<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 18, 1995
REGISTRATION NO. 33-60287
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
UNIVERSAL HEALTH SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 23-2077891
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
UNIVERSAL CORPORATE CENTER
367 SOUTH GULPH ROAD
KING OF PRUSSIA, PENNSYLVANIA 19406
(610) 768-3300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ALAN B. MILLER, PRESIDENT
UNIVERSAL HEALTH SERVICES, INC.
UNIVERSAL CORPORATE CENTER
367 SOUTH GULPH ROAD
KING OF PRUSSIA, PENNSYLVANIA 19406
(610) 768-3300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies of all communications, including all communications
sent to the agent for service, should be sent to:
<TABLE>
<S> <C>
ANTHONY PANTALEONI, ESQ. DANIEL J. ZUBKOFF, ESQ.
FULBRIGHT & JAWORSKI L.L.P. CAHILL GORDON & REINDEL
666 FIFTH AVENUE 80 PINE STREET
NEW YORK, NEW YORK 10103 NEW YORK, NEW YORK 10005
(212) 318-3000 (212) 701-3000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following
box: / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
PROSPECTUS
$150,000,000
UNIVERSAL HEALTH SERVICES, INC.
DEBT SECURITIES
---------------------
UNIVERSAL HEALTH SERVICES, INC. ("UHS") INTENDS TO ISSUE FROM TIME TO TIME
ITS SENIOR UNSECURED DEBT SECURITIES (THE "DEBT SECURITIES") AT AN AGGREGATE
INITIAL OFFERING PRICE NOT TO EXCEED $150,000,000 (OR, IF THE PRINCIPAL OF THE
DEBT SECURITIES IS PAYABLE IN A FOREIGN CURRENCY, THE EQUIVALENT THEREOF AT THE
TIME OF OFFERING), WHICH WILL BE OFFERED ON TERMS TO BE DETERMINED AT THE TIME
OF SALE. THE ACCOMPANYING PROSPECTUS SUPPLEMENT ("SUPPLEMENT") SETS FORTH THE
SPECIFIC TERMS OF THE SERIES OF DEBT SECURITIES (THE "SERIES") IN RESPECT OF
WHICH THIS PROSPECTUS IS BEING DELIVERED, INCLUDING THE DESIGNATION OF THE DEBT
SECURITIES, THE AGGREGATE PRINCIPAL AMOUNT OFFERED, THE RATE OR RATES OF
INTEREST OR THE PROVISIONS FOR DETERMINING SUCH RATE OR RATES AND THE TIME OF
PAYMENT THEREOF, MATURITY, CURRENCY OF PAYMENT, OFFERING PRICE, TERMS RELATING
TO REDEMPTION (WHETHER MANDATORY, AT THE OPTION OF UHS OR AT THE OPTION OF THE
HOLDER) AND INFORMATION AS TO LISTING ON ANY SECURITIES EXCHANGE.
THE DEBT SECURITIES MAY BE SOLD DIRECTLY BY UHS THROUGH AGENTS DESIGNATED
BY UHS FROM TIME TO TIME OR THROUGH UNDERWRITERS OR DEALERS DESIGNATED BY UHS
FROM TIME TO TIME. IF ANY AGENTS OF UHS OR ANY DEALERS OR UNDERWRITERS ARE
INVOLVED IN THE SALE OF THE SERIES OF DEBT SECURITIES IN RESPECT OF WHICH THIS
PROSPECTUS IS BEING DELIVERED, THE NAMES OF SUCH AGENTS, DEALERS OR UNDERWRITERS
AND ANY APPLICABLE AGENT'S COMMISSION, DEALER'S PURCHASE PRICE OR UNDERWRITER'S
DISCOUNT ARE SET FORTH IN OR MAY BE CALCULATED FROM THE SUPPLEMENT. THE NET
PROCEEDS TO UHS FROM SUCH SALE WILL BE THE PURCHASE PRICE OF SUCH SERIES OF DEBT
SECURITIES LESS SUCH COMMISSION IN THE CASE OF AN AGENT, THE PURCHASE PRICE OF
SUCH SERIES OF DEBT SECURITIES IN THE CASE OF A DEALER OR THE PUBLIC OFFERING
PRICE OF SUCH SERIES OF DEBT SECURITIES LESS SUCH DISCOUNT IN THE CASE OF AN
UNDERWRITER AND LESS, IN EACH CASE, OTHER ATTRIBUTABLE ISSUANCE EXPENSES. SEE
"PLAN OF DISTRIBUTION" FOR INDEMNIFICATION ARRANGEMENTS FOR AGENTS, DEALERS AND
UNDERWRITERS. THE UNDERWRITERS FOR ANY OFFERING MAY INCLUDE:
<TABLE>
<S> <C>
DILLON, READ & CO. INC. J.P. MORGAN SECURITIES INC.
</TABLE>
BA SECURITIES, INC.
CHEMICAL SECURITIES INC.
