Landlord shall defend the same through counsel selected by Tenant's insurer, or
other counsel reasonably
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acceptable to Landlord. Tenant assumes all risk of damage or loss to its
property or injury or death to persons in, on, or about the Premises, from all
causes except those for which the law imposes liability on Landlord regardless
of any attempted waiver thereof, and Tenant hereby waives such claims in respect
thereof against Landlord. The provisions of this paragraph shall survive the
termination of this Lease.
Landlord shall keep the Building, including the Common Areas
improvements, insured against damage and destruction by perils insured against
in an "all risk" policy by the equivalent of ISO Special Form Property Insurance
in the amount of the full replacement value of the Building. Additionally,
Landlord shall maintain Commercial General Liability Insurance (1986 ISO Form or
its equivalent) with a combined single limit, each Occurrence and General
Aggregate-per location of at least Two Million Dollars ($2,000,000), which
policy shall insure against liability of Landlord arising out of and in
connection with Landlord's use of the Common Areas serving the Building.
Landlord shall provide Tenant with ACORD 27 certificates for the policies
described in this paragraph.
Each party shall keep its personal property and trade fixtures in the
Premises and Building insured with the equivalent of ISO Special Form Property
Insurance in the amount of the full replacement cost of the property and
fixtures. Tenant shall also keep any non-standard improvements made to the
Premises at Tenant's request insured to the same degree as Tenant's personal
property.
Tenant's insurance policies required by this Lease shall: (i) be issued
by insurance companies licensed to do business in the state in which the
Premises are located with a general policyholder's ratings of at least A- and a
financial rating of at least VI in the most current Best's Insurance Reports
available on the Commencement Date, or if the Best's ratings are changed or
discontinued, the parties shall agree to a comparable method of rating insurance
companies; (ii) name the non-procuring party as an additional insured as its
interest may appear [other landlords or tenants may be added as additional
insureds in a blanket policy]; (iii) provide that the insurance not be canceled,
non-renewed or coverage materially reduced unless thirty (30) days advance
notice is given to the non-procuring party; (iv) be primary policies; (v)
provide that any loss shall be payable notwithstanding any gross negligence of
Landlord or Tenant which might result in a forfeiture thereunder of such
insurance or the amount of proceeds payable; (vi) have no deductible exceeding
TEN THOUSAND DOLLARS ($10,000), unless accepted in writing by Landlord; and
(vii) be maintained during the entire Term and any extension terms.
10. SUBORDINATION-ATTORNMENT-LANDLORD FINANCING.
(a) Tenant agrees to execute within twenty (20) days after request
therefor, and as often as requested, estoppel certificates confirming any
factual matter reasonably requested therein which is true and is within Tenant's
knowledge regarding this Lease, the Premises, or Tenant's use thereof,
including, but not limited to date of occupancy, Expiration Date, the amount of
Rent due and date to which Rent is paid, whether or not Tenant has any defense
or offsets to the enforcement of this Lease or the Rent payable hereunder or
knowledge of any default or breach by Landlord, and that this Lease together
with any modifications or amendments is in full force and effect. Tenant shall
attach to such estoppel certificate copies of all modifications or amendments.
(b) Tenant agrees to give any mortgagee of Landlord which has
provided a non-disturbance agreement to Tenant, notice of, and a reasonable
opportunity (which shall in no event be less than thirty (30) days after written
notice thereof is delivered to mortgagee as herein provided) to cure, any
Landlord default hereunder; and Tenant agrees to accept such cure if effected by
such mortgagee. No termination of this Lease by Tenant shall be effective until
such notice has been given and the cure period has expired without the default
having been cured. Further, Tenant agrees to permit such mortgagee (or other
purchaser at any foreclosure sale), and its successors and assigns, on acquiring
Landlord's interest in the Premises and the Lease, to become substitute Landlord
hereunder, with liability only for such Landlord obligations as accrue after
Landlord's interest is so acquired. Tenant agrees to attorn to any successor
Landlord.
(c) Landlord hereby represents and certifies to Tenant that as of
the date of this Lease, the land upon which the Building is located, the
Building and the common areas of the Building (collectively the "Property") are
not encumbered by any existing deeds of trust or ground or air space leases.
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(d) This Lease shall be subordinate and subject to any future fee
or leasehold deeds of trusts and ground leases covering the Property so long as
and upon the condition that any future mortgagee or ground lessor executes and
delivers a non-disturbance and attornment agreement providing that: If any deed
of trust is foreclosed or ground lease or air space lease terminated, then (A)
this Lease shall continue in full force and effect, (B) Tenant's quiet enjoyment
shall not be disturbed if Tenant is not in default of this Lease beyond any
applicable grace and notice period provided herein for the cure thereof; and (C)
Tenant shall attorn to and recognize the mortgagee, purchaser at a foreclosure
sale or ground or other lessor as Tenant's landlord for the remaining Term.
11. SIGNS. Tenant may not erect, install or display any sign or
advertising material upon the Building exterior, the exterior of the Premises
(including any exterior doors), or the exterior walls thereof, or in any window
therein, without the prior written consent of Landlord which shall not be
unreasonably withheld, conditioned, or delayed. Tenant shall have the right to
non-exclusive building standard signage to be located at the building directory,
the Building monument sign, and at the primary entrance to the Premises.
Landlord shall not alter or modify Tenant's signage upon the monument (whether
to place subsequent tenants upon the monument or for any other reason) after its
initial approval of Tenant's monument signage. The cost for all signage
specified under this SECTION 11 shall be deducted from Tenant's Allowance.
12. ACCESS TO PREMISES. Landlord shall have the right, at all
reasonable times upon 24 hours prior notice to Tenant, either itself or through
its authorized agents, to enter the Premises (i) to make repairs, alterations or
changes as Landlord is required or permitted to make hereunder, (ii) to inspect
the Premises, and (iii) to show the Premises to prospective mortgagees and
purchasers. Landlord shall have the right, either itself or through its
authorized agents, to enter the Premises at all reasonable times for inspection
to show prospective tenants if within one hundred eighty (180) days prior to the
Expiration Date as extended by any exercised option. Landlord agrees that at all
times other than in the event of an emergency, it shall use reasonable efforts
to minimize interference with Tenant's business in connection with its right of
entry hereunder. Tenant, its agents, employees, invitees, and guests, shall have
the right of ingress and egress to common and public areas of the Building,
provided Landlord by reasonable regulation may control such access for the
comfort, convenience, safety and protection of all tenants in the Building, or
as needed for making repairs and alterations. Tenant shall be responsible for
providing access to the Premises to its agents, employees, invitees and guests
after hours and Landlord shall provide card access therefore at Tenant's expense
to be paid out of the Allowance (as defined in the Workletter), but in no event
shall Tenant's use of and access to the Premises after hours compromise the
security of the Building. Landlord shall have the right to enter the Premises at
any time in the event of an emergency.
13. DEFAULT. If Tenant: (i) fails to pay when due any Base Rent within
seven (7) days of written notice of same from Landlord to Tenant (provided that
Landlord shall only be obligated to provide Tenant with such written notice two
(2) times during any calendar year and after such second notice, no written
notice from Landlord pursuant to this SECTION 13(I) is required during that
calendar year); or (ii) fails to pay when due any other sum of money which
Tenant is obligated to pay as provided in this Lease, including without
limitation Additional Rent, within seven (7) days of written notice of same from
Landlord to Tenant; or (iii) breaches any other agreement, covenant or
obligation herein set forth and such breach shall continue and not be remedied
within thirty (30) days after Landlord shall have given Tenant written notice
specifying the breach, or if such breach cannot, with due diligence, be cured
within said period of thirty (30) days and Tenant does not within said thirty
(30) day period commence and thereafter with diligence and continuity completely
cure the breach within a reasonable time after notice, provided that such
reasonable time shall in no event exceed one hundred twenty (120) days from
Tenant's receipt of notice of the breach; or (iv) files (or has filed against it
and not stayed or vacated within sixty (60) days after filing) any petition or
action for relief under any creditor's law (including bankruptcy,
reorganization, or similar action), either in state or federal court; or (v)
makes any transfer in fraud of creditors as defined in Section 548 of the United
States Bankruptcy Code (11 U.S.C. 548, as amended or replaced), has a receiver
appointed for its assets (and appointment shall not have been stayed or vacated
within thirty (30) days), or makes an assignment for benefit of creditors (each
a "Tenant Event of Default"); then Tenant shall be in default hereunder, and, in
addition to any other lawful right or remedy which it may have, Landlord at its
option may do the following: (i) terminate this Lease; (ii) repossess the
Premises, and with or without terminating, relet the same at such amount as
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is commercially reasonable; and if the amount for which the Premises is relet is
less than Tenant's Rent and all other obligations of Tenant to Landlord
hereunder, then Tenant shall pay the difference when due under the Lease to
Landlord, but if in excess of Tenant's Rent, and all other obligations of Tenant
hereunder, the entire amount obtained from such reletting shall belong to
Landlord, free of any claim of Tenant thereto. All reasonable expenses of
Landlord in repairing, restoring, or altering the Premises for reletting as
general office space, together with leasing fees and all other expenses in
seeking and obtaining a new Tenant shall be charged to and be a liability of
Tenant and Tenant shall pay same within thirty (30) days of Landlord's written
demand therefor. Landlord's reasonable attorneys" fees in pursuing any of the
foregoing remedies, or in collecting any Rent due by Tenant hereunder, shall be
paid by Tenant.
All rights and remedies of Landlord are cumulative, and the exercise of
any one shall not be an election excluding Landlord at any other time from
exercise of a different or inconsistent remedy. No exercise by Landlord of any
right or remedy granted herein shall constitute or effect a termination of this
Lease unless Landlord shall so elect by written notice delivered to Tenant.
The failure of Landlord to exercise its rights in connection with this
Lease or any breach or violation of any term, or any subsequent breach of the
same or any other term, covenant or condition herein contained shall not be a
waiver of such term, covenant or condition or any subsequent breach of the same
or any other covenant or condition herein contained.
No acceptance by Landlord of a lesser sum than the Base Rent,
administrative charges, Additional Rent and other sums then due shall be deemed
to be other than on account of the earliest installment of such payments due,
nor shall any endorsement or statement on any check or any letter accompanying
any check or payment be deemed as accord and satisfaction, and Landlord may
accept such check or payment without prejudice to Landlord's right to recover
the balance of such installment or pursue any other remedy provided in this
Lease.
In addition, no payments of money by Tenant to Landlord after the
expiration or termination of this Lease after the giving of any notice by
Landlord to Tenant shall reinstate or extend the Term, or make ineffective any
notice given to Tenant prior to the payment of such money. After the service of
notice or the commencement of a suit, or after final judgment granting Landlord
possession of the Premises, Landlord may receive and collect any sums due under
this Lease, and the payment thereof shall not make ineffective any notice or in
any manner affect any pending suit or any judgment previously obtained.
Tenant further agrees that Landlord may obtain an order for summary
ejectment from any court of competent jurisdiction without prejudice to
Landlord's rights to otherwise collect rents from Tenant.
The occurrence of any of the following shall constitute a default by
Landlord under this Lease: if Landlord breaches or fails to observe, keep, or
perform any term, covenant or condition of this Lease on its part to be
observed, kept or performed. The occurrence of any monetary default described in
this paragraph shall be a "Landlord Event of Default" following the passage of
seven (7) days following Landlord's receipt of written notice from Tenant of the
occurrence of such default, provided such default is not cured during such cure
period. The occurrence of any non-monetary default described in this paragraph
shall be a "Landlord Event of Default" following the passage of thirty (30) days
following Landlord's receipt of written notice from Tenant of the occurrence of
such default, provided such default is not cured during such cure period
(provided that in the case of any default by Landlord hereunder that cannot be
cured by the payment of money and cannot with diligence be cured within such
thirty (30) day period, if Landlord shall proceed promptly to cure the same and
thereafter shall prosecute the curing of such default with diligence and
continuity, then the time within which such default may be cured shall be
extended for up to an additional ninety (90) days (for a total of one hundred
twenty (120) days)).
Upon the occurrence and during the continuation of a Landlord Event of
Default, Tenant may exercise any legal or equitable rights or remedies to which
Tenant may be entitled, all of which shall be cumulative; provided that Tenant
shall not exercise any remedy of lease termination that may otherwise be
available to Tenant under applicable law resulting from Landlord's default
unless Landlord's default results in Tenant's constructive eviction or the
Premises becoming untenantable. In the event it
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becomes necessary for Tenant to employ an attorney to enforce the terms,
covenants and conditions of this Lease to be observed or performed by Landlord,
then Landlord agrees that Landlord will pay and reimburse Tenant, on demand
therefor, the reasonable attorneys' fees, costs and expenses, including court
costs, incurred by Tenant in connection therewith.
14. MULTIPLE DEFAULTS.
(a) Tenant acknowledges that any rights or options of first refusal, or
to extend the Term, to expand the size of the Premises, to purchase the Premises
or the Building, or other such or similar rights or options which have been
granted to Tenant under this Lease are conditioned upon the prompt and diligent
performance of the terms of this Lease by Tenant. Accordingly, should a Tenant
Event of Default occur under this Lease on four (4) or more occasions during any
twelve (12) month period, in addition to all other remedies available to
Landlord, all such rights and options shall automatically, and without further
action on the part of any party, expire and be deemed canceled and of no further
force and effect.
(b) Should a Tenant Event of Default occur in the payment of Base Rent,
Additional Rent, or any other sums payable by Tenant under this Lease on four
(4) or more occasions during any twelve (12) month period, then, in addition to
all other remedies otherwise available to Landlord, Tenant shall, within ten
(10) days after demand by Landlord, post a security deposit in, or increase the
existing Security Deposit by, a sum equal to three (3) months' installments of
Base Rent. Any security deposit posted pursuant to the foregoing sentence shall
be governed by SECTION 20(A) below.
(c) Should a Tenant Event of Default occur under this Lease on four (4)
or more occasions during any twelve (12) month period, in addition to all other
remedies available to Landlord, any notice requirements or cure periods
otherwise set forth in this Lease with respect to a default by Tenant shall not
apply.
15. PROPERTY OF TENANT. Tenant shall pay, timely, any and all taxes
levied or assessed against or upon Tenant's equipment, fixtures, furniture,
leasehold improvements and personal property located in the Premises unless
Tenant shall lawfully contest the same. Any statutory lien for Rent is waived.
Provided Tenant is not in default hereunder, Tenant may, prior to the Expiration
Date, remove all fixtures and equipment which it has placed in the Premises;
provided, however, Tenant repairs all damages caused by such removal. If Tenant
does not remove its property from the Premises upon termination (for whatever
cause) of this Lease, such property shall be deemed abandoned by Tenant, and
Landlord may dispose of the same in whatever manner Landlord may elect without
any liability to Tenant.
16. BANKRUPTCY. Landlord and Tenant understand that, notwithstanding
certain provisions to the contrary contained herein, a trustee or debtor in
possession under the United States Bankruptcy Code, as amended, (the "Code") may
have certain rights to assume or assign this Lease. Landlord and Tenant further
understand that, in any event, pursuant to the Code, Landlord is entitled to
adequate assurances of future performance of the provisions of this Lease. The
parties agree that, with respect to any such assumption or assignment, the term
"adequate assurance" shall include at least the following:
(a) In order to assure Landlord that the proposed assignee will
have the resources with which to pay all Rent payable pursuant to the provisions
of this Lease, any proposed assignee must have, as demonstrated to Landlord's
satisfaction, a net worth (as defined in accordance with generally accepted
accounting principles consistently applied) of not less than the net worth of
Tenant on the Effective Date (as hereinafter defined), increased by seven
percent (7%), compounded annually, for each year from the Effective Date through
the date of the proposed assignment. It is understood and agreed that the
financial condition and resources of Tenant were a material inducement to
Landlord in entering into this Lease.
(b) Any proposed assignee must have been engaged in the conduct of
business for the five (5) years prior to any such proposed assignment, which
business does
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not violate the Permitted Use allowed under SECTION 3 above and such proposed
assignee shall continue to engage in the Permitted Use. It is understood that
Landlord's asset will be substantially impaired if the trustee in bankruptcy or
any assignee of this Lease makes any use of the Premises other than the
Permitted Use.
(c) Any proposed assignee of this Lease must assume and agree to be
personally bound by the provisions of this Lease.
17. EMINENT DOMAIN. If all of the Building, parking area or Premises,
or such part thereof as will make the same unusable for the purposes
contemplated by this Lease, be taken under the power of eminent domain (or a
conveyance in lieu thereof), then this Lease shall terminate as of the date
possession is taken by the condemnor, and Rent shall be adjusted between
Landlord and Tenant as of such date. If only a portion of the Building, parking
area or Premises is taken and Tenant can continue use of the remainder for the
purposes contemplated by this Lease, then this Lease will not terminate, but
Rent shall abate in a just and proportionate amount to the loss of use
occasioned by the taking. Landlord shall be entitled to receive and retain the
entire award for the affected portion of the Building. Tenant shall have no
right or claim to advance any claim against Landlord for any part of any award
made to or received by Landlord for any taking and no right or claim for any
alleged value of the unexpired portion of this Lease, or its leasehold estate
except that portion of such award allocable to leasehold or other tenant
improvements made at Tenants cost and expense, or for costs of removal,
relocation, business interruption expense or any other damages arising out of
such taking. Tenant, however, shall not be prevented from making a claim against
the condemning party (but not against Landlord ) for any moving expenses, loss
of profits, or taking of Tenant's personal property (other than its leasehold
estate) to which Tenant may be entitled. Any such award shall not reduce the
amount of the award otherwise payable to Landlord, if any.
18. GENERAL COMPLIANCE, ADA COMPLIANCE. (a) Commencing on the
Commencement Date, Tenant, at Tenant's sole expense, shall comply with all laws,
rules, orders, ordinances, directions, regulations and requirements of federal,
state, county and municipal authorities now in force, which shall impose any
duty upon Landlord or Tenant with respect to the use, occupation or alteration
of the Premises, provided that (i) nothing herein shall require Tenant to pay
for any structural alterations to the Premises unless such structural
alterations are caused by or arise as a result of an alteration to the Premises
initiated by Tenant, and (ii) any structural alterations to the Premises that
Tenant is required to pay for hereunder shall be completed by Landlord and paid
for by Tenant within thirty (30) days of Tenant's receipt of Landlord's demand
for same.
(b) Commencing on the Commencement Date, Tenant shall cause the
Premises to comply with The Americans With Disabilities Act of 1990, together
with all amendments thereto which may be adopted from time to time, and all
rules and regulations promulgated thereunder ("ADA"). Commencing on the
Commencement Date, Landlord's responsibility for compliance with ADA shall
include the Common Areas of the Building, but not the Premises, and any and all
such compliance by Landlord shall be at Landlord's sole cost and expense.
Landlord covenants to Tenant that commencing on the Commencement Date the Common
Areas of the Building will comply with and meet any and all requirements of
accessibility as required by the ADA in effect as of the Commencement Date.
(c) The parties will hold each other harmless and indemnify each other
for all claims, demands, judgments, costs, expenses (including reasonable
attorneys' fees) and losses arising out of or related to a respective party's
failure to comply with SECTION 18(A) and/or SECTION 18(B) hereof.
(d) If Tenant receives any notices alleging violation of ADA relating
to any portion of the Building or of the Premises; any written claims or threats
regarding non-compliance with ADA and relating to any portion of the Building or
of the Premises; or any governmental or regulatory actions or investigations
instituted or threatened regarding non-compliance with ADA and relating to any
portion of the Building or of the Premises, then Tenant shall, within fifteen
(15) days after receipt of such, advise Landlord in writing, and provide
Landlord with copies of any such claim, threat, action or investigation (as
applicable).
19. QUIET ENJOYMENT. If Tenant complies with each of its obligations
hereunder, Tenant shall have and enjoy peacefully the possession of the Premises
during
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the Term hereof, provided that neither (a) the repair or restoration of the
Premises in accordance with the terms of this Lease, nor (b) the build-out,
repair, restoration or renovation by Landlord or other tenants of other space in
the Building shall be deemed a breach of this covenant or give to Tenant any
right to modify this Lease either as to term, rent payables or other obligations
to be performed, so long as Landlord uses commercially reasonable efforts to
minimize noise or other disruption to Tenant's occupancy in connection with any
repair, restoration or build-out by Landlord or the other Building tenants.
20. SECURITY DEPOSIT. (a) Tenant shall deposit with Landlord the sum of
$30,721.50, which sum Landlord shall retain as security for the performance by
Tenant of each of its obligations hereunder (the "Security Deposit"). The
Security Deposit shall not bear interest. If, at any time, Tenant fails to
perform its obligations, then Landlord may, at its option, apply the Security
Deposit, or any portion thereof required to cure Tenant's default; provided,
however, if prior to the Expiration Date or any termination of this Lease,
Landlord depletes the Security Deposit, in whole or in part, then immediately
following such depletion, Tenant shall restore the amount so used by Landlord.
Unless Landlord uses the Security Deposit to cure a default of Tenant, or to
restore the Premises to the condition to which Tenant is required to leave the
Premises upon the Expiration Date or any termination of the Lease, then Landlord
shall, within thirty (30) days after the Expiration Date or any termination of
this Lease, refund to Tenant any funds remaining in the Security Deposit. Tenant
may not credit against or deduct the Security Deposit from any month's Rent.
(b) On the first anniversary of the Rent Commencement Date, Landlord
shall refund the Security Deposit to Tenant but only if a Tenant Event of
Default has not occurred on or before the first anniversary of the Rent
Commencement Date.
21. NOTICES. All notices, demands and requests which may be given or
which are required to be given by either party to the other must be in writing.
All notices, demands and requests by Landlord or Tenant shall be addressed as
follows (or to such other address as a party may specify by duly given notice):
RENT PAYMENT ADDRESS: HIGHWOODS/TENNESSEE HOLDINGS, L.P.
P. O. Box 307310
Nashville, TN 37230
Tax ID# 56-1993393
LEGAL NOTICE ADDRESS
FOR LANDLORD HIGHWOODS/TENNESSEE HOLDINGS, L.P.
c/o Highwoods Properties, Inc.
Suite 600, 3100 Smoketree Court
Raleigh, North Carolina 27604
Attn: Manager, Lease Administration
Facsimile: 919-790-8749
WITH A COPY TO: HIGHWOODS PROPERTIES, INC.
2100 West End Avenue, Suite 950
Nashville, TN 37203
Facsimile: 615-320-5607
TENANT: LifePoint Hospitals, Inc.
103 Powell Court, Suite 200
Brentwood, TN 37027
Contact: William F. Carpenter, III
Phone: 615-344-6272
Facsimile # 615-344-6276
WITH A COPY TO: LifePoint Hospitals, Inc.
103 Powell Court, Suite 200
Brentwood, TN 37027
Contact: Neil Hemphill
Senior Vice President, Human Resources
Phone: 615-344-6272
Facsimile # 615-344-6276
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Notices, demands or requests which Landlord or Tenant are required or
desire to give the other hereunder shall be deemed to have been properly given
for all purposes if (i) delivered against a written receipt of delivery, (ii)
mailed by express, registered or certified mail of the United States Postal
Service, return receipt requested, postage prepaid, or (iii) delivered to a
nationally recognized overnight courier service for next business day delivery,
to its addressee at such party's address as set forth above or (iv) delivered
via telecopier or facsimile transmission to the facsimile number listed above,
provided, however, that if such communication is given via telecopier or
facsimile transmission, an original counterpart of such communication shall be
sent concurrently in either the manner specified in section (ii) or (iii) above
and written confirmation of receipt of transmission shall be provided. Each such
notice, demand or request shall be deemed to have been received upon the earlier
of the actual receipt or refusal by the addressee or three (3) business days
after deposit thereof at any main or branch United States post office if sent in
accordance with section (ii) above, and the next business day after deposit
thereof with the courier if sent pursuant to section (iii) above. The parties
shall notify the other of any change in address, which notification must be at
least fifteen (15) days in advance of it being effective.
Notices may be given on behalf of any party by such party's legal
counsel.
22. NON-SMOKING POLICY. Tenant, or Tenant's employees, shall not be
permitted to smoke in the Premises or in the Building, its grounds or Common
Areas, except in designated areas provided by Landlord. Landlord, at its sole
discretion, reserves the right to periodically move the designated smoking area.
23. HOLDING OVER. If Tenant shall hold over after the Expiration Date
or other termination of this Lease, such holding over shall not be deemed to be
a renewal of this Lease but shall be deemed to create a month-to-month tenancy
and by such holding over Tenant shall continue to be bound by all of the terms
and conditions of this Lease, except that during such tenancy-at-sufferance
Tenant shall pay to Landlord (i) Rent at the rate equal to one hundred fifty
percent (150%) of that provided for in the foregoing SECTION 4.1, as such rental
amount may have been increased in accordance with the terms of such SECTION 4.1
hereof, and (ii) any and all Operating Expenses and other forms of Additional
Rent payable under this Lease. The increased Rent during such holding over is
intended to compensate Landlord partially for losses, damages and expenses,
including frustrating and delaying Landlord's ability to secure a replacement
tenant.
24. RIGHT TO RELOCATE. INTENTIONALLY DELETED
25. BROKER'S COMMISSIONS. Tenant represents and warrants that it has
not dealt with any real estate broker, finder or other person, with respect to
this Lease in any manner, except Grubb & Ellis/Centennial whose address is 2300
West End Avenue, Nashville, TN 37203. Landlord shall pay only any commissions or
fees that are payable to the above-named broker or finder with respect to this
Lease pursuant to Landlord's separate agreement with such broker or finder.
Either party shall indemnify and hold the other harmless from any and all
damages resulting from claims that may be asserted by any other broker, finder
or other person (including, without limitation, any substitute or replacement
broker claiming to have been engaged by Landlord or Tenant in the future),
claiming to have dealt with Landlord or Tenant, as appropriate, in connection
with this Lease or any amendment or extension hereto, or which may result in
Tenant leasing other or enlarged space from Landlord. The provisions of this
paragraph shall survive the termination of this Lease.
26. ENVIRONMENTAL COMPLIANCE.
(a) Tenant's Responsibility. Tenant shall not (either with or
without negligence) cause or permit the escape, disposal or release of any
hazardous substances or materials. Tenant shall not allow the storage or use of
such substances or materials in any manner not sanctioned by law or in
compliance with the highest standards prevailing in the industry for the storage
and use of such substances or materials, nor allow to be brought into the
Building any such materials or substances except to use in the ordinary course
of Tenant's business, and then only after written notice is given to Landlord of
the identity of such substances or materials. Tenant covenants that the Premises
will at all times during its use or occupancy thereof be kept and maintained so
as to comply with all now existing or hereafter enacted or issued statutes,
laws, rules, ordinances, orders, permits and regulations of all state, federal,
local and other governmental and regulatory authorities,
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agencies and bodies applicable to the Premises, pertaining to environmental
matters or regulating, prohibiting or otherwise having to do with asbestos and
all other toxic, radioactive, or hazardous wastes or material including, but not
limited to, the Federal Clean Air Act, the Clean Water Act, the Federal Water
Pollution Control Act, the Toxic Substances Control Act, the Resource
Conversation and Recovery Act, the Federal Insecticide, Fungicide, Rodenticide
Act, the Safe Drinking Water Act, the Occupational Safety and Health Act and the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as from time to time amended (all hereafter collectively called "Laws"). Tenant
shall execute affidavits, representations and the like, from time to time, at
Landlord's request, concerning Tenant's best knowledge and belief regarding the
presence of hazardous substances or materials on the Premises.
(b) Tenant's Liability. Tenant shall hold Landlord free, harmless,
and indemnified from any penalty, fine, claim, demand, liability, cost, or
charge whatsoever which Landlord shall incur, by reason of Tenant's failure to
comply with this SECTION 26 including, but not limited to: (i) the cost of
bringing the Premises into compliance with all Laws and into a non-contaminated
state as existed prior to Tenant's occupancy; (ii) the reasonable cost of all
appropriate tests and examinations of the Premises to confirm that the Premises
have been brought into compliance with all Laws; and (iii) the reasonable fees
and expenses of Landlord's attorneys, engineers, and consultants incurred by
Landlord in enforcing and confirming compliance with this SECTION 26.
(c) Property. For the purposes of this SECTION 26, the Premises
shall include the real estate covered by this Lease; all improvements thereon;
all personal property used in connection with the Premises (including that owned
by Tenant); and the soil, ground water, and surface water of the Premises, if
the Premises includes any ground area.
(d) Inspections by Landlord. Landlord and its engineers,
technicians, and consultants (collectively the "Auditors") may, from time to
time upon not less than ten (10) days prior written notice as Landlord deems
appropriate, but not more often than once a year, conduct periodic tests and
examinations ("Audits") of the Premises to confirm and monitor Tenant's
compliance with this SECTION 26. Such Audits shall be conducted in such a manner
as to minimize the interference with Tenant's Permitted Use; however in all
cases, the Audits shall be of such nature and scope as shall be reasonably
required by then existing technology to confirm Tenant's compliance with this
SECTION 26. Notwithstanding the foregoing, Landlord shall have the right to
enter the Premises to conduct an Audit at any time in the event of an emergency.
Tenant shall reasonably cooperate with Landlord and its Auditors in the conduct
of the Audits. The cost of the Audits shall be paid by Landlord unless an Audit
shall conclude that Tenant has materially failed to comply with this SECTION 26,
in which event, Tenant may elect to obtain its own Audit, at its expense, to
determine Tenant's compliance with this SECTION 26.
If Tenant's Audit does not conclude that Tenant has materially
failed to comply with the provisions of this SECTION 26, Landlord may accept the
findings of Tenant's Audit, and no breach of this SECTION 26 shall be deemed to
have occurred, or, Landlord may elect to have a third Audit performed by an
environmental consultant mutually agreeable to Landlord and Tenant, the cost of
which shall be equally borne between Landlord and Tenant, and the findings of
such independent Audit shall be binding upon Landlord and Tenant.
(e) Landlord's Liability. Provided, however, the foregoing
covenants and undertakings of Tenant contained in this SECTION 26 shall not
apply to any condition or matter constituting a violation of any Law: (i) which
existed prior to the commencement of Tenant's use or occupancy of the Premises;
(ii) which was not caused, in whole or in part, by Tenant or Tenant's agents,
employees, officers, partners, contractors or invitees; or (iii) to the extent
such violation is caused by, or results from the acts or neglects of Landlord or
Landlord's agents, employees, officers, partners, contractors, guests, or
invitees.
(f) Tenant's Liability After Termination of Lease. The covenants
contained in this SECTION 26 shall survive the expiration or termination of this
Lease, and shall continue for so long as Landlord and its successors and assigns
may be subject to any expense, liability, charge, penalty, or obligation against
which Tenant has agreed to indemnify Landlord under this SECTION 26. Tenant may
elect to defend Landlord against
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claims asserted against Landlord under this Section with counsel reasonably
acceptable to Landlord.
(g) Landlord represents and warrants to Tenant that as of the date
hereof no "Hazardous Materials" (as hereafter defined) are present on the
Premises or in the Building or on the land upon which the Building is located,
and Landlord shall indemnify Tenant against any and all claims, demands,
liabilities, losses and expenses, including consultant fees, court costs and
reasonable attorneys' fees, arising out of any breach of the foregoing warranty.
Further, Landlord agrees to indemnify Tenant against any and all claims,
demands, liabilities, losses and expenses, including consultant fees, court
costs and reasonable attorneys' fees, arising out of any release of Hazardous
Materials by Landlord or Landlord's agents on the Premises or in the Building or
on the land upon which the Building is located during the Term of this Lease.
Landlord's obligations pursuant to the warranty and indemnity set forth in this
SECTION 26(G) shall survive the expiration or termination of this Lease, and
shall continue for so long as Tenant may be subject to any expense, liability,
charge, penalty, or obligation against which Landlord has agreed to indemnify
Tenant under this SECTION 26(G).
(h) "Hazardous Materials" as such term is used in this Lease means
any hazardous or toxic substance, material or waste, regulated or listed
pursuant to any Law. For purposes of SECTION 26, Hazardous Materials shall not
include those hazardous substances or wastes in an amount less than a
"reportable quantity" as defined in 40 C.F.R. Part 302, as amended, or hereafter
amended, that are used, stored, handled and disposed of in accordance with
applicable laws.
27. COMMUNICATIONS COMPLIANCE. Tenant acknowledges and agrees that any
and all telephone and telecommunication services desired by Tenant shall be
ordered and utilized at the sole expense of Tenant. Unless Landlord otherwise
reasonably requests or consents in writing, which consent shall not be
unreasonably withheld, all of Tenant's telecommunications equipment shall be
located and remain solely in the Premises and the telephone closet(s) on the
floor(s) on which the Premises are located, in accordance with rules and
regulations adopted by Landlord from time to time. Except as consistent with
Landlord's repair and maintenance obligation under SECTION 6 above, Landlord
shall otherwise have no responsibility for the maintenance of Tenant's
telecommunications equipment, including wiring; nor for any wiring or other
infrastructure to which Tenant's telecommunications equipment may be connected.
Tenant agrees that, to the extent any such service is interrupted, curtailed or
discontinued, Landlord shall have no obligation or liability with respect
thereto. Landlord shall have the right to interrupt or turn off
telecommunications facilities at the Building in the event of an emergency at
the Building that affects the health or safety of any tenant of the Building or
otherwise threatens the Building. In addition and upon twenty-four (24) hours
prior written notice to Tenant, Landlord shall have the right to interrupt or
turn off telecommunications facilities at the Building as is necessary in
connection with repairs to the Building, but Landlord shall use reasonable
efforts to perform such repairs during non-business hours to minimize
interference with Tenant's business in connection with the exercise of such
right hereunder. In the event that Tenant wishes at any time to utilize the
services of a telephone or telecommunications provider whose equipment is not
then servicing the Building, no such provider shall be permitted to install its
lines or other equipment within the Building without first securing the prior
written approval of the Landlord, which shall not be unreasonably withheld. The
provision of this paragraph may be enforced solely by Tenant and Landlord, are
not for the benefit of any other party, and specifically but without limitation,
no telephone or telecommunications provider shall be deemed a third party
beneficiary of this Lease. Tenant shall not utilize antennae and satellite
receiver dishes, within the Premises or the Building, without Landlord's prior
written consent, which consent shall not be unreasonably withheld. At Landlord's
option, Tenant may be required to remove any and all telecommunications
equipment (including wireless equipment) installed in the Premises or elsewhere
in or on the Building by or on behalf of Tenant, including wiring, or other
facilities for telecommunications transmittal prior to the expiration or
termination of the Lease Term and at Tenant's sole cost.
28. MISCELLANEOUS. Headings of sections are for convenience only and
shall not be considered in construing the meaning of the contents of such
section. The invalidity of any portion of this Lease shall not have any effect
on the balance hereof. Should either party institute any legal proceedings
against the other for breach of any provision herein contained, and prevail in
such action, the losing party shall be liable for the costs and
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<PAGE> 18
expenses of the prevailing party, including its reasonable attorneys' fees (at
all tribunal levels). This Lease shall be binding upon the respective parties
hereto, and upon their heirs, executors, successors and assigns. This Lease
supersedes and cancels all prior negotiations between the parties, and no
changes shall be effective unless in writing signed by both parties. Tenant
acknowledges and agrees that it has not relied upon any statements,
representations, agreements or warranties except those expressed in this Lease,
and that this Lease contains the entire agreement of the parties hereto with
respect to the subject matter hereof. Landlord may sell the Premises or the
Building without affecting the obligations of Tenant hereunder; upon the sale of
the Premises or the Building and assumption of Landlord's obligations hereunder,
Landlord shall be relieved of all responsibility for the Premises and shall be
released from any liability thereafter accruing under this Lease. If any
Security Deposit or prepaid Rent has been paid by Tenant, Landlord may transfer
the Security Deposit or prepaid Rent to Landlord's successor and upon such
transfer, Landlord shall be released from any liability for return of the
Security Deposit or prepaid Rent. This Lease may not be recorded without
Landlord's and Tenant's prior written consent. The singular shall include the
plural, and the masculine, feminine or neuter includes the other. If Landlord,
or its employees, officers, directors, stockholders or partners are ordered to
pay Tenant a money judgment because of Landlord's default under this Lease, said
money judgment may only be enforced against and satisfied out of: (i) Landlord's
interest in the Building in which the Premises are located including the rental
income and proceeds from sale; and (ii) any insurance or condemnation proceeds
received because of damage or condemnation to, or of, said Building available
for use by Landlord. No other assets of Landlord or said other parties
exculpated by the preceding sentence shall be liable for, or subject to, any
such money judgment. This Lease shall be interpreted and enforced in accordance
with the laws of the State of Tennessee. If requested by Landlord, Tenant shall
furnish appropriate legal documentation evidencing the valid existence in good
standing of Tenant, and the authority of any person signing this Lease to act
for the Tenant. The person executing this Lease on behalf of Tenant does hereby
covenant and warrant that Tenant is a duly authorized and existing corporation,
that Tenant has and is qualified to do business in the State of Tennessee, that
the corporation has a full right and authority to enter into this Lease and that
the person signing on behalf of the corporation is authorized to do so. The
person executing this Lease on behalf of Landlord does hereby covenant and
warrant that Highwoods/Tennessee Holdings, L.P. is a duly formed and existing
limited partnership, that Highwoods/Tennessee Holdings, L.P. has and is
qualified to do business in the State of Tennessee, that W. Fred. Williams,
Trustee, has the full right and authority to enter into this Lease and that the
person signing on behalf of W. Fred. Williams, Trustee, is authorized to do so.
The submission of this Lease to Tenant for review does not constitute a
reservation of or option for the Premises, and this Lease shall become effective
as a contract only upon the execution and delivery by both Landlord and Tenant.
The date of execution shall be entered on the top of the first page of this
Lease by Landlord, and shall be the date on which the last party signed the
Lease, or as Lease by Landlord, and shall be the date on which the last party
signed the Lease, or as otherwise may be specifically agreed by both parties.
Such date, once inserted, shall be established as the final day of ratification
by all parties to this Lease, and shall be the date for use throughout this
Lease as the "Effective Date." Capitalized terms not otherwise defined in the
exhibits and Addendum attached hereto shall have the meanings set forth in this
Lease.
29. ADDENDUM. The attached Addendum shall apply and where in conflict
with earlier provisions in this Lease shall control. The attached Addendum is
incorporated herein and made a part of this Lease.
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IN WITNESS WHEREOF, Landlord and Tenant have executed this lease in two
(2) originals, all as of the day and year first above written.
LANDLORD:
W. FRED WILLIAMS, TRUSTEE FOR THE BENEFIT OF
HIGHWOODS/TENNESSEE HOLDINGS, L.P.
BY:
-------------------------------------------
W. BRIAN REAMES, AS AUTHORIZED AGENT FOR W.
FRED WILLIAMS, TRUSTEE, UNDER THAT CERTAIN
AMENDED AND RESTATED TRUST AGREEMENT
EFFECTIVE AS OF NOVEMBER 27, 1996 BY AND
BETWEEN HIGHWOODS/TENNESSEE HOLDINGS, L.P.