NATIONSBANC CAPITAL MARKETS, INC.
SMITH BARNEY INC.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
---------------------
SEE "RISK FACTORS" WHICH APPEARS ON PAGE 4 OF THIS PROSPECTUS FOR
ADDITIONAL INFORMATION REGARDING THE COMPANY.
---------------------
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF THE DEBT SECURITIES
UNLESS ACCOMPANIED BY THE SUPPLEMENT.
THE DATE OF THIS PROSPECTUS IS JULY 18, 1995.
<PAGE> 3
AVAILABLE INFORMATION
UHS is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by UHS may be inspected and copied at the public reference facilities
maintained by the Commission, 450 Fifth Street, N.W., Judiciary Plaza, Room
1024, Washington, D.C. 20549; and at regional offices of the Commission at the
Northwestern Atrium Center, 500 West Madison, Suite 1400, Chicago, Illinois
60661 and at 7 World Trade Center, New York, New York 10048. Copies of such
material may be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. Such material may also be inspected and copied at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
As permitted by the rules and regulations of the Commission, this
Prospectus omits certain information contained in the Registration Statement on
Form S-3 (the "Registration Statement") of which this Prospectus is a part. For
such information, reference is made to the Registration Statement and the
exhibits thereto. Statements made in this Prospectus as to the contents of any
contract, agreement or other document are not necessarily complete; with respect
to each such contract, agreement or other document filed as an exhibit to the
Registration Statement or incorporated by reference herein, reference is made to
such contract, agreement or other document for a more complete description of
the matter involved, and each such statement is qualified in its entirety by
such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
UHS hereby incorporates by reference in this Prospectus the following
documents previously filed with the Commission pursuant to the Exchange Act: (i)
the Company's Annual Report on Form 10-K for the year ended December 31, 1994;
and (ii) the Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1995.
Each document filed by UHS pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this Prospectus and prior to the
termination of the offering of the Notes pursuant hereto shall be deemed to be
incorporated by reference in this Prospectus and to be a part of this Prospectus
from the date of filing of such document. Any statement contained in this
Prospectus or in a document incorporated or deemed to be incorporated by
reference in this Prospectus shall be deemed to be modified or superseded for
purposes of the Registration Statement and this Prospectus to the extent that a
statement contained in this Prospectus or in any subsequently filed document
that also is or deemed to be incorporated by reference in this Prospectus
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of the Registration Statement or this Prospectus.
UHS will provide without charge to each person to whom this Prospectus is
delivered, upon the written or oral request of any such person, a copy of any or
all of the documents that are incorporated by reference in this Prospectus,
other than exhibits to such documents (unless such exhibits are specifically
incorporated by reference into such documents). Requests should be directed to
Investor Relations, Universal Health Services, Inc., Universal Corporate Center,
367 South Gulph Road, King of Prussia, Pennsylvania 19406, telephone (610)
768-3300.
2
<PAGE> 4
THE COMPANY
GENERAL
The principal business of Universal Health Services, Inc. (together with
its subsidiaries, the "Company") is owning and operating acute care hospitals,
behavioral health centers, ambulatory surgery centers and radiation oncology
centers. Presently, the Company operates 29 hospitals, consisting of 14 acute
care hospitals and 15 behavioral health centers, in Arkansas, California,
Florida, Georgia, Illinois, Louisiana, Massachusetts, Michigan, Missouri,
Nevada, Pennsylvania, South Carolina, Texas and Washington. The Company, as part
of its Ambulatory Treatment Centers Division owns outright, or in partnership
with physicians, and operates or manages 24 surgery and radiation oncology
centers located in 14 states.
The Company's strategy to enhance its profitability is to continue to
provide high quality, cost-effective healthcare at each of its facilities.
Services provided by the Company's hospitals include general surgery, internal
medicine, obstetrics, emergency room care, radiology, diagnostic care, coronary
care, pediatric services and psychiatric services. The Company provides capital
resources as well as a variety of management services to its facilities,
including central purchasing, data processing, finance and control systems,
facilities planning, physician recruitment services, administrative personnel
management, marketing and public relations.
RECENT AND PROPOSED ACQUISITIONS AND DEVELOPMENT ACTIVITIES
The Company has an agreement for or has recently consummated a number of
acquisitions. In November 1994, the Company acquired Edinburg Hospital, a
112-bed acute care hospital located in Edinburg, Texas, which is in close
proximity to McAllen, Texas, for $11.3 million and the assumption of liabilities
totalling $2.2 million. In addition, the Company has agreed to construct and has
acquired the land for a 100-bed hospital in Edinburg. This acquisition and
development of the new hospital will enable the Company to enhance its market
leadership in McAllen, where it currently operates the 428-bed McAllen Medical
Center ("McAllen Medical Center"). McAllen is in the fourth fastest growing
metropolitan statistical area ("MSA") in the nation. (Source: Claritas Business
Information Systems ("Claritas"), a market research firm, Forecast 1995-2000).
In July 1995, the Company exchanged the operations and fixed assets of
Westlake Medical Center, a 126-bed acute care hospital located in Westlake,
California, and Dallas Family Hospital, a 104-bed acute care hospital in Dallas,
Texas, and approximately $44 million in cash, for Aiken Regional Medical
Centers, a 225-bed medical center complex in Aiken, South Carolina, formerly
owned by a subsidiary of Columbia/HCA Healthcare Corporation. Aiken is the
leading hospital in its market and, with its acquisition, the Company commenced
operations in South Carolina.
The Company has entered into an agreement to purchase substantially all the
assets of Manatee Memorial Hospital, a 512-bed acute care hospital, located in
Bradenton, Florida, for $139 million in cash. Pending closing, the Company is
managing the hospital for its current owners pursuant to a management agreement.
Manatee, like Aiken, is a state-of-the art facility and is in a new market for
the Company with highly favorable demographics. The transaction, which is
subject to regulatory approval, is currently expected to close in the third
quarter of 1995.
In May 1995, the Company acquired Fuller Memorial Psychiatric Hospital, an
82-bed behavioral health center, for approximately $3 million. Fuller, located
in southeastern Massachusetts and in close proximity to two of the Company's
other behavioral health centers and its eleven day-treatment clinics, will
augment the Company's ability to serve additional patients in southeastern
Massachusetts.
The Company is developing, with the participation of Howard Hughes
Corporation, a medical complex including a 120-bed acute care hospital, an
ambulatory surgery center, a medical office building and a diagnostic center in
the community of Summerlin, Nevada, in western Las Vegas. Howard Hughes
Corporation, the major landowner in Summerlin, has granted to the Company an
3
<PAGE> 5
exclusive right to operate medical facilities in Summerlin. When completed, this
facility will enhance the Company's market presence in Las Vegas, the center of
the fastest growing MSA in the nation (Source: Claritas Forecast 1995-2000).
RISK FACTORS
CONCENTRATION OF REVENUES
Valley Hospital Medical Center in Las Vegas, Nevada ("Valley Hospital")
contributed 18%, 19%, 16% and 16% of the Company's net revenues and 32%, 35%,
32% and 32% of the Company's earnings before interest, income taxes,
depreciation, amortization, lease and rental expense and non-recurring
transactions ("EBITDAR"), for the quarter ended March 31, 1995, and for the
three years ended December 31, 1994, 1993 and 1992, respectively, excluding the
effect of the special Medicaid reimbursements received at one of the Company's
Texas acute care hospitals of $3.3 million, $12.4 million, $13.5 million and
$29.8 million for the quarter ended March 31, 1995, and for the years ended
December 31, 1994, 1993 and 1992, respectively (the "Special Medicaid
Reimbursements"). On a pro forma basis, assuming that the acquisitions of Aiken
Regional Medical Centers (acquired in July 1995), Manatee Memorial Hospital and
Edinburg Hospital (acquired November 1994), and the dispositions of Dallas
Family Hospital and Westlake Medical Center (both disposed of in July 1995)
occurred on January 1, 1994 (the "Adjustments") and excluding the Special
Medicaid Reimbursements, Valley Hospital would have contributed 15% of the
Company's net revenues for the three month period ended March 31, 1995, and the
year ended December 31, 1994, and 26% and 28%, respectively, of the Company's
EBITDAR for such periods.
McAllen Medical Center contributed 22%, 21%, 18% and 16% of the Company's
net revenues and 36%, 35%, 32% and 24% of the Company's EBITDAR, for the quarter
ended March 31, 1995, and for the years ended December 31, 1994, 1993 and 1992,
respectively, excluding the Special Medicaid Reimbursements. On a pro forma
basis, taking into account the Adjustments and excluding the Special Medicaid
Reimbursements, McAllen Medical Center would have contributed 18% and 17% of the
Company's net revenues for the three month period ended March 31, 1995, and the
year ended December 31, 1994, respectively, and 28% of the Company's EBITDAR for
each such period.
Assuming the Adjustments and excluding the Special Medicaid Reimbursements,
Manatee Memorial Hospital would have contributed 13% of the Company's net
revenues for the three month period ended March 31, 1995, and the year ended
December 31, 1994, and 15% of the Company's EBITDAR for both such periods. See
"The Company -- Recent and Proposed Acquisitions and Development Activities."
COMPETITION
The healthcare industry has been characterized in recent years by increased
competition for patients and staff physicians, excess capacity at general
hospitals, a shift from inpatient to outpatient settings and increased
consolidation. The principal factors contributing to these trends are advances
in medical technology, cost-containment efforts by managed care payors,
employers and traditional health insurers, changes in regulations and
reimbursement policies, increases in the number and type of competing healthcare
providers and changes in physician practice patterns. With a few exceptions,
physicians are not employees of the Company's hospitals and members of the
medical staffs of the Company's hospitals also serve on the medical staffs of
hospitals not owned by the Company and may terminate their affiliation with the
Company's hospitals at any time. The Company's future success will depend, in
part, on the ability of the Company's hospitals to continue to attract and
maintain staff physicians, and to organize and structure integrated healthcare
delivery systems with other healthcare providers and physician practice groups.