AND W. FRED WILLIAMS
DATE:
-----------------------------------------------
TENANT:
LIFEPOINT HOSPITALS, INC.
BY:
---------------------------------------------------
TITLE:
-------------------------------------------------
DATE:
--------------------------------------------------
19
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ADDENDUM
ADDITIONAL RENT - OPERATING EXPENSE PASS THROUGHS. For the calendar year
commencing on January 1, 2001 and for each calendar year thereafter, Tenant
shall pay to Landlord as Additional Rent, in twelve (12) equal installments on
the first day of each calendar month, commencing on January 1, 2001 and
continuing thereafter throughout the Term and any extensions or renewals
thereof, Tenant's Proportionate Share of any increase in Operating Expenses (as
hereinafter defined) incurred by Landlord over Operating Expenses for the
Building during calendar year 2000 (the "Base Year"). For purposes of
calculating Tenant's Proportionate Share of real and personal property taxes,
Landlord shall use the Base Year or the year in which the Building and
improvements are completed and are fully assessed, whichever shall be later.
Tenant's Proportionate Share shall be calculated by dividing the 25,481 rentable
square feet of the Premises by the 102,052 net rentable square feet of the
Building (measured in accordance with BOMA ANSI 265.1 - 1996, for rentable
area), which equals 24.97%. If during the Base Year or any subsequent calendar
year the occupancy of the rentable area of the Building is less than full, then
Operating Expenses (as hereinafter defined) will be adjusted for such calendar
year at a rate of 95% occupancy.
As used herein, the term "Operating Expenses" shall mean direct costs
of operation, repair and maintenance as determined by standard accounting
practices, including, but not limited to ad valorem real and personal property
taxes, hazard and liability insurance premiums, utilities, heat, air
conditioning, janitorial service, labor, materials, supplies, equipment and
tools, permits, licenses, inspection fees, management fees, and common area
expenses; provided, however, the term "Operating Expenses" shall not include (A)
the cost of alterations to space in the Building leased or to be leased to
others; (B) depreciation, interest and principal payments of mortgages and other
debt costs, if any; (C) federal, state and city income, excess profit, gift,
estate, succession, inheritance, franchise and transfer taxes, and any other
taxes relating to the operation of Landlord's business but not the Building; (D)
expenses for capital improvements made to the Building or Common Areas except
any capital improvement which results in savings of labor or other costs to the
extent of the lesser of the cost of such capital improvement amortized over its
useful life or the annual cost savings resulting from such capital improvement;
(E) those expenses incurred in leasing space in the Building; and (F) any cost
or expenditure or any portion thereof for which Landlord has been reimbursed or
is entitled to reimbursement, whether by insurance proceeds or otherwise, except
reimbursements or other payments from other tenants of the Building in respect
to costs and expenses which are Operating Expenses. Landlord shall keep records
of its expenditures for Operating Expenses and shall, upon Tenant's written
request, during Landlord's normal business hours but only once during any
calendar year, make such records available to Tenant for inspection and/or audit
at Tenant's sole cost and expense.
For the calendar year commencing on January 1, 2001 and for each
calendar year thereafter during the Term, Landlord shall estimate the amount the
Operating Expenses shall increase for such calendar year above the Operating
Expenses incurred during the Base Year. Landlord shall send to Tenant a written
statement of the amount of Tenant's Proportionate Share of any estimated
increase in Operating Expenses and Tenant shall pay to Landlord as Additional
Rent each month, at the same time the Base Rent is due, an amount equal to
one-twelfth (1/12) of Tenant's Proportionate Share of the estimated increase in
Operating Expenses. Within ninety (90) days after the end of each calendar year,
Landlord shall send to Tenant a copy of the annual statement of Operating
Expenses, accounted for and reported in accordance with generally accepted
accounting principles (the "Annual Statement"). Tenant shall pay any shortfall
between Landlord's estimated increase in Operating Expenses and the Annual
Statement to Landlord as Additional Rent or Landlord shall give Tenant a credit
against future Rent payments if the Annual Statement shows Landlord owes Tenant
a credit. Such payment or adjustment to be made within thirty (30) days after
the Annual Statement is received by Tenant. After the Expiration Date, Landlord
shall send Tenant the final Annual Statement for the Term, and Tenant shall pay
to Landlord Additional Rent as owed or if Landlord owes Tenant a credit, then
Landlord shall pay Tenant a refund. If this Lease expires or terminates on a day
other than December 31, then Additional Rent shall be prorated on a 365-day
calendar year (or 366 if a leap year).
<PAGE> 21
Landlord's books and records pertaining to the calculation of Operating
Expenses for any calendar year within the Lease Term may be audited by Tenant or
its representatives at Landlord's office where Operating Expense records are
kept, at Tenant's expense, at any time within one hundred twenty (120) days
after Landlord's Annual Statement is delivered to Tenant for such calendar year;
provided that Tenant shall give the Landlord not less than thirty (30) days
prior written notice of such audit. If Landlord's calculation of Tenant's
Additional Rent for the audited year was incorrect, then Tenant shall be
entitled to a prompt refund of any overpayment or Tenant shall promptly pay to
Landlord the amount of any underpayment, as the case may be. If Tenant's audit
determines that Tenant shall have overpaid Additional Rent by more than five
percent (5%), then Landlord shall also reimburse Tenant for the reasonable cost
of Tenant's audit not to exceed $3,000.00. Notwithstanding the reimbursement
obligation contained in the preceding sentence, however, Landlord shall not be
obligated to reimburse Tenant for Tenant's audit costs more often than every
other year during the Lease Term. Notwithstanding the foregoing, Tenant shall
remain obligated to pay all Additional Rent as specified hereunder until the
foregoing audit process is concluded.
ADDITIONAL PROVISIONS:
1. Renewal Option.
(a) Landlord shall grant Tenant the option to renew (the "Renewal
Option") the term of this Lease for a period of sixty (60) additional months
(the "Renewal Term"). Tenant shall exercise the Renewal Option by delivering
written notice of such election to Landlord at least six (6) months prior to the
expiration of the initial term of this Lease. The renewal of this Lease shall be
upon the same terms and conditions of this Lease, except (i) the Base Rent
during the Renewal Term shall be calculated based on the prevailing Market Base
Rental Rate (as hereinafter defined) at the time Tenant gives Landlord notice
that it is exercising the Renewal Option, (ii) Tenant shall have no option to
renew this Lease beyond the expiration of the Renewal Term, and (iii) the
leasehold improvements will be provided in their then-existing condition (on an
"as is" basis) at the time the Renewal Term commences. If Tenant shall remain in
possession of the Premises after the expiration of the original term without
there having been executed between Landlord and Tenant an amendment to this
Lease as contemplated by the terms of this Section, then Tenant shall be a
Tenant holding over as provided in this Lease.
(b) Whenever used in this Lease, the term "Market Base Rental Rate"
shall mean, in the good faith, mutual determination of both parties, the annual
gross rental rate per square foot then being charged in first-class office
Buildings located in the Maryland Farms Office Park in Brentwood, Tennessee, for
space comparable to the space for which the Market Base Rental Rate is being
determined (taking into consideration leasehold improvements, Tenant improvement
allowances granted, size of Tenant and relative operating expenses).
2. Right of First Refusal.
(a) Landlord acknowledges that Tenant may wish to expand the Premises
and lease a portion or portions of any rentable space in the Building that may
become vacant during the Term (the "First Refusal Space"). Tenant, however,
acknowledges that Landlord must be in a position to lease the First Refusal
Space to other tenants. In order to accommodate Tenant's desires regarding the
First Refusal Space and Landlord's requirement for future leasing of the First
Refusal Space, Landlord shall grant to Tenant the right of first refusal to
lease the First Refusal Space in accordance with the terms and conditions
contained herein. In the event Landlord obtains a written offer from a
prospective tenant to lease all or any portion of the First Refusal Space and
Landlord desires to accept such offer, then Landlord shall submit to Tenant in
writing all of the material terms and conditions of such proposed offer to lease
(hereinafter referred to as the "Offer") and Tenant shall have the right and
option to lease the First Refusal Space covered by the Offer upon the same
monetary terms and conditions, including any offer of free rent and leasehold
improvement allowances, as embodied in the copy of such Offer submitted to
Tenant by Landlord. In the event the remaining months in the Lease Term or an
extension thereof are less than the number of months in the term embodied in the
Offer, then Tenant may elect, by giving written notice to Landlord within thirty
(30) days of the exercise of the right of first refusal to extend the Lease Term
to a period co-terminus with the expiration of
2
<PAGE> 22
the term of the First Refusal Space. During the extended Lease Term, all terms
and provisions of this Lease shall apply except that Tenant shall pay Landlord
Base Rent in an amount equal to the then prevailing Market Base Rental Rate. If
Tenant shall elect to exercise its right to lease the First Refusal Space
covered by the Offer, written notice of such election shall be given to Landlord
within seven (7) business days from the time that Tenant first received a copy
of the Offer from Landlord (hereinafter referred to as the "Offer Period").
(b) Upon the exercise of its right to lease the First Refusal Space
covered by the Offer, Landlord and Tenant shall enter into a written agreement
modifying and supplementing this Lease to incorporate the terms and provisions
of the Offer and specifying that the First Refusal Space is a part of the
Premises and under this Lease and containing other appropriate terms and
provisions relating to the addition of such area to this Lease, including,
without limitation, increasing, adjusting or augmenting Rent as a result of the
addition of such space.
(c) If a right to lease pursuant to this Section shall not be exercised
within the Offer Period or shall be waived (no notice is deemed to be a waiver
of such right), then Landlord shall have the right to offer such space to the
prospective tenant, and if such transaction is consummated, Tenant's rights
under this Section as to that offer shall automatically terminate and be of no
further force or effect. If a right to lease pursuant to this Section shall not
be exercised within the Offer Period or shall be waived (no notice is deemed to
be a waiver of such right), and Landlord fails to lease the space covered by the
Offer within six (6) months after Landlord's submission of a copy of the Offer
to Tenant, then this Section shall be applicable to any subsequent offer to
lease the First Refusal Space or any portion thereof.
(d) Notwithstanding any other term or provision of this Section or
elsewhere in this Lease, expressed or implied, it is understood and agreed by
Tenant that (i) one or more prior existing tenants of the Building (together
with their respective assignees, successors or assigns, hereinafter collectively
referred to as the "Existing Tenants") may have certain expansion options,
rights to lease and rights of first refusal with respect to space in the
Building, including, without limitation, the First Refusal Space, (ii) the
rights and interests in and to the First Refusal Space and all portions thereof
granted by Landlord to Tenant in this Section are, in all respects, subject and
subordinate to all such options and rights of the Existing Tenants and may be
wholly or partially rendered void and of no effect by such prior options and
rights, (iii) Landlord shall not be liable for the failure or inability of
Tenant to exercise or benefit from any or all rights granted in this Section
with respect to said First Refusal Space or any portion thereof by reason of
such superior rights and options of the Existing Tenants, and (iv) Tenant shall
not be entitled to any compensation, consolation, consideration, replacement of
such space, or any other remedy from or against Landlord by reason of such
failure of inability.
3. Right To Install Satellite Antenna. Tenant shall have the right to install a
satellite antenna per the terms and conditions of Landlord's standard Antenna
License Agreement attached hereto as EXHIBIT D, which Antenna License Agreement
Tenant and Landlord shall execute simultaneously with the execution of this
Lease.
3
<PAGE> 1
EXHIBIT 10.12
LIFEPOINT HOSPITALS, INC.
EXECUTIVE STOCK PURCHASE PLAN
FORM OF SHARE PURCHASE LOAN AND NOTE AGREEMENT
This Share Purchase Loan and Note Agreement (the "Agreement"), dated
______________ is by and between _______________________________ (the
"Participant") and LIFEPOINT HOSPITALS, INC., a Delaware corporation (the
"Corporation") (together sometimes referred to herein as the "Parties"). This
Agreement is pursuant to the terms of the Corporation's Executive Stock Purchase
Plan (the "Plan"). The applicable terms of the Plan are incorporated herein by
reference, including the definitions of terms contained in the Plan.
WHEREAS, the Corporation has agreed to make a Share Purchase Loan to
Participant of $____________ (the "Principal"), contingent upon the execution of
this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
contained herein, Participant and the Corporation hereby agree as follows:
1. PARTICIPANT'S PROMISE TO PAY
In return for the Share Purchase Loan, Participant promises to repay
the Principal, Accrued Interest and any additional interest due thereon to the
Corporation upon the Share Purchase Loan's maturity.
2. THE SHARE PURCHASE LOAN'S MATURITY
The Share Purchase Loan shall mature upon the earlier of (i) the fifth
anniversary of the Share Purchase Date, (ii) termnination of Participant's
employment for any reason or (iii) bankruptcy of Participant (the "Repayment
Date"). Within 120 days following the Repayment Date, Participant shall pay the
Corporation the full amount remaining due on the Share Purchase Loan' including
all unpaid Accrued Interest.
3. INTEREST
a. Accrued Interest. Accrued Interest shall be payable only upon
maturity or upon prepayment of the Share Purchase Loan (as provided within
Section 4 hereof) at a rate of ____%, compounded semi-annually.
b. Additional Interest. In the event Participant's employment
terminates for Cause or Participant voluntarily terminates employment (other
than for Good Reason) prior to ____________________ , or if earlier, the date of
a Change in Control, in addition to any amounts due in repayment of the amount
of the related Share Purchase Loan and Accrued Interest, Participant shall pay
the Corporation an amount equal to the additional interest that would have been
payable in respect of the Share Purchase Loan, if the regular interest rate on
such Share Purchase Loan had been 7.75% (the prime rate in effect on the Share
Purchase Date), and interest thereon at such rate to the actual date of payment.
4. PREPAYMENT
a. Mandatory Prepayment. Any cash dividends received on the Purchased
Shares prior to payment of the full amount due on the Share Purchase Loan
(including Accrued Interest), net of assumed Federal, State and Local income
taxes (as reasonably determined by the Participant based upon the highest
marginal tax rates then applicable income tax laws to which the Participant is
subject), shall be used to prepay the Share Purchase Loan. Prepayments shall be
applied first to Accrued interest then to Principal.
b. Voluntary Prepayment. The Share Purchase Loan may be prepaid in
whole or in part, at any time without penalty. Prepayments shall be applied
first to Accrued Interest then to Principal. Notwithstanding the transfer
restrictions imposed under the Plan with respect to Purchased Shares, at any
time following the earlier of (i)
<PAGE> 2
May 11, 2001, or (ii) a Change in Control, the Purchased Shares may, at the
Participant's election be sold to prepay the loan, in whole or in part, in
addition to any transaction costs incurred by the Participant to effect such
sale and all taxes resulting with respect to such sale (as reasonably determined
by the Participant based upon the highest marginal tax rates then applicable
income tax laws to which the Participant is subject).
c. Effect of Partial Prepayment. A partial prepayment shall not cause
any change in the Share Purchase Loan's maturity date or in the amount of any
future payment unless the Corporation agrees in writing to such changes;
provided however, that no further payments shall be due if the Principal and any
Accrued Interest under this Agreement is fully repaid (except to the extent that
additional interest becomes due under Section 3 hereof).
5. PARTICIPANT'S FAILURE TO PAY
a. Default. If Participant does not pay the full amount owed under this
Agreement on the date it is due, Participant will be in default.
b. No Waiver By Corporation. Even if at a time when Participant is in
default, the Corporation does not require Participant to pay immediately the
full amount owed under this Agreement, the Corporation will still have the right
to do so if Participant remains in default.
c. Payment of Corporation's Costs and Expenses. If Participant does not
immediately pay the full amount owed under this Agreement the Corporation will
have the right to be reimbursed by Participant for all of the costs and expenses
incurred by the Corporation in enforcing this Agreement to the extent not
prohibited by applicable law, including (without limitation) reasonable
attorneys' fees.
6. THE CORPORATION'S SECURITY INTEREST
Participant agrees that the Share Purchase Loan shall be secured by the
related Purchased Shares and that if thc Participant enters into multiple Share
Purchase Loans each such loan shall be secured by all Purchased Shares to which
such loan relates. Upon a default by Participant as determined under Section 5
hereof the Corporation may, in its sole discretion, sell such Purchased Shares
and apply the proceeds of such sale towards the repayment of all amounts due on
the Share Purchase Loan. Amounts applied pursuant to this Section shall reduce
the remaining amount due on the Share Purchase Loan, but shall not limit or
waive the Corporation's right to obtain payment of the Agreement in full by any
legal means.
7. GIVING OF NOTICES
Unless applicable law requires a different method any notice that must
be given to Participant under this Agreement shall be given by delivering it or
by mailing it by first class mail to Participant at the following address:
-------------------------------------------
-------------------------------------------
or at a different address if Participant gives the
Corporation notice of such other address.
Any notice that must be given to the Corporation under this Agreement
shall be given by mailing it first class mail to the Corporation at the
following address:
LifePoint Hospitals, Inc.
Attention: General Counsel
4525 Harding Road
Nashville, Tennessee 37205
or at a DIFFERENT ADDRESS IF PARTICIPANT IS GIVEN NOTICE OF SUCH OTHER ADDRESS.
<PAGE> 3
8. WAIVERS
The Participant and any other person who has obligations under this
Agreement waiver[s] the rights of presentment and notice of dishonor.
"Presentment" means the right to require the Corporation to demand payment of
amounts due. "Notice of dishonor" means the right to require the Corporation to
give notice to other persons that amounts due have not been paid.
9. ARBITRATION
In the event a controversy develops as to the interpretation and/or
enforceability of this Agreement, Participant and the Corporation agree to have
such controversy submitted to final binding arbitration by a single arbitrator
in accordance with the rules and procedure of the American Arbitration
Association with the finding of such arbitrator to be final and binding as to
both Parties.
10. MISCELLANEOUS
This Agreement (i) shall be construed and enforced in accordance with
the laws of the State of Delaware without giving effect to the choice of law
principles thereof, (ii) shall constitute the entire agreement between the
Parties with respect to the subject matter hereof, and (iii) shall not be
amended or modified except by mutual consent of the Parties. In the event that
any part of the Agreement is invalid under existing law. the remainder of the
Agreement shall survive and be binding upon the Parties as if such invalid part
were not included.
LIFEPOINT HOSPITALS, INC. PARTICIPANT
BY:
-------------------------------- --------------------------------
NAME:
TITLE:
<PAGE> 1
EXHIBIT 10.15
LIFEPOINT HOSPITALS, INC.
RETIREMENT PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS.......................................................3
"Account"...............................................................3
"Accounting Date".......................................................4
"Acquired Employer".....................................................4
"Acquired Group of Employees"...........................................4
"Acquisition Date"......................................................4
"Acquisition Loan"......................................................4
"Actual Contribution Percentage"........................................4
"Actual Deferral Percentage"............................................5
"Adjustment Factor".....................................................6
"Adoption Agreement"....................................................6
"Affiliated Employer"...................................................6
"Annual Addition".......................................................7
"Annuity Starting Date".................................................7
"Attained Age" or "Age".................................................7
"Beneficiary"...........................................................7
"Board of Directors"....................................................8
"Calendar Quarter"......................................................8
"Closing Date"..........................................................8
"Code"..................................................................8
"Columbia"..............................................................8
"Columbia Plans"........................................................8
"Columbia Salary Deferral Plan".........................................9
"Columbia Money Purchase Pension Plan"..................................9
"Columbia Stock Bonus Plan".............................................9
"Columbia Stock Fund"...................................................9
"Committee".............................................................9
"Company Stock".........................................................9
"Company Stock Fund"....................................................9
"Compensation"..........................................................9
"Contingent Beneficiary"...............................................11
"Contribution Ratio"...................................................11
"Deferral Ratio".......................................................11
"Determination Date"...................................................12
"Directed Investment Accounts".........................................12
"Early Retirement Age".................................................12
"Early Retirement Date"................................................12
"Effective Date".......................................................12
"Election Period"......................................................12
"Employee".............................................................13
"Employee Voluntary Contributions".....................................13
"Employee Voluntary Matching Contribution Allocations".................14
"Employer".............................................................14
"Employer Contributions"...............................................14
"EPIC Plan"............................................................14
"ESOP Component".......................................................14
"ESOP Contribution"....................................................14
"ESOP Fund"............................................................14
</TABLE>
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<TABLE>
<S> <C>
"ESOP Match Component".................................................14
"Excess Aggregate Contribution"........................................15
"Excess Deferral Contribution".........................................15
"Excess Salary Deferral Contribution"..................................15
"Fiduciary"............................................................15
"Financed Shares"......................................................15
"Forfeiture"...........................................................16
"HealthTrust Plan".....................................................16
"Highly Compensated Employee"..........................................16
"Hour of Service"......................................................16
"Investment Funds".....................................................19
"Investment Manager"...................................................19
"Key Employee".........................................................19
"Loan Suspense Account"................................................19
"Matching Employer Contribution Allocations"...........................19
"Nonhighly Compensated Employee".......................................19
"Normal Retirement Age"................................................19
"Normal Retirement Date"...............................................20
"One Year Break in Service"............................................20
"Participant"..........................................................20
"Participating Employer"...............................................20
"Plan".................................................................20
"Plan Administrator"...................................................20
"Plan Anniversary Date"................................................20
"Plan Benefit".........................................................20
"Plan Sponsor".........................................................20
"Plan Year"............................................................20
"Profit Sharing Contribution"..........................................21
"Qualified Election Period"............................................21
"Qualified Participant"................................................21
"Qualified Joint and Survivor Annuity".................................21
"Qualified Preretirement Survivor Annuity".............................21
"Qualified Waiver".....................................................21
"Salary Deferral Contribution".........................................22
"Salary Deferral Matching Contribution Allocations"....................24
"Super Top-Heavy Plan".................................................24
"Top-Heavy Group"......................................................24
"Top-Heavy Plan".......................................................24
"Total and Permanent Disability" or "Totally and Permanently
Disabled".............................................................25
"Triad"................................................................25
"Triad Stock Fund".....................................................25
"Trust Agreement"......................................................25
"Trust Fund" or "Trust"................................................25
"Trustee"..............................................................25
"Unilateral Employer Contribution".....................................25
"Valuation Date".......................................................25
"Years of Service".....................................................25
"Use of Terms".........................................................27
ARTICLE II PARTICIPATION....................................................28
2.1 Participation......................................................28
2.2 Rights of Participants.............................................29
2.3 Enrollment Form....................................................29
</TABLE>
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<TABLE>
<S> <C>
2.4 Account Transfers for Active Employees...............................31
2.5 Account Transfers for Former Employee Participants in Columbia
Plans on Distribution Date...........................................31
2.6 HealthTrust and EPIC Plan Balances...................................31
2.7 Account Transfers for Employment Changes from Columbia in 1999.......31
ARTICLE III CONTRIBUTIONS AND ACQUISITION LOANS...............................32
3.1 Salary Deferral and Employee Voluntary Contributions.................32
3.2 Form of Contributions................................................32
3.3 Forfeitures..........................................................33
3.4 Unilateral Employer Contributions....................................33
3.5 Salary Deferral Matching Contribution Allocations....................33
3.6 Employee Voluntary Matching Contribution Allocations.................34
3.7 Supplemental Employer Contribution to Fund Match.....................34
3.8 Distribution of Excess Salary Deferral Contributions.................34
3.9 Distribution of Excess Aggregate Contributions.......................34
3.10 Distribution of Excess Deferral Contributions.......................36
3.11 ESOP Contributions..................................................37
3.12 Profit Sharing Contributions........................................38
3.13 Section 415 Limitations.............................................38
3.14 Unilateral Employer Contributions Relating to Actual
Contribution Percentage Test and Actual Deferral
Percentage Test.....................................................39
3.15 Multiple Use of Alternative Test....................................39
3.16 Adjustment of Defined Contribution Plan Fraction....................40
3.17 Correction of Contributions in Excess of Section 415 Limits.........41
3.18 Suspense Account....................................................41
3.19 Combination of Plans................................................42
3.20 Correction of Prior Incorrect Allocations and Previous
Funding Deficiencies................................................42
3.21 Reversion of Unilateral Employer Contributions, Matching
Employer Contributions, ESOP Contributions and Profit
Sharing Contributions...............................................43
3.22 Acquisition Loans...................................................43
ARTICLE IV ALLOCATION OF CONTRIBUTIONS, EARNINGS AND LOSSES...................45
4.1 Allocation of Salary Deferral Contributions..........................45
4.2 Allocation of Employee Voluntary Contributions.......................45
4.3 Allocation of Unilateral Employer Contributions......................45
4.4 Allocation of Salary Deferral Matching Contribution Allocations......45
4.5 Allocation of Employee Voluntary Matching Contribution Allocations...45
4.6 Allocation of ESOP Contributions.....................................45
4.7 Allocation of Profit Sharing Contributions...........................46
4.8 Allocation of Investment Funds.......................................46
ARTICLE V VALUATIONS..........................................................49
5.1 Determination of Value...............................................49
5.2 Valuations...........................................................49
5.3 Valuation Methods....................................................49
ARTICLE VI DIRECTED INVESTMENT ACCOUNTS.......................................50
6.1 Investment Directions................................................50
6.2 Investment of Trust Assets...........................................50
</TABLE>
iii
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<TABLE>
<S> <C>
ARTICLE VII ESOP FUNDS........................................................52
7.1 Investment in ESOP Fund..............................................52
7.2 Voting of Company Stock in ESOP Fund Accounts and Tender Offers......52
7.3 Diversification......................................................52
7.4 Columbia Stock Fund and Triad Stock Fund Accounts....................52
7.5 Company Stock Fund...................................................52
ARTICLE VIII VESTING..........................................................53
8.1 Fully Vested Contributions...........................................53
8.2 Forfeitable Contributions............................................53
8.3 Forfeiture of Nonvested Account Balances.............................54
8.4 Vesting at Early Retirement Age and Normal Retirement Age............56
8.5 Vesting Upon Death...................................................56
8.6 Vesting Upon Total and Permanent Disability..........................56
ARTICLE IX PAYMENT OF BENEFITS TO PARTICIPANTS................................57
9.1 Commencement of Benefits.............................................57
9.2 Death Benefits.......................................................57
9.3 Form of Benefit Distribution.........................................59
9.4 Participant's Election of Benefits...................................60
9.5 Special Distribution Rules...........................................61
9.6 Distributions in the Case of Certain Financial Hardships.............62
9.7 Cash-Out Procedure Upon Separation From Service......................64
9.8 In-Service Withdrawals...............................................65
9.9 Mandatory Commencement of Benefits...................................66
9.10 Participant Loans...................................................70
9.11 Requirement of Consent..............................................72
9.12 Administrative Postponement of Benefits.............................72
9.13 Suspension of Distributions in Certain Cases........................72
9.14 Participant Transfers...............................................73
9.15 Account Transfers in Dispositions...................................73
9.16 Qualified Preretirement Survivor Annuity and Qualified Joint
and Survivor Annuity................................................73
ARTICLE X CLAIMS PROCEDURE....................................................77
10.1 Filing of Claim.....................................................77
10.2 Denial of Claim.....................................................77
10.3 Review of Denial....................................................77
10.4 Decision Upon Review................................................77
ARTICLE XI THE PLAN ADMINISTRATOR............................................78
11.1 Designation.........................................................78
11.2 Committee Action....................................................78
11.3 Rights and Duties...................................................79
11.4 Information.........................................................80
11.5 Compensation and Expense............................................80
11.6 Consultants, Advisors, Managers and Service Providers...............80
11.7 Liability...........................................................80
</TABLE>
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<TABLE>
<S> <C>
11.8 Notices and Directions..............................................80
11.9 Reimbursement of Expenses of Administering the Plan.................80
11.10 Designation of Service Providers...................................81
ARTICLE XII THE TRUST FUND AND TRUSTEE........................................83
12.1 Existence of Trust..................................................83
12.2 Exclusive Benefit Rule..............................................83
12.3 Removal of Trustee..................................................83
12.4 Powers of Trustee...................................................83
12.5 Integration of Trust................................................83
12.6 Coordination of Trusts..............................................83
ARTICLE XIII AMENDMENT AND TERMINATION........................................84
13.1 Right to Amend......................................................84
13.2 Right to Terminate..................................................84
13.3 Vesting Upon Termination or Partial Termination.....................84
13.4 Distributions Upon Termination or Withdrawal........................84
13.5 Unutilized Forfeitures Upon Termination or Partial Termination......85
ARTICLE XIV MISCELLANEOUS PROVISIONS..........................................86
14.1 Prohibition Against Diversion.......................................86
14.2 Prudent Man Rule....................................................86
14.3 Responsibilities of Parties.........................................86
14.4 Rollover Contributions and Direct Transfers From Other
Qualified Retirement Plans..........................................86
14.5 Merger or Consolidation of Employer.................................87
14.6 Nonalienation or Assignment.........................................88
14.7 Plan Continuance Voluntary..........................................90
14.8 Plan Not an Employment Contract.....................................90
14.9 Payments to Minors and Others.......................................91
14.10 Unclaimed Benefit and Missing Participant or Beneficiary...........91
14.11 Governing Law......................................................92
14.12 Headings Not Part of Agreement.....................................92
14.13 Merger or Consolidation of Plan....................................92
14.14 Indemnification....................................................93
14.15 No Divestment For Cause............................................93
14.16 Amendments Affecting the Accrued Benefit...........................94
14.17 Net Unrealized Appreciation in Shares of Company Stock
Distributed........................................................94
14.18 Military Leave.....................................................94
ARTICLE XV TOP-HEAVY PROVISIONS...............................................95
15.1 Purpose.............................................................95
15.2 Defined Benefit Plan and Defined Contribution Plan Fractions........95
15.3 Minimum Benefit Requirement.........................................95
15.4 Compensation........................................................95
15.5 Contributions.......................................................95
15.6 Vesting Schedule....................................................96
</TABLE>
v
<PAGE> 7
LIFEPOINT HOSPITALS, INC.
RETIREMENT PLAN
WHEREAS, certain subsidiaries of Columbia/HCA Healthcare Corporation
("Columbia") will be "spun-off" from Columbia in May of 1999 in a transaction
which will qualify under Section 355 of the Internal Revenue Code;
WHEREAS, Lifepoint Hospitals, Inc., which will be spun-off, will be the
parent company of those spun-off entities;
WHEREAS, in connection with the corporate spin-offs, this Lifepoint
Hospitals, Inc. Retirement Plan is hereby created effective on the Closing Date,
as defined herein; and
WHEREAS, in connection with the corporate spin-offs, this Plan shall
accept a transfer of the accounts of participants in the Columbia/HCA Healthcare
Corporation Money Purchase Pension Plan, the Columbia/HCA Healthcare
Corporation Stock Bonus Plan, the Columbia/HCA Healthcare Corporation Salary
Deferral Plan, the HealthTrust, Inc. 401(k) Retirement Program and the EPIC
Healthcare Group Inc. Profit Sharing Plan with respect to employees and former
employees of Lifepoint Hospitals, Inc. and its subsidiaries.
NOW, THEREFORE, the Employer does by appropriate resolution adopt this
Lifepoint Hospitals, Inc. Retirement Plan.
It is intended that this Plan, together with the Trust Agreement, meet
all the requirements of the Code and ERISA, and the Plan shall be interpreted,
wherever possible to comply with the terms of the Code, ERISA, as amended, and
all formal regulations and rulings issued under the Code and ERISA, as amended.
1
<PAGE> 8
PURPOSE
The Plan is intended to encourage employment longevity and to assist
eligible Employees of the Plan Sponsor and Participating Employers in planning
for their retirement. It is also intended to provide Employees with stock
ownership in the Plan Sponsor, so that employees shall share in the success of
the Company, to the extent of any such success. Like any company, the future
financial success of the Company, and consequently the value of Company Stock,
is uncertain. In this regard, a large portion of the Plan's Trust shall be
invested in Company Stock. The Plan is an eligible individual account plan under
ERISA Section 407(d), which provides for the acquisition and holding of Company
Stock. The ESOP Contribution Account, the Salary Deferral Matching Contribution
Allocations Account, the Employee Voluntary Matching Contribution Allocations
Account and the Columbia Money Purchase Pension Plan Account elements of the
Plan are also intended to be an employee stock ownership plan, as defined in
Code Section 4975(e)(7) and ERISA Section 407(d)(6), and are designed to be
invested primarily in qualifying employer securities, as defined in Code Section
409(1). It is anticipated that the ESOP Component of the Plan will produce
annual allocations to Accounts equal to a percentage of Compensation which will
not vary substantially over the term of the Acquisition Loan.
2
<PAGE> 9
ARTICLE I
DEFINITIONS
As used in this Plan and the accompanying Trust Agreement, the following
terms shall have the following meanings, unless a different meaning is plainly
required by the context.
"ACCOUNT" shall mean the account, including any sub-accounts, established
on behalf of each Participant to record his interest in this Plan. In
addition to any other sub-accounts the Trustee shall maintain the
following sub-accounts:
(a) "Columbia Money Purchase Pension Plan Account" which shall consist
of amounts transferred to this Plan from the Columbia Money Purchase
Pension Plan, and earnings thereon, which account shall be part of
the ESOP Component;
(b) "Columbia Stock Bonus Plan Account" which shall consist of amounts
transferred to this Plan from the Columbia Stock Bonus Plan, and
earnings thereon;
(c) "Employee Voluntary Contribution Account" which shall consist of
Employee Voluntary Contributions under this Plan, and earnings
thereon;
(d) "Employee Voluntary Matching Contribution Allocations Account" which
shall consist of Employee Voluntary Matching Contribution
Allocations under this Plan, and earnings thereon, which account
shall be part of the ESOP Component;
(e) "ESOP Contribution Account" which shall consist of ESOP
Contributions under this Plan, and earnings thereon, which account
shall form part of the ESOP Component;
(f) "HealthTrust ESOP Account" shall consist of the Participant's ESOP
contributions under the HealthTrust Plan transferred to this Plan,
and earnings thereon;
(g) "Prior Employer Contribution Account" which shall consist of amounts
transferred to this Plan from the Columbia Salary Deferral Plan, the
HealthTrust Plan and the EPIC Plan other than rollover
contributions, after-tax contributions, thrift contributions,
employee stock ownership plan contributions, salary deferral
contributions and matching contributions under the Columbia Salary
Deferral Plan, and earnings thereon;
(h) "Prior Matching Contribution Account" which shall consist of
matching contributions under the Columbia Salary Deferral Plan
transferred to this Plan, and earnings thereon;
3
<PAGE> 10
(i) "Prior Salary Deferral Contribution Account" which shall consist of
amounts transferred which were attributable to salary deferral
contributions under the Columbia Salary Deferral Plan and the
HealthTrust Plan, and earnings thereon;
(j) "Profit Sharing Contribution Account" which shall consist of Profit
Sharing Contributions under this Plan, and earnings thereon;
(k) "Rollover Account" which shall consist of amounts transferred to
this Plan that were rollover contributions under the Columbia Salary
Deferral Plan, the HealthTrust Plan, and/or the EPIC Plan and
earnings thereon;
(l) "Salary Deferral Contribution Account" which shall consist Salary
Deferral Contributions and Unilateral Employer Contributions under
this Plan, and earnings thereon;
(m) "Salary Deferral Matching Contribution Allocations Account" which
shall consist of Salary Deferral Matching Contribution Allocations
under this Plan, and earnings thereof, which shall be part of the
ESOP Component;
(n) "Thrift Account" which shall consist of amounts transferred to this
Plan that were after-tax and thrift contributions held under the
Columbia Salary Deferral Plan, and earnings thereon;
(o) "Thrift Matching Account" which shall consist of amounts transferred
to this Plan that were thrift matching contributions held under the
Columbia Salary Deferral Plan, and earnings thereon; and
"ACCOUNTING DATE" shall mean the last day of each Plan Year.
"ACQUIRED EMPLOYER" shall mean an entity that is acquired (or the assets
of which are acquired) by the Plan Sponsor and that thereby becomes an
Employer.
"ACQUIRED GROUP OF EMPLOYEES" means a group of individuals who become
Employees of an Employer simultaneously as a result of an acquisition
agreement between an Employer and one or more members of the group of
individuals who become Employees.
"ACQUISITION DATE" shall mean that date on which the Plan Sponsor either
acquires an Acquired Employer or begins employment of an Acquired Group of
Employees.
"ACQUISITION LOAN" shall mean an installment obligation incurred by the
Trustee in connection with the purchase of Company Stock pursuant to
Article III.
"ACTUAL CONTRIBUTION PERCENTAGE" shall mean either the average of all the
individual Contribution Ratios for Highly Compensated Employees for the
current Plan Year or the average of all individual Contribution Ratios for
Nonhighly Compensated Employees for the preceding Plan Year, respectively.
4
<PAGE> 11
In no event shall the Actual Contribution Percentage for eligible Highly
Compensated Employees exceed the greater of one of the following "Actual
Contribution Percentage tests":
(a) One hundred twenty-five percent (125%) of the Actual Contribution
Percentage for all Nonhighly Compensated Employees who are eligible
to participate in the Plan; or
(b) The lesser of (i) two hundred percent (200%) of the Actual
Contribution Percentage for Nonhighly Compensated Employees or (ii)
such Actual Contribution Percentage plus two (2) percentage points.
For purposes of the Actual Contribution Percentage tests, Employee
Voluntary Contributions shall be tested in one Actual Contribution
Percentage test and Salary Deferral Matching Contribution Allocations and
Employee Voluntary Matching Contribution Allocations shall be tested in a
separate (ESOP Match Component) Actual Contribution Percentage test, and
each such test shall include such amounts contributed to all plans of the
Employer which are treated as one plan for purposes of Code Section
410(b), taking into account any mandatory disaggregation rules thereunder.
Except as otherwise provided in Treasury Regulations, if any Highly
Compensated Employee participates in one or more other plans of the
Employer with respect to which contributions are subject to the Actual
Contribution Percentage test described in this definition, then all such
contributions shall be aggregated and tested as if provided under this
Plan under this definition.
For purposes of computing the Actual Contribution Percentage for both
Highly Compensated Employees and Nonhighly Compensated Employees, every
Contribution Ratio of every Employee eligible to participate in this Plan
for the Plan Year in issue shall be taken into account. For this purpose,
Employees who would receive a Salary Deferral Matching Contribution
Allocations if they made Salary Deferral Contributions, but who can't make
Salary Deferral Contributions because of a distribution, loan, or election
not to participate in the Plan, shall be treated as eligible to
participate in the Plan. Employees otherwise eligible to participate in
the Plan, but unable to participate due to the contribution and/or annual
addition limitations of Subsection (c)(1) or (e) of Code Section 415,
shall also be treated as eligible to participate in the Plan. For these
purposes, the Contribution Ratio for any given Plan Year of any Employee
eligible to participate in the Plan for such Plan Year who does not make
any Employee Voluntary Contributions or receive Matching Employer
Contribution Allocations for such Plan Year shall be zero. For the 1999
Plan year, the Actual Contribution Percentage of the Nonhighly Compensated
Employees under the Plan for 1999 shall be utilized to calculate
permissible Matching Employer Contribution Allocations and Employee
Voluntary Contributions for the Highly Compensated Employees.