There can be no assurance that the Company's hospitals will continue to be able,
on terms favorable to the Company, to attract physicians to their staffs, or to
organize and structure integrated healthcare delivery systems, for which other
healthcare companies
4
<PAGE> 6
with greater financial resources or a wider range of services may be competing.
See "Business -- Competition."
LIMITS ON REIMBURSEMENT
The Company derives a substantial portion of its net revenues from
third-party payors, including the Medicare and Medicaid programs. See
"Business -- Sources of Revenue." Changes in government reimbursement programs
have resulted in limitations on the growth rates of the reimbursement programs
and, in some cases, in reduced levels of reimbursement for healthcare services,
and additional changes are anticipated. Such changes are likely to result in
further limitations on reimbursement levels. See "Risk Factors -- Healthcare
Reform Legislation." In addition, private payors, including managed care payors,
increasingly are demanding discounted fee structures or the assumption by
healthcare providers of all or a portion of the financial risk through prepaid
capitation arrangements. Inpatient utilization, average lengths of stay and
occupancy rates continue to be negatively affected by payor-required
pre-admission authorization and utilization review and by payor pressure to
maximize outpatient and alternative healthcare delivery services for less
acutely ill patients. In addition, efforts to impose reduced allowances, greater
discounts and more stringent cost controls by government and other payors are
expected to continue. The Company is unable to predict the effect these changes
will have on its operations and significant limits on the scope of services
reimbursed and on reimbursement rates and fees could have a material adverse
effect on the financial results of the Company's operations.
HEALTHCARE REFORM LEGISLATION
In recent years, an increasing number of legislative initiatives have been
introduced or proposed in Congress and in state legislatures that would effect
major changes in the healthcare system, either nationally or at the state level.
Among the proposals that have been introduced are price controls on hospitals,
insurance market reforms to increase the availability of group health insurance
to small businesses, requirements that all businesses offer health insurance
coverage to their employees and the creation of a government health insurance
plan or plans that would cover all citizens and increase payments by
beneficiaries. In 1993, President Clinton introduced a healthcare reform bill
that included a number of measures that were broadly viewed as increasing the
scope of government regulation of the healthcare industry. Key elements in the
President's proposal and other healthcare reform proposals included various
insurance market reforms, the requirement that businesses provide health
insurance coverage for their employees, reductions or lesser increases in the
future growth rate of Medicare and Medicaid reimbursement to providers and more
stringent government cost controls. None of these proposals has been adopted.
There continue to be efforts at the Federal level to introduce various insurance
market reforms, expanded fraud and abuse and anti-referral legislation and
further reductions in the growth rate of Medicare and Medicaid reimbursement.
The House of Representatives and the Senate each recently passed bills which
would limit the future rate of growth of the Medicare program from 10% annually
to 7% annually and in the Medicaid program from 10% annually to 4% annually (as
specified in the House of Representatives' plan). The Company cannot predict
whether any of the above proposals or any other proposals will be adopted, and
if adopted, no assurance can be given that the implementation of such reforms
will not have a material adverse effect on the Company's business. In Texas, a
law has been passed which mandates that the State apply for a waiver from
current Medicaid regulations to allow it to require that certain Medicaid
participants be serviced through managed care providers. The Company is unable
to predict whether Texas will be granted such a waiver or the effect on the
Company's business of such law. See "Business -- Regulation and Other Factors."
LIABILITY INSURANCE
For most of its hospitals, the Company is self-insured for its general
liability risks for claims limited to $5 million per occurrence and for its
professional liability risks for claims limited to $25 million per
5
<PAGE> 7
occurrence. Coverage in excess of these limits up to $100 million is maintained
with major insurance carriers.
During 1994 and 1993, the Company purchased general and professional
liability occurrence policies with commercial insurers for two of its acute care
facilities and six of its behavioral health centers. These policies include
coverage up to $25 million per occurrence for the acute care hospitals, and from
$1 million to $2 million per occurrence for the behavioral health centers,
subject to certain aggregate limits, in each case without the payment of any
deductible, for general and professional liability risks. Although the Company
feels that it currently has adequate insurance coverage, the commercial policies
are limited to one-year terms and require annual renegotiation or replacement.
The Company has no assurance that it will be able to maintain such insurance in
the future on terms acceptable to the Company.
CONTROL BY PRINCIPAL STOCKHOLDER
Alan B. Miller, UHS' Chairman of the Board, President and Chief Executive
Officer, controls approximately 88% of the general voting power of UHS. As such,
Mr. Miller can elect the majority Board of Directors of UHS and accomplish a
merger, sale, transfer of assets or other significant transaction without the
approval of UHS' other stockholders.