"ACTUAL DEFERRAL PERCENTAGE" shall mean either the average of all the
individual Deferral Ratios for Highly Compensated Employees for the
current Plan Year or the average of all
5
<PAGE> 12
individual Deferral Ratios for Nonhighly Compensated Employees for the
preceding Plan Year, respectively.
In no event shall the Actual Deferral Percentage for eligible Highly
Compensated Employees exceed the greater of the following "Actual Deferral
Percentage Tests":
(a) One hundred twenty-five percent (125%) of the Actual Deferral
Percentage for all Nonhighly Compensated Employees who are eligible
to participate in the Plan; or
(b) The lesser of (i) two hundred percent (200%) of the Actual Deferral
Percentage for Nonhighly Compensated Employees or (ii) such Actual
Deferral Percentage plus two (2) percentage points.
For purposes of the Actual Deferral Percentage test, Salary Deferral
Contributions shall include such amounts contributed to all plans of the
Employer which are treated as one plan for purposes of Code Section
410(b). Except as otherwise provided in Treasury Regulations, if any
Highly Compensated Employee participates in one or more other plans of the
Employer with respect to which contributions are subject to the Actual
Deferral Percentage test described in this definition, then all such
contributions shall be aggregated and tested as if provided under this
Plan under this definition.
For purposes of computing the Actual Deferral Ratio for both Highly
Compensated Employees and Nonhighly Compensated Employees for any given
Plan Year, every Deferral Percentage of every Employee eligible to
participate in this Plan for any part of the Plan Year in issue shall be
taken into account. For this purpose, Employees who would be able to make
Salary Deferral Contributions but for a distribution, loan, or election
not to participate in the Plan, shall be treated as eligible to
participate in the Plan. Employees otherwise eligible to participate in
the Plan, but unable to participate due to the contribution and/or annual
addition limitations of Subsection (c)(1) or (e) of Code Section 415,
shall also be treated as eligible to participate in the Plan. For these
purposes, the Deferral Ratio for any given Plan Year of any Employee
eligible to participate in the Plan for such Plan Year who does not make
any Salary Deferral Contributions for such Plan Year shall be zero. For
the 1999 Plan Year, the Actual Deferral Percentage of the Nonhighly
Compensated Employees under the Plan for 1999 shall be utilized to
calculate permissible Salary Deferral Contributions for the Highly
Compensated Employees.
"ADJUSTMENT FACTOR" shall mean the cost of living adjustment factor
prescribed by the Secretary of the Treasury under Section 415(d) of the
Code, as applied to such items and in such manner as the Secretary shall
provide.
"ADOPTION AGREEMENT" shall mean any agreement entered into by an
Affiliated Employer for the purpose of evidencing the terms and conditions
upon which it adopts this Plan.
"AFFILIATED EMPLOYER" shall mean any corporation which is a member of a
controlled group of corporations (as defined in Section 414(b) of the
Code) which includes the Plan
6
<PAGE> 13
Sponsor; any trade or business (whether or not incorporated) which is
under common control (as defined in Section 414(c) of the Code) of the
Plan Sponsor; any organization (whether or not incorporated) which is a
member of an affiliated service group (as defined in Section 414(m) of the
Code) which includes the Plan Sponsor; and any other entity required to be
aggregated with the Plan Sponsor pursuant to final regulations published
under Section 414(o) of the Code.
"ANNUAL ADDITION" shall mean the amount allocated to a Participant's
Account during the Plan Year that constitutes:
(a) Matching Employer Contribution Allocations;
(b) Employee Voluntary Contributions and Salary Deferral Contributions,
including Excess Aggregate Contributions and Excess Deferral
Contributions, but excluding Excess Salary Deferral Contributions
under Code Section 402(g) which are distributed to the Participant
within the time frame permissible under the Code;
(c) Allocations of Company Stock attributable to ESOP Contributions;
(d) Profit Sharing Contributions;
(e) Supplemental Employer Contributions;
(f) Forfeitures; and
(g) Amounts described in Section 415(l)(1) and 419A(d)(2) of the Code.
Notwithstanding the foregoing provisions, if no more than one-third of
Employer Contributions to the ESOP Component are allocated to the Accounts
of Highly Compensated Employees, then Annual Additions shall not include
amounts specified in Code Sections 415(c)(6)(A) and (B).
"ANNUITY STARTING DATE" shall mean the first day of the first period for
which a Plan Benefit is paid as permitted under Article IX as an annuity
or any other form to a Participant.
"ATTAINED AGE" or "AGE" shall mean the age, in years, of an Employee as of
the last anniversary of his date of birth.
"BENEFICIARY" shall mean any person or persons (or an estate or trust)
designated by a Participant in such form as the Plan Administrator may
prescribe to receive any death benefit that may be payable hereunder if
such person or persons survive the Participant. Subject to the
requirements for a Qualified Waiver, this designation may be revoked at
any time in similar manner and form. In the event of the death of the
designated Beneficiary prior to the death of the Participant, the
Contingent Beneficiary shall be entitled to receive
7
<PAGE> 14
any death benefit. If neither the Beneficiary nor Contingent Beneficiary
survives the Participant or if no Beneficiary or Contingent Beneficiary
has been effectively named, the Participant's Plan Benefits shall be
distributed to the Beneficiary in accordance with this Plan.
Beneficiary of a Married Participant. Notwithstanding any other provision
of this Plan, the term "Beneficiary" shall mean the Participant's spouse
if the Participant is married.
Waiver. Any Beneficiary designation made by such a Participant which is
not in accord with this Subsection, shall be considered null and void from
its inception unless the Participant and his spouse jointly execute a
written election acknowledging the fact that another Beneficiary is to be
designated by the Participant, witnessed by either an authorized Plan
representative or by a Notary Public and filed with the Plan Administrator
("Waiver"). The consent of the spouse shall either specifically authorize
a specific Beneficiary other than the spouse or authorize several
Beneficiaries other than the spouse (or several Beneficiaries in addition
to the spouse). Any such election can be revoked and reexecuted any number
of times until the earlier of the time that either the Participant or his
Beneficiary begins to receive benefits under the Plan. Any such election
or revocation is only effective as to the spouse therein named. No
Participant, absent the above-described election, can designate a
Beneficiary other than his spouse unless he proves to the satisfaction of
an authorized Plan representative that he is not married, that his spouse
cannot be located, or that his spouse's consent to the selection of a
Beneficiary other than his spouse is not necessary because of such other
circumstances as the Secretary of Treasury may prescribe by regulation. In
making this determination, the Plan Administrator and/or authorized Plan
representative shall in all respects act in accordance with the fiduciary
standards of ERISA. The Plan Administrator shall have the discretion to
devise uniform and nondiscriminatory procedures by which to implement the
provisions of this definition.
"BOARD OF DIRECTORS" shall mean the Board of Directors of the Plan
Sponsor.
"CALENDAR QUARTER" shall mean the three month period beginning each
January 1, April 1, July 1 and October 1.
"CLOSING DATE" shall mean the date of the corporate "spin-off" of the
common stock of the Employer from Columbia in a tax-free transaction under
Code Section 355.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COLUMBIA" shall mean Columbia/HCA Healthcare Corporation and, unless the
context indicates otherwise, its direct and indirect wholly-owned
subsidiaries.
"COLUMBIA PLANS" shall mean the Columbia Money Purchase Pension Plan, the
Columbia Stock Bonus Plan, the Columbia Salary Deferral Plan, the
HealthTrust Plan and the EPIC Plan.
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<PAGE> 15
"COLUMBIA SALARY DEFERRAL PLAN" shall mean the Columbia/HCA Healthcare
Corporation Salary Deferral Plan as it existed immediately prior to the
Effective Date.
"COLUMBIA MONEY PURCHASE PENSION PLAN" shall mean the Columbia/HCA
Healthcare Corporation Money Purchase Pension Plan as it existed
immediately prior to the Effective Date.
"COLUMBIA STOCK BONUS PLAN" shall mean the Columbia/HCA Healthcare
Corporation Stack Bonus Plan as it existed immediately prior to the
Effective Date.
"COLUMBIA STOCK FUND" shall mean a separate fund maintained by the Trustee
for common stock of Columbia/HCA Healthcare Corporation that was
transferred from the Columbia Plans to this Plan.
"COMMITTEE" shall mean the Retirement Plan Committee, as appointed by the
Board of Directors.
"COMPANY STOCK" shall mean the common stock of Lifepoint Hospitals, Inc.,
which stock is a qualifying employer security within the meaning of Code
Section 409(l)(1) and which stock is a registration-type class of
securities as defined in Code Section 409(e)(4). The Plan Sponsor also
anticipates that all Company Stock held under the Plan shall continue to
be readily tradable on an established market throughout the existence of
this Plan. In the event that such Company Stock ceases to be readily
tradable on an established market, the Plan shall be amended to
incorporate any and all requirements under ERISA and the Code applicable
to such non-readily tradable Company Stock.
"COMPANY STOCK FUND" shall mean a separate fund maintained by the Trustee
for the investment of Company Stock, other than Company Stock held with
respect to the ESOP Component of the Plan. A separate "Company Stock Fund
Account" shall be maintained for each Participant who has an interest in
the Company Stock Fund.
"COMPENSATION" shall mean a Participant's total compensation paid by
Employer during the Plan Year, including salary, overtime pay, certain
bonuses, as reportable on the Participant's federal income tax withholding
statement (Form W-2), increased by the amount of any Salary Deferral
Contributions made by a Participant under this Plan and by any amount
which result from the Participant's election to reduce his salary under a
plan described in Section 125 of the Code.
Exceptions. Notwithstanding any other provision of this Plan, Compensation
shall not include
(a) Compensation paid for service performed for an Employer who is not a
Participating Employer;
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<PAGE> 16
(b) Compensation paid for services performed for a Participating
Employer if at the time such services were performed the Employee's
employment was subject to a collective bargaining agreement, unless
such collective bargaining agreement provided that the Employee is
eligible to participate in this Plan;
(c) Any reimbursements, allowances or compensation associated with a
geographic transfer or relocation;
(d) Income arising from the exercise of a stock option relating to any
security of Employer;
(e) An amount contributed by an Employer on behalf of the Participant
under any Code ss.125 or ss.129 arrangement and taken as cash or
used to purchase benefits on a tax-free basis by the Participant
during the Plan Year; and
(f) The PS-58 cost of life insurance for the Employee's benefit.
Limitation on Compensation. In addition to other applicable limitations
set forth in the Plan, and notwithstanding any other provision of the Plan
to the contrary, the annual Compensation of each employee taken into
account under the Plan shall not exceed the OBRA '93 annual compensation
limit. The OBRA '93 annual compensation limit is $150,000, as adjusted by
the Commissioner for increases in the cost of living in accordance with
Section 401(a)(17)(B) of the Code. For 1999, the limit is $160,000. The
cost-of-living adjustment in effect for a calendar year applies to any
period, not exceeding 12 months, over which Compensation is determined
(determination period) beginning in such calendar year. If a determination
period consists of fewer than 12 months, the OBRA '93 annual compensation
limit will be multiplied by a fraction, the numerator of which is the
number of months in the determination period, and the denominator of which
is 12. Any reference in this Plan to the limitation under Section
401(a)(17) of the Code shall mean the OBRA '93 annual compensation limit
set forth in this provision. If compensation for any prior determination
period is taken into account in determining an employee's benefits
accruing in the current Plan Year, the compensation for that prior
determination period is subject to the OBRA '93 annual compensation limit
in effect for that prior determination period.
1999 Plan Year. For the 1999 Plan Year, Compensation shall include: (1)
compensation earned before the Closing Date in 1999 under the Columbia
Salary Deferral Plan; (2) with respect to Employees whose accounts
transfer to this Plan pursuant to Section 2.7, all compensation earned
from Columbia in 1999 on and after the Closing Date; (3) with respect to
Employees who were active participants in the Triad Retirement Savings
Plan on the Closing Date and who terminate service with Triad and are
hired by the Employer in 1999, all compensation earned from Triad in 1999
on and after the Closing Date; and (4) with respect to Employees who were
active participants in the Triad Retirement Savings Plan on the Closing
Date and who separated from service with Triad in 1999 and were thereafter
hired by Columbia in 1999, and who subsequently separated from service
with Columbia in
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<PAGE> 17
1999 and were hired by the Employer in 1999, compensation earned from both
Triad and Columbia during 1999. Notwithstanding the foregoing provisions,
however, in no event shall any compensation be counted more than once.
"CONTINGENT BENEFICIARY" shall mean the person or persons (or a trust)
duly designated by the Participant to receive any death benefit from the
Plan in the event the designated Beneficiary does not survive the
Participant.
"CONTRIBUTION RATIO" shall mean, with respect to the ESOP Match Component,
the percentage determined by dividing the Participant's Matching Employer
Contribution Allocations, any Salary Deferral Contributions which the
Employer elects to take into account in computing the Participant's
Contribution Ratio, and any Unilateral Employer Contributions which the
Employer does not elect to take into account in computing Deferral Ratios,
if any, by (b) such Participant's compensation. For purposes of this
definition, the term "compensation" shall mean Employee's compensation,
determined in any manner which satisfies Code Section 414(s). The
Contribution Ratio shall be calculated to the nearest one hundredth of one
percent of the Participant's compensation. The Contribution Ratio for all
Highly Compensated Employees shall be determined by treating all plans
subject to Code Section 401(m) under which a Highly Compensated Employee
is eligible to participate (other than those that may not be permissively
aggregated) as a single plan. However, Salary Deferral Contributions and
Unilateral Employer Contributions may be taken into account in computing
Contribution Ratios only if the requirement of Treasury Regulation Section
1.401(m)-1(b)(5) are satisfied with respect to such contributions. For the
1999 Plan Year, a Participant's Contribution Ratio shall be based on the
foregoing contributions and his compensation from the Effective Date
through December 31, 1999, plus the foregoing contributions and his
compensation prior to the Effective Date under the Columbia Salary
Deferral Plan for 1999. Separate Contribution Ratios shall be calculated
with respect to Employee Voluntary Contributions. For this purpose, a
Participant's Contribution Ratio shall mean the percentage determined by
dividing (a) the Participant's Employee Voluntary Contributions, any
Salary Deferral Contributions which the Employer elects to take into
account in computing the Participant's Contribution Ratio, and any
Unilateral Employer Contributions which the Employer does not elect to
take into account in computing Deferral Ratios, if any, by (b) such
Participant's compensation. However, any Salary deferral Contributions
and/or Unilateral Employer Contributions taken into account in the ESOP
Match Component Contribution Ratios shall not be taken into account in the
Contribution Ratios specified in the preceding sentence.
"DEFERRAL RATIO" shall mean the percentage determined by dividing (a) the
sum of a Participant's Salary Deferral Contributions for which no election
has been made to apply such contributions in computing the Contribution
Ratio of the Participant and any Unilateral Employer Contributions made on
behalf of the Participant which the Employer elects to take into account
in computing the Participant's Deferral Ratio for the Plan Year by (b)
such Participant's compensation. For purposes of this definition, the term
"compensation" shall mean an Employee's compensation, determined in any
manner which satisfies Code Section 414(s). The Deferral Ratio shall be
calculated to the nearest one
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<PAGE> 18
hundredth of one percent of the Participant's compensation. Salary
Deferral Contributions shall be taken into account in computing Deferral
Ratios only if they are allocated to Accounts as of a date within the Plan
Year. For this purpose, a Salary Deferral Contribution is considered
allocated as of a date within a Plan Year only if the allocation is not
contingent upon participation or performance of services after such
allocation date and the Salary Deferral Contribution is paid to the Trust
no later than twelve (12) months after the end of the Plan Year.
Notwithstanding the foregoing, Unilateral Employer Contributions may be
taken into account in computing Deferral Ratios only if the requirements
of Treasury Regulation Section 1.401(k)-1(b)(5) are satisfied with respect
to such contributions. With respect to each Highly Compensated Employee,
the Deferral Ratio shall be computed by treating all qualified cash or
deferred arrangements (as defined in Case Section 401(k)) under which the
Highly Compensated Employee is eligible to participate (other than those
which may not be permissively aggregated) as one qualified cash or
deferred arrangement, and all contributions and compensation shall be
aggregated accordingly. Salary Deferral Contributions shall be taken into
account in computing Deferral Ratios for any given Plan Year only if the
amount of such contributions would have been paid to the Employee during,
or within two and one-half (2 1/2) months after, the Plan Year in which
the services relating to such compensation were performed, but for the
Employee's election to defer receipt of such compensation amount by making
Salary Deferral Contributions to the Plan. For the 1999 Plan Year, a
Participant's Deferral Ratio shall be based on the foregoing contributions
and his compensation from the Effective Date through December 31, 1999,
plus the foregoing contributions and his Compensation prior to the
Effective Date under the Columbia Salary Deferral Plan for 1999.
"DETERMINATION DATE" shall mean, for any Plan Year, the last day of the
preceding Plan Year; however, in the case of the first Plan Year, the
Determination Date is the last day of the first Plan Year.
"DIRECTED INVESTMENT ACCOUNTS" shall mean the sub-accounts under which a
Participant shall direct the investment, which shall include his Profit
Sharing Contribution Account, Salary Deferral Contribution Account, Prior
Salary Deferral Contribution Account, Prior Matching Contribution Account,
Prior Employer Contribution Account, Columbia Money Purchase Pension Plan
Account, Columbia Stock Bonus Plan Account, HealthTrust ESOP Account,
Rollover Account, Thrift Account and Thrift Matching Account, as
applicable.
"EARLY RETIREMENT AGE" shall mean that date on which a Participant has
both (a) attained Age fifty-five (55); and (b) completed ten (10) Years of
Service.
"EARLY RETIREMENT DATE" shall mean the first day of the month immediately
following or coincident with the date the Participant attains Early
Retirement Age.
"EFFECTIVE DATE" shall mean the Closing Date.
"ELECTION PERIOD" shall mean
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<PAGE> 19
(a) For purposes of a Qualified Preretirement Survivor Annuity, in
accordance with applicable Treasury regulations, the period
beginning on the first day of the Plan Year in which a Participant
attains age thirty-five (35) and ends on the date of the
Participant's death, provided that Participants who are hired prior
to age thirty-five (35) may waive the Qualified Preretirement
Survivor Annuity, but such waiver shall be void upon the beginning
of the Plan Year in which they attain age thirty-five (35) (at which
time a new waiver would be necessary to prevent a Qualified
Preretirement Annuity). If Participant separates from service prior
to the Plan Year in which he attains age thirty-five (35), then his
Election Period shall commence on the date he separated from service
and end on his date of reemployment with the Employer, unless he is
reemployed during the Plan Year in which he attains age thirty-five
(35); or
(b) For purposes of a Qualified Joint and Survivor Annuity, the ninety
(90) day period ending on the Annuity Starting Date.
"EMPLOYEE" shall mean any person who is employed as a common-law employee
by a Participating Employer, and who (i) is treated for withholding and
FICA tax purposes as an employee on the payroll of such Participating
Employer and (ii) is not (a) in a unit covered by a collective bargaining
agreement, unless such agreement expressly provides for participation in
the Plan, or (b) a nonresident alien with no U.S. source income.
Accordingly, if any person who is performing services for a Participating
Employer, but is not considered by such Participating Employer to be a
common-law employee for payroll purposes, is subsequently mandatorily
reclassified by the Internal Revenue Service as a common-law employee with
respect to his prior service or is otherwise put on the payroll of a
Participating Employer, he shall, nevertheless, (a) not be considered an
Employee eligible for participation in the Plan prior to the date he
satisfies clause (i) in the preceding sentence, and (b) continue to be
ineligible for participation in the Plan thereafter if he shall be
employed in a job position designated by his Participating Employer (by
Board resolution) as a "non-covered position."
Leased Employee shall mean a person who satisfied the definition as
provided under Code Section 414(n), and shall only be taken into
consideration for purposes of this Plan to the extent so required by such
Code section (for example, if Leased Employees constitute less than twenty
percent (20%) of the Employer's Nonhighly Compensated Employee work force
within the meaning of Section 414(n)(1)(C)(ii) of the Code, the term
"Employee" shall not include leased employees as are covered by a plan
described in Section 414(n)(5) of the Code) unless otherwise provided by
the terms of this Plan, other than in this definition. Contributions or
benefits provided by the leasing organization which are attributable to
services performed for Employer shall be treated as provided by Employer.
"EMPLOYEE VOLUNTARY CONTRIBUTIONS" shall mean voluntary after-tax
contributions made by Participants.
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<PAGE> 20
"EMPLOYEE VOLUNTARY MATCHING CONTRIBUTION ALLOCATIONS" shall mean amounts
of Company Stock released from the Suspense Account pursuant to Section
3.6 (valued on the business day released or the immediately preceding
day) attributable to contributions the Employer shall make to the Plan
with respect to Participants who elect to make Employee Voluntary
Contributions. Such amounts shall remain invested in Company Stock and
Participants shall not be able to direct the investment thereof. All such
amounts shall be allocated to Accounts as of a date within the Plan Year,
and shall be credited to Accounts on or prior to the last day of the Plan
Year following the Plan Year to which they relate.
"EMPLOYER" shall mean Lifepoint Hospitals, Inc., a Delaware corporation
with principal offices located at Nashville, Tennessee and each Affiliated
Employer, as determined as of a particular date.
"EMPLOYER CONTRIBUTIONS" shall mean Salary Deferral Contributions and any
other Employer contributions made under the terms of the Plan.
"EPIC PLAN" shall mean the EPIC Healthcare Group, Inc. Profit Sharing Plan
as it existed immediately prior to the Effective Date.
"ESOP COMPONENT" shall mean the portion of the Plan consisting of Salary
Deferral Matching Contribution Allocations Accounts, ESOP Contribution
Accounts and Employee Voluntary Matching Contribution Allocations Accounts
and any other amounts specified in Section 3.7 which, together, shall be
deemed to constitute an employee stock ownership plan as defined in Code
Section 4975(e)(7) and ERISA Section 407(d)(6), provided that the Columbia
Money Purchase Pension Plan Accounts shall also be considered part of the
ESOP Component such that the assets thereof may be invested by
Participants in Company Stock to any extent desired.
"ESOP CONTRIBUTION" shall mean a contribution made to the Account of a
Participant as described in Article III.
"ESOP FUND" shall mean a separate fund maintained by the Trustee with
respect to the ESOP Component of the Plan. A separate "ESOP Fund Account"
shall be maintained for each Participant's interest in the ESOP Fund. With
the exception of the Columbia Money Purchase Pension Plan Accounts, all or
substantially all of this Fund shall be invested in Company Stock and
Participants shall not be eligible to direct investment of the portion of
their Account which is part of the ESOP Fund.
"ESOP MATCH COMPONENT" shall mean the Matching Employer Contribution
Allocations for any particular Plan Year.
"ESOP TRUSTEE" shall mean the trustee which possesses legal title to the
ESOP Fund, other than the portion of the trust comprised of the Columbia
Money Purchase Pension Plan Accounts.
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<PAGE> 21
"EXCESS AGGREGATE CONTRIBUTION" shall mean, with respect to the ESOP Match
Component, the amount equal to the excess of the total (i) Matching
Employer Contribution Allocations, and (ii) Unilateral Employer
Contributions and/or Salary Deferral Contributions taken into account in
computing Contributions Ratios actually made on behalf of Highly
Compensated Employees for such Plan Year, over the maximum amount of such
aggregated contributions permitted under the Actual Contribution
Percentage test. With respect to the non-ESOP Component (relating to
Employee Voluntary Contributions), such term shall equal the excess of (i)
Employee Voluntary Contributions, and (ii) Unilateral Employer
Contributions and/or Salary Deferral Contributions taken into account in
computing Contribution Ratios actually made on behalf of Highly
Compensated Employees for such Plan Year, over the maximum amount of such
aggregated contributions permitted under the Actual Contribution
Percentage test.
"EXCESS DEFERRAL CONTRIBUTION" shall mean the sum of Salary Deferral
Contributions and Unilateral Employer Contributions taken into account in
calculating Deferral Ratios, contributed by or on behalf of Highly
Compensated Employees, in excess of the maximum amount of such
Contributions permitted by the Actual Deferral Percentage test.
"EXCESS SALARY DEFERRAL CONTRIBUTION" shall mean the sum of Salary
Deferral Contributions and all other elective deferrals, as defined in
Code Section 402(g)(3), made under this Plan or under any other plans,
contracts or arrangements of the Employer for the Plan Year, in excess of
the maximum amount permitted under Code Section 402(g), as such maximum
amount may be increased by the Adjustment Factor.
"FIDUCIARY" shall mean and include the Trustee, Plan Administrator,
Investment Manager, and any other person to the extent that any such
person:
(a) Exercises any discretionary authority or discretionary control
respecting management of the Plan or exercises any authority or
control respecting management or disposition of its assets;
(b) Renders investment advice for a fee or other compensation, direct or
indirect, with respect to any moneys or other property of the Plan,
or has any authority or responsibility to do so;
(c) Has any discretionary authority or discretionary responsibility in
the administration of the Plan; or
(d) Is designated to carry out fiduciary responsibilities pursuant to
this Plan and the Trust Agreement to the extent permitted by Section
405(c)(1)(B) of ERISA.
"FINANCED SHARES" shall mean shares of Company Stock acquired by the
Trustee with the proceeds of an Acquisition Loan.
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<PAGE> 22
"FORFEITURE" shall mean the portion of a Participant's Account which does
not become a part of his Plan Benefit either (i) upon termination of
participation in the Plan or (ii) upon a distribution of Excess Aggregate
Contributions. Forfeitures shall be adjusted for investment earnings and
losses allocated to such amounts for the period beginning when such
amounts become Forfeitures and ending when such amounts are allocated in
accordance with the terms of the Plan.
"HEALTHTRUST PLAN" shall mean the HealthTrust, Inc. 401(k) Retirement
Program as it existed immediately prior to the Effective Date.
"HIGHLY COMPENSATED EMPLOYEE" shall mean, with respect to any Plan Year
(or determination year): (1) any Employee who was a five percent (5%) or
greater owner of the Employer during the Plan Year or the immediately
preceding Plan Year, or (2) any Employee who earned more than $80,000 in
the preceding Plan Year. In addition, for the 1999 Plan Year, any Employee
who earned more than $80,000 from Columbia in 1998 shall be a Highly
Compensated Employee. The $80,000 amount shall be adjusted for inflation
and for short Plan Years, pursuant to the Code Section 414(q). The
Employer may, at its election, limit Employees earning $80,000 or more to
only those Employees who fall within the "top-paid group," as defined in
Code Section 414(q). Any Employee who is not a Highly Compensated Employee
shall be deemed a Nonhighly Compensated Employee.
"HOUR OF SERVICE" shall mean:
(a) Each hour for which an Employee is paid, or entitled to payment for
the performance of duties for an Employer during a Plan Year.
(b) Except as otherwise provided in this definition, each hour for which
an Employee is paid, or entitled to payment from an Employer on
account of a period of time during which no duties are performed
(irrespective of whether the employment relationship has terminated)
due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty or leave of absence.
Hours of Service shall be awarded under this definition for periods
of time during which no duties are performed at the rate of forty
(40) hours per work week.
(1) No more than five hundred and one (501) Hours of Service will
be credited under this definition to an Employee on account of
any single continuous period during which the Employee
performs no duties (whether or not such period occurs in a
single Plan Year).
(2) Hours of Service shall not be credited on account of a period
during which an Employee is paid or entitled to payment and
with respect to which no duties are performed, if such payment
is made or due under a plan maintained solely for the purpose
of complying with applicable workmen's compensation, or
unemployment compensation or disability service laws, or
16
<PAGE> 23
if the payment merely reimburses the Employee for a medical or
medically-related expense incurred by the Employee.
(3) For purposes of this definition, a payment shall be deemed to
be made by or due from an Employer regardless of whether such
payment is made by or due from an Employer directly, or
indirectly through, among others, a trust fund or insurer, to
which an Employer pays premiums and regardless of whether
contributions made or due to the trust fund, insurer or other
entity are for the benefit of a particular Employee or are on
behalf of a group of Employees in the aggregate.
(4) For purposes of vesting, a Participant shall receive credit,
at a rate of forty (40) hours per work week, for hours of LOA
under the Federal Family and Medical Leave Act of 1993 (P.L.
103-3), if such Participant returns to work for the Employer
following his LOA in accordance with the provisions of such
Act which entitles him to such credit while on LOA.
(c) Maternity or Paternity Leave. In the case of absences from work due
to a "Maternity or Paternity Leave" (as hereinafter defined), the
following rules shall apply:
(1) "Maternity or Paternity Leave" means any period for which an
Employee is absent from work by reason of that Employee's
pregnancy, the birth of a child, adoption of a child or by
reason of that Employee caring for his child immediately after
the child's birth or adoption.
(2) Solely for the purpose of determining whether a break in
service occurs for purposes of determining eligibility and
vesting, an Employee absent from work due to a Maternity or
Paternity Leave shall be credited with the number of Hours of
Service he normally would have incurred but for the Maternity
or Paternity Leave; or, if the Plan Administrator is unable to
determine this amount, then the Employee shall be credited
with eight (8) Hours of Service for each day he normally would
have worked but for the Maternity or Paternity Leave.
(3) The maximum number of Hours of Service credited under this
definition shall not exceed five hundred and one (501) hours.
Hours of Service so credited shall only be applied to the Plan
Year in which the Maternity or Paternity Leave begins, unless
such Hours of Service are not required to prevent the Employee
from incurring a One Year Break in Service. If the Hours of
Service which would otherwise be credited under this
definition in the Plan Year in which the Maternity or
Paternity Leave begins are not required to prevent the
Employee from incurring a One Year Break in Service, then such
Hours of Service shall be credited to the Employee in the
immediately following Plan Year.
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<PAGE> 24
(4) No Hour of Service shall be credited under this definition
unless the Employee provides proof to the Plan Administrator
that his absence from work was due to a Maternity or Paternity
Leave as defined hereinabove and provides proof to the Plan
Administrator of the number of days he was absent due to the
Maternity or Paternity Leave. The Plan Administrator shall
prescribe uniform and nondiscriminatory procedures by which to
make the above determinations.
(d) Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer. The
same Hours of Service shall not be credited under subsections
(a), (b), (c) and (d) of this definition. The crediting of
Hours of Service for back pay awarded or agreed to with
respect to periods described in subsection (b) of this
definition shall be subject to the limitations described in
paragraphs (1), (2) and (3) of such subsection (b).
Department of Labor Regulations. The crediting of Hours of Service
shall be subject to all rules contained in paragraphs (b) and (c) of
the United States Department of Labor Regulations Section
2530.200b-2.
Determination of Hour of Service for Commissions and "On-Call". The
Hours of Service for an Employee who is compensated for the Plan
Year solely on the basis of commissions, as opposed to salary or
hourly pay, shall be deemed to equal the quotient of such Employee's
compensation received from an Employer divided by the lowest minimum
wage under the Fair Labor Standards Act of 1938, as amended, in
effect at any time during the Plan Year. Hours of Service shall not
include hours for which an Employee is paid for being "on-call," but
for which the Employee performs no service for the Employer, and for
which the Employee's pay is less than the rate of pay received by
the Employee from the Employer for the performance of services.
1999 Hours. For the 1999 Plan Year, Hours of Service shall include:
(1) Hours of Service under the Columbia Salary Deferral Plan prior
to the Closing Date; (2) with respect to Employees whose accounts
transfer to this Plan pursuant to Section 2.7, all Hours of Service
performed for Columbia in 1999 on and after the Closing Date; (3)
with respect to Employees who were active participants in the Triad
Retirement Savings Plan on the Closing Date and who terminate
service with Triad and are hired by the Employer in 1999, all Hours
of Service performed at Triad in 1999 on and after the Closing Date;
and (4) with respect to Employees who were active participants in
the Triad Retirement Savings Plan on the Closing Date and who
separated from service with Triad in 1999 and were thereafter hired
by Columbia in 1999, and who subsequently separated from service
with Columbia in 1999 and were hired by the Employer in 1999, all
Hours of Service performed for both Triad and Columbia during 1999.
Notwithstanding the foregoing provisions, however, in no event shall
any Hours of Service be counted more than once.
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<PAGE> 25
"INVESTMENT FUNDS" shall mean each of the funds under which Plan assets
are invested, including the Company Stock Fund but not including the ESOP
Fund, the Columbia Stock Fund and the Triad Stock Fund.
"INVESTMENT MANAGER" shall mean any fiduciary (other than a trustee or
named fiduciary) who:
(a) Has the power to manage, acquire, or dispose of any asset of the
Plan;
(b) Is a bank, insurance company, or an investment advisor registered
under the Investment Advisors Act of 1940; and
(c) Has acknowledged in writing that he is a fiduciary with respect to
the Plan.
"KEY EMPLOYEE" shall mean a Plan Participant who at any time during the
Plan Year or the four previous Plan Years was (1) an officer of the
Employer, having annual compensation greater than fifty percent (50%) of
the dollar limitation in effect under Code ss. 415(b)(1)(A) for any such
Plan Year; (2) one of the ten Employees having annual compensation greater
than the dollar limitation in effect under Code ss. 415(c)(1)(A) and who
owns (or who is considered to own within the meaning of Code ss. 318) the
largest interests in the Employer (if two (2) or more Employees have equal
ownership interests, the one with the larger annual compensation has the
larger interest); (3) a five percent (5%) owner of the Employer; or (4) a
one percent (1%) owner of the Employer, whose annual compensation is
greater than one-hundred and fifty thousand dollars ($150,000). For
purpose of clause (1) of this definition, no more than fifty (50)
employees shall be treated as officers. If less than fifty (50) employees
are officers, then the greater of three (3) employees or ten percent (10%)
of all employees shall be treated as officers if all the facts and
circumstances indicate such a classification. The Beneficiary of a Key
Employee or a former Key Employee will be treated, respectively, as a Key
Employee or a former Key Employee. A Non-Key Employee is any Employee who
is not a Key Employee.
"LOAN SUSPENSE ACCOUNT" shall mean the account established for unallocated
Financed Shares.
"MATCHING EMPLOYER CONTRIBUTION ALLOCATIONS" means Salary Deferral
Matching Contribution Allocations and Employee Voluntary Matching
Contribution Allocations. A Participant shall not be entitled to elect to
receive Matching Employer Contribution Allocations in cash rather than as
a contribution to his Account.
"NONHIGHLY COMPENSATED EMPLOYEE" shall mean any Employee other than a
Highly Compensated Employee.
"NORMAL RETIREMENT AGE" shall mean Age sixty-five (65).
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"NORMAL RETIREMENT DATE" shall mean the first day of the month coincident
with or immediately following the date on which the Participant attains
Age sixty-five (65).
"ONE YEAR BREAK IN SERVICE" shall mean a Plan Year during which the
Participant has not completed more than five hundred (500) Hours of
Service. Solely for the purpose of determining whether a Participant
serves more than five hundred (500) Hours of Service in a Plan Year, a
Participant shall be credited with an Hour of Service for each hour of
absence (based on a forty (40) hour week or pro rata portion thereof) by
reason of any of the following causes, provided, however, that no such
crediting shall result in a duplication of credits for the same period of
time.
(a) Leaves of absence duly granted by the Employer continuing for a
period of not more than two (2) years, with all Participants under
similar circumstances being treated alike; and
(b) Lay-off for a lack of work or other cause continuing for a period of
not more than one (1) year.
"PARTICIPANT" shall mean an Employee who has met the requirements of
Article II for participation. A Participant's Account shall be entitled to
receive a share of earnings or losses for a Plan Year (without regard to
whether the Participant served any Hours of Service during the Plan Year)
unless his Account has been closed in accordance with Article IX prior to
the end of each Plan Year quarter. An individual shall cease to be a
Participant as of the date on which his Plan Benefits are distributed
under Article IX.
"PARTICIPATING EMPLOYER" shall mean any Affiliated Employer that adopts
this Plan, other than the Plan Sponsor. Adoption may be accomplished
through a resolution of the board of directors of an eligible Employer.
"PLAN" shall mean the Lifepoint Hospitals, Inc. Retirement Plan. Subject
to approval by the Plan Sponsor and the definition of Participating
Employer, the Plan may be adopted by any Affiliated Employer, as
determined as of a particular date.
"PLAN ADMINISTRATOR" shall mean the Committee.
"PLAN ANNIVERSARY DATE" shall mean the last day of the Plan Year, December
31.
"PLAN BENEFIT" shall mean the amount of the distribution to which a
Participant becomes entitled upon termination of participation in the
Plan.
"PLAN SPONSOR" shall mean the Employer.
"PLAN YEAR" shall mean the calendar year. The period beginning April 1,
1999 and ending December 31, 1999 shall be treated as a short Plan Year.
For all purposes of this Plan, the "Limitation Year" for purposes of
Section 415 of the Code shall be the calendar year.
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"PROFIT SHARING CONTRIBUTION" shall mean a contribution made to the
Account of a Participant as described in Article III.
"QUALIFIED ELECTION PERIOD" shall mean the six-Plan Year period beginning
with the Plan Year in the which the Participant first becomes a Qualified
Participant.
"QUALIFIED PARTICIPANT" shall mean a Participant who has obtained age 55,
whether or not he remains an Employee.
"QUALIFIED JOINT AND SURVIVOR ANNUITY" shall mean an annuity for the
Participant's life with a survivor annuity for his spouse which is equal
to fifty percent (50%) of the amount of the annuity payable during their
joint lives and is the actuarial equivalent of a single life annuity for
the life of the Participant.
Single Participants. With respect to a Participant who is not married, a
Qualified Joint and Survivor Annuity shall mean an annuity for the life of
the Participant.
"QUALIFIED PRERETIREMENT SURVIVOR ANNUITY" shall mean an annuity for the
life of the surviving spouse which is the actuarial equivalent of the
greater of:
(a) The Participant's death benefit as determined under Article IX; or
(b) Fifty percent (50%) of the Participant's Account as of the date of his
death.
Single Participants. With respect to a Participant who is not married, the
qualified Preretirement Survivor Annuity is deemed waived, until such time
as the Participant first becomes married.
"QUALIFIED WAIVER" shall mean a waiver that is executed by a Participant
and, where required, the Participant's spouse, of a Qualified Joint and
Survivor Annuity or a Qualified Preretirement Survivor Annuity, a
designation of a Beneficiary and Contingent Beneficiary other than the
Participant's spouse, or a request for a "cash-out" of benefits.
Procedure. A Qualified Waiver shall be in writing; consented to by the
Participant's spouse if such consent is so required under Article IX; made
within the applicable Election Period; and shall specify the optional form
in which benefits shall be paid, the Beneficiary and Contingent
Beneficiary being designated, or that a "cash-out" is requested, as the
case may be. Any consent to a Qualified Waiver by the Participant's spouse
shall be in writing, and shall be witnessed by either a Plan
representative or a notary public. Such spousal consent shall be on a form
which acknowledges the effect of the Qualified Waiver and consent thereto.
Such spousal consent shall be effective only with respect to the specific
Beneficiary and Contingent Beneficiary specified in the Qualified Waiver,
unless the Qualified Waiver specifically allows the Participant to change
the Beneficiary or Contingent Beneficiary without the execution of another
Qualified Waiver.
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Missing or No Spouse. If the Participant established to the satisfaction
of the Plan Administrator that the consent of the Participant's spouse may
not be obtained because the Participant has no spouse or the Participant's
spouse cannot be located, or if the spouse's consent is not necessary
under applicable Treasury regulations, a waiver by the Participant will be
deemed a Qualified Waiver.
New Spouse. Where provided, a spousal consent shall be valid only with
respect to the spouse by whom it is signed (or in the event of a waiver
which is deemed a Qualified Waiver, the designated spouse) or in the event
of an unmarried participant, only so long as the Participant remains
unmarried.
Revocation. A Qualified Waiver may be revoked by a Participant without the
consent of the Participant's spouse at any time before the commencement of
benefits. However, upon revocation of a prior waiver, any new or
substitute waiver shall have no effect unless it satisfies the provisions
of this Section. The number of revocations shall not be limited as long as
such revocations are made during the applicable Election Period.
"SALARY DEFERRAL CONTRIBUTION" means a fixed percentage or a dollar amount
of a Participant's Compensation which is contributed by the Plan Sponsor
or Participating Employer each Plan Year to the Salary Deferral
Contribution Account of a Participant under Article III. Each Participant
may designate the percentage or amount referred to in the preceding
sentence subject to the approval of the Plan Administrator, provided that:
(a) The designation is made in writing or through the Voice Response
System (as determined by the Plan Administrator), in a manner and
within a time period prescribed by the Plan Administrator;
(b) The designation is irrevocable with respect to all Compensation
earned by the Participant during the portion of the Plan Year to
which the designation applies and is made prior to the time the
Compensation is paid to the Participant; and
(c) The designation does not cause the average of the Deferral Ratios
for Participants who are Highly Compensated Employees to exceed the
greater of the following "Average Deferral Percentage tests":
(1) One and one-quarter (1.25) multiplied by the average of the
Deferral Ratios of all Nonhighly Compensated Employees who are
eligible to participate in the Plan; or
(2) The lesser of (i) two hundred percent (200%) of the average of
the Deferral Ratios for Nonhighly Compensated Employees or
(ii) the average of the Deferral Ratios for Nonhighly
Compensated Employees plus two percent (2%).
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(d) The amount designated as a Salary Deferral Contribution by any
Participant cannot be a percentage which the Plan Administrator
determines will cause the Annual Additions under this Plan when
combined with the Annual Additions under all other plans maintained
by the Employer or any other plan required under the Code to be
aggregated with such plans to exceed the limitations of Code Section
415(c) applicable to the Participant.
(e) In no event shall the Salary Deferral Contribution of a Participant
exceed Seven Thousand Dollars ($7,000) as indexed for inflation or,
where different, the amount provided under Code Section 402(g)(5).
(f) For purposes of making the determination under Subsection (c), if
Salary Deferral Contributions or other cash or deferred arrangements
qualified under Code Section 401(k) are maintained by the Employer
in any other plan which is treated as one plan with this Plan for
purposes of Code Section 401(a)(4) or 410(b), then all such Salary
Deferral Contributions and cash or deferred arrangements shall be
treated as Salary Deferral Contributions under this Plan.
(g) The Deferral Ratio for any Employee who is a Highly Compensated
Employee for the Plan Year and who is eligible to have deferral
contributions allocated to this Account under two or more plans or
arrangements described in Section 401(k) of the Code that are
maintained by an Employer shall be determined as if all such
deferral contributions were made under a single arrangement.
(h) In the case of a Participant who is a Highly Compensated Employee,
the Salary Deferral Contribution designation provided for in this
Section shall not equal or exceed an amount, determined by the Plan
Administrator, which will result in discrimination prohibited by
Code Section 401(a)(4).
(i) The Deferral Ratio of an eligible Employee who makes no elective
contribution is zero.
(j) For purposes of the "Average Deferral Percentage test," Compensation
shall be considered for the entire Plan Year, without regard to the
date on which the Participant commenced participation in this Plan.
(k) Some or all of such amounts deferred by the Employee may be returned
to the Employee after the end of the Plan Year if the Actual
Deferral Percentage test is not passed for the Plan Year.
(l) At the election of the Employer, all or a portion of such
contributions shall be utilized in computing Contribution Ratios.
Any of such contributions which are utilized in computing
Contribution Ratios shall not be utilized in computing Deferral
Ratios.
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"SALARY DEFERRAL MATCHING CONTRIBUTION ALLOCATIONS" shall mean the amounts
of Company Stock released from the Suspense Account pursuant to Section
3.5 (valued on the day released or the immediately preceding business day)
attributable to amount of contributions the Employer shall make to the
Plan with respect to Participants who elect to make Salary Deferral
Contributions for any Plan Year. Such amounts released shall remain
invested in Company Stock and Participants shall not be able to direct the
investment thereof. All such amounts shall be allocated to Accounts as of
a date within the Plan Year, and shall be credited to Accounts on or prior
to the last day of the Plan Year following the Plan Year to which they
relate.
"SUPER TOP-HEAVY PLAN" shall mean any Plan that would be a Top-Heavy Plan
if ninety percent (90%) were substituted for sixty percent (60%) in the
definition of Top-Heavy Group.
"TOP-HEAVY GROUP" shall mean an aggregation group of plans maintained by
the Employer in which any Key Employee participates and any other plans
maintained by the Employer, which enable any plan in which a Key Employee
participates to meet the coverage and anti-discrimination test of Code
Sections 401(a)(4) and 410(b). An aggregation group is a Top-Heavy Group
if the aggregate Accounts for Key Employees exceed sixty percent (60%) of
the same amount determined for all Participants under all plans included
in the aggregation group. In determining whether an aggregation group is a
Top-Heavy Group, the Account balances for all Participants shall be
determined with reference to the respective Determination Dates of the
various plans in the aggregation group falling within the same calendar
year. If an aggregation group is a Top-Heavy Group, each plan required to
be included in the Top-Heavy Group is a Top-Heavy Plan. The Employer may
permissively aggregate plans not required to be in the aggregation group
if the group as so aggregated continues to meet the requirements of Code
Sections 401(a)(4) and 410.
"TOP-HEAVY PLAN" shall mean (i) a Plan if, as of the Determination Date,
the present value of the aggregate Accounts for Participants who are Key
Employees for the Plan Year exceeds sixty percent (60%) of the value of
the aggregate Accounts for Employees under the Plan; or (ii) a Plan which
is part of a Top-Heavy Group. For purposes of determining the present
value of the aggregate Accounts of Participants, the present value of the
aggregate Accounts shall be increased by the aggregate distributions made
with respect to any Participant or Beneficiary under the Plan during the
five (5) year period ending on the Determination Date, notwithstanding
that the Plan may have terminated within the five (5) year period if the
terminated Plan would have been required to be included in an aggregation
group but for its termination. However, if a Participant has not performed
any services for an Employer at any time during the five (5) year period
ending on the Determination Date, then his Account will not be included in
determining the present value of the aggregate Accounts for Participants.
Also, as provided under Code Section 416(g)(4)(B), the computation
excludes from the aggregate Accounts of Participants the Account of any
Participant who was formerly a Key Employee.
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<PAGE> 31
"TOTAL AND PERMANENT DISABILITY" or "TOTALLY AND PERMANENTLY DISABLED"
shall mean a physical or mental condition which occurs during the period
of time in which a Participant is an Employee (including a period during
which sick pay benefits are being paid), and which causes the Participant
to be eligible for disability benefits under Section 423 of Title 42 of
the U.S. Code. A Participant shall be considered Totally and Permanently
Disabled only if the Participant files with the Plan Administrator a copy
of the certification of the Social Security Administration stating that
the Participant has qualified for Social Security disability benefits
under Section 423 and the Participant furnishes evidence to the
satisfaction of the Plan Administrator that the Participant's disability
occurred while the Participant was an active Employee.
"TRIAD" shall mean Triad Hospitals Inc.
"TRIAD STOCK FUND" shall mean a separate fund maintained by the Trustee
for common stock of Triad that was received upon the spin-off of Triad by
Columbia.
"TRUST AGREEMENT" shall mean the agreement entered into between the Plan
Sponsor and the Trustee with respect to this Plan, as it may subsequently
be amended from time to time. There may be two or more separate trust
agreements.
"TRUST FUND" or "TRUST" shall mean all cash, securities, life insurance,
and real estate, and any other property held by the Trustee pursuant to
the terms of the Trust Agreement, together with the income therefrom.
There may be two or more separate trust funds.
"TRUSTEE" shall mean the Trustee or Trustees named in the Trust
Agreement(s). There may be two or more trustees with respect to the assets
of the Plan.
"UNILATERAL EMPLOYER CONTRIBUTION" means an Employer contribution for a
Plan Year to be allocated to each Participant who is not a Highly
Compensated Employee and who has elected to make Salary Deferral
Contributions for the Plan Year, which may be contributed by the Employer
in any Plan Year. Such contribution shall be allocated pro rata based on
Salary Deferral Contributions for the Plan Year to which such contribution
relates. A Participant shall not be entitled to elect to receive
Unilateral Employer Contributions in cash rather than as contributions to
his Account. Such amounts shall be fully vested and shall be distributable
in accordance with the distribution provisions of Article IX, provided
that hardship distributions shall not be allowed. At the election of the
Employer, all or a portion of such contributions shall be utilized in
computing Deferral Ratios. Any of such contributions which are not
utilized in computing Deferral Ratios shall be utilized in computing
Contribution Ratios.
"VALUATION DATE" shall mean the first business day as of which it is
administratively feasible to determine the value of the applicable amount.
"YEARS OF SERVICE" shall mean years of service for vesting, to be
determined as follows:
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<PAGE> 32
An Employee shall be credited with a Year of Service for each Plan Year
during which the Employee (1) has at least reached age eighteen (18), and
(2) serves at least one-thousand (1,000) Hours of Service for an Employer.
If a Participant separates from service with the Employer prior to the end
of a Plan Year, the Participant shall be credited with a Year of Service
for purposes of vesting for the Plan Year in which he separates from
service if the Participant has completed at least one-thousand (1,000)
Hours of Service for an Employer during such Plan Year.
(a) Service Under Qualified Plans of Acquired Employers. Unless the
acquisition agreement provides otherwise, full years of service with
an Acquired Employer for vesting purposes prior to the Acquisition
Date shall be taken into account if such Acquired Employer
maintained a retirement plan qualified under Section 401(a) or
403(b) or 408(k) of the Code immediately prior to the Acquisition
Date or, if the Plan Administrator so determines in its sole
discretion, at any time prior to the Acquisition Date. Service for
purposes of vesting credited under the preceding sentence shall be
equal to the service for purposes of vesting that the Employee has
accrued under any qualified retirement plan (or 403(b) plan or
408(k) plan) of the Acquired Employer as of the Acquisition Date.
This subsection (1) shall only apply to Participants who were
actively employed by the Acquired Employer on the Acquisition Date.
(b) Vesting Service Provided Under Adoption Agreement. Full Years of
Service shall, to the extent required in the Adoption Agreement
executed between the Plan Sponsor or an Employer and an Acquired
Employer, include Years of Service with an Acquired Employer served
prior to the Acquisition Date. Service taken into account under this
subsection shall be in addition to any other service taken into
account under this definition.
(c) Service Under Qualified Plans of Prior Employer by Acquired Group of
Employees. Unless the acquisition agreement provides otherwise, full
years of service for vesting purposes with the immediate prior
employer of an Acquired Group of Employees, prior to the Acquisition
Date, shall be taken into account if such former employer maintained
a retirement plan qualified under Section 401(a) or 403(b) or 408(k)
of the Code immediately prior to the Acquisition Date or, if the
Plan Administrator so determines in its sole discretion, at any time
prior to the Acquisition Date. Service for purposes of vesting
credited under the preceding sentence shall be equal to the service
for purposes of vesting that the Employee had accrued under any
qualified retirement plan (or 403(b) plan or 408(k) plan) maintained
by the immediate prior employer as of the Acquisition Date. This
subsection shall only apply to Participants who were actively
employed by the immediate prior employer on the Acquisition Date.
(d) Vesting Service Provided Under Acquisition Agreement. Full Years of
Service shall, to the extent required in the acquisition agreement
under which the individuals of an Acquired Group of Employees become
Employees, include years of service
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<PAGE> 33
with the immediate prior employer of the Acquired Group of Employees
served prior to the Acquisition Date. Service taken into account
under this subsection shall be in addition to any other service
taken into account under this definition.
(e) Service With Columbia. Subject to Section 8.3, all individuals whose
account balances in the Columbia Plans transfer to the Plan pursuant
to Sections 2.4, 2.5 and 2.7 shall be granted service credit for
their years of vesting service under the Columbia Money Purchase
Pension Plan. Such service shall be transferred from the Columbia
Plans. In addition, subject to Section 8.3, the individuals whose
accounts (or former accounts) are described in the last paragraph of
Section 8.3.3 shall be granted service credit for their years of
vesting service under the Columbia Money Purchase Pension Plan. Such
service shall be transferred from the Columbia Plans. Subject to
Section 8.3, any individuals whose accounts in the Columbia Plans
don't transfer to the Plan because they fall within the exception
clause of the first sentence of Section 2.4 shall be granted service
credit for their years of vesting service under the Columbia Money
Purchase Pension Plan. Such service shall be transferred from the
Columbia Plans.
(f) Service with Triad. An individual who was an employee of Triad on
the Closing Date, and who terminates employment with Triad during
1999 and is hired by the Employer during 1999 shall receive credit
for this vesting service under the Triad Plan Retirement Savings
Plan.
(g) Affiliated Employers. For the purpose of granting Years of Service
under the Plan, an Affiliated Employer will be treated as an
Employer for purposes of determining Hours of Service and Years of
Service.
(h) No Double Counting. Notwithstanding the foregoing provisions, in no
event shall any period of service be counted more than once.
"USE OF TERMS" Any words herein used in the masculine shall be read and be
construed in the feminine in all cases where they would so apply. Words in
the singular shall be read and construed as though used in plural in all
cases where they would so apply.
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<PAGE> 34
ARTICLE II
PARTICIPATION
2.1 PARTICIPATION. An Employee of the Plan Sponsor or a Participating Employer
shall be eligible to participate in the Salary Deferral Contributions and
Employee Voluntary Contributions components of the Plan as of the first
business day of the calendar month following the date during which is
sixty (60) days after the date he is hired, provided that he either is Age
twenty-one (21) or greater or will attain Age twenty-one (21) during such
calendar month. Otherwise, such Employee shall be eligible to participate
in the Salary Deferral Contribution Allocations and Employee Voluntary
Contribution Allocations components of the plan beginning on the first day
of the calendar month during which he will attain Age twenty-one (21). An
Employee of the Plan Sponsor or a Participating Employer shall be eligible
to begin participation in the Profit Sharing Contributions, Salary
Deferral Matching Contribution Allocations and Employee Voluntary Matching
Contribution Allocations and ESOP Contributions components of the Plan as
of the first day of the Plan Year following the Plan Year in which he is
hired, provided he is age twenty-one (21) or greater at the beginning of
such Plan Year or will attain age twenty-one (21) during such Plan Year.
Otherwise, such Employee shall be eligible to participate in the Profit
Sharing Contributions, Salary Deferral Matching Contribution Allocations
and Employee Voluntary Matching Contribution Allocations and ESOP
Contributions components as of the beginning of the Plan Year in which he
will attain age twenty-one (21). Only Employees of Participating Employers
or the Plan Sponsor shall participate in the Plan.
2.1.1 Entry Date. An eligible Employee shall be admitted to the Plan on
the first day of the calendar month during which he becomes
eligible, provided that he is an Employee of Employer when such
requirement is met. A Participant who terminates employment with
Employer and subsequently returns to employment with Employer or any
Participating Employer shall commence participation in the Plan on
the day of his reemployment. A former Employee of Columbia whose
accounts in the Columbia Plans transfer to the Plan pursuant to
Section 2.5 shall be considered a rehired Employee upon becoming
employed by the Employer.
2.1.2 Ineligible Employees. Notwithstanding the preceding provisions of
this Section 2.1, an Employee whose employment is subject to a
collective bargaining agreement (unless such collective bargaining
agreement provides to the contrary) shall not be eligible to
participate in this Plan. An Employee shall not be excluded from
participating in this Plan solely on account of age, except as
provided under Section 2.1 above.
2.1.3 Leased Employees. Leased Employees shall not be entitled to
participate in this Plan.
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<PAGE> 35
2.1.4 Exception for Employees of Acquired Employers. Unless the Adoption
Agreement or other agreement entered into between the Plan Sponsor
or an Employer and the Acquired Employer or member (or members) of
the Acquired Group of Employees provides otherwise, Employees of
Acquired Employers and Employees of Acquired Groups of Employees
shall be eligible to participate in this Plan on the later of:
(a) As soon as practicable after the Acquisition Date, provided
the Employee is Age twenty-one (21); or
(b) The date as otherwise would apply under the preceding
provisions of this Section 2.1.
2.1.5 Conversion from Columbia. Notwithstanding the foregoing provisions
of this Section 2.1, all individuals who are employed by the
Employer on the Closing Date and who were active participants in one
or more of the Columbia Plans on the day before the Closing Date
shall become Participants in all components of this Plan on the
Closing Date. In addition, those individuals employed by a
Participating Employer who would have been participants in the
Columbia Plans but for their facility's failure to adopt such plans
(and become participating employers therein) shall become
Participants in all components of this Plan on the Closing Date.
Salary Deferral Contributions and Employee Voluntary Contributions
(and related Matching Employer Contribution Allocations) may begin
in 1999 as of the beginning of any payroll period(s) of the Employer
which immediately precedes the Closing Date or immediately follows
the Closing Date, and which immediately follows the final payroll
period(s) of Columbia.
2.1.6 Transfers from Columbia in 1999. An individual who is a participant
in one or more of the Columbia Plans and who becomes an Employee
under the provisions of Section 2.7 shall be considered a rehired
Employee in accordance with Section 2.1.1 for purposes of
participation.
2.1.7 Employment Changes from Triad in 1999. An individual who was an
employee of Triad on the Closing Date and whose accounts in the
Columbia Plans transferred to the Triad Retirement Savings Plan in
1999 shall be considered a rehired Employee under Section 2.1.1 if
he separates from service with Triad during 1999 and is hired by the
Employer in 1999.
2.2 RIGHTS OF PARTICIPANTS. All Participants shall be bound by the terms of
the Plan, including all amendments hereto made in the manner authorized
herein.
2.3 ENROLLMENT FORM. Subject to the provisions of Sections 2.3.1 and 9.6.4,
each Participant will complete an enrollment form prescribed by the Plan
Administrator on which the Participant shall provide the information
requested thereon and shall designate the percentage if any, of his
Compensation which constitutes his Salary Deferral Contribution and/or
Employee Voluntary Contribution. The election forms must be filed with the
Plan
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<PAGE> 36
Administrator or its designee and will remain in effect until revoked or
changed pursuant to Section 2.3.3. The Plan Administrator may utilize what
communications methods it deems proper to receive communications,
elections and directions from Participants.
2.3.1 Authority to Establish Procedures for Contributions. The Plan
Administrator may adopt and revise procedures to be followed in
making Salary Deferral Contribution and Employee Voluntary
Contribution elections. Such procedures may include but are not
limited to the format of the election forms to be used in making
Salary Deferral Contribution and Employee Voluntary Contribution
elections, the deadlines for providing the election forms to and for
filing the election forms by the Participant, the procedures for
approval of Salary Deferral Contribution and Employee Voluntary
Contribution elections and the procedures under which the amount of
any Participant's Salary Deferral Contribution and/or Employee
Voluntary Contribution election may be reduced in order to cause the
Plan to satisfy the Average Deferral Percentage test or the Actual
Contribution Percentage test, or in order to prevent the Participant
from receiving Annual Additions for the Plan Year in excess of the
limits imposed by Code Section 415. Any changes shall be effective
as soon as reasonably and administratively practicable within the
terms of the administration system. The Plan Administrator shall
also have discretion to prescribe rules under which a separate
Salary Deferral Contribution and/or Employee Voluntary Contribution
election may be made with respect to any bonus or overtime payable
to a Participant. The Plan Administrator may allow the provisions of
this Subsection 2.3.1 to be applied separately as to each
Participating Employer, such that separate procedures may apply for
different Participating Employers. However, in no event may any
Participating Employer apply a procedure which discriminates in
favor of Highly Compensated Employees.
2.3.2 Failure to File a New Enrollment Form. If a Participant fails to
file a new enrollment form at the end of a month for which the
Participant had in effect a Salary Deferral Contribution and/or
Employee Voluntary Contribution election, the Participant shall be
treated as continuing the last enrollment form that he filed with
the Plan Administrator and the same Salary Deferral Contribution
and/or Employee Voluntary Contribution will be withheld on his
behalf for the next month.
2.3.3 Revocation or Change of Salary Deferral Contribution and/or Employee
Voluntary Contribution Election. Subject to the discretion of the
Plan Administrator as provided in Section 2.3.1, a Participant who
has a Salary Deferral Contribution and/or Employee Voluntary
Contribution election in effect may revoke or change or suspend such
election at any time.
The Participant's revocation or change or suspension of his Salary
Deferral Contribution and/or Employee Voluntary Contribution
election must be either completed on a form prescribed by the Plan
Administrator and filed with the Plan Administrator (or its
designee) or provided through the Voice Response System. If a
Participant does not revoke or change his Salary Deferral
Contribution and/or Employee Voluntary Contribution election in the
manner prescribed, his Salary Deferral Contribution and/or
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<PAGE> 37
Employee Voluntary Contribution election shall remain in effect as
otherwise prescribed in this Section.
2.3.4 Rehired Participants. If a Participant separates from service with a
Participating Employer but thereafter is hired by a Participating
Employer within a reasonable period of time following his separation
from service, with a reasonable period to be determined by the Plan
Administrator, then, unless he elects otherwise pursuant to
administrative procedures determined by the Plan Administrator, his
Salary Deferral Contribution and/or Employee Voluntary Contribution
election and investment instructions which existed at the time of
his separation from service shall remain in effect upon his rehire.
2.4 ACCOUNT TRANSFERS FOR ACTIVE EMPLOYEES. With the exception of accounts in
the Columbia Plans of individuals who are employed by both Columbia and
the Employer on the Closing Date and Columbia is the primary employer (as
determined by Columbia), the accounts in the Columbia Plans of individuals
who become Participants in accordance with Section 2.1.5 shall transfer to
the Plan. However, such accounts shall not be fully vested upon transfer.
All elections and designations made under the Columbia Salary Deferral
Plan prior to the Closing Date shall apply under this Plan beginning on
the Closing Date.
2.5 ACCOUNT TRANSFERS FOR FORMER EMPLOYEE PARTICIPANTS IN COLUMBIA PLANS ON
DISTRIBUTION DATE. Individuals who separated from service with Columbia
prior to the Closing Date, but for whom an account is maintained in one or
more of the Columbia Plans on the Closing Date, shall become Plan
Participants and their accounts in the Columbia Plans shall transfer from
the Columbia Plans to the Plan, provided that the last employer of the
individual while active in a Columbia Plan was a company which is owned
(directly or indirectly) by the Employer on the Closing Date. However,
such accounts shall not be fully vested upon transfer. All elections and
designations made under the Columbia Salary Deferral Plan prior to the
Closing Date shall apply under this Plan beginning on the Closing Date.
2.6 HEALTHTRUST AND EPIC PLAN BALANCES. The provisions of Sections 2.4 and 2.5
shall apply equally to accounts held in the HealthTrust Plan and the EPIC
Plan. However, all such accounts which transfer shall be fully vested upon
transfer.
2.7 ACCOUNT TRANSFERS FOR EMPLOYMENT CHANGES FROM COLUMBIA IN 1999. The
accounts in the Columbia Plans of individuals employed by Columbia on the
Closing Date who separate from service with Columbia in 1999 after the
Closing Date and are hired by the Employer prior to 2000 shall transfer to
the Plan in 2000. However, such accounts shall not be fully vested upon
transfer.
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ARTICLE III
CONTRIBUTIONS AND ACQUISITION LOANS
3.1 SALARY DEFERRAL AND EMPLOYEE VOLUNTARY CONTRIBUTIONS. For each payroll
period, each Employer shall make, on behalf of each Employee who is a
Participant, Salary Deferral Contributions equal to the percentage or
amount (if any) of Compensation designated as a Salary Deferral
Contribution by such Employee, and Employee Voluntary Contributions equal
to the percentage or amount (if any) of Compensation designated to be
contributed as an Employee Voluntary Contribution by such Employee, for
that payroll period (unless an alternative procedure is prescribed by the
Plan Administrator). Employees shall not be allowed to make Salary
Deferral Contributions of more than fifteen percent (15%) of their
Compensation for any payroll period and shall not be allowed to make
Employee Voluntary Contributions of more than ten percent (10%) of their
Compensation for any payroll period.
In no event shall Employer Contributions exceed an amount equal to fifteen
percent (15%) of the total Compensation paid during such Plan Year to
Employees or, if greater, that amount which is properly deductible for
federal income tax purposes under the then appropriate provisions of the
Code. In addition, the Plan Administrator may, in its sole discretion,
limit the amount of Salary Deferral Contributions and/or Employee
Voluntary Contributions that a Highly Compensated Employee is permitted to
make in any Plan Year to the extent that the Plan Administrator deems such
limit necessary to prevent the Plan from not satisfying the Actual
Deferral Percentage test or the Actual Contribution Percentage test.
3.1.1 Required Date for Making Salary Deferral Contributions and Employee
Voluntary Contributions. Salary Deferral Contributions and Employee
Voluntary Contributions attributable to each calendar month shall be
contributed by the Employer as soon as such deferrals and
contributions can be reasonably segregated from the Employer's
general assets.
3.1.2 For purposes of calculating Deferral Ratios and Contribution Ratios,
only those elective contributions that are allocated to the Employee
as of a date within that Plan Year shall be taken into account. An
elective contribution is considered allocated as of a date within a
Plan Year if the allocation is not contingent on participation or
performance of services after such date and the elective
contribution is actually paid to the Trust no later than twelve (12)
months after the Plan Year to which the contribution relates.
3.2 FORM OF CONTRIBUTIONS. Except as otherwise provided, Employer
Contributions may be paid to the Trustee in cash or other property, as the
Board may determine, provided, however, in the event the Trust has
obligations payable in cash due within one year from the date of an
Employer's Contribution and in the event the Trust does not have
sufficient cash
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or other liquid assets sufficient to meet such obligations, then at least
to the extent of such deficiency the Employer's Contribution shall be in
cash.
3.3 FORFEITURES. Forfeitures attributable to Accounts transferred from the
Columbia Plans shall be utilized to reduce ESOP Contributions (including
prepaid contributions), Profit Sharing Contributions, Employer
Contributions made to fund Employee Voluntary Matching Contribution
Allocations and Employer Contributions made to fund Salary Deferral
Matching Contribution Allocations otherwise payable by the Employer.
Forfeitures attributable to ESOP Contributions, Employer Contributions
made to fund Employee Voluntary Matching Contribution Allocations and
Employer Contributions made to fund Salary Deferral Matching Contribution
Allocations shall be allocated to the Accounts of Participants employed on
the last day of the Plan Year in which such Forfeitures are created, pro
rata based on such Accounts. Forfeitures shall be determined in accordance
with the provisions of Section 3.9.3 and Articles VIII and IX.
3.4 UNILATERAL EMPLOYER CONTRIBUTIONS. The Employer may contribute an
additional contribution designated as a Unilateral Employer Contribution
in an amount determined by the Plan Sponsor. The purpose of the Unilateral
Employer Contribution is to assure that the Plan satisfies the Actual
Deferral Percentage test, the Actual Contribution Percentage test, or the
multiple use limitation provided in Section 3.15 of this Plan. Any
contribution designed as a Unilateral Employer Contribution shall be
allocated solely to the Accounts of Participants who are Nonhighly
Compensated Employees and have elected to make Salary Deferral
Contributions for the Plan Year. Unilateral Employer Contributions which
are allocated to the Account of a Participant shall be treated as Salary
Deferral Contributions for purposes of the provisions of this Plan
relating to allocation of earnings and losses and to distribution of
benefits. Unilateral Employer Contributions shall be non-forfeitable.
Subject to the following sentence, Unilateral Employer Contributions shall
be distributable when Salary Deferral Contributions are distributable,
provided that they may not be distributed in a hardship distribution.
Unilateral Employer Contributions shall not be distributable in the event
of termination of the Plan if a successor defined contribution plan is
created, unless such successor defined contribution plan is an employee
stock ownership plan or a simplified employee pension.
3.5 SALARY DEFERRAL MATCHING CONTRIBUTION ALLOCATIONS. Subject to Section 2.1,
for each payroll period, the Employer shall contribute to the Trust a
payment which, when used to repay the Acquisition Loan, shall release from
Suspense Account, on behalf of each Participant, Company Stock in an
amount equal to fifty percent (50%) of the amount the Participant has
elected as a Salary Deferral Contribution for that payroll period, but in
no event shall the Salary Deferral Matching Contribution Allocations for
any Participant exceed one and one-half percent (1.5%) of a Participant's
Compensation for any payroll period. For this purpose, contributions shall
be made as soon as administratively feasible following the payroll period.
Notwithstanding the foregoing provisions of this Section, prior to any
payments on the Acquisition Loan to fund Salary Deferral Matching
Contribution Allocations, Salary Deferral Matching Contribution
Allocations shall be made in Company Stock from the initial Employer
Contribution in 1999 which is made to pay the
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par value of the Company Stock. The Employer Contributions to fund
matching contribution allocations for the first and, if applicable, second
payroll period(s) under the Plan (in May 1999) may relate in whole or in
part to compensation earned from Columbia immediately prior to the Closing
Date.
3.6 EMPLOYEE VOLUNTARY MATCHING CONTRIBUTION ALLOCATIONS. For each payroll
period that an Employee Voluntary Contribution is in effect, the Employer
shall contribute to the Trust a payment which, when used to repay the
Acquisition Loan, shall release from Suspense Account, on behalf of each
Participant, an amount equal to eighteen percent (18%) of the amount the
Participant has elected as an Employee Voluntary Contribution for that
payroll period. Notwithstanding the foregoing provisions of this Section,
prior to any payments on the Acquisition Loan to fund Employee Voluntary
Matching Contribution Allocations, Employee Voluntary Matching
Contribution Allocations shall be made in Company Stock from the initial
Employer Contribution in 1999 which is made to pay the par value of
Company Stock. The Employer Contributions to fund matching contribution
allocations for the first and, if applicable, second payroll period(s)
under the Plan (in May 1999) may relate in whole or in part to
compensation earned from Columbia immediately prior to the Closing Date.
3.7 SUPPLEMENTAL EMPLOYER CONTRIBUTION TO FUND MATCH. Should the Employer
Contributions made pursuant to Sections 3.5 and 3.6 to fund the Matching
Employer Contribution Allocations result in full payment of the annual
installment(s) on the Acquisition Loan for any year of such Acquisition
Loan, but such full payment is insufficient to provide the Matching
Employer Contribution Allocations necessary under Sections 3.5 and 3.6,
then an additional Employer Contribution shall be made in order to fully
fund such allocations, at the direction of the Employer, to either
purchase Company Stock or to prepay the Acquisition Loan(s), and such
Company Stock allocations shall be part of the ESOP Component.
3.8 DISTRIBUTION OF EXCESS SALARY DEFERRAL CONTRIBUTIONS. To the extent Excess
Salary Deferral Contributions are made, the Plan Administrator shall
designate any Salary Deferral Contribution contributed in excess of the
maximum amount permitted under Code Section 402(g) as an Excess Salary
Deferral Contribution. Once so designated, the Plan Administrator shall
make a corrective distribution of the Excess Salary Deferral Contribution
and any income earned thereon prior to the end of the Plan Year following
the Plan Year to which they relate by distributing such amount to the
Participant. At the Plan Administrator's discretion, the Plan
Administrator may allow a distribution of additional Salary Deferral
Contributions, as requested by the Participant, so that the Participant
does not violate the limitation of Code Section 402(g).
3.9 DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS. Consistent with Sections
3.14 and 3.15 of this Plan, as of each Plan Anniversary Date, the Plan
Administrator shall determine whether there are any Excess Aggregate
Contributions for the Plan Year. In the event there are Excess Aggregate
Contributions, the Plan Administrator may, in accordance with Subsection
3.9.3, within two and one-half (2 1/2) months following the Plan
Anniversary
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Date, distribute the Excess Aggregate Contributions, and any earnings
accrued thereon prior to distribution, to the Employer (in the form of a
Forfeiture) and to the Highly Compensated Employees for whom the excess
amounts were contributed. Subject to Section 3.14 of this Plan, in the
event the distribution is not made within the two and one-half (2 1/2)
month period, the Excess Aggregate Contributions and earnings thereon
shall be distributed to the Employer (in the form of a Forfeiture) and to
the Highly Compensated Employees for whom the excess amounts were
contributed no later than the last day of the Plan Year following the Plan
Year for which such Excess Aggregate Contributions were made.
3.9.1 Leveling Method for Reductions. The total Excess Aggregate
Contributions of Highly Compensated Employees which are to be
distributed (in accordance with this Section) shall be distributed
in the following manner: First, Excess Aggregate Contributions of
the Highly Compensated Employee receiving the highest Matching
Employer Contribution Allocations shall be distributed until the
first to occur of: (1) the total Excess Aggregate Contributions have
been distributed; or (2) the Matching Employer Contribution
Allocation of such Highly Compensated Employee equals the Matching
Employer Contribution Allocations of the Highly Compensated Employee
receiving the second highest Matching Employer Contribution
Allocation. In the event that distribution of Excess Aggregate
Contributions of the Highly Compensated Employee receiving the
highest Matching Employer Contribution Allocations does not result
in passage of the Actual Contribution Percentage test, then the
Excess Aggregate Contributions of such Highly Compensated Employee
receiving the highest Matching Employer Contribution Allocation and
the Excess Aggregate Contributions of the Highly Compensated
Employee receiving the second highest Matching Employer Contribution
Allocation will be reduced until the first to occur of: (1) the
total Excess Aggregate Contributions have been distributed; or (2)
the Matching Employer Contribution Allocations of such Highly
Compensated Employees are reduced until they equal the Matching
Employer Contribution Allocation of the Highly Compensated Employee
receiving the third (3rd) highest Matching Employer Contribution
Allocation. The process shall be repeated until all Excess Aggregate
Contributions have been distributed. Two separate Excess Aggregate
Contribution calculations will be performed, one for the ESOP Match
Component and the other for the non-ESOP Component, as specified in
the definitions Article.
3.9.2 Earnings. In the event of distribution of Excess Aggregate
Contributions after a Plan Year to which such Excess Aggregate
Contributions relate, also distributed will be any earnings on such
contributions during the Plan Year to which such contributions
relate. However, "gap period" earnings, as defined in Reg.
1.401(m)-1(e)(3)(ii), shall not be distributed. For this purpose,
for each Highly Compensated Employee, the earnings attributable to
Excess Aggregate Contributions shall equal the earnings for such
Plan Year to the credit of such Employee attributable to Matching
Employer Contribution Allocations multiplied by a fraction, the
numerator of which shall be the Excess Aggregate Contributions for
the Employee
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for such Plan Year, and the denominator of which shall equal the sum
of (a) the beginning Account balance of the Employee (for the Plan
Year in which the earnings were earned) attributable to Matching
Employer Contribution Allocations; and (b) the Matching Employer
Contribution Allocations made to the Account of the Employee for
such Plan Year. Such amounts shall, in any event, be distributed
within twelve (12) months after the end of the Plan Year to which
such Excess Aggregate Contributions relate. The foregoing procedure
shall also be applied (separately) to the non-ESOP Component of
Excess Aggregate Contributions, relating to Employee Voluntary
Contributions.
3.9.3 Nature of Reduction. In the event of a distribution of Excess
Aggregate Contributions pursuant to this Section, and pursuant
thereto Salary Deferral Matching Contribution Allocations must be
distributed to satisfy the Actual Contribution Percentage test, then
such allocations shall be distributed to each Highly Compensated
Employee to whom they relate to the extent that such individual is
vested in such contributions as of the end of the Plan Year to which
such contributions relate. The remainder of such Salary Deferral
Matching Contribution Allocations shall become a Forfeiture. All
excess Employee Voluntary Contributions and/or Employee Voluntary
Matching Contribution Allocations shall be distributed to the
applicable Highly Compensated Employees.
3.10 DISTRIBUTION OF EXCESS DEFERRAL CONTRIBUTIONS. Consistent with Sections
3.14 and 3.15 of this Plan, as of each Plan Anniversary Date, the Plan
Administrator shall determine whether there are any Excess Deferral
Contributions for the Plan Year. In the event there are such amounts, the
Plan Administrator may, within two and one-half (2 1/2) months following
the Plan Anniversary Date, distribute the Excess Deferral Contributions to
the Highly Compensated Employees for whom the excess amount was
contributed. Unless corrected by Unilateral Employer Contributions, in the
event the distribution is not made within the two and one-half (2 1/2)
month period, the Excess Deferral Contributions and earnings thereon shall
in no event be distributed to the Participant to whom such amount is
attributable later than the Plan Anniversary Date following the Plan Year
in which it arose.
3.10.1 Leveling Method for Reductions. The total Excess Deferral
Contributions of Highly Compensated Employees which are to be
distributed shall be distributable in the following manner: First,
Excess Deferral Contributions of the Highly Compensated Employee
with the highest Salary Deferral Contribution shall be distributed
until the first to occur of: (1) the total Excess Deferral
Contributions have been distributed; or (2) the Salary Deferral
Contribution of such Highly Compensated Employee equals the Salary
Deferral Contribution of the Highly Compensated Employee with the
second highest Salary Deferral Contribution. In the event that
distribution of Excess Deferral Contributions of the Highly
Compensated Employee with the highest Salary Deferral Contribution
does not result in passage of Actual Deferral Percentage test, then
the Excess Deferral Contributions of such Highly
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Compensated Employee with the highest Salary Deferral Contribution
and the Excess Deferral Contributions of the Highly Compensated
Employee with the second highest Salary Deferral Contribution will
be reduced until the first to occur of: (1) the total Excess
Deferral Contributions have been distributed; or (2) the Salary
Deferral Contributions of such Highly Compensated Employees are
reduced until they equal the Salary Deferral Contribution of the
Highly Compensated Employee with the third (3rd) highest Salary
Deferral Contribution. This process shall be repeated until all
Excess Deferral Contributions have been distributed.