USE OF PROCEEDS
Unless otherwise provided in the Supplement, the net proceeds from the sale
of the Debt Securities offered by this Prospectus and the Supplement will be
added to the Company's general funds and used for general corporate purposes.
Until so utilized, it is expected that such net proceeds will be invested in
interest bearing time deposits or short-term marketable securities.
6
<PAGE> 8
PRO FORMA FINANCIAL INFORMATION
In July 1995, the Company acquired the operations and fixed assets of Aiken
Regional Medical Centers ("Aiken"), including Aiken Regional Medical Center, The
Carolina Cancer Center and the Aurora Pavilion from a subsidiary of Columbia/HCA
Healthcare Corporation ("Columbia"). The acquired assets included the real
property and moveable equipment together with intangible assets and certain
working capital accounts, excluding accounts receivable.
In exchange for Aiken, the Company transferred to Columbia the assets and
operations of Westlake Medical Center and Dallas Family Hospital and
approximately $44 million in cash. Coincident with the Aiken transaction, the
Company acquired the property of Westlake Medical Center which it leased from
Universal Health Realty Income Trust ("UHT"), in exchange for other property
consisting of additional real estate assets owned by the Company but related to
three acute care facilities owned by UHT and operated by the Company, which were
transferred to and leased back from UHT. These additional real estate assets
represent major additions and expansions made to the facilities since the
purchase of the properties from the Company in 1986. The Westlake property was
then transferred to Columbia. In addition to the Westlake property, the real and
personal property of Dallas Family Hospital, and certain working capital
accounts of both facilities, excluding accounts receivable, were acquired by
Columbia.
The Company has entered into an agreement to purchase substantially all of
the assets and operations of Manatee Memorial Hospital, a 512-bed acute care
hospital located in Bradenton, Florida, for $139 million in cash. The assets to
be acquired include the real and personal property, working capital, and
intangible assets.
In November 1994, the Company acquired the assets and operations of
Edinburg Hospital, a 112-bed acute care hospital located in Edinburg, Texas, for
approximately $11.3 million and the assumption of liabilities totalling $2.2
million.
The Pro Forma Consolidated Statements of Income were prepared as if the
transactions occurred as of the beginning of the period presented. The Pro Forma
Condensed Consolidated Balance Sheet was prepared as if the transactions
occurred on March 31, 1995. These pro forma financial statements should be read
in connection with the historical financial statements and notes thereto
included elsewhere or incorporated by reference in this Prospectus.
The pro forma financial information is unaudited and is not necessarily
indicative of the consolidated results which actually would have occurred if the
transactions had been consummated at the beginning of the periods presented, nor
does it purport to present the future financial position and results of
operations for future periods.
7
<PAGE> 9
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1995
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACQUISITIONS
THE COMPANY AND PRO FORMA THE COMPANY
HISTORICAL DIVESTITURES(A) ADJUSTMENTS PRO FORMA
----------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 1,832 $ -- $ -- $ 1,832
Accounts receivable, net........... 90,511 22,139 -- 112,650
Other current assets............... 21,234 4,267 -- 25,501
Deferred income taxes.............. 18,491 -- -- 18,491
-------- ------- -------- --------
TOTAL CURRENT ASSETS............ 132,068 26,406 -- 158,474
-------- ------- -------- --------
Property and equipment, net.......... 335,420 55,915 1,599(B) 392,934
Other Assets:
Excess of cost over fair value of
assets acquired................. 37,572 -- 112,933(C) 150,505
Deferred income taxes.............. 2,742 -- -- 2,742
Deferred charges and other......... 31,430 891 -- 32,321
-------- ------- -------- --------
TOTAL ASSETS.................... $ 539,232 $ 83,212 $ 114,532 $ 736,976
======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of debt......... $ 7,175 $ (187) $ -- $ 6,988
Accounts payable and accrued
expenses........................ 92,072 15,207 -- 107,279
Federal and state taxes............ 17,228 -- 3,000(D) 20,228
-------- ------- -------- --------
TOTAL CURRENT LIABILITIES....... 116,475 15,020 3,000 134,495
Other non-current liabilities........ 74,831 532 (3,000)(D) 72,363
Long-term debt, net of current
maturities......................... 75,038 (1,957) 186,731(E) 259,812
Common stockholders' equity.......... 272,888 69,617 (72,199)(F) 270,306
-------- ------- -------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY.......... $ 539,232 $ 83,212 $ 114,532 $ 736,976
======== ======= ======== ========
</TABLE>
The accompanying notes and management's assumptions are an integral part of this
statement.