3.10.2 Coordination With Excess Salary Deferral Contributions. The amounts
of Excess Deferral Contributions subject to distribution shall be
reduced by the amount of Excess Salary Deferral Contributions
distributed for the taxable year which corresponds with the Plan
Year to which such Excess Deferral Contributions relate.
3.10.3 Earnings. In the event of distribution of Excess Deferral
Contributions after a Plan Year to which such Excess Deferral
Contributions relate, also distributed will be any earnings on such
contributions during the Plan Year to which such contributions
relate. However, "gap period" earnings, as defined in
Reg. ss.1.401(k)-1(f)(4)(ii), shall not be distributed. For this
purpose, for each Highly Compensated Employee, the earnings
attributable to Excess Deferral Contributions shall equal the
earnings for such Plan Year to the credit of such Employee
attributable to Salary Deferral Contributions multiplied by a
fraction, the numerator of which shall be the Excess Deferral
Contributions for the Employee for the Plan Year, and the
denominator of which shall equal the sum of: (a) the beginning
Account balance of the Employee (for the Plan Year in which the
earnings were earned) attributable to Salary Deferral Contributions
and any contributions treated as Salary Deferral Contributions for
purposes of the Actual Deferral Percentage test; and (b) the Salary
Deferral Contributions and any contributions treated as Salary
Deferral Contributions for purposes of the Actual Deferral
Percentage test made to the Account of the Employee for such Plan
Year. Such amounts shall, in any event, be distributed within
twelve (12) months after the end of the Plan Year to which such
Excess Deferral Contributions relate.
3.11 ESOP CONTRIBUTION. Subject to the conditions and limitations of the Plan,
for each Plan Year, the Employer will contribute to the Plan as an ESOP
Contribution cash equal to, or Company Stock having an aggregate fair
market value equal to, such amount, if any, as the Board of Directors
shall determine by resolution; provided, however, that the Employer shall
contribute an amount in cash not less than the amount required that, when
aggregated with amounts contributed under Sections 3.5 and 3.6 to fund
Salary Deferral Matching Contribution Allocations and Employee Voluntary
Matching Contribution Allocations (net of any Forfeitures utilized as part
of the ESOP Component for that Plan Year), will enable the Trustee to
discharge the annual installment(s) on the Acquisition Loan. Subject to
Section 3.7, if any part of the ESOP Contribution under this Section for
any Plan Year is in cash in an amount exceeding the amount needed to pay
the amount due during or prior to that Plan Year with respect to an
Acquisition Loan, such cash shall be applied by the Trustee, at the
direction of the Employer, to either purchase Company Stock or to repay
the
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Acquisition Loans. In no event will an Employer's contribution under this
Section for any Plan Year exceed the maximum amount deductible by Employer
for federal income tax purposes.
An ESOP Contribution under this Section for any Plan Year shall be due on
the last day of the Plan Year and, if not paid by the end of that year,
shall be payable to the Trustee as soon as practicable thereafter, but no
later than the time prescribed for filing the Employer's federal income
tax return for that Plan Year, including any extensions of time, without
interest. Each Participant's ESOP Contribution Account shall be invested
in Company Stock, and shall not be subject to investment direction by
Participants.
3.12 PROFIT SHARING CONTRIBUTIONS. Subject to the conditions and limitations of
the Plan, for each Plan Year, the Employer may contribute to the Plan as a
Profit Sharing Contribution cash equal to such amount, if any, as the
Board of Directors shall determine by resolution. In no event will an
Employer's contribution under this Section for any Plan Year exceed the
maximum amount deductible by Employer for federal income tax purposes.
A Profit Sharing Contribution under this Section for any Plan Year shall
be due on the last day of the Plan Year and, if not paid by the end of
that year, shall be payable to the Trustee as soon as practicable
thereafter, but no later than the time prescribed for filing the
Employer's federal income tax return for that Plan Year, including any
extensions of time, without interest. Each Participant's Profit Sharing
Contribution Account shall be subject to investment direction by
Participants.
3.13 SECTION 415 LIMITATIONS. Notwithstanding any provisions contained herein
to the contrary, a Participant's Annual Addition for a Plan Year shall not
exceed the Maximum Annual Addition.
3.13.1 "Maximum Annual Addition" shall mean that amount that may be
contributed or allocated to a Participant's Account under the Plan
and all other defined contribution plans maintained by the Employer
for any Plan Year not in excess of the lesser of the following
limitations:
(a) The Defined Contribution Dollar Limitation; or
(b) Twenty-five percent (25%) of the Participant's Compensation.
The limit referred to in (b) shall not apply to any contribution
for medical benefits (within the meaning of Section 401(h) or
Section 419A(f)(2) of the Code) which is otherwise treated as an
Annual Addition under Section 415(l)(1) or 419A(d)(2) of the Code.
3.13.2 "Defined Contribution Dollar Limitation" shall mean thirty thousand
dollars ($30,000) as adjusted in accordance with Code Section
415(d) for such Plan Year.
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3.13.3 "Compensation" shall include, for purposes of this Section, all of
an Employee's compensation, as reported on Form W-2, plus any
elective deferrals as defined in Code Section 402(g)(3) and any
amount contributed by an Employer on behalf of the Employee under
any Code Section 125 or 457 arrangement.
3.13.4 Employer. For purposes of this Section, Employer shall mean and
include all Employers and Affiliated Employers (as defined by
Section 415(h) of the Code).
3.13.5 Aggregation. For purposes of computing the Maximum Annual Addition,
all defined contribution plans shall be aggregated and treated as
one plan. All employers subject to aggregation pursuant to
Subsections (b), (c) or (m) of Code Section 414, as modified by
Code Section 415(h), or pursuant to Code Section 415(g), shall be
aggregated and treated as one employer, and the Employee shall be
treated as receiving all contributions described in the preceding
sentence from, by, or with respect to, such employer for purpose of
computing the Maximum Annual Addition under this Section.
3.14 UNILATERAL EMPLOYER CONTRIBUTIONS RELATING TO ACTUAL CONTRIBUTION
PERCENTAGE TEST AND ACTUAL DEFERRAL PERCENTAGE TEST. In the event the Plan
does not satisfy the Actual Contribution Percentage test or the Actual
Deferral Percentage test, the Plan Administrator may either:
(a) With respect to the Actual Contribution Percentage test, pursuant
to Section 3.9, make a distribution of the Excess Aggregate
Contributions, and any earnings thereon, to the Employer and to
Highly Compensated Employees pursuant to Section 3.9 in an amount
necessary to satisfy the Actual Contribution Percentage test; or
(b) With respect to the Actual Deferral Percentage test, pursuant to
Section 3.10, make a distribution of Excess Deferral Contributions,
and any earnings thereon to Highly Compensated Employees in an
amount necessary to satisfy the Actual Deferral Percentage test; or
(c) Make a Unilateral Employer Contribution in an amount determined by
the Plan Administrator.
3.15 MULTIPLE USE OF ALTERNATIVE TEST. Subject to this Section, nothing
provided herein shall prevent use of either the test provided in
subsection (b) of the definition of Actual Contribution Percentage or the
test provided in subsection (b) of the definition of Actual Deferral
Percentage in this Plan. However, use of such tests shall be limited as
provided in Treasury Regulation Section 1.401(m)-2. The Plan Administrator
may, at its sole discretion, correct a potential multiple use violation
with respect to Employee Voluntary Contributions (i.e. the non-ESOP
Component) by making a Unilateral Employer Contribution to the Plan.
Alternatively, the Plan Administrator may reduce Employee
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Voluntary Contributions in accordance with the procedure outlined in
Section 3.9 as necessary to prevent a multiple use violation.
3.16 ADJUSTMENT OF DEFINED CONTRIBUTION PLAN FRACTION. An amount shall be
subtracted from the numerator of the Defined Contribution Plan Fraction
(not exceeding such numerator) as prescribed by the Secretary of the
Treasury so that the sum of the Defined Benefit Plan Fraction and Defined
Contribution Plan Fraction computed under Section 415(e)(1) of the Code
(as revised by this Article III) does not exceed 1.0 for such Plan Year.
The limitation of this Section shall apply for the 1999 Plan Year only.
3.16.1 "Defined Benefit Plan" shall mean any qualified retirement plan
maintained by an Employer or by a person required to be aggregated
with an Employer for purposes of Section 415 of the Code, which is
not a Defined Contribution Plan.
3.16.2 "Defined Benefit Plan Fraction" for any Plan Year, with respect to
a particular Participant, shall mean a fraction:
(a) The numerator of which is his projected annual benefit under
all Defined Benefit Plans, whether or not terminated, required
to be aggregated with this Plan under Section 415(f) and (h)
and 414(m) of the Code (determined as of the close of the Plan
Year); and
(b) The denominator of which is the lesser of (1) or (2):
(1) One hundred twenty-five percent (125%) of the dollar
limitation under Code Section 415(b)(1)(A) in effect on
the last day of the Limitation Year; provided, however,
that said percentage of the dollar limitation shall be
reduced to one hundred percent (100%) if the Plan
becomes subject to the provisions of Code Section 416(h)
in the future; or
(2) One hundred forty percent (140%) of the Participant's
average Compensation for his highest three (3)
consecutive Plan Years of participation in such Defined
Benefit Plans.
3.16.3 "Defined Contribution Plan" shall mean any qualified retirement
plan maintained by an Employer or by a person required to be
aggregated with an Employer for purposes of Section 415 of the
Code, which provides for an individual account for each Participant
and for benefits based solely on the amount contributed to the
Participant's account, and any income, expenses, gains, and losses,
and any forfeitures of accounts of other Participants which may be
allocated to such Participant's Account.
3.16.4 "Defined Contribution Plan Fraction" with respect to a particular
Participant for any Plan Year shall mean a fraction:
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(a) The numerator of which is the sum of the Annual Additions to
his Account, including Annual Additions to his account in any
other Defined Contribution Plan, whether or not terminated,
required to be aggregated under Sections 415(f) and (h) of the
Code, as of the close of such Plan Year; and
(b) The denominator of which is the sum of the lesser of (1) or
(2) determined separately for the current Limitation Year and
for each prior Limitation Year in which the Participant was
employed by the Employer (regardless of whether the
Participant was a Participant in such prior years and
including years of employment (if any) before the Plan was
established):
(1) One hundred twenty-five percent (125%) of the dollar
limitation under Code Section 415(c)(1)(A) in effect for
such Limitation Year; provided, however, that said
percentage of the dollar limitation shall be reduced to
one hundred percent (100%) if the Plan becomes subject
to the provisions of Code Section 416(h); or
(2) Thirty-five percent (35%) of the Participant's
Compensation from the Employer for the Limitation Year.
3.17 CORRECTION OF CONTRIBUTIONS IN EXCESS OF SECTION 415 LIMITS In the event
that, as of any Valuation Date, corrective adjustments in any Account are
required to comply with Section 3.13, the Annual Additions to such
Participant's Account shall be reduced by corrective adjustments made in
the following order: First, refund and reduce, respectively, that portion,
or all, of the Employee Voluntary Contributions and Employee Voluntary
Matching Contribution Allocations (and earnings thereon) made to the
Participant's Account in this Plan, pro rata, to the extent that any such
contributions and allocations constitute Annual Additions for the Plan
Year in excess of the Maximum Annual Addition. If any excess amounts exist
thereafter, then Salary Deferral Contributions (and earnings thereon)
shall be refunded until they equal one and one-half percent of
Compensation. Thereafter Salary Deferral Contributions shall be refunded
pro rata with Salary Deferral Matching Contribution Allocations.
3.18 SUSPENSE ACCOUNT. Any amounts reduced pursuant to Section 3.17 that are
attributable to Employer Contributions other than Employee Voluntary
Contributions or Salary Deferral Contributions to this Plan shall be
accounted for by means of separate "415 Suspense Accounts" for each of the
Participants whose Plan Benefits are curtailed for a particular Plan Year
due to the limitations of Code Section 415. The 415 Suspense Account shall
not participate in earnings or losses of the Trust Fund. Any amount held
in such 415 Suspense Accounts shall be applied toward funding the Employer
Contributions for the respective individual Participants impacted by Code
Section 415 for the next succeeding Plan Year in the same manner as
Forfeitures in accordance with the first sentence of Section 3.3. No
Employer Contribution shall be made for any impacted Participant which
constitutes an
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Annual Addition prior to the reallocation of the entire balance held in a
415 Suspense Accounts established under this Section. Should an impacted
Participant separate from service, then that Participant's suspense
account shall be transferred to a general suspense account which is
identical to the individual suspense account in all respect except that
its assets shall be utilized to reduce future Employer contributions with
respect to all Participants. In the case of Plan termination,
notwithstanding anything else in this Section, reallocation in connection
with termination prior to return of amounts in the 415 Suspense Account to
the Employer shall not be necessary if such amounts are not required to be
used to satisfy the liabilities with respect to Participants and their
Beneficiaries under the Plan in accordance with Treas. Reg. Section
1.411(d)-2(a)(2)(iii). Where liabilities under the Plan to Participants
and their Beneficiaries have not been satisfied in accordance with Treas.
Reg. Section 1.411(d)-2(a)(2)(iii), the 415 Suspense Accounts shall be
reallocated in accordance with this Section, but to the extent such
reallocation would cause a Participant's Annual Addition to exceed the
Maximum Annual Addition, the excess over the Maximum Annual Addition for
each such Participant shall be aggregated, and then reallocated, among all
other Participants whose Annual Addition does not exceed the Maximum
Annual Addition, on the basis of relative Compensation for the year of
Plan termination; provided, however, that such reallocation (a) shall not
cause a Participant's Annual Addition to exceed the Maximum Annual
Addition and (b) shall not be greater with respect to any Participant than
is necessary to satisfy liabilities with respect to such Participant in
accordance with Treas. Reg. Section 1.411(d)-2(a)(2)(iii). Such procedure
(as provided by the preceding sentence) shall continue until all
liabilities under the Plan to Participants and their Beneficiaries have
been satisfied in accordance with Treas. Reg. Section
1.411(d)-2(a)(2)(iii) or until all Participants have been allocated their
Maximum Annual Addition (whichever first occurs), in which case the
balance of the 415 Suspense Account shall be returned to Employer.
3.19 COMBINATION OF PLANS. In the event the sum of the Annual Additions with
respect to a Participant exceeds the limitations contained in Section 3.13
and the Plan Sponsor or Employer maintains another plan which qualifies
under Code Section 401(a) in which the Participant participates,
corrective adjustments shall first be made pro rata with respect to
Employee Voluntary Contributions and Employee Voluntary Matching
Contribution Allocations, if any, under this Plan and any other defined
contribution plan in which the Participant made nondeductible employee
contributions for the Plan Year. Second, corrective adjustments shall be
made from a Participant's Salary Deferral Contributions under this Plan
and such other plan; provided that any corrective adjustments to Salary
Deferral Contributions under this Plan shall be made until such
contributions equal one and one-half percent (1.5%) of Compensation, and
thereafter shall be made pro rata from Salary Deferral Contributions and
Salary Deferral Matching Contribution Allocations.
3.20 CORRECTION OF PRIOR INCORRECT ALLOCATIONS AND PREVIOUS FUNDING
DEFICIENCIES. In the event that, as of any Valuation Date, adjustments are
required in any Participant's Account to correct any incorrect allocation
of Employer Contributions, investment earnings or losses, or any funding
deficiency which may have occurred in the current year or a previous year,
the Trustee, with the consent of the Plan Administrator, is authorized to
apply the
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contributions to correct such incorrect allocation or funding deficiency
and increase or decrease such Participant's Account to the value which
would have existed on said Valuation Date had there been no prior
incorrect allocation or funding deficiency. The Trustee, with the consent
of the Plan Administrator, is also authorized to take such other actions
as it deems necessary to correct prior incorrect allocations or funding
deficiencies.
3.21 REVERSION OF UNILATERAL EMPLOYER CONTRIBUTIONS, MATCHING EMPLOYER
CONTRIBUTION ALLOCATIONS, ESOP CONTRIBUTIONS AND PROFIT SHARING
CONTRIBUTIONS. Unilateral Employer Contributions, Employer Contributions
to fund Matching Employer Contribution Allocations, ESOP Contributions and
Profit Sharing Contributions shall revert to the Employer under the
following circumstances:
(a) In the case of a contribution which is made by the Employer by
reason of a mistake of fact, such contributions shall be returned to
the Employer within one (1) year after the payment of the
contribution;
(b) If the Plan, as initially adopted, does not qualify under Section
401(a) of the Code, contributions subsequent to the Effective Date
of such adoption shall be returned to the Employer within one (1)
year after the date of denial of qualification of the Plan; or
(c) If any Unilateral Employer Contribution, Employer Contribution to
fund Matching Employer Contribution Allocations, ESOP Contribution
or Profit Sharing Contribution is determined by the Internal Revenue
Service to be nondeductible under the Code, and such Unilateral
Employer Contribution, Employer Contribution to fund Matching
Employer Contribution Allocations, ESOP Contribution or Profit
Sharing Contribution was contributed contingent upon deductibility
for income tax purposes under the Code, then the nondeductible
portion of such contribution shall be returned to the Employer
within one (1) year after the disallowance of the deduction.
3.22 ACQUISITION LOANS. The Trustee may incur Acquisition Loans from time to
time to finance the acquisition of Company Stock for the Trust or to repay
a prior Acquisition Loan. An Acquisition Loan shall be for a specific
term, shall bear a reasonable rate of interest, and shall not be payable
on demand except in the event of default. An Acquisition Loan may be
secured by a collateral pledge of the Financed Shares so acquired and by
any other Plan assets which are permissible security within the provision
of Treas. Reg. ss. 54.4975-7(b). No other assets of the Plan or Trust may
be pledged as collateral for an Acquisition Loan, and no lender shall have
recourse against any other Trust assets. Payment of principal and interest
on any Acquisition Loan shall be made by the Trustee only from Employer
Contributions necessary to fund Salary Deferral Matching
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Contribution Allocations, Employer Contributions necessary to fund
Employee Voluntary Matching Contribution Allocations, ESOP Contributions,
Forfeitures described in the first sentence of Section 3.3, earnings
attributable to such contributions, any cash dividends received by the
Trustee on Financed Shares acquired with the proceeds of the Acquisition
Loan, and the proceeds of any sale of Company Stock held in the Loan
Suspense Account (including such contributions, Forfeitures, earnings,
dividends and proceeds of sales of Company Stock received up through the
date of the particular such repayment, less all prior payments), whether
or not allocated, provided that the financed shares released with respect
to dividends on allocated shares shall satisfy code section 404(k)(2)(B).
Financed Shares shall initially be credited to the Loan Suspense Account
and shall be transferred for allocation to the Salary Deferral Matching
Contribution Allocations Accounts, Employee Voluntary Matching
Contribution Allocations Accounts, and ESOP Contribution Accounts of
Participants only as payments of principal on the Acquisition Loan are
made by the Trustee. Payment on acquisition loans may be made at various
times during the Plan Year. With respect to each payment on the
Acquisition Loan, the number of Financed Shares to be released from the
Loan Suspense Account shall be based upon the ratio that the payment of
principal on the Acquisition Loan bears to the total remaining payments of
principal (including the amount currently being paid) to be paid over the
duration of the Acquisition Loan repayment period. [ESCAPE HATCH FOR P&I
IF PRINCIPAL ONLY FAILS] The released Financed Shares shall be allocated
to Participants' Salary Deferral Matching Contribution Allocations
Accounts, Employee Voluntary Matching Contribution Allocations Accounts
and ESOP Contribution Accounts. If the Employer Contributions for Matching
Employer Contribution Allocations are insufficient to pay the necessary
annual payment(s) on the Acquisition Loan, then a final payment for the
year on Acquisition Loan shall be made as an ESOP Contribution as
necessary to pay the full annual payment for the year on the Acquisition
Loan, and it shall release any remaining shares for such year of the
Acquisition Loan, with such shares to be released for each year to be
determined under the principal method described in the preceding sentence.
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ARTICLE IV
ALLOCATION OF CONTRIBUTIONS, EARNINGS AND LOSSES
4.1 ALLOCATION OF SALARY DEFERRAL CONTRIBUTIONS. The Account of each
Participant who has elected to have Salary Deferral Contributions made on
his behalf shall be credited with such Salary Deferral Contributions as
soon as reasonably segregated from the general assets of the Employer and,
in any event, no later than the 15th business day of the month following
the month in which such Salary Deferral Contributions were made.
4.2 ALLOCATION OF EMPLOYEE VOLUNTARY CONTRIBUTIONS. The Account of each
Participant who has elected to have Employee Voluntary Contributions made
on his behalf shall be credited with such Employee Voluntary Contributions
as soon as such amounts can be reasonably segregated from the general
assets of the Employer and, in any event, no later than the 15th business
day of the month following the month during which such Employee Voluntary
Contributions were made.
4.3 ALLOCATION OF UNILATERAL EMPLOYER CONTRIBUTIONS. Any Unilateral Employer
Contributions made to the Plan shall be credited to the Accounts of
Nonhighly Compensated Employees who are Participants in the Plan and who
have elected to have Salary Deferral Contributions made on his behalf for
the Plan Year.
4.4 ALLOCATION OF SALARY DEFERRAL MATCHING CONTRIBUTION ALLOCATIONS. The
Account of each Participant who has elected to have Salary Deferral
Contributions made on his behalf shall be credited with Salary Deferral
Matching Contribution Allocations (including any Forfeitures used as
Salary Deferral Matching Contribution Allocations) as provided in Section
3.5. Company Stock equal in value to the amount of the matching
contributions shall be allocated to each Participant's Account.
4.5 ALLOCATION OF EMPLOYEE VOLUNTARY MATCHING CONTRIBUTION ALLOCATIONS. The
Account of each Participant who has elected to have Employee Voluntary
Contributions made on his behalf during a payroll period shall be credited
with Employee Voluntary Matching Contribution Allocations (including any
Forfeitures used as Employee Voluntary Matching Contribution Allocations)
as provided in Section 3.6. Company Stock equal in value to the amount of
the matching contributions shall be allocated to each Participant's
Account
4.6 ALLOCATION OF ESOP CONTRIBUTIONS. For each Plan Year, the Account of each
Participant who (i) is Age 21 or older on the last day of the Plan Year,
(ii) was an Employee on the first day of the Plan Year, (iii) completed
one Year of Service during the Plan Year and (iv) is an Employee as of the
last day of the Plan Year shall be credited with Company Stock allocated
due to the ESOP Contribution (including any Forfeitures used as ESOP
Contributions) as of the last day of the Plan Year in the proportion that
the Participant's Compensation for the Plan Year bears to the Compensation
of all Participants eligible to receive an ESOP Contribution allocation
for such Plan Year. The employment on the first
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day requirement of the preceding sentence shall not apply to an individual
who becomes an Employee and a Participant during the Plan Year in
accordance with Section 2.1.4.
4.7 ALLOCATION OF PROFIT SHARING CONTRIBUTIONS. For each Plan Year, the
Account of each Participant who (i) is Age 21 or older on the last day of
the Plan Year, (ii) was an Employee on the first day of the Plan Year,
(iii) completed one Year of Service during the Plan Year and (iv) is an
Employee as of the last day of the Plan Year shall be credited with a
Profit Sharing Contribution (including any Forfeitures uses as Profit
Sharing Contributions) as of the last day of the Plan Year in the
proportion that the Participant's Compensation for the Plan Year bears to
the Compensation of all Participants eligible to receive a Profit Sharing
Contribution allocation for such Plan Year. The employment on the first
day requirement of the preceding sentence shall not apply to an individual
who becomes an Employee and a Participant during the Plan Year in
accordance with Section 2.1.4.
4.8 ALLOCATION OF FUNDS. As of each Valuation Date, the Accounts and
sub-accounts of each Participant shall be adjusted as described in this
Section.
4.8.1 Determination of Amount of Earnings or Losses. The investment
earnings (or losses, if the computation specified in this sentence
results in a negative figure) of each Fund of the Trust shall be
equal to (1) the fair market value of the Fund as of the current
Valuation Date; less (2) the fair market value of the Fund as of the
immediately preceding Valuation Date; plus (3) benefit payments from
the Fund to Participants, and any other disbursements from the Fund
on behalf of any Participant since the last preceding Valuation
Date; less (4) any contributions made to the Trust Fund that were
not included in the valuation of the Trust Fund on the last
preceding Valuation Date.
4.8.2 Participant Directed Investments. Section 6.2 shall control the
allocation of earnings attributable to Participants' Accounts to the
extent that such Accounts are invested in directed investments and
Section 4.8.1 shall control the timing of such allocations.
4.8.3 Participant Accounts to Which Earning or Losses are to be Allocated.
Investment earnings and/or losses shall be allocated on a daily
basis to the Accounts of Participants which have not been closed
pursuant to Article IX.
4.8.4 Allocating Earnings to Prior Contributions. The allocation of
earnings or losses determined under Section 4.8.1 shall be made to
the Accounts of Participants who are eligible under Section 4.8.3 to
receive earnings or losses, by crediting each such Participant's
Account with that portion of the total earnings or losses as the
value of the Participant's Account attributable to prior
contributions made under the terms of the Plan as of the Valuation
Date for which earnings are being allocated bears to the value of
all such Participants' Accounts attributable to prior contributions
made under the terms of the Plan as of the Valuation Date for which
earnings are being allocated.
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4.8.5 Allocating Earnings to Contributions. Notwithstanding the preceding
provisions of this Section, the Trustee shall separately account for
earnings attributable to the separate sub-accounts identified in the
definition of Account maintained on behalf of a Participant to the
extent such sub-accounts are invested in the Investment Funds,
including the ESOP Fund and the Columbia Fund.
4.8.6 Allocation to ESOP Fund Accounts. In connection with payment of
principal and interest on the Acquisition Loan(s) financed by Salary
Deferral Matching Contribution Allocations, Employee Voluntary
Matching Contribution Allocations, ESOP Contributions, Forfeitures
(in accordance with the first sentence of Section 3.3) and earnings
on Company Stock, Financed Shares released from the Loan Suspense
Account for allocation to Participants for the Plan Year shall be
allocated among and credited to the ESOP Fund Accounts of
Participants. For this purpose, in accordance with Sections 3.5,
3.6, 3.7, 3.22, 4.4 and 4.5, the value of Financed Shares allocated
to Salary Deferral Matching Contribution Allocations Accounts and
Employee Voluntary Matching Contribution Allocations Accounts shall
equal the amount of the Salary Deferral Matching Contribution
Allocations and Employee Voluntary Matching Contribution
Allocations, respectively, and, subject to Code Section
404(k)(2)(B), any remaining Financed Shares released shall relate to
ESOP Contributions, to be allocated to the ESOP Fund Accounts of
Participants in accordance with Section 4.6.
If, after such allocation any portion of such shares to be otherwise
allocated remains unallocated, such portion shall be credited to and
held in a "suspense account" to the extent that it does not exceed
the amount contributed by the Employer for that Plan Year as a
result of a reasonable error in estimating Participants'
Compensation or as a result of such other circumstances as the
Commissioner of the Internal Revenue Service may determine. For
purposes of the Plan, amounts credited to such suspense account for
any Plan Year shall be treated as Salary Deferral Matching
Contribution Allocations, Employee Voluntary Matching Contribution
Allocations or ESOP Contributions for the subsequent Plan Year or
Plan Years until all amounts so held have been credited to the ESOP
Fund Accounts of Participants. Notwithstanding any provision in this
Plan to the contrary, if shares of Company Stock are sold to the
Plan by a shareholder in a transaction for which special tax
treatment is elected by such shareholder (or his representative)
pursuant to Code Section 1042, no assets attributable to such
Company Stock may be allocated to the ESOP Fund Accounts of:
(1) any person who owns (after application of Code Section 318(a))
more than 25 percent in value of the outstanding securities of
the Employers; and
(2) the shareholder, and any person who is related to such
shareholder (within the meaning of Code Section 267(b), but
excluding lineal descendants of such shareholder as long as no
more than 5 percent (5%) of the aggregate amount of all
Company Stock sold by such shareholder in a transaction to
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which Code Section 1042 applies is allocated to lineal
descendants of such shareholder) during the non-allocation
period (as described below).
Further, no allocation of Salary Deferral Matching Contribution
Allocations, Employee Voluntary Matching Contribution Allocations or
ESOP Contributions may be made to the ESOP Fund Accounts of such
persons unless additional allocations are made to other
participants, in accordance with the provisions of Code Sections
401(a) and 410. The phrase "non-allocation period" means the period
beginning on the date of sale and ending on the later of ten years
after the date of sale or the date of the allocation attributable to
the final payment on the Acquisition Loan incurred with respect to
the sale.
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ARTICLE V
VALUATIONS
5.1 DETERMINATION OF VALUE. In determining the value of the Trust Fund, the
Trustee shall exercise its best judgment, which judgment shall be binding
upon all Participants and their Beneficiaries.
5.2 VALUATIONS. The value of the Trust Fund shall be determined as of each
Valuation Date during the Plan Year. As of each Valuation Date, the
Trustee shall determine the fair market value of the Trust Fund, and the
Plan Administrator shall determine the fair market value of each
Participant's Account. The value of the Account of each Participant as of
any Valuation Date shall be equal to the value of such Account as of the
last Valuation Date, plus or minus the applicable adjustments contained in
Section 4.7. The Plan Administrator shall perform separate allocations and
keep separate sub-accounts to reflect each Participant's interest in
Employee and Employer Contributions.
5.3 VALUATION METHODS. The fair market value of all assets held in the trust
shall be furnished by the Trustee.
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ARTICLE VI
DIRECTED INVESTMENT ACCOUNTS
6.1 INVESTMENT DIRECTIONS. In the event that the Plan Administrator determines
that Participants may direct the investment of their Directed Investment
Accounts in one or more of the Investment Funds, the Trustee is authorized
and directed to follow the directions received from Participants
concerning their respective accounts. At the discretion of the Plan
Administrator, the Plan shall comply with ERISA Section 404(c).
6.2 INVESTMENT OF TRUST ASSETS. Except as provided in Article VII,
Participants will direct investment of their Directed Investment Accounts.
The Plan Administrator may also take whatever action is necessary to
correct an improper transfer of assets between funds.
6.2.1 Prohibited Investments. Notwithstanding any other provisions of this
Section 6.2, the Plan Administrator may refuse to invest all or any
portion of a Participant's Account as directed by the Participant if
such investment would: (1) result in a prohibited transaction under
ERISA Section 406, 29 U.S.C. Section 1106, or Code Section 4975; (2)
result in taxable income to the Plan; (3) jeopardize the Plan's
tax-qualified status under Code Section 401(a); (4) be inconsistent
with the Plan, the Summary Plan Description which describes the
Plan, or any disclosures to Participants concerning the Plan; or (5)
cause the Trust to maintain the indicia of ownership of any assets
of the Plan outside the jurisdiction of the district courts of the
United States other than as permitted by 29 U.S.C. Section 1104(b)
and 29 CFR Section 2550.404b-1.
6.2.2 Investment Expenses. In addition to other Plan administrative
expenses, the Plan Administrator may charge the Accounts of
Participants reasonable expenses necessary to carry out investment
directions and instructions. Participants shall be notified on a
reasonably regular basis of any charges made to their Accounts to
carry out investment directions and instructions.
6.2.3 No Election. Should a Participant fail to properly and thoroughly
elect how his Directed Investment Accounts are to be invested, then,
to the extent of such failure, his Directed Investment Accounts
shall be invested in a fund or funds specified by the Plan
Administrator.
6.2.4 Company Stock Fund. All or substantially all of the Company Stock
Fund shall be invested in Company Stock. The Plan is permitted to
acquire and hold qualifying employer securities, as defined in ERISA
Section 407(d)(5). Except as otherwise provided in the appropriate
Trust Agreement, Participants shall have voting rights with respect
to such shares of Company Stock, if so directed by the Plan
Administrator. Otherwise, the Trustee shall vote such shares at the
direction of the Plan Administrator. While the investment changes
due to a Participant's change of investment direction shall
generally be made on a daily basis, changes
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<PAGE> 57
to investment in the Company Stock Fund may be delayed to the extent
determined by the Plan Administrator, provided that any such delay
shall not exceed thirty (30) days. Participants may direct
investment of their Columbia Money Purchase Pension Plan Account
into the Company Stock Fund to any degree desired.
6.2.5 Transfers from Columbia Plans. Following the transfers from the
Columbia Plans as described in Article II, the Plan Administrator
shall transfer accounts in the Columbia Plans to the Funds
established pursuant to this Section in a manner chosen by the Plan
Administrator.
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ARTICLE VII ESOP FUNDS
ESOP, COMPANY AND COLUMBIA STOCK FUND ACCOUNTS
7.1 INVESTMENT IN ESOP FUND. All ESOP Contributions, Employee Voluntary
Matching Contribution Allocations and Salary Deferral Matching
Contribution Allocations shall be invested in the ESOP Fund.
7.2 VOTING AND TENDER OFFERS. The Trustee shall vote and respond to tender
offers with respect to Company Stock in the manner specified in the
appropriate Trust Agreement.
7.3 DIVERSIFICATION. Effective January 1, 2000 and thereafter, if a
Participant is a Qualified Participant, such Participant shall have the
opportunity to direct the investment of the full value of Company Stock
credited to his ESOP Fund Account.
7.4 COLUMBIA STOCK FUND AND TRIAD STOCK FUND ACCOUNTS. Any amounts transferred
to this Plan in accordance with Sections 2.4, 2.5 and 2.6 that were
invested in common stock of Columbia or Triad shall be invested in a
Columbia Stock Fund and the Triad Stock Fund, respectively, to be
maintained by the Trustee on behalf of each Participant. Unless the Plan
Administrator directs otherwise, and except as otherwise provided in the
appropriate Trust Agreement, Participants shall have no voting rights in
their Columbia Stock Fund or Triad Stock Fund Accounts. Participants may
direct investments out of the Columbia Stock Fund and/or the Triad Stock
Fund into the other funds under Article VI. However, no future investments
may be made in the Columbia Stock Fund or the Triad Stock Fund and, should
a Participant elect to reduce the portion of his Account which is invested
in the Columbia Stock Fund or the Triad Stock Fund, he shall not again
reinvest additional assets in the Columbia Stock Fund or the Triad Stock
Fund. If so directed by the Plan Administrator, some or all of the
Columbia Stock and/or Triad common stock shall be liquidated and invested
in Company Stock or one or more of the Investment Funds.
7.5 COMPANY STOCK FUND ACCOUNTS. All Employee Voluntary Contributions and
earnings thereon shall be invested in a Participant's Company Stock Fund
Account at all times and Participants shall not be entitled to direct the
investment thereof. Unless the Plan Administrator directs otherwise, and
except as otherwise specified in the appropriate Trust Agreement,
Participants shall have no voting rights in this portion of their Company
Stock Fund Account.
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ARTICLE VIII
VESTING
8.1 FULLY VESTED CONTRIBUTIONS. Participants shall at all times be one-hundred
percent (100%) vested in all Salary Deferral Contributions, Employee
Voluntary Contributions, Employee Voluntary Matching Contribution
Allocations and Unilateral Employer Contributions made to their Accounts
and earnings thereon. Participants shall also be one-hundred percent
(100%) vested in the assets in their Account which were transferred from
the EPIC Plan or the HealthTrust Plan, and their Prior Salary Deferral
Contribution Account, Rollover Account, Thrift Account and Thrift Matching
Account and that portion of his Columbia Money Purchase Pension Plan
Account which was fully vested under the Columbia Money Purchase Pension
Plan prior to transfer to this Plan.
8.2 FORFEITABLE CONTRIBUTIONS. Subject to Sections 3.10, 3.14, 3.17 and 3.19,
a Participant's non-forfeitable percentage of Salary Deferral Matching
Contribution Allocations, ESOP Contributions, Profit Sharing Contributions
and all amounts held in a Participant's Columbia Money Purchase Pension
Plan Account, Columbia Stock Bonus Plan Account and Prior Matching
Contribution Account and any earnings or losses thereon (collectively
"Forfeitable Contributions") shall be based on the Participant's total
number of Years of Service, computed without regard to any Years of
Service completed after the fifth (5th) consecutive One Year Break in
Service and disregarded pursuant to Section 8.3.3. Such percentage shall
be determined from the following schedule:
<TABLE>
<CAPTION>
Completed Nonforfeitable Forfeitable
Years of Service Percentage Percentage
<S> <C> <C>
Less than 3 0% 100%
3 but less than 4 20% 80%
4 but less than 5 40% 60%
5 but less than 6 60% 40%
6 but less than 7 80% 20%
7 or more 100% 0%
</TABLE>
Notwithstanding the foregoing, the portion of a Participant's Columbia
Money Purchase Pension Plan Account which is attributable to a Plan Year
of accrual commencing prior to January 1, 1987 shall be one-hundred
percent (100%) vested. Notwithstanding the foregoing, the portion of a
Participant's Salary Deferral Matching Contribution Allocations Account
which was transferred from the Columbia Salary Deferral Plan, and was
fully vested immediately prior to the transfer, shall be one-hundred
percent (100%) vested. Notwithstanding the foregoing, a Participant's
Columbia Stock Bonus Plan Account shall be fully vested if the
Participant: (1) had three (3) or more full Years of Service on December
31, 1994 under the Columbia Stock Bonus Plan; and (2) had accumulated
three (3) or more Years of Service (as determined on December 31, 1994)
while employed by HCA-Hospital Corporation of America or one of its
subsidiaries.
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8.3 FORFEITURE OF NON-VESTED ACCOUNT BALANCES. The portion of any Account that
is determined under this Article to be forfeitable shall be forfeited in
accordance with the rules set forth in this Section and applied as
provided under Article IV.
8.3.1 Reemployment After Five (5) Consecutive One Year Breaks in Service.
A Participant who has separated from service, but is reemployed
after incurring five (5) consecutive One Year Breaks in Service
shall not be entitled to receive credit for vesting purposes for
Years of Service earned prior to the five (5) consecutive One Year
Breaks in Service, except as follows:
(a) If he had a nonforfeitable right to all or a portion of his
Account derived from Forfeitable Contributions at the time of
his separation from service, such Participant shall receive
credit for Years of Service earned prior to the five (5)
consecutive One Year Breaks in Service upon his completion of
a Year of Service following the date of his reemployment with
respect to his Account derived from Forfeitable Contributions.
(b) With respect to his Account derived from Forfeitable
Contributions after his reemployment, if he did not have a
nonforfeitable right to all or any portion of his Account
derived from Forfeitable Contributions at the time of his
separation from service, such Participant shall receive credit
for Years of Service earned prior to the five (5) consecutive
One Year Breaks in Service if (1) he completes a Year of
Service after his reemployment, and (2) at the time he
completes such Year of Service his number of consecutive One
Year Breaks in Service does not equal or exceed the greater of
(i) his aggregate Years of Service earned before his period of
consecutive One Year Breaks in Service; or (ii) five (5)
years.
(c) All Years of Service earned after five (5) consecutive One
Year Breaks in Service shall be disregarded in determining a
Participant's nonforfeitable percentage in his Account derived
from Forfeitable Contributions which accrued prior to the five
(5) consecutive One Year Breaks in Service.
8.3.2 Reemployment Prior to Incurring Five Consecutive One Year Breaks in
Service. A former Participant who is reemployed prior to incurring
five (5) consecutive One Year Breaks in Service shall not be
entitled to receive credit for vesting purposes for Years of Service
earned prior to the consecutive One Year Breaks in Service until he
has completed a Year of Service following the date of his
reemployment with respect to his Account derived from Forfeitable
Contributions. A former Participant who is reemployed prior to
incurring a One Year Break in Service shall receive credit for his
Years of Service upon his date of reemployment.
8.3.3 Reemployment. The forfeited portion of the Account of a Participant
who was not fully vested upon distribution and who received a
Cash-Out partially attributable to
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his Account derived from Forfeitable Contributions shall be restored
to an Account for such Participant if he returns to the employ of
the Employer and:
(a) repays the Cash-Out amount to the Trust Fund; and
(b) such repayment occurs before the earlier of (i) five (5) years
after the first date on which the Participant is subsequently
reemployed by the Employer or (ii) the date on which the
Participant incurs five (5) consecutive One Year Breaks in
Service following the date of distribution of the Cash-Out.
A Participant who was not vested in any portion of his Account
derived from Forfeitable Contributions at the time of his separation
from service shall be deemed to have made the repayment of a
Cash-Out on the date the Participant returns to the employ of the
Employer if he returns to employment before incurring five (5)
consecutive One Year Breaks in Service. The permissible sources of
restoration of the forfeited portion of an Account upon repayment
(or deemed repayment) of a Cash-Out in accordance with this
subsection are income or gain from Plan investments and Forfeitures.
Nothing in this section shall be deemed to permit a Participant to
repay a Cash-Out where such Participant was 100% vested in the
portion of his Account attributable to his Account derived from
Forfeitable Contributions at the time of such Cash-Out.
Cash-Out repayments and deemed repayments shall apply under this
Plan with respect to individuals who separated from service while a
participant in one or more of the Columbia Plans prior to the
Closing Date but their employer at the time of separation from
service was a company which is owned (directly or indirectly) by the
Employer on the Closing Date. Such repayments and deemed repayments
shall also apply with respect to accounts of individuals specified
in Section 2.1.5 who are not covered by the preceding sentence.
8.3.4 Timing of Forfeitures. The nonvested portion of the Account of a
Participant who is not fully vested in the portion of his Account
derived from Forfeitable Contributions at the time he separates from
service and who receives a Cash-Out following his separation from
service shall be a Forfeiture as of the last day of the Plan Year in
which such Participant incurs a One Year Break in Service or, if
later, at the time of distribution. A Cash-Out is a distribution
following separation from service of a Participant's total vested
Account balance. For this purpose, if, at the time of a
Participant's separation from service, such Participant is not
vested in any portion of his Account derived from Forfeitable
Contributions, the Plan Administrator will be deemed to have made a
Cash-Out distribution to such Participant. The nonvested portion of
the Account of a Participant who is partially vested in his Account
derived from Forfeitable Contributions at the time he separates from
service but who does not receive a Cash-Out shall be a Forfeiture as
of the end of the Plan Year in which such Participant incurs his
fifth consecutive One Year Break in Service. The nonvested portion
of the Account of a Participant who does not separate from
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service but who incurs five consecutive One Year Breaks in Service
shall be a Forfeiture upon the fifth One Year Break in Service.
8.4 VESTING AT EARLY RETIREMENT AGE AND NORMAL RETIREMENT AGE. Notwithstanding
Section 8.1 or 8.2, a Participant shall become one hundred percent (100%)
vested in his accrued Account upon his attainment of Early Retirement Age
or Normal Retirement Age provided that he has not separated from service
with the Employer prior to such date.
8.5 VESTING UPON DEATH. Notwithstanding Sections 8.1 or 8.2, a Participant's
Account shall become one hundred percent (100%) vested upon his death if
his death occurs while he is an Employee.
8.6 VESTING UPON TOTAL AND PERMANENT DISABILITY. Notwithstanding Section 8.1
or Section 8.2, the Account of a Participant who is an Employee shall
become one hundred percent (100%) vested upon becoming Totally and
Permanently Disabled while employed.
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ARTICLE IX
PAYMENT OF BENEFITS TO PARTICIPANTS
9.1 COMMENCEMENT OF BENEFITS. Except as otherwise required under Section 9.9,
a Participant shall be entitled to receive his Plan Benefits upon the
following conditions:
9.1.1 Normal Retirement. A Participant who separates from service with the
Employer on or after attaining Normal Retirement Age may elect to
receive a distribution of his Plan Benefits as of his Normal
Retirement Date or thereafter, following his separation from
service.
9.1.2 Early Retirement. A Participant who separates from service with the
Employer on or after having attained Early Retirement Age may elect
to receive a distribution of his Plan benefits as of his Early
Retirement Date or thereafter, following his separation from
service. A Participant who separates from service with the Employer
on or after the date on which such Participant has earned at least
ten (10) Years of Service but prior to reaching the Age of
fifty-five (55) may elect to receive a distribution of his Plan
benefits as of his Early Retirement Date or thereafter, following
his separation from service.
9.1.3 Disability Benefits. A Participant who separates from service with
the Employer as a result of becoming Totally and Permanently
Disabled or becomes Totally and Permanently Disabled after having
separated from service, but prior to otherwise being eligible to
receive benefits under this Plan, may elect to receive distribution
of his Plan Benefits following the approval of the Participant's
claim for Total and Permanent Disability benefits.
9.1.4 In-Service Withdrawal(s). In accordance with Section 9.8, a
Participant may elect to receive a distribution of a portion of
certain sub-accounts in his Account prior to separating from
service.
9.1.5 Separation from Service. Consistent with Sections 9.5 and 9.7, a
Participant who separates from service may elect to receive his
vested Plan Benefits.
9.1.6 Administrative Delay. Notwithstanding any provision of this Article
IX to the contrary, benefit payments may be delayed due to
administrative circumstances.
9.2 DEATH BENEFITS. Subject to Section 9.16, if a Participant dies before
becoming entitled to benefits under Section 9.1, the Participant's
Beneficiary or Contingent Beneficiary shall be entitled to a death benefit
equal in value to the Participant's vested Account, determined as of a
Valuation Date which falls within a reasonable period of time preceding
the date of distribution of such death benefits, increased by the amount
of any Salary Deferral Contributions, Employee Voluntary Contributions,
loan repayments contributed to the
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deceased Participant's Account, ESOP Contributions, Profit Sharing
Contributions and Matching Employer Contribution Allocations since such
Valuation Date, and decreased by the amount of any distributions from the
deceased Participant's Account since such Valuation Date. Such benefits
shall be payable as provided in the Participant's Beneficiary designation
form, provided that a Qualified Waiver must be properly executed and
submitted if the surviving spouse is not the Beneficiary.
9.2.1 Payment of Death Benefits - General Rule. Except as otherwise
provided herein, payment of death benefits shall be made as soon as
is administratively feasible following approval of a claim for death
benefits. Beneficiaries and Contingent Beneficiaries shall notify
the Plan Administrator in writing of the death of any individual
which entitled them to payment of benefits. Notwithstanding any
provision of this Section to the contrary, subject to Section 9.9,
if the death beneficiary is the surviving spouse, such beneficiary
may elect to receive the Participant's vested account in a lump-sum
distribution at any time following death. Subject to Section 9.9,
payment to nonspouse Beneficiaries and Contingent Beneficiaries
shall be made in a lump sum as soon as administratively feasible
following approval of the claim for death benefits.
9.2.2 Nonsurviving Beneficiary or Contingent Beneficiary. If neither a
Beneficiary nor a Contingent Beneficiary survives the Participant or
if no such Beneficiary and/or Contingent Beneficiary has been
effectively named by the Participant, the Beneficiary designated in
subsection 9.2.3 shall be paid a lump sum benefit, equal to the
value of the Participant's vested Account, determined as of a
Valuation Date which falls within a reasonable period of time
preceding the date of distribution of such death benefits, increased
by the amount of any Salary Deferral Contributions, Employee
Voluntary Contributions, loan repayments contributed to the deceased
Participant's Account, ESOP Contributions, Profit Sharing
Contributions and Matching Employer Contribution Allocations since
such Valuation Date, and decreased by the amount of any outstanding
loan balance and any distributions from the decreased Participant's
vested Account since such Valuation Date.
9.2.3 Beneficiaries. If a Participant's benefits are still outstanding at
such Participant's death and his Beneficiary does not survive him,
the benefits shall be paid to his named Contingent Beneficiary. If a
deceased Participant is not survived by either a named Beneficiary
or a Contingent Beneficiary (or if no Beneficiary or Contingent
Beneficiary was properly named), the deceased Participant's Plan
Benefits shall be paid in a lump sum payment to the person, persons
or entity in the first of the following classes of beneficiaries
with one or more members of such class then surviving: (a) widow or
widower; (b) the Participant's estate, or state law equivalent
thereof, if such estate (or equivalent) is established within the
six month period beginning with the date of the Participant's death;
(c) children; (d) parents; (e) brothers and/or sisters; or (f)
pursuant to state intestacy law. The Plan Administrator shall have
complete discretion to determine whether a person or thing falls
within the preceding hierarchy. If the Beneficiary or Contingent
Beneficiary is
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living at the death of the Participant, but such person dies prior
to receiving the death benefit, such death benefit shall be paid to
the estate of such deceased Beneficiary or Contingent Beneficiary.
9.3 FORM OF BENEFIT DISTRIBUTION. Subject to Section 9.16, a Participant who
is entitled to receive his Plan Benefits may elect to receive his Plan
Benefits in one of the following forms:
(i) A lump sum distribution in cash;
(ii) Installments to be paid over a period of 5, 10, 15 or 20 years, but
such term shall not exceed the life expectancy of the Participant,
or the joint and last survivor life expectancy of the Participant
and designated Beneficiary. Installments shall be paid monthly,
quarterly or annually, as so elected by the Participant;
(iii) A joint and 50% survivor annuity for the Participant and his spouse;
(iv) A life annuity;
(v) A life annuity with guaranteed payments; or
(vi) A distribution of a paid-up nontransferable and irrevocable annuity
contract providing for payment of substantially equal periodic
installments commencing with the date the contract is issued and
continuing for a period certain not to exceed twenty (20) years.
This form of benefit distribution shall not be available to a
Beneficiary or Contingent Beneficiary who is not the Participant's
surviving spouse.
Any Participant who elected to receive installment payments under this
Section 9.3(ii), and has been receiving installment payments due to a
separation from service, shall have his installment payments suspended
upon his return to service as an Employee. During such period of
suspension, his Account shall be credited with earnings and losses
pursuant to his investment instruction as to Funds. If a married
Participant elects an annuity, the annuity shall be a joint and 50%
survivor annuity for the Participant and his spouse unless the spouse
consents otherwise in accordance with the procedures set forth in Section
9.16.3. Section 14.17 provides additional rules concerning optional
benefit forms with respect to plans merged into this Plan.
9.3.1 Distribution of Annuity Contracts. Any payments made pursuant to any
annuity shall be payable to the Participant during his lifetime and,
if applicable, to the Participant's Beneficiary after the death of
the Participant under a paid-up nontransferable and irrevocable
annuity contract. In no event shall the annuity provide payments
that require survival of any individual as one of the conditions for
any payment or possible payment under the annuity and in no event
shall the annuity contract provide any life insurance benefit that
would be excluded from gross income under Code Section 101(a). The
terms of an annuity contract
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purchased and distributed by the Plan to a Participant or spouse
shall comply with the requirements of the Plan.
9.3.2 Stock Distributions. To the extent that a Participant is invested in
the Company Stock Fund and/or the ESOP Fund, he may elect to receive
a lump sum distribution in Company Stock, and to the extent that the
Participant is invested in the Columbia Stock Fund and/or the Triad
Stock Fund, such election shall also apply to Columbia Stock and
Triad common stock, except that fractional shares shall be converted
to and paid in cash, and declared but unpaid cash dividends shall be
paid in cash. If any additional shares of Company Stock (or, if
applicable, Columbia Stock) are subsequently allocated to the
Participant's Account, such shares shall be distributed to the
Participant or his Beneficiary as soon as practicable following the
date on which such additional allocation is made.
All installment and annuity distributions under this Section shall
be made in cash.
9.4 PARTICIPANT'S ELECTION OF BENEFITS. All elections of benefits under this
Article shall be in writing on a form provided by the Plan Administrator
and shall be irrevocable upon the expiration of the applicable Election
Period, or, if earlier, upon distribution of the Participant's benefits
under the election.
9.4.1 Distribution. The Trustee shall distribute the benefits elected
under this Section as soon as administratively feasible following
the Trustee's receipt of distribution instructions from the Plan
Administrator and following completion of valuation of the
Participant's Account for the Valuation Date specified in this
Section for valuation of the Participant's benefits. The
distribution of benefits shall in all cases be made by the Trustee
to the recipient within a single taxable year of the recipient so as
to qualify (to the extent possible) as a lump sum distribution under
Code Section 402(e)(4)(D).
9.4.2 Account Closed. A Participant's Account shall be deemed to be closed
as of the Valuation Date specified in this Section for determining
benefits, and, except in the case of a special valuation under
Article V, no earnings or losses shall be added to or subtracted
from such Account following such Valuation Date.
9.4.3 Valuation and Election. For purposes of Sections 9.1, 9.5 and 9.7,
the Participant's Plan Benefit, to the extent vested, shall be
valued on a Valuation Date which falls within a reasonable period of
time following the Plan Administrator's receipt of notice that the
Participant's Plan Benefits are to be distributed. The Participant
shall be entitled to receive his Plan Benefits in the form of
payment provided under Section 9.3. Notwithstanding any other
provision of this Plan, the date for distribution of benefits may be
delayed to the extent necessary to properly determine the value of
the Participant's Account or to take such other actions as are
reasonably necessary to distribute the Participant's Plan Benefits.
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9.4.4 Filing of Request for Distribution. It shall be the duty of
Participants and Beneficiaries to inform the Plan Administrator of
any change in their home address and to file written claims (or to
make requests under the Voice Response System) for benefits provided
under this Plan. The Plan Administrator shall not be required to
determine eligibility for, or make payment of, Plan Benefits to
which Participants or Beneficiaries are otherwise entitled until a
written claim for such benefits is filed with the Plan Administrator
(or an election to receive benefits is made by the Participant
through the Voice Response System); provided, however, that this
sentence shall not prevent the Plan Administrator from directing the
Trustee to make lump sum distributions in those cases in which a
timely election specifying the time and manner of payment of Plan
Benefits is not filed. In no event, however, shall the Plan
Administrator make any distribution to a Participant until that
Participant's outstanding loans have been liquidated in full.
9.4.5 Timing. If an election to receive Plan Benefits is made, the
distributions specified in Sections 9.1 and 9.2 shall be made by the
end of the Plan Year following the Plan Year during which the
Participant separates from service by reason of attainment of Normal
Retirement Age, attainment of Early Retirement Age, death or Total
and Permanent Disability.
9.5 SPECIAL DISTRIBUTIONS RULES. Notwithstanding any other provision of this
Plan, unless this Plan is amended to permit a trustee to trustee transfer
to a recipient plan, a Participant's Salary Deferral Contribution Account,
Prior Salary Deferral Contribution Account and all amounts transferred
from the HealthTrust Plan shall be distributable upon:
(a) Termination of the Plan without the establishment or maintenance of
another defined contribution plan;
(b) Consistent with Treasury Regulations, the disposition by a
corporation to an unrelated corporation of substantially all of the
assets (within the meaning of Section 409(d)(2) of the Code) used in
a trade or business of such corporation if such corporation or an
Affiliated Employer continues to maintain this Plan after the
disposition, but only with respect to Employees who continue
employment with the corporation acquiring such assets;
(c) Consistent with Treasury Regulations, the disposition by a
corporation to an unrelated entity of such corporation's interest in
a subsidiary (within the meaning of Section 409(d)(3) of the Code)
if such corporation or an Affiliated Employer continues to maintain
this Plan, but only with respect to Employees who continue
employment with such subsidiary;
(d) Such Participant's death or disability;
(e) Such Participant's attainment of Age fifty-nine and one-half (59
1/2); or
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(f) Such Participant's Qualifying Hardship within the meaning of Section
9.6.1 of the Plan and subject to Section 9.6 of the Plan.
Unless accounts of affected Employees or Participants are spun-off or
transferred to a plan established by the corporation(s) being spun-off, a
corporate spin-off which qualifies under Code Section 355 shall be
considered a disposition by a corporation to an unrelated entity of such
corporation's interest in a subsidiary, under subsection (c).
9.6 DISTRIBUTIONS IN THE CASE OF CERTAIN FINANCIAL HARDSHIPS. A Participant
who is an Employee and who experiences a Qualifying Hardship may elect in
writing to receive a distribution of all or part of the portion of his
Salary Deferral Contribution Account, Prior Salary Deferral Contribution
Account, Rollover Account, Employee Voluntary Contribution Account, Prior
Employer Contribution Account, Thrift Account and Thrift Matching Account.
9.6.1 Qualifying Hardship. "Qualifying Hardship" shall mean a hardship
within the meaning of the Treasury Regulations interpreting Code
Section 401(k) which results from expenses incurred or to be
incurred in connection with the following:
(a) The incurrence of, and the necessity of receiving cash in
advance in anticipation of and to pay for, uninsured and
unreimbursed or unreimbursable medical expenses, by the
Participant, his spouse or any child or other person who has
been or will be claimed as a dependent on the Participant's
federal income tax return for the tax year covered by the Plan
Year during which the request is made (which period will
hereinafter be referred to as "Applicable Tax Year");
(b) The purchase of the Participant's principal residence (but
shall not include any payments on the mortgage pertaining to
this principal residence);
(c) The prevention of the Participant's eviction from or the
foreclosure on the mortgage of the Participant's principal
residence; or
(d) The payment of tuition expenses, related educational fees and
room and board expenses for the next twelve months of post
secondary education on behalf of or by the Participant, his
spouse or any person who may or will be claimed as a dependent
on the Participant's federal tax return for the Applicable Tax
Period.
9.6.2 Immediate and Heavy Financial Need. A distribution made on account
of a "Qualifying Hardship" must be necessary in light of the
immediate and heavy financial needs of the Participant.
(a) A distribution requested on account of a Qualifying Hardship
shall not exceed the amount required to meet the immediate
financial need created by
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the hardship (grossed-up for income taxes) and which is not
reasonably available from other resources of the Participant.
In support of his request, the Participant must provide to the
Plan Administrator the specific dollar amount of the expense
and the specified dollar amount of the distribution needed to
satisfy this expense, as well as represent that the financial
need cannot be satisfied from other resources, such as:
(1) Reimbursement or compensation through insurance or some
similar source;
(2) Through a reasonable liquidation of assets owned either
by the Participant, his spouse or children, to the
extent such assets are reasonably available to the
Participant and would not create an additional,
immediate and heavy financial need; or
(3) Through the discontinuation of elective deferrals to
this Plan or by receipt of a loan from a commercial
lender or by receipt of a loan under the Plan.
9.6.3 Limitation on Qualifying Hardship Distributions. A Qualifying
Hardship distribution shall not be made or comprised of amounts
attributable to:
(a) Income earned after December 31, 1988, on Salary Deferral
Contributions; and
(b) Any portion of a Participant's Account balance other than his
Salary Deferral Contributions and rollover contributions and
direct transfers from other qualified retirement plans.
9.6.4 Suspension From Plan. If a Participant's hardship withdrawal request
is approved by the Plan Administrator, no further Salary Deferral
Contributions shall be contributed on behalf of the Participant by
the Employer, and no elective contributions or Employee
contributions, except for contributions to any health or welfare
benefit plans and mandatory contributions to defined benefit plans
maintained by the Employer (if any), may be made by the Participant
under any tax-qualified deferred compensation plans (as defined in
Code Section 401(a)) or under nonqualified deferred compensation
plans of the Employer, for twelve (12) months following the date of
hardship withdrawal. The Participant may not make Salary Deferral
Contributions for the Participant's taxable year immediately
following the taxable year of the hardship distribution in excess of
the applicable limit under Code Section 402(g) for the next taxable
year minus the amount of the Participant's elective contributions
for the taxable year of the hardship distribution. Notwithstanding
the foregoing, this Section 9.6.4 shall apply only in the event that
a Participant's hardship withdrawal is made all or partially from
his Salary Deferral
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Contribution Account in accordance with the hierarchy of the sources
of distribution determined by the Plan Administrator from his
sub-accounts.
9.6.5 Plan Administrator's Responsibility. The Plan Administrator shall
have complete discretion to approve or disapprove hardship
withdrawal requests based upon the Plan Administrator's
determination as to whether the Participant who has filed such claim
has satisfied the criteria as reflected in this Section 9.6 for a
Qualifying Hardship. The amount of the hardship withdrawal approved
by the Plan Administrator shall not exceed the amount that the Plan
Administrator determines is necessary to remedy the financial burden
attributable to the Qualifying Hardship.
9.6.6 Allocation of Earnings and Losses. The amount available for a
hardship withdrawal shall be determined as of a Valuation Date which
falls within a reasonable period of time preceding the date the
hardship withdrawal is approved. The amount distributed to a
Participant as a hardship withdrawal shall be taken into account for
purposes of allocating earnings or losses as of the Valuation Date
following the date such withdrawal is made or as soon as
administratively feasible thereafter. The Plan Administrator shall
determine the order of sub-accounts from which hardship withdrawals
shall be taken, and such order shall apply equally to all
Participants.
9.6.7 Same Desk Rule. Notwithstanding any preceding provision of this
Section to the contrary, a Participant who ceases to be an Employee
due to a sale of his facility which is subject to the same desk rule
(thus prohibiting a distribution) is eligible to request a hardship
distribution.
9.7 CASH-OUT PROCEDURE UPON SEPARATION FROM SERVICE. A Participant who
separates from service for reason other than attainment of Early
Retirement Age, Normal Retirement Age, Total and Permanent Disability or
death and whose vested Plan Benefits do not exceed $5,000 shall be paid
his vested Plan Benefits in the form of a "Cash-Out." A Participant who
separates from service for reason other than attainment of Normal
Retirement Age or death and whose vested Plan Benefits exceed $5,000 shall
be entitled to elect to receive a Cash-Out of his vested Plan Benefits.
Any election to receive a Cash-Out must be made by the Participant during
the time frame specified by the Plan Administrator and communicated to
Participants on a uniform basis. If, at the time of a Participant's
separation from service, such Participant is not vested in any portion of
his Account attributable to Matching Employer Contribution Allocations,
the Plan Administrator will be deemed to have made a Cash-Out distribution
to such Participant of such Matching Employer Contribution Allocations.
The Plan Administrator may require that any Participant who is eligible to
receive a Cash-Out complete such forms as are required by the Plan
Administrator (or take other action through the Voice Response System) in
order for such Cash-Out to be paid. The Plan benefits of any Participant
whose vested Plan Benefits exceed $5,000 who fails to properly complete
such necessary forms shall remain in the Trust, subject to the
distribution provisions of this Article. Forms for Cash-Outs shall be
mailed to Participants as soon as administratively feasible following the
date on which the Participant separates from service. Cash-Outs for which
the necessary forms have been
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properly submitted to the Plan Administrator shall be paid as soon as
practicable following the Plan Administrator's receipt of forms or
election on the Voice Response System, if applicable. Vested Plan Benefits
which are paid as a Cash-Out shall be valued in accordance with Section
9.4.3.
9.7.1 Notification of Options. No less than 30 days nor more than 90 days
before a Cash-Out is paid, each Participant with a Plan Benefit in
excess of $5,000 who has separated from service shall be given
notice of: (a) the material features and relative values of the
optional forms of benefit available under the Plan; and (b) his
right to defer receipt of a distribution. Following receipt of the
notice described in the preceding sentence, a Participant who elects
to receive a Cash-Out shall be paid his Plan Benefit within 90 days
after his written consent to receive the Cash-Out is received by the
Plan Administrator. If a distribution is one to which sections
401(a)(11) and 417 of the Code do not apply, such distribution may
commence less than 30 days after the notice required under section
1.411(a)-11(c) of the Income Tax Regulations is given, provided
that:
(1) the Plan Administrator clearly informs the Participant that
the Participant has a right to a period of at least 30 days
after receiving the notice to consider the decision of whether
or not to elect a distribution (and, if applicable, a
particular distribution option), and
(2) the Participant, after receiving the notice, affirmatively
elects a distribution.
9.7.2 Valuation. In determining whether a Participant's vested Plan
Benefits equal or exceed $5,000, the Plan Administrator shall
determine such amount as of a Valuation Date preceding distribution.
9.8 IN-SERVICE WITHDRAWALS. A Participant shall be entitled to receive a
distribution of certain sub-accounts in his Account while an Employee in
accordance with this Section.
9.8.1 Thrift Account Withdrawals. A Participant may elect to take a
distribution of all or a portion of his Thrift Account, Rollover
Account and Thrift Matching Account at any time.
9.8.2 Employee Voluntary Contribution Withdrawals. A Participant may elect
to take a distribution of all or a portion of his Employee Voluntary
Contribution Account at any time, provided, however, that such
Participant shall not be entitled to make additional Employee
Voluntary Contributions for the six-month period following the date
such withdrawal is made.
9.8.3 Employee Voluntary Matching Contribution Allocations Withdrawals. A
Participant who has completed five or more Years of Service may
elect to take a distribution of all or a portion of his Employee
Voluntary Matching Contribution Allocations Account at any time. A
Participant who has not completed at least five
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Years of Service may elect to take a distribution of only that
portion of his Employee Voluntary Matching Contribution Allocations
Account that was credited to his Employee Voluntary Matching
Contribution Allocations Account more than twenty-four (24) months
prior to his distribution.
9.8.4 Age 59 1/2 Distributions. Upon attainment of age fifty-nine and
one-half (59 1/2) and thereafter, a Participant may elect to receive
a distribution of all or a portion of their Rollover Account, Thrift
Account, Prior Employer Contribution Account, Thrift Matching
Account, HealthTrust Account, Employee Voluntary Contribution
Account (regardless of his Years of Service or the time amounts have
been credited to such Account), Prior Salary Deferral Contribution
Account and Salary Deferral Contribution Account. The Plan
Administrator shall establish an order of sub-accounts from which
such withdrawals are made, and such order shall apply equally to all
Participants. Notwithstanding the foregoing, a Participant who
ceases to be an Employee due to a sale of his facility which is
subject to the same desk rule (thus prohibiting a distribution) is
eligible to request an age 59 1/2 distribution.
9.9 MANDATORY COMMENCEMENT OF BENEFITS. Distribution of a Participant's Plan
Benefits balance shall begin not later than whichever of the two following
events first occurs:
(a) Unless the Participant otherwise elects, or the distribution of his
Plan Benefits occurs as of an earlier date as permitted under this
Article, sixty (60) days after the last day of the Plan Year in
which the latest of (1) or (2) occurs:
(1) The Participant's Normal Retirement Age;
(2) The Participant's separation from service; or
(b) The Required Beginning Date.
For purposes of Subsection (a) of this Section 9.9, a failure by the
Participant (and, where applicable, the Participant's spouse) to consent
to receive a distribution of Plan Benefits while immediately distributable
shall be deemed an election to defer payment of such benefits.
9.9.1 Required Beginning Date. Notwithstanding any provision of the Plan
to the contrary, distributions of a Participant's Plan Benefits
shall commence not later than one of the following dates
(hereinafter referred to as "Required Beginning Date"):
(a) For Participants who are not five (5) percent owners, as
defined in Code Section 416, the 1st day of April of the
calendar year following the later of the calendar year in
which the Participant (1) attains age seventy and one-half
(70-1/2), or (2) retires;
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(b) For Participants who are five (5) percent owners, as defined
in Code Section 416, the 1st day of April of the calendar year
following the calendar year in which the Participant attains
age seventy and one-half (70-1/2).
9.9.2 Valuation and Form of Distribution. The Participant's Plan Benefits
shall be valued and distributed in accordance with Section 9.4, with
the form of distribution being governed by Sections 9.3 and 9.7.
9.9.3 Amount of Required Distribution. The Plan Administrator shall
distribute on the Required Beginning Date the Participant's Plan
Benefits as determined in the following manner:
(a) Lump Sum Distributions. In the event a Participant has
separated from service and a lump sum distribution has been
properly elected under this Article, the Participant's Plan
Benefits shall be paid in full prior to the Participant's
Required Beginning Date, with the value of such Plan Benefits
being determined as of a Valuation Date which falls within a
reasonable period of time preceding payment.
(b) Installment and Annuity Distribution. In the event a
Participant has separated from service but no distribution
election has been made, or an annuity form of benefit has been
elected but the annuity has not yet been purchased and
distributed, or the Participant has not separated from
service, distributions shall commence no later than the
Required Beginning Date, with such benefits being paid over a
period not longer than the Participant's life or the lives of
the Participant and the Designated Beneficiary (or over a
period not extending beyond the life expectancy of the
Participant or joint life and last survivor expectancy of the
Participant and the Designated Beneficiary).
The amount to be distributed each year, beginning with
distributions for the first Distribution Calendar Year shall
not be less than the quotient obtained by dividing the
Participant's Benefit by the lesser of (1) the Applicable Life
Expectancy or (2) if the Participant's spouse is not the
Designated Beneficiary, the applicable divisor determined from
the table set forth in Q&A-4 of Proposed Regulations Section
1.401(a)(9)-2. Distributions after the death of the
Participant shall be distributed using the Applicable Life
Expectancy as the relevant divisor without regard to Proposed
Regulations Section 1.401(a)(9)-2. The minimum distribution
required for the Participant's first Distribution Calendar
Year must be made on or before the Participant's Required
Beginning Date. The minimum distribution for other calendar
years, including the minimum distribution for the distribution
calendar year in which the Employee's Required Beginning Date
occurs, must be made on or before December 31 of that
Distribution Calendar Year.
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9.9.4 General Rules.
(a) The requirements of this Section shall apply to any
distribution of a Participant's interest and will take
precedence over inconsistent provisions of this Plan.
However, in no event shall distributions under this
Section include any amount of a Participant's Account
which is not vested.
(b) All distributions required under this Section shall be
determined and made in accordance with the Treasury
Regulations under Code Section 401(a)(9), including the
minimum distribution incidental benefit requirement of
Proposed Treasury Regulation Section 1.401(a)(9)-2, and
any other applicable guidance issued by the Internal
Revenue Service.
9.9.5 Limits on Distribution Periods. As of the first Distribution
Calendar Year, distributions, if not made in a single-sum due
to a separation from service, may only be made over one of the
following periods (or a combination thereof):
(a) the life of the Participant,
(b) the life of the Participant and a Designated
Beneficiary,
(c) a period certain not extending beyond the life
expectancy of the Participant, or
(d) a period certain not extending beyond the joint and last
survivor expectancy of the Participant and a Designated
Beneficiary.
9.9.6 Death Distribution Provisions.
(a) Distribution beginning before death. If the Participant
dies after distribution of his interest has begun, the
remaining portion of such interest will continue to be
distributed at least as rapidly as under the method of
distribution being used prior to the Participant's
death.
(b) Distribution beginning after death. If the Participant
dies before distribution of his interest has begun,
distribution of the Participant's entire interest shall
be completed by December 31 of the calendar year
containing the fifth anniversary of the Participant's
death except to the extent that an election is made by
the Designated Beneficiary to receive distributions in
accordance with (i) or (ii) below:
(i) distributions to be paid over the life or over a
period certain not greater than the life
expectancy of the Designated Beneficiary
commencing on or before December 31 of the
calendar year
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immediately following the calendar year in which
the Participant died;
(ii) if the Designated Beneficiary is the Participant's
surviving spouse, distributions to be paid in
accordance with (i) above beginning on or prior to
the later of (1) December 31 of the calendar year
immediately following the calendar year in which
the participant died or (2) December 31 of the
calendar year in which the Participant would have
attained his Required Beginning Date.
(c) For purposes of subsection (b) above, if the surviving
spouse dies after the Participant, but before payments
to such spouse begin, the provisions of subsection (b),
with the exception of paragraph (ii) therein, shall be
applied as if the surviving spouse were the Participant.
(d) For purposes of this Section, any amount paid to a child
of the Participant will be treated as if it had been
paid to the surviving spouse if the amount becomes
payable to the surviving spouse when the child reaches
the age of majority.
(e) For purposes of this Section, distribution of a
Participant's interest is considered to begin on the
Participant's Required Beginning Date (or, if subsection
(c) is applicable, the date distribution is required to
begin to the surviving spouse under subsection (b)
above).
9.9.7 Definitions.
(a) Applicable Life Expectancy. The Life Expectancy of the
Participant or the joint and last survivor expectancy of
the Participant and Designated Beneficiary.
(b) Designated Beneficiary. The individual who is designated
as the Beneficiary under the Plan in accordance with
Code Section 401(a)(9) and the regulations thereunder.
(c) Distribution Calendar Year. A calendar year for which a
minimum distribution is required under Code Section
401(a)(9) and the Regulations issued thereunder. For
distributions beginning after the Participant's death,
the first Distribution Calendar Year is the calendar
year in which distributions are required to begin
pursuant to Section 9.9.6 above.
(d) Life Expectancy. Life Expectancy and joint and last
survivor expectancy are computed by use of the expected
return multiples in Tables V and VI of Section 1.72-9 of
the Income Tax Regulations. The Life Expectancy of the
Participant and the Life Expectancy of a Designated
Beneficiary who is the
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Participant's Spouse shall be recalculated annually. The
Life Expectancy of a Designated Beneficiary who is not
the Participant's Spouse shall not be recalculated.
(e) Participant's Benefit. The Account balance as of the
last Valuation Date in the calendar year immediately
preceding the Distribution Calendar Year (Valuation
Calendar Year) increased by the amount of any
contributions or forfeitures allocated to the Account
Balance as of dates in the Valuation Calendar Year after
the Valuation Date and decreased by distributions made
in the Valuation Calendar Year after the Valuation Date.
9.10 PARTICIPANT LOANS. The Plan Administrator may direct the Trustee to loan a
Participant who is an Employee amounts attributable to Salary Deferral
Contributions (including amounts in the Participant's Prior Salary
Deferral Contribution Account but excluding earnings on all Salary
Deferral Contributions that were earned after 1988) as well as his
Employee Voluntary Contribution Account, Rollover Account, Thrift Account,
Thrift Matching Account and Prior Employer Contribution Account, on a
reasonably equivalent basis, subject to the following limitations:
(a) A Participant's loan, when added to the balance of any other
outstanding loans the Participant may have, shall not exceed the
lesser of:
(1) $50,000 reduced to the extent of (i) the highest outstanding
loan balance of the Participant's loans outstanding during the
immediately prior 12-month period (ending the day before the
new loan is granted) over (ii) the total of all outstanding
loans the day the new loan is granted; or
(2) Fifty percent (50%) of the Participant's Total Vested Account
Balance.
(3) For purposes of the 50 percent limitation, "Total Vested
Account Balance" means the total dollar value, as of a
Valuation Date which falls within a reasonable period of time
preceding the date of the loan, of the vested portion of the
Participant's Account including rollover contributions and
direct transfers from other qualified retirement plans as set
forth in Section 14.7 and investment earnings credited to the
Participant's Account. Monies from rollovers as set forth in
Section 14.7, if any, will be depleted first for purposes of
Participant loans. The Plan Administrator may utilize a
percentage which is less than 50 percent, to insure that a
downward adjustment in the Participant's Total Vested Account
Balance between the loan calculation date and the actual loan
date will not cause a violation of the 50 percent test.
(4) All loans shall be subject to the approval of the Plan
Administrator which shall investigate each application for a
loan. Loans shall be permitted for any reason whatsoever.
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(5) In addition to such rules and regulations as the Committee may
adopt, all loans shall comply with the following terms and
conditions:
(A) The Plan Administrator shall have the power to
investigate each application for a loan.
(B) Unless the Plan Administrator allows for loan
applications through electronic media, an application
for a loan by a Participant shall be made in writing,
which shall reflect the consent of the Participant's
spouse to the extent so required by the Code, to the
Committee or its agent, whose action thereon shall be
final.
(C) The period of repayment for any loan shall be arrived at
by mutual agreement between the Committee or its agent
and the borrower, but all loans shall become due and
payable upon termination of employment and the period in
no event shall be less than one year, nor shall it
exceed five (5) years, except that a ten-year repayment
rule shall apply to any loan used for the purpose of
acquiring a home which is the Participant's principal
residence.
(D) Each loan shall be no less than $1,000 and shall be made
at a reasonable rate of interest determined by the
Committee and shall be secured by the balance remaining
in the Participant's Account, or by such other security
as the Committee may deem to be adequate.
(E) Each loan shall be treated as a separate investment of
the funds credited to such Participant's Account, and
the Committee shall reduce such Participant's Fund
balances in his Account pro rata (based on relative Fund
balances in the Participant's Account) to account for
each such loan.
(F) Any distribution to a Participant or to a Beneficiary
(or any direct rollover amount) shall be reduced by any
unpaid loan balance of such Participant or Beneficiary
plus accrued interest thereon, until such loan balance
plus accrued interest has been paid in full (either by
direct repayment or by a reduction to distributions).
(G) No more than one loan to any Participant can be made in
any calendar year and any Participant cannot have more
than one loan outstanding at any time.
(H) Repayment of loans shall be by payroll deduction, or
other approved method, on a level amortization basis
except that a Participant may
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prepay the outstanding principal balance of his loan in
full at any time.
(I) The Participant's investment instructions with respect
to future Salary Deferral Contributions shall apply for
purposes of loan repayments.
(J) If the Participant has received a loan or loans from the
Plan in the past, a new loan application shall not be
considered by the Plan Administrator until one year has
expired after such prior loan(s) have been paid in full.
A Participant may not receive an In-Service Withdrawal
under Section 9.8 until all loans have been paid in
full.
(K) The Plan Administrator shall determine the order of
depletion of Accounts (or sub-accounts) when making a
loan.
Notwithstanding the preceding paragraphs of this Section, in the
event of a plan transfer of Accounts of Participants to another
tax-qualified plan, the loans of the Participants whose Accounts are
transferred shall be included in the assets transferred to the
transferee plan.
9.11 REQUIREMENT OF CONSENT. Subject to Section 9.16, if the value of a
Participant's vested Account Balance derived from Employer and Employee
contributions exceeds $5,000, and the Account Balance is immediately
distributable, the Participant must consent to any distribution of such
Account Balance. Consent shall not be required to the extent that a
distribution is required to satisfy Section 401(a)(9), 401(k), 401(m),
402(g) or Section 415 of the Code. In addition, upon termination of the
Plan, the Plan Benefits of a Participant who does not consent to a
distribution of such Plan Benefits may be transferred to another defined
contribution plan of the Employer (other than an employee stock ownership
plan, as defined in Code Section 4975(e)(7)) which is qualified under Code
Section 401(a)).