8
<PAGE> 10
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACQUISITIONS
THE COMPANY AND PRO FORMA THE COMPANY
HISTORICAL DIVESTITURES(A) ADJUSTMENTS PRO FORMA
----------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Net Revenues.......................... $ 782,199 $ 174,527 $ (687) (b) $ 956,039
Operating charges:
Operating expenses.................. 298,108 73,808 2,000 (d) 371,729
(2,187)(e)
Salaries and wages.................. 286,297 49,507 -- 335,804
Provision for doubtful accounts..... 58,347 15,721 -- 74,068
Depreciation and amortization....... 42,383 7,374 6,043 (f) 55,800
Lease and rental expense............ 34,097 (1,307) 2,386 (g) 35,176
Interest expense, net............... 6,275 8,905 3,790 (h) 18,970
Non-recurring charges............... 9,763 -- -- 9,763
---------- --------- --------- ----------
Total expenses................... 735,270 154,008 12,032 901,310
---------- --------- --------- ----------
Income before income taxes............ 46,929 20,519 (12,719) 54,729
Provision for income taxes............ 18,209 4,986 (2,027)(i) 21,168
---------- --------- --------- ----------
Net income............................ $ 28,720 $ 15,533 $ (10,692) $ 33,561
========== ========= ========= ==========
Earnings per common and common
equivalent share.................... $ 2.02 $ 2.36
========== ==========
Weighted average number of common
shares and equivalents.............. 14,389,000 14,389,000
========== ==========
</TABLE>
The accompanying notes and management's assumptions are an integral part of this
statement.
9
<PAGE> 11
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACQUISITIONS
THE COMPANY AND PRO FORMA THE COMPANY
HISTORICAL DIVESTITURES(A) ADJUSTMENTS PRO FORMA
----------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Net Revenues.......................... $ 220,715 $ 43,342 $ (210)(b) $ 263,347
(500)(c)
Operating charges:
Operating expenses.................. 84,469 19,384 500 (d) 102,800
(1,053)(e)
(500)(c)
Salaries and wages.................. 78,021 10,947 -- 88,968
Provision for doubtful accounts..... 17,185 3,946 -- 21,131
Depreciation and amortization....... 11,310 1,433 1,650 (f) 14,393
Lease and rental expense............ 8,772 (482) 596 (g) 8,886
Interest expense, net............... 1,614 2,393 967 (h) 4,974
Non-recurring charges............... -- -- -- --
---------- --------- --------- ---------
Total expenses................... 201,371 37,621 2,160 241,152
---------- --------- --------- ---------
Income before income taxes............ 19,344 5,721 (2,870) 22,195
Provision for income taxes............ 7,503 1,188 (98)(i) 8,593
---------- --------- --------- ----------
Net income............................ $ 11,841 $ 4,533 $ (2,772) $ 13,602
========== ========= ========= ===========
Earnings per common and common
equivalent share.................... $ 0.85 $ 0.98
========== ==========
Weighted average number of common
shares and equivalents.............. 13,942,000 13,942,000
========== ==========
</TABLE>
The accompanying notes and management's assumptions are an integral part of this
statement.
10
<PAGE> 12
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES AND MANAGEMENT'S ASSUMPTIONS TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION:
The accompanying pro forma financial statements have been prepared to
reflect the completion of the Aiken, Manatee and Edinburg transactions as
described in the introductory note to these pro forma financial statements. The
anticipated transactions will be accounted for as purchases by the Company when
completed. The pro forma financial statements assume that the acquisition price
of the Aiken and Manatee acquisitions would be approximately $186 million. The
actual price of such acquisitions is expected to be approximately $183 million
subject to upward or downward working capital adjustment.
ADJUSTMENTS TO PRO FORMA CONSOLIDATED BALANCE SHEET
(A) To reflect the historical cost basis of the assets acquired and
liabilities assumed in the Aiken and Manatee transactions, net of the assets and
liabilities divested as part of the Aiken transaction.
<TABLE>
<CAPTION>
THE MANATEE TRANSACTION THE AIKEN TRANSACTION
--------------------------- -------------------------------------------
ASSETS AND ASSETS AND UHS ASSETS/ NET
MANATEE LIABILITIES AIKEN LIABILITIES LIABILITIES ACQUISITIONS/
HISTORICAL NOT ACQUIRED HISTORICAL NOT ACQUIRED DIVESTED DIVESTITURES
---------- ------------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.... $ 16,247 $ (16,247) $ 1,537 $ (1,537) $ -- $ --
Accounts receivable, net..... 22,237 -- 15,431 (15,431) (98) 22,139
Other current assets......... 4,651 (1,577) 2,321 -- (1,128) 4,267
---------- ------------ ---------- ------------ ----------- -------------
TOTAL CURRENT ASSETS....... 43,135 (17,824) 19,289 (16,968) (1,226) 26,406
---------- ------------ ---------- ------------ ----------- -------------
Property and equipment, net.... 55,619 -- 42,401 -- (42,105) 55,915
Excess of cost over fair value
of assets acquired........... -- -- 7,946 (7,946) -- --
Deferred charges and other..... 37,341 (36,456) 1,897 (1,855) (36) 891
---------- ------------ ---------- ------------ ----------- -------------
TOTAL ASSETS............... $ 136,095 $ (54,280) $ 71,533 $ (26,769) $ (43,367) $ 83,212
========= ============ ========= ============ ============ =============
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Current maturities of debt... $ 1,737 $ (1,737) $ -- $ -- $ (187) $ (187)
Accounts payable and accrued
expenses................... 18,425 (1,163) 5,990 (900) (7,145) 15,207
---------- ------------ ---------- ------------ ----------- -------------
TOTAL CURRENT
LIABILITIES.............. 20,162 (2,900) 5,990 (900) (7,332) 15,020
---------- ------------ ---------- ------------ ----------- -------------
Other non-current
liabilities.................. 532 -- -- -- -- 532
Long-term debt, net............ 80,869 (80,869) 35,255 (35,255) (1,957) (1,957)
Equity......................... 34,532 29,489 30,288 9,386 (34,078) 69,617
---------- ------------ ---------- ------------ ----------- -------------
TOTAL LIABILITIES AND
EQUITY................... $ 136,095 $ (54,280) $ 71,533 $ (26,769) $ (43,367) $ 83,212
========= ============ ========= ============ ============ =============
</TABLE>
(B) To adjust the carrying value of property and equipment acquired to fair
value.