An Account Balance is immediately distributable if any part of the Account
Balance could be distributed to the Participant before the Participant
attains (or would have attained if not deceased) the later of Normal
Retirement Age or age 62.
9.12 ADMINISTRATIVE POSTPONEMENT OF BENEFITS. Except in the case of
distributions on account of the Required Beginning Date under Section 9.9,
the date for distribution of benefits may be delayed to the extent
necessary to properly determine the value of the Participant's Account or
to take such other actions as are reasonably necessary to prepare to
distribute the Participant's Plan Benefits or to preserve the Plan's
tax-qualified status.
9.13 SUSPENSION OF DISTRIBUTIONS IN CERTAIN CASES. Notwithstanding the
preceding provisions of this Article, a Participant who has separated from
service with a Participating Employer and who would be eligible to receive
a distribution of his Plan Benefits pursuant to the preceding provisions
of this Article, but who is employed by the Plan Sponsor or an
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Affiliated Employer when his Plan Benefits are distributable, shall not be
paid his Plan Benefits, but rather shall only be eligible to receive such
Plan Benefits after he separates from service with the Plan Sponsor or any
Affiliated Employer as the case may be, in which case his Plan Benefits
shall then be payable in accordance with the preceding provisions of this
Article.
9.14 PARTICIPANT TRANSFERS. A Participant who transfers employment from one
Participating Employer to another Participating Employer shall not be
considered as terminating his employment with a Participating Employer and
shall continue to be a Participant in this Plan without interruption.
9.15 ACCOUNT TRANSFERS IN DISPOSITIONS. Notwithstanding the foregoing
provisions of this Article, in the event of an asset sale, stock sale or
any other disposition of facilities by the Plan Sponsor or an Affiliated
Employer which causes Participants of the sold facilities to cease to be
employed by the Plan Sponsor or an Affiliated Employer, the Plan
Administrator may transfer the Accounts of affected Participants (who are
Employees of an Affiliated Employer immediately prior to such disposition)
to the tax-qualified retirement plan of the purchaser in such disposition,
provided that such purchaser's tax-qualified retirement plan must carry
over all optional forms of benefit of this Plan, including timing of
distributions, and must carry over all Years of Service under this Plan
and subject such Accounts to a vesting schedule which is at all times
after the transfer at least as favorable as the vesting schedule in this
Plan. A transfer shall not occur unless the administrator of the
transferee plan furnishes evidence of the foregoing provisions to the Plan
Administrator. If so provided in an agreement between the buyer and the
seller, the transfer provisions of the preceding sentences of this Section
shall also apply to the Accounts and former Accounts of former Employees
who are or were Participants but separated from service from the sold
facility(ies) prior to the disposition.
9.16 QUALIFIED PRERETIREMENT SURVIVOR ANNUITY AND QUALIFIED JOINT AND SURVIVOR
ANNUITY. Notwithstanding the dates on or the form in which Plan Benefits
may be distributed in accordance with this Article, the following rules
shall apply to a Participant's Columbia Money Purchase Pension Plan
Account, unless a Qualified Waiver is executed and filed with the Plan
Administrator in the manner hereinafter provided.
9.16.1 Qualified Preretirement Survivor Annuity. A Participant's surviving
spouse shall be entitled to a Qualified Preretirement Survivor
Annuity if
(a) The Participant dies prior to the Annuity Starting Date;
(b) The Participant had a vested right to any portion of his
Account; and
(c) The Participant leaves a surviving spouse to whom he was
married at the time of his death.
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(1) Exception for Spousal Election. The surviving spouse
may elect to begin receiving payments within a
reasonable time after the participant's death. In the
alternative, the surviving spouse may elect to receive
the Qualified Preretirement Survivor Annuity benefits
at the time prescribed under Section 9.1, determined as
if the Participant had lived until that time or at the
time the Participant would have attained the Normal
Retirement Age had he lived, unless a cash-out is
exercised as hereinafter described.
(2) Notice Requests. The Plan Administrator shall provide
each Participant during the Applicable Period with a
written explanation (consistent with Regulations as the
Secretary of Treasury may prescribe) describing
(a) The Qualified Preretirement Survivor Annuity;
(b) The Qualified Waiver and the time for making a
Qualified Waiver;
(c) The rights of the Participant's spouse under a
Qualified Waiver; and
(d) The ability to revoke a Qualified Waiver and the
effect of such a revocation.
(3) "Applicable Period" shall have the following meaning:
(a) Within the period beginning on the first day of
the Plan Year in which a Participant attains Age
thirty-two (32) and ending on the last day of the
Plan Year preceding the Plan Year in which the
Participant attains Age thirty-five (35).
(b) If the Participant did not become a Participant
until after Age thirty-two (32), the explanation
shall be provided within the one (1) year period
ending on the date the Participant commences
participation in the Plan.
(c) In the case of Participants who separates from
service before attaining Age thirty-five (35), the
Applicable Period shall mean the period beginning
one (1) year before the separation from service
and ending one (1) year after such separation.
(d) If it would end later than the periods described
in subparagraphs (a)-(c) of this paragraph
9.16.1(c)(3), then the Applicable Period shall be
the period beginning one (1) year
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before Section 401(a)(11) of the Code first
applies to the Participant and ending one
(1) year after Section 401(a)(11) of the
Code first applies to the Participant.
In the event of reemployment, the Participant shall be
provided such notice as is otherwise required under this
Section. Notwithstanding the foregoing notice and timing
of notice rules, a notice and waiver may be given
pursuant to Treas. Reg. Section 1.401(a)-20, Q&A 33(b),
provided that any initial waiver shall be invalidated
upon the beginning of the Plan Year during which he
attains age thirty-five (35).
(4) Cash-Outs. If the value of the Participant's vested
Account which would otherwise be utilized to provide the
Qualified Preretirement Survivor Annuity is less than or
equal to $5,000, then it shall be distributed in one
payment to the surviving spouse in accordance with
Section 9.7.
(5) Post-Death Elections. Notwithstanding the foregoing, if
the value of the Participant's vested Account which
would otherwise be utilized to provide the Qualified
Preretirement Survivor Annuity exceeds $5,000, after the
death of a Participant who did not execute and file a
Qualified Waiver, as provided under Section 9.16.3, the
surviving spouse of such participant shall be entitled
to elect to receive the vested Account balance of the
Participant, as valued as of a Valuation Date which
falls within a reasonable period of time preceding
distribution (less any distributions made after such
Valuation Date), in the form of a lump-sum distribution,
to be paid as soon as administratively feasible after
approval of a claim for benefits by the Plan
Administrator following the Participant's death.
9.16.2 Qualified Joint and Survivor Annuity. A Participant's Plan
Benefits under this Section of the Plan shall be paid in the
form of a Qualified Joint and Survivor Annuity (as
hereinafter defined) if
(a) The Participant, upon becoming eligible to do so, elects
to receive his Plan Benefit; and
(b) The Participant is alive on the Annuity Starting Date.
(1) Notice Requirements. No less than 30 days and no more
than 90 days prior to the Annuity Starting Date, the
Administrative Committee shall provide each Participant
a written explanation of
(a) The terms and conditions of a Qualified Joint and
Survivor Annuity;
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(b) The Participant's right to make and the effect of
a Qualified Waiver of the Qualified Joint and
Survivor Annuity;
(c) The rights of a Participant's spouse; and
(d) The right to revoke a prior waiver of the
Qualified Joint and Survivor Annuity and the
effect of such a revocation.
(2) If the value of the Participant's vested Account which
would otherwise be utilized to provide the Qualified
Joint and Survivor Annuity is less than or equal to
$5,000, then it shall be distributed in one payment to
the Participant in accordance with Section 9.7.
(3) If the value of the Participant's vested Account which
would otherwise be utilized to provide the qualified
Joint and Survivor Annuity exceeds $5,000, then if the
Participant (if alive) and his spouse consent in writing
on a Qualified Waiver, the Plan Benefits may be
distributed in one payment in accordance with Section
9.7.
9.16.3 Qualified Waiver of Distributions. The distribution of Plan
Benefits in the form of either a Qualified Joint and Survivor
Annuity or a Qualified Preretirement Survivor Annuity may be
waived only if the Participant so elects and the
Participant's spouse properly consents thereto pursuant to a
Qualified Waiver, which must be filed with the Plan
Administrator during the applicable Election Period. The
spouse's consent to the Qualified Waiver must be in writing
and must be witnessed by a Plan representative or notary
public, and such consent shall acknowledge the effect of the
spousal consent to the waiver. The Beneficiary, Contingent
Beneficiary and form of benefit so designated pursuant to the
consent to the Qualified Waiver by the spouse may not be
changed without subsequent written spousal consent, unless
the initial spousal consent allows for such changes without
additional written spousal consent.
(1) Limitation on Qualified Waiver. Any Qualified Waiver or
revocation thereof which is made during the Election
Period described in the immediately preceding sentence
shall apply only to that portion of the Participant's
Account which accrued prior to his separation from
service.
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ARTICLE X
CLAIMS PROCEDURE
10.1 FILING OF CLAIM. A Participant or Beneficiary shall make a claim for Plan
Benefits by filing a written request with the Plan Administrator upon a
form to be furnished to him for such purpose. The Plan Administrator shall
process claims for benefits on the basis of the records of the Plan
Administrator and Employer. The Plan Administrator shall determine all
questions arising in the administration, interpretation and application of
the Plan. All such determinations shall be final, conclusive and binding,
except to the extent that they are appealed in accordance with the claims
procedure provided in this Article.
10.2 DENIAL OF CLAIM. If a claim is wholly or partially denied, the Plan
Administrator shall furnish the Participant or Beneficiary with written
notice of the denial within ninety (90) days of the date the original
claim was filed. However, an extension of time to process a claim, up to
an additional ninety (90) days, shall be available if special
circumstances warrant an extension of time and the Plan Administrator so
notifies the Participant within the (initial) 90 day period. This notice
of denial shall provide (a) the reason for denial; (b) specific reference
to pertinent Plan provisions on which the denial is based; (c) a
description of any additional information needed to perfect the claim and
an explanation of why such information is necessary; and (d) an
explanation of the Plan's claim procedure.
10.3 REVIEW OF DENIAL. The Participant or Beneficiary shall have sixty (60)
days from receipt of the denial notice in which to make written
application for review by the Plan Administrator. The Participant or
Beneficiary may request that the review be in the nature of a hearing. The
Participant or Beneficiary shall have the right to (a) representation; (b)
review pertinent documents; (c) submit comments in writing. In considering
an appeal, the Plan Administrator shall review and consider any written
comments submitted by the Participant or by the Participant's duly
authorized representative; however, the right to appeal does not require
the Plan Administrator to allow the Participant or the Participant's
representative to appear in person.
10.4 DECISION UPON REVIEW. The Plan Administrator shall issue a decision on
such review within sixty (60) days after receipt of an application for
review as provided in Section 10.3, except that if special circumstances
require an extension of time for processing, a decision on review will be
rendered as soon as possible, but in no event later than one hundred and
twenty (120) days after receipt of an application for review.
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ARTICLE XI
THE PLAN ADMINISTRATOR
11.1 DESIGNATION. The Board of Directors shall appoint the Committee to perform
the duties of the Plan Administrator in connection with administration of
this Plan and such Committee shall give instructions to the Trustee. The
Committee shall have the authority to construe the terms of the Plan and
any decision reached by the Committee with regard to the Plan and any
interpretation of the Plan's terms or the Trust's terms or the terms of
any other document relating to the Plan shall be final and conclusive. The
number of members of the Committees shall be determined from time to time
by such Board. No person shall be disqualified from being a member by
reason of being a Participant.
(a) Any Committee member may resign from office or may be removed by the
Board without cause. Such resignation or removal shall be
accomplished at any time by delivery of a written notice of
resignation to the Board or by written notice of removal to the
Committee, to take effect on the date specified therein, which date
shall not be less than ten (10) days after the delivery of such
notice unless an earlier date shall be mutually agreed upon. Any
Committee member shall cease to be a member upon his termination of
employment.
(b) Upon the resignation, removal, termination of employment or death of
a Committee member, the Committee may promptly appoint a successor
member or, alternatively, not appoint a successor member. In the
event of the failure of the remaining Committee members to appoint a
successor member, the remaining Committee members shall constitute
and have the power to act as the full Committee from the date of the
resignation, removal, termination of employment or death. The Board
of Directors shall have the power to add, remove or reduce the
number of Committee members.
(c) The Committee shall notify the Trustee of the names of the Committee
members together with specimen signatures, and shall promptly notify
the Trustee of all membership changes and supply specimen signatures
of all new members.
11.2 COMMITTEE ACTION. The Committee shall choose a chairman who shall preside
at all meetings of the Committee and a secretary who shall keep minutes of
the Committee's proceedings and all records pertaining to the Committee's
administration of this Plan.
(a) The Committee shall act by a majority of its members at the time in
office and such action may be taken either by a vote at a meeting or
in writing without a meeting.
(b) The Committee may authorize its chairman or secretary or any one or
more of its members to execute any document or documents or to take
any action on behalf of
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the Committee, in which event the Committee shall notify the Trustee
in writing of such action and the name or names of those so
designated. The Trustee shall thereafter accept and rely
conclusively upon any direction or document executed by such
authorized member as representing action by the Committee until the
Committee shall file with the Trustee a written revocation of such
designation.
(c) The Committee shall consult with the Trustee at least annually in
regard to the investment policy of this Plan and the methods to be
used to carry out the Plan's objectives. The Plan's needs for short
term liquidity needs, and long range investment policies shall be
communicated to the Trustee by the Committee.
11.3 RIGHTS AND DUTIES. The Committee shall enforce this Plan in accordance
with its terms and shall be charged with its general administration. The
Committee shall have full discretionary authority to construe the terms of
the Plan, and to make all determinations required hereunder, and any
decision reached by the Committee with regard to the Plan shall be final
and conclusive. The Committee shall exercise all of its discretion in a
uniform, nondiscriminatory manner and shall have all necessary power to
accomplish those purposes, including but not limited to the power to:
(a) Determine all questions concerning the eligibility of Employees to
participate;
(b) Compute and certify to the Trustee the amounts of benefits payable
to Participants and their Beneficiaries, provided, however, that the
Committee may, in its discretion, direct the Trustee to compute the
amount payable to Participants and Beneficiaries, in cases for which
the amount payable is not in dispute;
(c) Maintain all necessary records for the administration of this Plan
other than those maintained by the Trustee;
(d) Authorize all disbursements by the Trustee from the Trust;
(e) Establish accounting and administrative procedures to be used by the
Committee and by the Trustee, other than the ESOP Trustee, for the
purpose of making equitable and nondiscriminatory allocations,
valuations and adjustments to Participants' Accounts in accordance
with the provisions and general concept of the Plan;
(f) Direct the investments to be made by the Trustee in a manner
consistent with the investments authorized by this Plan and the
Trust, and
(g) Make and publish such rules for the regulation of this Plan as are
not inconsistent with the terms hereof.
11.4 INFORMATION. To enable the Committee to perform its functions, each
Employer shall furnish it with full and timely information on all matters
relating to the Compensation of
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Employees, their continuous employment, retirements, disabilities, deaths
or the causes for terminations of employment and such other pertinent
facts as the Committee may require. The Committee shall advise the Trustee
of such of the foregoing facts as may be pertinent to the Trustee's
administration of the Trust.
11.5 COMPENSATION AND EXPENSES. The members of the Committee shall serve
without compensation for their services with respect to the Plan. The
expenses of the Committee may, at the discretion of the Plan Sponsor, be
paid by the Plan Sponsor and the Plan Sponsor may furnish the Committee
with such clerical and other assistance as is necessary in the performance
of its duties. Expenses of the Committee or its agents reasonably incurred
in administration of the Plan or investment of Plan assets which are not
paid by the Plan Sponsor shall be paid from the Trust Fund. The Plan
Administrator and/or Plan Sponsor may seek reimbursement for any expenses
it pays or costs it incurs from the Participating Employers or from the
Trust Fund.
11.6 CONSULTANTS, ADVISORS, MANAGERS AND SERVICE. The Committee may employ such
consultants, advisors, investment managers and service providers described
in Section 11.10 as it deems necessary or useful in administration of the
Plan. Expenses incurred in employing such persons may, at the discretion
of the Plan Sponsor, be paid by the Plan Sponsor, and such expenses
reasonably incurred in administration of the Plan which are not paid by
the Plan Sponsor shall be paid from the Trust Fund. The Plan Administrator
may seek reimbursement for any expenses it pays from the Participating
Employers or from the Trust Fund.
11.7 LIABILITY. Except as required by law, no member of the Committee shall be
liable for the acts or omissions of any investment manager appointed to
manage the assets of the Plan and Trust.
11.8 NOTICES AND DIRECTIONS. Actions by the Plan Sponsor shall be by its Board
of Directors or its delegates. The Committee shall be protected in acting
upon any such notice, certificate or other communication believed to be
genuine and to have been signed by the proper party.
11.9 REIMBURSEMENT OF EXPENSES OF ADMINISTERING THE PLAN . As reimbursement for
the expenses of administering the Plan, the Plan Administrator may direct
the Trustee to reimburse the Plan Sponsor so much of the amounts
reasonably paid or incurred during the taxable year of the Plan Sponsor as
expenses of administering the Plan. The Trustee may also be directed by
the Plan Administrator to pay reasonable plan administration expenses
directly to the suppliers of the goods or services, as the case may be.
11.10 DESIGNATION OF SERVICE PROVIDERS. Notwithstanding any other provision of
this Plan, the Committee may direct that any Record Keeping Function, as
defined below, designated under the Plan or the Trust Agreement to be
performed by the Committee or by the Trustee will be performed by a
service provider designated by the Committee. Any such designation of a
Record Keeping Function by the Committee shall relieve the Committee or
the Trustee, as the case may be, of the duty to perform the Record Keeping
Function so
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designated to be performed by such service provider. The Committee shall
notify the Trustee in writing of any such Record Keeping Function for
which the Trustee would otherwise have responsibility that has been
designated to a service provider, and shall further notify the Trustee in
writing if the Committee revokes the designation of the service provider
and assigns such Record Keeping function to a different service provider
or returns such Record Keeping Function to the Trustee. Notwithstanding
the other provisions of this Section 11.10, the ESOP Trustee shall not
perform any Record Keeping Functions.
11.10.1 "Record Keeping Functions" shall, for purposes of this Section
11.10, include
(a) The allocation of Forfeitures;
(b) The allocation of Employer Contributions to Accounts;
(c) The establishment of any Suspense Account to correct any
excess Annual Addition;
(d) The correction of prior incorrect allocations;
(e) The determination of the fair market value of each
Participant's Account, based upon the Trustee's determination
of the fair market value of the Trust Fund (including salary
deferral contributions under the Columbia Salary Deferral Plan
and HealthTrust Plan but not the determination of the fair
market value of the Trust Fund);
(f) The allocation of earnings and losses;
(g) The determination of the amount of benefits payable to
Participants and Beneficiaries;
(h) The maintenance of necessary records described in this
Article;
(i) The establishment of accounting and administrative procedures
described in Section 11.3(e), provided that such procedures
must be approved by the Committee;
(j) The furnishing of reports under Article XIV; and
(k) The verification of the correctness of amounts contributed by
Employers, and the notification of Employers of any
discrepancy between the amount contributed and the amount
required to be contributed as provided under Article II of the
Trust Agreement.
11.10.2 Special Rules. Any information required under this Plan to be
furnished to the Committee or to the Trustee shall, at the
direction of the Committee, be furnished
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to a service provider designated under this Section. The
provisions of this Article governing the relationship of the
Committee to the Trustee shall be applicable to the
relationship of the Committee to a service provider designated
under this Section.
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ARTICLE XII
THE TRUST FUND AND TRUSTEE
12.1 EXISTENCE OF TRUST. The Plan Sponsor may enter into one or more Trust
Agreements with the Trustee(s) to hold the funds necessary to provide the
benefits set forth in this Plan. The Plan Sponsor is authorized in its
discretion to enter into a master trust agreement.
12.2 EXCLUSIVE BENEFIT RULE. The Trust Fund(s) shall be received, held in
trust, and disbursed by the Trustee(s) in accordance with the provisions
of the Trust Agreement(s) and this Plan. No part of the Trust Fund(s)
shall be used for or diverted to purposes other than for the exclusive
purpose of providing benefits to Participants and their Beneficiaries and
defraying reasonable expenses of administering this Plan. No person shall
have any interest in, or right to, the Trust Fund(s) or any part thereof,
except as specifically provided for in this Plan or the Trust Agreement(s)
or both.
12.3 REMOVAL OF TRUSTEE. The Board of Directors may remove the Trustee (or
Trustees) at any time upon the notice required by the terms of the Trust
Agreement(s), and upon such removal or upon the resignation of Trustee(s),
the Board of Directors shall appoint a successor Trustee(s).
12.4 POWERS OF TRUSTEE. The Trustee(s) shall have such powers to hold, invest,
reinvest, or to control and disburse the funds as at that time shall be
set forth in the Trust Agreement(s) or this Plan.
12.5 INTEGRATION OF TRUST. Any Trust Agreement(s) shall be deemed to be part of
this Plan, and all rights of Participants or others under this Plan shall
be subject to the provisions of the Trust Agreement(s).
12.6 COORDINATION OF TRUSTS. Notwithstanding any other provision of the Plan to
the contrary, to the extent more than one trust exists, any direction to
(or powers, duties, rights and responsibilities of) a trustee shall apply
to a particular Trustee only with respect to the Plan assets under his
management.
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ARTICLE XIII
AMENDMENT AND TERMINATION
13.1 RIGHT TO AMEND. The Plan Sponsor reserves the right at any time, by
action of its Board of Directors, to modify or amend, in whole or in
part, any or all of the provisions of the Plan, including specifically
the right to make such amendments effective retroactively, provided
that such amendment does not violate Code Section 411(d)(6). The same
power to amend the Plan shall be vested in the Committee and/or the
Chief Executive Officer (CEO) or Chief Financial Officer (CFO) of the
Company, to the extent authorized by the Board of Directors. However,
no amendment shall change the rights, duties, responsibilities or
liabilities of the Trustee without its written consent. Notwithstanding
the preceding, the Plan Sponsor shall not amend any provisions of the
Plan dealing with the release of Financed Shares from the Loan Suspense
Account without the express written consent of [U.S. TRUST].
Furthermore, no amendment shall change the provisions of this Plan
relating to any acquisition loan without the express written consent of
[U.S. TRUST]. [SUCH CONSENT SHALL NOT BE UNREASONABLY WITHHELD,
PROVIDED THAT THE AMENDMENT DOES NOT JEOPARDIZE THE ESOP STATUS OF THE
PLAN.] No modification or amendment shall make it possible for Trust
assets to be used for, or diverted to, purposes other than the purposes
of providing benefits to Participants and their Beneficiaries and
defraying reasonable expenses of administering this Plan. Each Employer
may, by action of its Board of Directors, withdraw from participation
in the Plan.
13.2 RIGHT TO TERMINATE. The Plan Sponsor may, at any time by action of its
Board of Directors, terminate the Plan and the Trust.
13.3 VESTING UPON TERMINATION OR PARTIAL TERMINATION. If the Plan is terminated
or partially terminated by the Plan Sponsor or contributions to the Trust
are completely discontinued, the Accounts of affected Employees as of the
date of termination or complete discontinuance of contributions shall be
nonforfeitable. For purposes of the preceding sentence, in the event of
termination of the Plan, the term "affected Employees" shall mean and
include all Participants in the Plan. In the event that the Plan
Administrator believes that a partial termination may occur with respect
to a portion of the Plan, the Plan Administrator may hold amounts that
would otherwise have been treated as Forfeitures in suspense, pending
resolution of whether a partial termination has occurred. Such suspended
amounts shall accrue earnings. In the event of a partial termination,
supplemental distributions shall be made to affected Employees as
necessary to reflect their fully vested status.
13.4 DISTRIBUTIONS UPON TERMINATION OR WITHDRAWAL. Upon termination of the
Plan, to the extent allowable by the Code, Treasury Regulations
promulgated thereunder, and other applicable authorities, each Participant
shall be distributed the balance of his Account in the form of a lump sum
payment in cash. In the event distributions described in the preceding
sentence are not allowable upon termination of the Plan under the Code,
Treasury Regulations promulgated thereunder, and other applicable
authorities, the balance of each Participant's Account shall, to the
extent allowable by the Code, Treasury Regulations promulgated thereunder,
and other applicable authorities, be transferred to another defined
contribution plan maintained by an Employer.
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13.5 UNUTILIZED FORFEITURES UPON TERMINATION OR PARTIAL TERMINATION. In the
event of termination of the Plan, any Forfeitures which have not been
utilized to reduce Employer Contributions shall be allocated and then
distributed to Participants who are Employees at the time of such
termination. In the event of a partial termination of the Plan, any
Forfeitures attributable to Employers whose Employees are the subject of
the partial termination, which have not been utilized to reduce Employer
Contributions shall be allocated to the Employers whose Employees are not
the subject of the partial termination in accordance with the procedures
of Article IV.
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ARTICLE XIV
MISCELLANEOUS PROVISIONS
14.1 PROHIBITION AGAINST DIVERSION. There shall be no diversion of any portion
of the assets of the Trust Fund for any purpose other than the purpose of
providing benefits to Participants and their Beneficiaries and defraying
reasonable expenses of administering this Plan.
14.2 PRUDENT MAN RULE. For purposes of Part 4 of Title I of ERISA, the Plan
Sponsor, the Trustee, and the Committee shall each be Fiduciaries and
shall each discharge their respective duties hereunder with the care,
skill, prudence, and diligence under the circumstances then prevailing
that a prudent man acting in a like capacity and familiar with such
matters would use in the conduct of an enterprise of a like character and
with like aims. Without limiting the generality of the above, it is
specifically provided that the appointment and retention of any parties
pursuant to Article XI of the Plan are "duties" of the Plan Sponsor for
purposes of this Section.
14.3 RESPONSIBILITIES OF PARTIES. The Plan Sponsor shall be responsible for the
administration and management of the Plan except for those duties
specifically allocated to the Trustee and provided that duties of the Plan
Sponsor may be delegated to the Committee. The Trustee shall have
exclusive responsibility for the management and control of the assets of
the Plan. The Plan Sponsor shall be deemed the Plan Sponsor for all
purposes of ERISA.
14.4 ROLLOVER CONTRIBUTIONS AND DIRECT TRANSFERS FROM OTHER QUALIFIED
RETIREMENT PLANS. At the Plan Administrator's discretion with respect to
each transaction, rollovers to the Plan and direct rollovers to the Plan
shall be permitted. Direct transfers to the Plan shall be allowed in the
case of (i) an acquisition of an Acquired Employer or employment of an
Acquired Group of Employees, provided that the acquisition agreement or
other agreement allows for such direct transfers, and (ii) upon the
termination of a defined contribution plan maintained by the Plan Sponsor
or a Participating Employer or an Affiliated Employer. The accounts of
former participants in a terminated plan attributable to salary deferral
contributions made under the former plan shall be treated as if they were
Salary Deferral Contributions made under this Plan. All amounts
transferred shall be subject to investments direction by Participants, and
shall not be part of the ESOP Component. The investment of accounts
transferred to this Plan shall be invested in accordance with Section
14.13.3 such that, for investment purposes, the direct transfer from a
plan to this Plan shall be treated as a merger of such plan into this
Plan.
14.4.1 Transfer to Other Qualified Trusts, Individual Retirement Accounts,
Individual Retirement Annuities, or Qualified Annuity Plans. Upon
becoming entitled to receive a distribution from this Plan as
otherwise permitted under Article IX, a Participant and any other
individual eligible to receive an eligible rollover distribution,
as defined in Code Section 402(c) shall be entitled to elect to
have his entire Account, or any part thereof which equals or
exceeds $500, to the
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extent that it is vested and would qualify as an eligible rollover
distribution under Code Section 402(c) to be transferred within a
reasonable period of time after the Plan Administrator's receipt of
the individual's written election of transfer and certification of
qualified status of the transferee, to an individual retirement
account described in Code Section 408(a), an individual retirement
annuity described in Code Section 408(b), a trust of a qualified
plan described in Code Section 401(a) which is a defined
contribution plan which accepts eligible rollover distributions, or
a qualified annuity plan described in Code Section 403(a). However,
if the total amount reasonably expected to be distributed to the
individual during the Plan Year is less than $200, then such amount
may, at the Plan Administrator's discretion, be paid to the
individual in the form of a lump-sum distribution in cash.
Notwithstanding the foregoing, if the individual eligible to receive
an eligible rollover distribution is the Participant's surviving
spouse, then such distributable amount may only be transferred to an
individual retirement account or to an individual retirement
annuity. The Account of the individual requesting a transfer will be
valued in accordance with the provisions of Article IX. For purposes
of this subsection, notwithstanding the foregoing references to Code
Section 402(c), an "eligible rollover distribution" is defined as
any distribution of all or any portion of the balance to the credit
of the distributee, except that an eligible rollover distribution
does not include: any distribution that is one of a series of
substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the distributee
or the joint lives (or joint life expectancies) of the distributee
and the distributee's designated beneficiary, or for a specified
period of ten years or more; any distribution to the extent such
distribution is required under Section 401(a)(9) of the Code; and
the portion of any distribution that is not includible in gross
income (determined without regard to the exclusion for net
unrealized appreciation with respect to employer securities).
Individuals eligible to elect a transfer of Plan Benefits pursuant
to this subsection shall include an employee, former employee, the
employee's or former employee's surviving spouse and the employee's
or former employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in
Section 414(p) of the Code. Notwithstanding the preceding provisions
of this subsection, elective deferral contributions (and earnings
thereon) made in connection with a hardship distribution shall not
be eligible for rollover.
14.5 MERGER OR CONSOLIDATION OF EMPLOYER. If the Plan Sponsor is merged or
consolidated with another organization, or another organization acquires
all or substantially all of the Plan Sponsor's assets, such organization
may become the Plan Sponsor hereunder by action of its Board of Directors
and by action of the Board of Directors of the prior Plan Sponsor, if
still existent. Such change in Employers shall not be deemed termination
of the Plan by either the predecessor or successor Employer.
14.6 NONALIENATION OR ASSIGNMENT. None of the benefits under the Plan are
subject to the claims of creditors of Participants or their Beneficiaries.
No benefits under the Plan will be
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subject to attachment, garnishment, or any other legal process whatsoever.
Neither a Participant nor his Beneficiaries may assign, sell, borrow on,
or otherwise encumber any of his beneficial interest in the Plan and Trust
Fund, nor shall any such benefits be in any manner liable for or subject
to the deeds, contracts, liabilities, engagements, or torts of any
Participant or Beneficiary. If any Participant or Beneficiary shall become
bankrupt or attempt to anticipate, sell, alienate, transfer, pledge,
assign, encumber or change any benefit specifically provided for herein,
or if a court of competent jurisdiction enters an order purporting to
subject such interest to the claim of any creditor (other than with
respect to a family support obligation in circumstances in which payment
of such support obligation would be permitted under the Code), then such
benefit shall be terminated and the Trustee shall hold or apply such
benefit to or for the benefit of such Participant or Beneficiary in such
manner as the Plan Administrator, in its sole discretion, may deem proper
under the circumstances.
14.6.1 Qualified Domestic Relations Orders. Notwithstanding anything
contained herein to the contrary, a Qualified Domestic Relations
("QDRO") as defined in Code Section 414(p) is a permissible
assignment or alienation of a Participant's Account, and the Plan
Administrator shall maintain and establish uniform and
nondiscriminatory procedures by which to determine whether a
Domestic Relations Order is a Qualified Domestic Relations Order
and to make payments pursuant to such an Order if it is a Qualified
Domestic Relations Order.
14.6.2 Definitional Requirements for a QDRO. A "QDRO" is any judgment,
decree, order, or court-approved property settlement made pursuant
to a State's domestic relations law which assigns all or any
portion of a Participant's Plan Benefit to an Alternate Payee and
which meets the following conditions:
(a) It must relate to the provision of child support, alimony, or
marital property rights to a spouse, former spouse, child, or
other dependent of the Participant.
(b) It must specify (1) the names and last known mailing addresses
(if any) of the Participant and the Alternate Payee; (2) the
amount of the Participant's benefit to be paid to the
Alternate Payee; (3) the number of payments and the period
over which the payments will be made to the Alternate Payee;
and (4) the plan or plans to which it applies.
(c) It must not require the Plan to provide any benefit or option
not otherwise contained in the Plan, nor can it require the
Plan to provide increased benefits.
(d) It cannot require the payment of benefits which are required
to be paid to another Alternate Payee.
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(e) It may require the payment of permissible benefits to an
Alternate Payee as soon as is reasonably possible after entry
of the judgment, decree, order or property settlement.
(f) If the Qualified Domestic Relations Order so provides, the
former spouse may be treated as the Participant's surviving
spouse under Article IX of the Plan, and no other spouse,
former spouse, or surviving spouse of the Participant shall
have any right or claim whatsoever to any benefit provided
under Article IX of the Plan to the extent it is otherwise
assigned to a former spouse of the Participant specified as
the Alternate Payee in a Qualified Domestic Relations Order.
(g) Notwithstanding any other provision of this Section, a
Domestic Relations Order will not be a Qualified Domestic
Relations Order if it requires that benefits are payable in
the form of a joint and survivor annuity with respect to the
Alternate Payee and his spouse.
14.6.3 Alternate Payee means any spouse, former spouse, child, or other
dependent of the Participant to whom all or any portion of the
Participant's Plan Benefit is assigned.
14.6.4 QDRO Procedures. The following procedures shall be observed by the
Plan Administrator upon his receipt of a Domestic Relations Order:
(a) Upon his receipt of a Domestic Relations Order or a court
order or decree in the nature of a Domestic Relations Order,
the Plan Administrator shall promptly notify the Participant
and the Alternate Payee that he has received an Order and he
shall notify the same of the Plan's procedures for
determining whether the Order is a QDRO. Within a reasonable
time after the receipt of an Order, the Plan Administrator
shall determine whether it is a QDRO. In making this
determination, the Plan Administrator may consult with the
attorney regularly utilized by the Plan or with any other
duly authorized person or Committee to determine whether the
Order is a QDRO under the terms of this Section and Section
414(p) of the Code. Once this determination is made, the Plan
Administrator shall promptly notify the Participant and the
Alternate Payee of his conclusion with a brief explanation.
(b) While the determination of the status of the Order is being
considered, the following procedures apply:
(1) Any funds which would be currently payable to the
Alternate Payee if the Order is ultimately found to be
a QDRO shall be segregated or, if determined to be
necessary by the Plan Administrator, the Participant's
Account shall be partially or fully frozen;
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(2) If the Order (or any modification thereof) is found to
be a QDRO within eighteen (18) months of the segregation
of any funds under (1) above, then the Plan
Administrator shall pay the segregated funds, plus
interest earned thereon, to the person entitled to those
funds;
(3) If the Order is found not to be a QDRO or if there is no
resolution as to its status within the time period
described in (2) above, then the segregated funds, plus
any interest earned thereon, shall be paid to the person
who would have been entitled to those funds if no Order
had been issued; and
(4) If after the application of (3) above the Order is
ultimately determined to be a QDRO, such determination
shall be only applied prospectively and the Plan, Plan
Administrator, Trust, Trustee, Plan Sponsor, and
Employer shall not be liable for any payment of funds to
any person prior to the determination described in this
Subparagraph.
(c) The Plan Administrator shall have the discretion to modify or
make additions to the foregoing procedures in a manner
consistent with regulations published by the Secretary of
Labor, if any.
(d) If the Plan Administrator is paying benefits pursuant to an
Order on January 1, 1985, then that Order shall be considered
to be a Qualified Domestic Relations Order.
14.6.5 Certain Judgments and Settlements. Notwithstanding anything
contained herein to the contrary, a Participant's benefits may be
offset (i.e. reduced) pursuant to a judgment, order, decree issued,
or settlement agreement if and to the extent that such offset is
permissible or required under ERISA Section 206(a) and Code Section
401(a)(13).
14.7 PLAN CONTINUANCE VOLUNTARY. Although it is the intention of the Employers
that this Plan shall be continued and its contributions made regularly,
this Plan is entirely voluntary on the part of the Employers, and the
continuance of the Plan and the payments thereunder are not assumed as a
contractual obligation of the Employers.
14.8 PLAN NOT AN EMPLOYMENT CONTRACT. This Plan shall not be deemed to
constitute a contract between any Employer and any Participant or to be a
consideration or an inducement for the employment of any Participant or
Employee. Nothing contained in this Plan shall be deemed to give any
Participant or Employee the right to be retained in the service of any
Employer or to interfere with the right of any Employer to discharge any
Participant or Employee at any time regardless of the effect which such
discharge shall have upon such individual as a Participant in the Plan.
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14.9 PAYMENTS TO MINORS AND OTHERS. In making any distribution to or for the
benefit of any minor or incompetent Participant or Beneficiary, or any
other Participant or Beneficiary who, in the opinion of the Plan
Administrator, is incapable of properly using, expending, investing, or
otherwise disposing of such distribution, the Plan Administrator, in his
sole, absolute, and uncontrolled discretion may, but need not, order the
Trustee to make such distribution to a legal or natural guardian or other
relative of such minor or court-appointed committee of any incompetent, or
to any adult with whom such person temporarily or permanently resides; or
any such guardian, committee, relative, or other person shall have full
authority and discretion to expend such distribution for the use of
benefit of such person; and the receipt of such guardian, committee,
relative, or other person shall be a complete discharge to the Trustee,
without any responsibility on its part or on the part of the Plan
Administrator to see to the application thereof.
14.10 UNCLAIMED BENEFIT AND MISSING PARTICIPANT OR BENEFICIARY. If the
Participant, Beneficiary or Contingent Beneficiary to whom benefits are to
be distributed cannot be located, and reasonable efforts have been made to
find him, including the sending of notification by certified or registered
mail to his last known address, the Plan Administrator may direct the
Trustee to take any of the following actions:
(a) The Participant's Account may be distributed to an interest bearing
savings account established in the name of the Participant, Beneficiary or
Contingent Beneficiary; or, if the Account is payable to the Participant,
purchase U.S. Savings Bonds in the Participant's name and holding them for
the Participant.
(b) The Plan Administrator may allocate the Participant's Account to a
segregated account for distribution to the Participant when located,
provided that if the Participant or his Beneficiary or Contingent
Beneficiary does not file a claim for benefits prior to of the Plan Year
during which such Participant would have attained age 70 1/2, such
Participant shall be presumed dead, and the post-death benefits, if any,
under this Plan shall be paid to his Beneficiary if he is then living and
can be located, or to the Contingent Beneficiary if the Beneficiary is not
then living or cannot be located, further provided that if none of the
foregoing persons can be located, such Participant's Account shall become
a Forfeiture subject to the restoration provisions of Subsection (c) of
this Section 14.10.