(C) To record the excess of cost over the fair value of net tangible assets
acquired.
(D) To reclassify income taxes currently payable as a result of these
transactions.
(E) To record the net borrowings necessary to finance the Aiken and Manatee
transactions.
11
<PAGE> 13
(F) As a result of the Aiken transaction, the Company will record an
additional loss of approximately $2.6 million resulting from the divestiture of
certain assets at amounts less than their carrying values.
ADJUSTMENTS TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME:
(a) To reflect the historical revenues and operating expenses of the
hospitals acquired and divested as part of the Manatee, Aiken and Edinburg
transactions. The revenues and expenses of Edinburg reflected in the table below
are for the period from January 1, 1994 through the date of acquisition
(November 7, 1994). Operating results of Edinburg subsequent to the date of
acquisition are included in UHS's historical financial statements for the year
ended December 31, 1994 and for the three month period ended March 31, 1995.
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
THE AIKEN TRANSACTION
------------------------------------ NET
DALLAS ACQUISITIONS/
MANATEE AIKEN WESTLAKE FAMILY EDINBURG DIVESTITURES
--------- -------- --------- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Revenues............. $ 119,552 $ 84,012 $ (32,230) $ (21,176) $ 24,369 $ 174,527
Operating charges:
Operating expenses..... 49,640 36,227 (12,977) (9,812) 10,730 73,808
Salaries and wages..... 38,708 25,637 (14,138) (9,122) 8,422 49,507
Provision for doubtful
accounts............ 8,228 9,687 (3,083) (1,816) 2,705 15,721
Depreciation and
amortization........ 5,832 3,824 (2,071) (1,360) 1,149 7,374
Lease and rental
expense............. 1,607 1,445 (3,924) (712) 277 (1,307)
Interest expense,
net................. 7,520 337 -- -- 1,048 8,905
--------- -------- --------- --------- -------- -----------
Total operating
expenses.......... 111,535 77,157 (36,193) (22,822) 24,331 154,008
--------- -------- --------- --------- -------- -----------
Income (loss) before
income taxes........... 8,017 6,855 (3,963) (1,646) 38 20,519
Provision (benefit) for
income taxes........... -- 2,816 (1,533) (637) -- 4,986
--------- -------- --------- --------- -------- -----------
Net income (loss)........ $ 8,017 $ 4,039 $ (2,430) $ (1,009) $ 38 $ 15,533
======== ======= ======== ======== ======= ==========
</TABLE>
12
<PAGE> 14
THREE MONTHS ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
THE AIKEN TRANSACTION
---------------------------------- NET
DALLAS ACQUISITIONS/
MANATEE AIKEN WESTLAKE FAMILY DIVESTITURES
-------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Net Revenues............................ $ 34,240 $ 22,289 $ (7,830) $ (5,357) $ 43,342
Operating charges:
Operating expenses.................... 14,714 10,441 (3,534) (2,237) 19,384
Salaries and wages.................... 10,141 6,445 (3,468) (2,171) 10,947
Provision for doubtful accounts....... 2,500 2,322 (456) (420) 3,946
Depreciation and amortization......... 1,430 950 (554) (393) 1,433
Lease and rental expense.............. 349 317 (980) (168) (482)
Interest expense, net................. 2,333 60 -- -- 2,393
------- ------- ------- ------- -------
Total operating expenses........... 31,467 20,535 (8,992) (5,389) 37,621
------- ------- ------- ------- -------
Income (loss) before income taxes....... 2,773 1,754 (1,162) (32) 5,721
Provision (benefit) for income taxes.... -- 726 (450) (12) 1,188
------- ------- ------- ------- -------
Net income.............................. $ 2,773 $ 1,028 $ (712) $ (20) $ 4,533
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1994 MARCH 31, 1995
----------------- ------------------
<S> <C> <C>
(b) To eliminate intercompany interest received by
Manatee from an affiliate............................... $ (687) $ (210)
(c) To eliminate management fees charged by UHS to
Manatee................................................. -- (500)
500
(d) To adjust operating expenses at Manatee for state
and local taxes other than income taxes and other
operating costs. ....................................... 2,000 500
(e) To eliminate management fees paid to affiliates of
Aiken and Manatee. ..................................... (2,187) (1,053)
(f) To adjust the historical depreciation and
amortization expense of Manatee, Aiken and Edinburg
based on average depreciable lives of 20 years for