(c) The Participant's Account may be treated as a Forfeiture, provided that if
the Participant subsequently returns, his Account shall be restored, such
restoration shall be made first out of Forfeitures, if any, and then by
additional Employer Contributions.
14.11 GOVERNING LAW. This Plan shall be administered in the United States of
America, and its validity, construction, and all rights hereunder shall be
governed by the laws of the United States under ERISA. To the extent that
ERISA shall not be held to have preempted local law, the Plan shall be
administered under the laws of the State of Tennessee. If any provision of
the Plan shall be held invalid or unenforceable, the remaining provisions
hereof shall continue to be fully effective.
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14.12 HEADINGS NOT PART OF AGREEMENT. Headings of sections and subsections of
the Plan are inserted for convenience of reference. They constitute no
part of the Plan and are not to be considered in the construction thereof.
14.13 MERGER OR CONSOLIDATION OF PLAN. This Plan and Trust shall not be merged
or consolidated with, nor shall any assets or liabilities be transferred
to, any other plan, unless the benefits payable to each Participant if the
Plan was terminated immediately after such action would be equal to or
greater than the benefits to which such Participant would have been
entitled if this Plan had been terminated immediately before such action.
In the event that another plan is merged into or consolidated with this
Plan, all benefits accrued by participants in such merged plan who become
Participants in this Plan shall not be reduced or eliminated under this
Plan to the extent that such benefits are protected under Code Section
411(d)(6) and the regulations thereunder.
14.13.1 Optional Forms of Benefit. Optional benefit forms available under
any plan merged into this Plan shall be available under this Plan
with respect to the vested account balance transferred to this
Plan pursuant to the merger. The preceding sentence shall
apply only for a Participant who participated in such merged plan
and only to those benefits attributable to such Participant's
participation in the merged plan. The Plan Sponsor may, however,
permit all Participants who participated in such merged plan to
elect to receive their entire Plan Benefit in a form of benefit
provided for under the merged plan, or permit all Participants in
this Plan to elect to receive their Plan Benefit in a form of
benefit provided for under the merged plan. Notwithstanding any
provision of this Plan to the contrary, to the extent that any
optional form or benefit under this Plan permits a distribution
prior to the Employee's retirement, death, disability, or
severance, the optional form of benefit is not available with
respect to benefits attributable to assets (including the
post-transfer earnings thereon) and liabilities, that are
transferred, within the meaning of Code Section 414(1), to this
Plan from a money purchase pension plan qualified under Code
Section 401(a) (other than any portion of those assets and
liabilities attributable to voluntary employee contributions).
14.13.2 Vesting. Any Matching Employer Contribution Allocations made on
behalf of such Participant under this Plan shall be subject to the
vesting provisions set forth in Article VIII. All years of service
under the merged plan for vesting purposes shall be considered
Years of Service under this Plan for vesting purposes, but in no
event shall any year of service be counted twice.
14.13.3 Investment upon Merger. In the event that another plan is merged
into or consolidated with this Plan, the Plan Administrator shall,
within a reasonable period of time prior to said merger, furnish
each Participant who participated in such merged plan with an
opportunity (via forms, through the Voice Response System or
otherwise) to direct the investment of the assets
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of his account in the merged plan which are being transferred to
this Plan. Such investment direction shall also apply to the portion
of his Account attributable to his participation in this Plan. If a
Participant who participated in a merged plan fails to direct
investment of his Account prior to such merger (in accordance with
the preceding sentences) but such Participant had directed
investment of his Account under this Plan, then any amounts
transferred to this Plan on behalf of such Participant shall be
invested in the same proportion as such Participant's existing
investment direction in this Plan. If a Participant who participated
in a merged plan fails to direct the investment of his Account prior
to such merger and such Participant does not have an Account
attributable to participation in this Plan, then any Directed
Investment Accounts maintained on behalf or such Participant shall
be invested in the fund or funds chosen by the Plan Administrator.
14.14 INDEMNIFICATION. The Plan Sponsor hereby agrees to indemnify any current
or former Employee or member of the Board of Directors or the Committee to
the full extent of any expenses, penalties, damages, or other pecuniary
loss which such current or former Employee or member of the Board of
Directors or the Committee may suffer as a result of its responsibilities,
obligations, or duties in connection with the Plan or fiduciary activities
actually performed in connection with the Plan, except to the extent
arising out of the gross negligence or willful misconduct of such Employee
or member of the Board or the Committee. Such indemnification shall be
paid by the Plan Sponsor to the current or former Employee or member of
the Board of Directors or the Committee to the extent that fiduciary
liability insurance is not available to cover the payment of such items,
but in no event shall items be paid out of the Plan assets.
14.14.1 Exception. Notwithstanding the foregoing, this indemnification
agreement shall not relieve any current or former Employee or
member of the Board of Directors or the Committees serving in
fiduciary capacity of his fiduciary responsibilities and
liabilities to the Plan for breaches of fiduciary obligations, nor
shall this agreement violate any provision of Part 4 of Title I of
ERISA as it may be interpreted from time to time by the United
States Department of Labor and any courts of competent
jurisdiction.
14.15 NO DIVESTMENT FOR CAUSE. No divestment of any Participant's Plan Benefits
shall be made to punish conduct of any Employee or former Employee.
14.16 AMENDMENTS AFFECTING THE ACCRUED BENEFIT. No amendment to the Plan shall
decrease a Participant's Account balance, except as may be otherwise
permitted under Code Section 412(c)(8). An amendment to the Plan which has
the effect of:
(a) Eliminating or reducing an early retirement benefit or a
retirement-type subsidy (as defined in Treasury Regulations, if
any); or
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(b) Eliminating an optional form of benefit with respect to benefits
attributable to service before the amendment,
shall be treated as a Plan amendment which decreases a Participant's
Account balance. This Section 14.16 shall be administered in accordance
with regulations published by the Secretary of the Treasury, if any.
14.17 NET UNREALIZED APPRECIATION IN SHARES OF COMPANY STOCK DISTRIBUTED. In the
event the Participant elects to receive a distribution of his Plan Benefit
in the form of a lump sum distribution of Company Stock, the Plan
Administrator shall calculate the net unrealized appreciation and the tax
adjusted basis of the shares distributed. The net unrealized appreciation,
as defined in Treas. Reg. ss. 1.402(a)-1(b)(2), is equal to the excess of
the fair market value of the Company Stock distributed over the adjusted
tax basis of such Company Stock to the Trust. The Plan Administrator may
use whichever of the methods of calculation appropriate under the Treasury
Regulations to calculate such net unrealized appreciation. This Section
shall also apply to distributions of Columbia Stock and Triad common stock
if and to the extent such stock is considered "securities of the employer
corporation" under Treas. Reg. ss. 1.402(a)-1(b).
14.18 MILITARY LEAVE. Notwithstanding any provision of this Plan to the
contrary, contributions, benefits and service credit with respect to
qualified military service will be provided in accordance with Section
414(u) of the Code.
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ARTICLE XV TOP-HEAVY PROVISIONS
TOP-HEAVY PROVISIONS
15.1 PURPOSE. Notwithstanding anything contained herein to the contrary, in
order to insure the tax-exempt status of this Plan and the related Trust
Agreement, the Plan and related Trust Agreement shall be administered when
necessary according to Code Section 416. Furthermore, any final
regulations promulgated by the Secretary of the Treasury in connection
with Code Section 416 are hereby incorporated by reference, except as to
any optional provision contained therein which conflict with any specific
provisions of this Plan, and all provisions of this Article shall be
administered in accordance with the regulations, if any.
15.2 DEFINED BENEFIT PLAN AND DEFINED CONTRIBUTION PLAN FRACTIONS. If for any
Plan Year the Plan becomes Super Top-Heavy or Top-Heavy, the Defined
Benefit Plan Fraction and the Defined Contribution Plan Fraction,
respectively, shall be computed using the one hundred percent (100%)
figure in computing the denominator. For purposes of all defined benefit
plan calculations (if any) to be applied in determining whether the Plan
is Top-Heavy Plan, the accrued benefit of any Employee (other than a Key
Employee) shall be determined under the method used for accrual purposes
for all plans of the Employer, or, if there is no such method, under the
slowest accrual rate permitted under Code Section 411(b)(1)(C).
15.3 MINIMUM BENEFIT REQUIREMENT. Notwithstanding any other provision of this
Plan, no duplication of minimum benefits shall be required if Non-Key
Employees participate in both a Defined Contribution Plan and Defined
Benefit Plan maintained by the Employer; however, the required benefit
provided by the Employer cannot be reduced or eliminated on account of
benefits attributable to taxes paid by the Employer under the Social
Security Act.
15.4 COMPENSATION. For purposes of this Article and for purposes of determining
who is a Key Employee, the term Compensation shall have the same meaning
as assigned to it in Section 3.12.3. In no event shall compensation in
excess of $150,000, as indexed for inflation pursuant to Code Section
401(a)(17)(B), be taken into account in determining who is a Key Employee.
15.5 CONTRIBUTIONS. For each Plan Year in which the Plan is Top-Heavy, the
total of all Employer Contributions other than Salary Deferral
Contributions provided for in this Plan for each Participant who is
Non-Key Employee whether or not the Participant has completed one thousand
(1,000) Hours of Service during the Top-Heavy Plan Year, shall be at least
equal to the lesser of:
(a) Three percent (3%) of such a Participant's Compensation (within the
meaning of Code Section 415); or
95
<PAGE> 102
(b) The percentage at which contributions (including without limitation
contributions made pursuant to a salary reduction agreement) are
made or required to be made for the Key Employee for whom such
percentage is highest for such Plan Year.
For purposes of determining the minimum contribution to be made to Non-Key
Employees, Matching Employer Contribution Allocations made to Accounts of
Key Employees shall be treated as Employer Contributions made on behalf of
such Key Employees. Neither Salary Deferral Contributions nor Matching
Employer Contribution Allocations made by or with respect to Non-Key
Employees shall be taken into account in determining whether such Non-Key
Employees have received the required amount of contributions as specified
in this Section.
15.6 VESTING SCHEDULE. For any Plan Year to which the provisions of this
Article apply, the following schedule shall be used to determine the
vested, nonforfeitable percentage of a Participant's Account attributable
to Forfeitable Contributions:
<TABLE>
<CAPTION>
Years of Service Vested Percentage
---------------- -----------------
<S> <C>
2 20%
3 40%
4 60%
5 80%
6 or more 100%
</TABLE>
96
<PAGE> 103
IN WITNESS WHEREOF, the Employer has caused this Lifepoint Hospitals,
Inc. Retirement Plan to be executed on this 19th day of May, 1999.
PLAN SPONSOR: LIFEPOINT HOSPITALS, INC.
a Delaware corporation
By: /s/ Neil Hemphill
-------------------------------
Authorized Officer
<PAGE> 1
EXHIBIT 10.17
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is dated as
of December 31, 1999 by and among LIFEPOINT HOSPITALS HOLDINGS, INC. (the
"Borrower"); the financial institutions which are now, or in accordance with
SECTION 11.6 of the Credit Agreement (hereinafter described) hereafter, parties
to the Credit Agreement hereto by execution of the signature pages to the Credit
Agreement or otherwise (collectively, the "Lenders" and each individually, a
"Lender"); FLEET NATIONAL BANK, as administrative agent ("Administrative
Agent"), for the Lenders (in such capacity as Administrative Agent, together
with its successors and assigns in such capacity, the "Agent"); SCOTIABANC,
INC., as documentation agent (in such capacity, together with its successors and
assigns in such capacity, the "Documentation Agent"); DEUTSCHE BANK SECURITIES
INC., as syndication agent (in such capacity, together with its successors and
assigns in such capacity, the "Syndication Agent"); SUNTRUST BANK, NASHVILLE,
N.A., as co-agent (in such capacity, together with its successors and assigns in
such capacity, the "Co-Agent"); FLEET NATIONAL BANK, as arranger (in such
capacity, together with its successors and assigns in such capacity, the
"Arranger"); and DEUTSCHE BANK SECURITIES INC. and SCOTIABANC, INC., as
co-arrangers (in such capacity, together with their successors and assigns in
such capacity, the "Co-Arrangers").
RECITALS
A. The Borrower, the Lenders, the Agent, the Syndication Agent, the
Documentation Agent, the Co-Agent, the Arranger and the Co-Arranger are parties
to a Credit Agreement dated as of May 11, 1999 (the "Credit Agreement").
Capitalized terms used herein without definition have the meanings assigned to
them in the Credit Agreement.
B. The Borrower intends to take a $23,400,000 non-cash charge in the
fiscal quarter ending December 31, 1999 for impairment of long-lived assets with
respect to the Three Sale Hospitals. In connection therewith, the Borrower has
requested the Lenders' consent to adjustments to certain financial definitions
as set forth herein. In addition, the Borrower has requested that the Lenders'
consent to a change in permitted Investments.
C. The Lenders signing below are willing to consent to such adjustments
on the terms and conditions hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
I. AMENDMENTS TO CREDIT AGREEMENT. Subject to the satisfaction of each of the
conditions set forth herein, the Credit Agreement is hereby amended as follows:
<PAGE> 2
A. DEFINITIONS. ARTICLE I of the Credit Agreement is amended by
deleting the definitions of "Consolidated EBITDA" and "Pricing Leverage Ratio"
and substituting therefor the following definitions:
"Consolidated EBITDA": for any period, as to LifePoint Parent and its
Subsidiaries, Consolidated Net Income for such period plus, without duplication
and to the extent reflected as a charge in the statement of such Consolidated
Net Income for such period, the sum of (a) income tax expense, (b) Consolidated
Interest Expense, (c) depreciation and amortization expense (including deferred
loan cost amortization if a non-cash charge), (d) ESOP expense (if a non-cash
charge), (e) non-cash charges and non-cash adjustments for impairment of
long-lived assets not to exceed (1) $10,000,000 in the aggregate for any
Reference Period which does not include the fiscal quarter ending December 31,
1999, or (2) $23,400,000 in the aggregate for any Reference Period which
includes the fiscal quarter ending December 31, 1999, and (f) other non-cash
items and extraordinary non-cash charges not to exceed $10,000,000 for any
Reference Period, all determined on a consolidated basis in accordance with
GAAP. For the purposes of calculating Consolidated EBITDA for any Reference
Period pursuant to any determination of the ratio of Consolidated Total Debt to
Consolidated EBITDA or the ratio of Consolidated Cash Flow to Consolidated Fixed
Charges, (i) if at any time during such Reference Period such Person or any
Subsidiary shall have made any Material Disposition (other than any sale of the
Three Sale Hospitals), the Consolidated EBITDA for such Reference Period shall
be reduced by an amount equal to the Consolidated EBITDA (if positive)
attributable to the property that is the subject of such Material Disposition
for such Reference Period or increased by an amount equal to the Consolidated
EBITDA (if negative) attributable thereto for such Reference Period and (ii) if
during such Reference Period such Person or any Subsidiary shall have made a
Material Acquisition, Consolidated EBITDA for such Reference Period shall be
calculated after giving pro forma effect thereto as if such Material Acquisition
occurred on the first day of such Reference Period.
"Pricing Leverage Ratio": at any date, the ratio of (a) Consolidated
Total Debt on such date to (b) Consolidated EBITDA for the most recently ended
Reference Period; provided, however, notwithstanding clause (e) of the
definition of "Consolidated EBITDA", for purposes of calculating the Pricing
Leverage Ratio the add back for non-cash charges and non-cash adjustments for
impairment of long-lived assets shall not exceed $10,000,000 for each Reference
Period (including, without limitation any Reference Period which includes the
fiscal quarter ending December 31, 1999).
B. PERMITTED INVESTMENTS. SECTION 7.8(Q) is hereby amended in its
entirety to read as follows:
(q) Investments (but not Acquisitions) of a nature not contemplated in
the foregoing subsections in an amount made or purchased not to exceed
$1,000,000 in fiscal year 1999, $5,000,000 in fiscal year 2000, and $2,000,000
in each fiscal year thereafter.
-2-
<PAGE> 3
II. REFERENCES IN SECURITY DOCUMENTS; CONFIRMATION OF
SECURITY. All references to the "Credit Agreement" in all Security
Documents, and in any other Loan Documents shall, from and after the date
hereof, refer to the Credit Agreement, as amended by this Amendment, and all
obligations of the Borrower under the Credit Agreement shall be secured by and
be entitled to the benefits of said Security Documents and such other Loan
Documents. All Security Documents heretofore executed by the Borrower and its
Affiliates, and each of them, shall remain in full force and effect and, by the
Borrower's signature hereto and each such Subsidiary's consent hereto, such
Security Documents are hereby ratified and affirmed.
III. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER. The Borrower
hereby represents and warrants to, and covenants and agrees with, the Lenders
that:
A. The execution and delivery of this Amendment has been duly
authorized by all requisite company action on the part of the Borrower.
B. The representations and warranties of any Loan Party contained in
the Credit Agreement and the other Loan Documents are true and correct in all
material respects on and as of the date of this Amendment as though made at and
as of such date. Since the Closing Date, no event or circumstance has occurred
or existed which could reasonably be expected to have Material Adverse Effect.
As of the date hereof and after giving effect to this Amendment, no Default has
occurred and is continuing.
C. Neither the Borrower nor any Affiliate of the Borrower is required
to obtain any consent, approval or authorization from, or to file any
declaration or statement with, any governmental instrumentality or other agency
or any other person or entity in connection with or as a condition to the
execution, delivery or performance of this Amendment.
D. This Amendment constitutes the legal, valid and binding obligation
of the Borrower and its Affiliates enforceable against them, jointly and
severally, in accordance with their respective terms, subject to bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the rights and
remedies of creditors generally or the application of principles of equity,
whether in any action at law or proceeding in equity, and subject to the
availability of the remedy of specific performance or of any other equitable
remedy or relief to enforce any right thereunder.
E. The Borrower will satisfy all of the conditions set forth in SECTION
IV.
IV. CONDITIONS. The willingness of the Agent and the Lenders to amend the Credit
Agreement and grant the foregoing consent, is subject to the following
conditions precedent and subsequent:
A. The Borrower shall have executed and delivered to the Agent (or
shall have caused to be executed and delivered to the Agent by the appropriate
persons) the following:
-3-
<PAGE> 4
1. On or before the date hereof:
(a) This Amendment.
(b) True and complete copies of any required stockholders'
and/or directors' consents and/or resolutions, authorizing the
execution and delivery of this Amendment, certified by the Secretary of
the Borrower.
2. Such other supporting documents and certificates as the Agent or its
counsel may reasonably request within the time period(s) reasonably
designated by the Agent or its counsel.
B. All legal matters incident to the transactions hereby contemplated
shall be reasonably satisfactory to the Agent's counsel.
VI. MISCELLANEOUS.
A. As provided in the Credit Agreement, the Borrower agrees to
reimburse the Agent upon demand for all reasonable fees and disbursements of
counsel to the Agent incurred in connection with the preparation of this
Amendment.
B. This Amendment shall be governed by and construed in accordance with
the laws of the State of New York.
C. This Amendment may be executed by the parties hereto in several
counterparts hereof and by the different parties hereto on separate counterparts
hereof, all of which counterparts shall together constitute one and the same
agreement. Delivery of an executed signature page of this Amendment by facsimile
transmission shall be effective as an in-hand delivery of an original executed
counterpart hereof.
[The next pages are the signature pages.]
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as a sealed instrument by their duly authorized representatives,
all as of the day and year first above written.
LIFEPOINT HOSPITALS HOLDINGS, INC.
By:
-----------------------------------------
Name:
Title:
FLEET NATIONAL BANK,
as Administrative Agent, Arranger,
Co-Arranger and a Lender
By:
-----------------------------------------
Name:
Title:
DEUTSCHE BANK SECURITIES, INC.,
as Syndication Agent and Co-Arranger
By:
-----------------------------------------
Name:
Title:
DEUTSCHE BANK, A.G., NEW YORK AND/OR CAYMAN
ISLANDS BRANCH,
as a Lender
By:
-----------------------------------------
Name:
Title:
SCOTIABANC, INC.,
as Documentation Agent, Co-Arranger and
a Lender
By:
-----------------------------------------
Name:
Title:
-5-
<PAGE> 6
SUNTRUST BANK, NASHVILLE, N.A.,
as Co-Agent and a Lender
By:
-----------------------------------------
Name:
Title:
BANK OF AMERICA, N.A., as a Lender
By:
-----------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, as a Lender
By:
-----------------------------------------
Name:
Title:
FIRST AMERICAN NATIONAL BANK,
as a Lender
By:
-----------------------------------------
Name:
Title:
MONUMENT CAPITAL LTD., as a Lender
By: Alliance Capital Management, L.P.,
as Investment Manager
By: Alliance Capital Management Corporation,
as General Partner
By:
-----------------------------------------
Name:
Title:
-6-
<PAGE> 7
OAK MOUNTAIN LIMITED, as a Lender
By: Alliance Capital Management, L.P.,
as Investment Manager
By: Alliance Capital Management Corporation,
as General Partner
By:
-----------------------------------------
Name:
Title:
LEHMAN COMMERCIAL PAPER INC.,
as a Lender
By:
-----------------------------------------
Name:
Title:
NORSE CBO LTD., as a Lender
By:
-----------------------------------------
Name:
Title:
MAGNETITE ASSET INVESTORS LLC,
as a Lender
By:
-----------------------------------------
Name:
Title:
-7-
<PAGE> 8
CARLYLE HIGH YIELD PARTNERS II LTD.,
as a Lender
By:
-----------------------------------------
Name:
Title:
FIRST DOMINION FUNDING III,
as a Lender
By:
-----------------------------------------
Name:
Title:
ARES III CLO LTD.,
as a Lender
By:
-----------------------------------------
Name:
Title:
NUVEEN SENIOR INCOME FUND, as a Lender
By: Nuveen Senior Loan Asset Management Inc.
By:
-----------------------------------------
Name:
Title:
-8-
<PAGE> 9
CONSENT AND CONFIRMATION OF SECURITY OF PARENT
The undersigned, LIFEPOINT HOSPITALS, INC., which owns all of the
issued and outstanding equity interests in the Borrower, hereby joins in the
execution of the foregoing First Amendment to Credit Agreement dated as of
December 31, 1999 (the "Amendment") to which this Consent is attached (1) to
confirm its consent to all of the transactions contemplated by the Amendment,
and (2) to confirm and ratify its Guarantee Agreement and Security Agreement
entered into as required under such Credit Agreement and dated as of May 11,
1999 in favor of the Agent and the Lenders which remains in full force and
effect.
LIFEPOINT HOSPITALS, INC.
By:
-----------------------------------------
Name:
Title:
-9-
<PAGE> 10
CONSENT AND CONFIRMATION OF SECURITY OF SUBSIDIARIES
Each of the undersigned Subsidiaries of the Borrower hereby joins in
the execution of the foregoing First Amendment to Credit Agreement dated as of
December 31, 1999 (the "Amendment") to which this Subsidiary Confirmation of
Security is attached (1) to confirm its consent, to the extent required, to all
of the transactions contemplated by the Amendment, and (2) to confirm and ratify
its Guaranty and Security Agreement entered into as required under such Credit
Agreement and dated as of May 11, 1999 with the Agent, on behalf of the Lenders,
which remain in full force and effect with respect to all of the Borrower
Obligations and Grantor Obligations (as defined therein).
AMERICA GROUP OFFICES, LLC
AMERICA MANAGEMENT COMPANIES, LLC
AMG-CROCKET, LLC
AMG-HILCREST, LLC
AMG-HILLSIDE, LLC
AMG-LIVINGSTON, LLC
AMG-LOGAN, LLC
AMG-SOUTHERN TENNESSEE, LLC
AMG-TRINITY, LLC
ASHLEY VALLEY MEDICAL CENTER, LLC
ASHLEY VALLEY PHYSICIAN PRACTICE, LLC
BARROW MEDICAL CENTER, LLC
BARTOW HEALTHCARE PARTNER, INC.
BARTOW HEALTHCARE SYSTEM LTD
BARTOW MEMORIAL LIMITED PARTNER, LLC
BOURBON COMMUNITY HOSPITAL, LLC
BUFFALO TRACE RADIATION ONCOLOGY
ASSOCIATES, LLC
CASTLEVIEW HOSPITAL, LLC
CASTLEVIEW MEDICAL, LLC
CASTLEVIEW PHYSICIAN PRACTICE, LLC
COMMUNITY HOSPITAL OF ANDALUSIA, INC.
COMMUNITY MEDICAL, LLC
CROCKETT HOSPITAL, LLC
DODGE CITY HEALTHCARE GROUP, LP
DODGE CITY HEALTHCARE PARTNER, INC.
GEORGETOWN COMMUNITY HOSPITAL, LLC
GEORGETOWN REHABILITATION, LLC
HALSTEAD HOSPITAL, LLC
HCK LOGAN MEMORIAL, LLC
HDP ANDALUSIA, LLC
(signatures continued)
-10-
<PAGE> 11
HDP GEORGETOWN, LLC
HILLSIDE HOSPITAL, LLC
HST PHYSICIAN PRACTICE, LLC
HTI GEORGETOWN, LLC
HTI PINELAKE, LLC
INTEGRATED PHYSICIAN SERVICES, LLC
KANSAS HEALTHCARE MANAGEMENT COMPANY, INC.
KANSAS HEALTHCARE MANAGEMENT SERVICES, LLC
KENTUCKY HOSPITAL, LLC
KENTUCKY MEDSERV, LLC
KENTUCKY MSO, LLC
KENTUCKY PHYSICIANS SERVICES, INC.
LAKE CUMBERLAND HEALTH CARE, INC.
LAKE CUMBERLAND REGIONAL HOSPITAL, LLC
LAKE CUMBERLAND REGIONAL PHYSICIAN
HOSPITAL ORGANIZATION, LLC
LHSC, LLC
LIFEPOINT CORPORATE SERVICES, GENERAL
PARTNERSHIP
LIFEPOINT CSGP, LLC
LIFEPOINT CSLP, LLC
LIFEPOINT FINANCE GP, LLC
LIFEPOINT FINANCE LP, LLC
LIFEPOINT FINANCE, LIMITED PARTNERSHIP
LIFEPOINT HOLDINGS 2, LLC
LIFEPOINT HOLDINGS 3, INC.
LIFEPOINT OF GAGP, LLC
LIFEPOINT OF GEORGIA, LIMITED PARTNERSHIP
LIFEPOINT OF KENTUCKY, LLC
LIFEPOINT MEDICAL GROUP-HILLSIDE, INC.
LIFEPOINT RC, INC.
LIVINGSTON REGIONAL HOSPITAL, LLC
LOGAN MEDICAL, LLC
LOGAN MEMORIAL HOSPITAL, LLC
MEADOWVIEW PHYSICIAN PRACTICE, LLC
MEADOWVIEW REGIONAL MEDICAL CENTER, LLC
MEADOWVIEW RIGHTS, LLC
(signatures continued)
-11-
<PAGE> 12
PINELAKE PHYSICIAN PRACTICE, LLC
PINELAKE REGIONAL HOSPITAL, LLC
POITRAS PRACTICE, LLC
PRIMARY HEALTHCARE PARTNERS INC., LP
R. KENDALL BROWN PRACTICE, LLC
RIVERTON MEMORIAL HOSPITAL, LLC
RIVERTON PHYSICIAN PRACTICES, LLC
RIVERVIEW MEDICAL CENTER, LLC
SELECT HEALTHCARE, LLC
SILETCHNIK PRACTICE, LLC
SMITH COUNTY MEMORIAL HOSPITAL, LLC
SOUTHERN TENNESSEE EMS, LLC
SOUTHERN TENNESSEE MEDICAL CENTER, LLC
SPRINGHILL MEDICAL CENTER, LLC
SPRINGHILL MOB, LLC
THM PHYSICIAN PRACTICE, LLC
TRINITY HOSPITAL, LLC
WESTERN PLAINS REGIONAL HOSPITAL, LLC
By:
-----------------------------------------
Name:
Title:
(duly authorized signatory as to all)
-12-
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF LIFEPOINT HOSPITALS, INC.
America Group Offices, LLC (Delaware)
America Management Companies, LLC (Delaware)
AMG - Crockett, LLC (Delaware)
AMG - Hilcrest, LLC (Delaware)
AMG - Hillside, LLC (Delaware)
AMG - Livingston, LLC (Delaware)
AMG - Logan, LLC (Delaware)
AMG - Southern Tennessee, LLC (Delaware)
AMG - Trinity, LLC (Delaware)
Ashley Valley Medical Center, LLC (Delaware)
Ashley Valley Physician Practice, LLC (Delaware)
Barrow Medical Center, LLC (Delaware)
Bartow Healthcare Partner, Inc. (Florida)
Bartow Healthcare System, Ltd. (Florida)
Bartow Memorial Limited Partner, LLC (Delaware)
Bourbon Community Hospital, LLC (Delaware) (d/b/a (KY) Bourbon Community, LLC)
Buffalo Trace Radiation Oncology Associates, LLC (Kentucky)
Castleview Hospital, LLC (Delaware) (d/b/a (UT) Castleview, LLC)
Castleview Medical, LLC (Delaware)
Castleview Physician Practice, LLC (Delaware)
Community Hospital of Andalusia, Inc. (Alabama)
Community Medical, LLC (Delaware)
Crockett Hospital, LLC (Delaware)
Dodge City Healthcare Group, LP (Kansas)
Dodge City Healthcare Partner, Inc. (Kansas)
Georgetown Community Hospital, LLC (Delaware) (d/b/a (KY) Georgetown Community,
LLC)
Georgetown Rehabilitation, LLC (Delaware)
Halstead Hospital, LLC (Delaware)
HCK Logan Memorial, LLC (Delaware)
HDP Andalusia, LLC (Delaware)
HDP Georgetown, LLC (Delaware)
Hillside Hospital, LLC (Delaware)
HST Physician Practice, LLC (Delaware)
HTI Georgetown, LLC (Delaware)
HTI Pinelake, LLC (Delaware)
Integrated Physician Services, LLC (Delaware)
Kansas Healthcare Management Company, Inc. (Kansas)
Kansas Healthcare Management Services, LLC (Kansas)
Kentucky Hospital, LLC (Delaware)
Kentucky Medserv, LLC (Delaware)
Kentucky MSO, LLC (Delaware)
Kentucky Physicians Services, Inc. (Kentucky)
Lake Cumberland Health Care, Inc. (Kentucky)
Lake Cumberland Regional Hospital, LLC (Delaware) (d/b/a (KY) Lake Cumberland,
LLC)
<PAGE> 2
Lake Cumberland Regional Physician Hospital Organization, LLC (Delaware)
LHSC, LLC (Delaware)
LifePoint Corporate Services, General Partnership (Delaware)
LifePoint CSGP, LLC (Delaware)
LifePoint CSLP, LLC (Delaware)
LifePoint Holdings 2, LLC (Delaware)
LifePoint Holdings 3, Inc. (Delaware)
LifePoint Hospitals Holdings, Inc. (Delaware)
LifePoint Medical Group - Hillside, Inc. (Tennessee)
LifePoint of GAGP, LLC (Delaware)
LifePoint of Georgia, Limited Partnership (Delaware)
LifePoint of Kentucky, LLC (Delaware)
LifePoint RC, Inc. (Delaware)
Livingston Regional Hospital, LLC (Delaware)
Logan Medical, LLC (Delaware)
Logan Memorial Hospital, LLC (Delaware)
Meadowview Physician Practice, LLC (Delaware)
Meadowview Regional Medical Center, LLC (Delaware) (d/b/a (KY) Meadowview, LLC)
Meadowview Rights, LLC (Delaware)
PineLake Physician Practice, LLC (Delaware)
PineLake Regional Hospital, LLC (Delaware) (d/b/a (KY) Jackson Purchase Medical
Center)
Poitras Practice, LLC (Delaware)
R. Kendall Brown Practice, LLC (Delaware)
Riverton Memorial Hospital, LLC (Delaware)
Riverton Physician Practices, LLC (Delaware)
Riverview Medical Center, LLC (Delaware)
Select Healthcare, LLC (Delaware)
Siletchnik Practice, LLC (Delaware)
Smith County Memorial Hospital, LLC (Delaware) (d/b/a (TN) SC Memorial, LLC)
Southern Tennessee EMS, LLC (Delaware)
Southern Tennessee Medical Center, LLC (Delaware)
Springhill Medical Center, LLC (Delaware)
Springhill MOB, LLC (Delaware)
THM Physician Practice, LLC (Delaware)
Western Plains Regional Hospital, LLC (Delaware)
<PAGE> 1
EXHIBIT 21.2
SUBSIDIARIES OF LIFEPOINT HOSPITALS HOLDINGS, INC.
America Group Offices, LLC (Delaware)
America Management Companies, LLC (Delaware)
AMG - Crockett, LLC (Delaware)
AMG - Hilcrest, LLC (Delaware)
AMG - Hillside, LLC (Delaware)
AMG - Livingston, LLC (Delaware)
AMG - Logan, LLC (Delaware)
AMG - Southern Tennessee, LLC (Delaware)
AMG - Trinity, LLC (Delaware)
Ashley Valley Medical Center, LLC (Delaware)
Ashley Valley Physician Practice, LLC (Delaware)
Barrow Medical Center, LLC (Delaware)
Bartow Healthcare Partner, Inc. (Florida)
Bartow Healthcare System, Ltd. (Florida)
Bartow Memorial Limited Partner, LLC (Delaware)
Bourbon Community Hospital, LLC (Delaware) (d/b/a (KY) Bourbon Community, LLC)
Buffalo Trace Radiation Oncology Associates, LLC (Kentucky)
Castleview Hospital, LLC (Delaware) (d/b/a (UT) Castleview, LLC)
Castleview Medical, LLC (Delaware)
Castleview Physician Practice, LLC (Delaware)
Community Hospital of Andalusia, Inc. (Alabama)
Community Medical, LLC (Delaware)
Crockett Hospital, LLC (Delaware)
Dodge City Healthcare Group, LP (Kansas)
Dodge City Healthcare Partner, Inc. (Kansas)
Georgetown Community Hospital, LLC (Delaware) (d/b/a (KY) Georgetown Community,
LLC)
Georgetown Rehabilitation, LLC (Delaware)
Halstead Hospital, LLC (Delaware)
HCK Logan Memorial, LLC (Delaware)
HDP Andalusia, LLC (Delaware)
HDP Georgetown, LLC (Delaware)
Hillside Hospital, LLC (Delaware)
HST Physician Practice, LLC (Delaware)
HTI Georgetown, LLC (Delaware)
HTI Pinelake, LLC (Delaware)
Integrated Physician Services, LLC (Delaware)
Kansas Healthcare Management Company, Inc. (Kansas)
Kansas Healthcare Management Services, LLC (Kansas)
Kentucky Hospital, LLC (Delaware)
Kentucky Medserv, LLC (Delaware)
Kentucky MSO, LLC (Delaware)
Kentucky Physicians Services, Inc. (Kentucky)
Lake Cumberland Health Care, Inc. (Kentucky)
Lake Cumberland Regional Hospital, LLC (Delaware) (d/b/a (KY) Lake Cumberland,
LLC)
<PAGE> 2
Lake Cumberland Regional Physician Hospital Organization, LLC (Delaware)
LHSC, LLC (Delaware)
LifePoint Corporate Services, General Partnership (Delaware)
LifePoint CSGP, LLC (Delaware)
LifePoint CSLP, LLC (Delaware)
LifePoint Holdings 2, LLC (Delaware)
LifePoint Holdings 3, Inc. (Delaware)
LifePoint Medical Group - Hillside, Inc. (Tennessee)
LifePoint of GAGP, LLC (Delaware)
LifePoint of Georgia, Limited Partnership (Delaware)
LifePoint of Kentucky, LLC (Delaware)
LifePoint RC, Inc. (Delaware)
Livingston Regional Hospital, LLC (Delaware)
Logan Medical, LLC (Delaware)
Logan Memorial Hospital, LLC (Delaware)
Meadowview Physician Practice, LLC (Delaware)
Meadowview Regional Medical Center, LLC (Delaware) (d/b/a (KY) Meadowview, LLC)
Meadowview Rights, LLC (Delaware)
PineLake Physician Practice, LLC (Delaware)
PineLake Regional Hospital, LLC (Delaware) (d/b/a (KY) Jackson Purchase Medical
Center)
Poitras Practice, LLC (Delaware)
R. Kendall Brown Practice, LLC (Delaware)
Riverton Memorial Hospital, LLC (Delaware)
Riverton Physician Practices, LLC (Delaware)
Riverview Medical Center, LLC (Delaware)
Select Healthcare, LLC (Delaware)
Siletchnik Practice, LLC (Delaware)
Smith County Memorial Hospital, LLC (Delaware) (d/b/a (TN) SC Memorial, LLC)
Southern Tennessee EMS, LLC (Delaware)
Southern Tennessee Medical Center, LLC (Delaware)
Springhill Medical Center, LLC (Delaware)
Springhill MOB, LLC (Delaware)
THM Physician Practice, LLC (Delaware)
Western Plains Regional Hospital, LLC (Delaware)
<PAGE> 1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements (i)
Form S-8 No. 333-78221 pertaining to the LifePoint Hospitals, Inc. Retirement
Plan; (ii) Form S-8 No. 333-78187 pertaining to the LifePoint Hospitals, Inc.
1998 Long-Term Incentive Plan; and (iii) Form S-8 No. 333-78185 pertaining to
the LifePoint Hospitals, Inc. Management Stock Purchase Plan and LifePoint
Hospitals, Inc. Outside Director's Stock and Incentive Compensation Plan of our
reports dated (i) January 31, 2000, with respect to the consolidated financial
statements of LifePoint Hospitals, Inc.; (ii) January 31, 2000, with respect to
the consolidated financial statements of LifePoint Hospitals Holdings, Inc.; and
(iii) March 2, 2000, with respect to the financial statements of Dodge City
Healthcare Group, L.P. included in the LifePoint Hospitals, Inc. Annual Report
(Form 10-K) for the year ended December 31, 1999.
/s/ Ernst & Young LLP
Nashville, Tennessee
March 28, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE FOR LIFEPOINT HOSPITALS HOLDINGS, INC. CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE STATEMENTS OF INCOME AND BALANCE SHEETS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 12,500
<SECURITIES> 0
<RECEIVABLES> 97,000
<ALLOWANCES> 50,300
<INVENTORY> 14,300
<CURRENT-ASSETS> 99,400
<PP&E> 492,800
<DEPRECIATION> 198,400
<TOTAL-ASSETS> 420,400
<CURRENT-LIABILITIES> 57,200
<BONDS> 257,100
0
0
<COMMON> 0
<OTHER-SE> 85,700
<TOTAL-LIABILITY-AND-EQUITY> 420,400
<SALES> 0
<TOTAL-REVENUES> 515,200
<CGS> 0
<TOTAL-COSTS> 281,600
<OTHER-EXPENSES> 117,100
<LOSS-PROVISION> 38,200
<INTEREST-EXPENSE> 23,400
<INCOME-PRETAX> (9,900)
<INCOME-TAX> (2,600)
<INCOME-CONTINUING> (7,300)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,300)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