buildings and improvements, 5 years for equipment and 15
years for amortization of goodwill...................... 6,893 1,862
To adjust historical depreciation expense on the real
property transferred to UHT as part of the Aiken
transaction............................................. (850) (212)
------- -------
Net increase in depreciation and amortization........... 6,043 1,650
======= =======
(g) To record lease and rental expense relating to the
assets transferred from UHS to UHT...................... 2,386 596
(h) To eliminate the historical interest expense at
Aiken, Manatee and Edinburg............................. (8,905) (2,393)
To record interest on borrowings to finance the Aiken,
Manatee and Edinburg Transactions using borrowings under
the Company's commercial paper and revolving credit
facilities at an average rate of 6.4% in 1994 and 7.1%
in 1995................................................. 12,695 3,360
------- -------
Net increase in interest expense........................ 3,790 967
======= =======
(i) To adjust tax expense............................... (2,027) (98)
</TABLE>
13
<PAGE> 15
SELECTED FINANCIAL AND OTHER DATA
The selected consolidated financial and other data presented below for, and
as of the end of, each of the five years in the period ended December 31, 1994,
have been derived from the consolidated financial statements of the Company,
which have been audited by Arthur Andersen LLP. The selected
consolidated financial data presented below for, and as of the end of the
three-month periods ended March 31, 1994 and 1995 have been prepared on the same
basis as the audited financial statements of the Company and include all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the information set forth therein. This data should be read in
conjunction with the consolidated financial statements, related notes thereto,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other financial information included elsewhere or incorporated
by reference in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
YEARS ENDED DECEMBER 31, (UNAUDITED)
----------------------------------------------------------------- -----------------------
1990 1991 1992 1993 1994 1994 1995
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net revenues................... $ 674,982 $ 691,619 $ 731,227 $ 761,544 $ 782,199 $ 194,432 $ 220,715
Costs and expenses:
Operating expenses............. 261,091 283,511 285,922 299,645 298,108 74,327 84,469
Salaries and wages............. 244,881 255,067 265,017 280,041 286,297 69,870 78,021
Provision for doubtful
accounts..................... 47,304 44,832 45,008 55,409 58,347 13,208 17,185
Depreciation and
amortization................. 48,468 35,022 49,059 39,599 42,383 9,920 11,310
Lease and rental expense....... 31,982 34,479 33,854 34,281 34,097 8,491 8,772
Interest expense, net.......... 22,589 8,150 11,414 8,645 6,275 1,822 1,614
Nonrecurring charges........... -- -- -- 8,828 9,763 -- --
-------- -------- -------- -------- -------- -------- --------
Total operating charges...... 656,315 661,061 690,274 726,448 735,270 177,638 201,371
-------- -------- -------- -------- -------- -------- --------
Income before income taxes....... 18,667 30,558 40,953 35,096 46,929 16,794 19,344
Provision for income taxes....... 7,060 10,239 20,933 11,085 18,209 6,507 7,503
-------- -------- -------- -------- -------- -------- --------
Net income....................... $ 11,607 $ 20,319 $ 20,020 $ 24,011 $ 28,720 $ 10,287 $ 11,841
======== ======== ======== ======== ======== ======== ========
Ratio of earnings to fixed
charges(1)................... 1.5x 2.4x 2.7x 2.7x 3.6x 4.6x 5.4x
OTHER FINANCIAL DATA:
EBITDA(2)........................ $ 89,724 $ 73,730 $ 71,626 $ 78,668 $ 92,950 $ 25,536 $ 28,968
EBITDA + 1/3 Rent(3)............ $ 100,385 $ 85,223 $ 82,911 $ 90,095 $ 104,316 $ 28,366 $ 31,892
(EBITDA + 1/3 Rent)/(Interest +
1/3 Rent)..................... 3.0x 4.3x 3.7x 4.5x 5.9x 6.1x 7.0x
EBITDA/Interest.................. 4.0x 9.0x 6.3x 9.1x 14.8x 14.0x 17.9x
Debt/EBITDA...................... 2.4x 2.4x 1.7x 1.0x 1.0x -- --
Capital expenditures:
Acquisitions(4)................ $ 4,800 $ -- $ 7,188 $ 11,526 $ 25,853 $ -- $ --
Other(5)....................... $ 29,125 $ 43,196 $ 40,554 $ 55,908 $ 54,423 $ 11,871 $ 13,536
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, (UNAUDITED)
----------------------------------------------------------------- -----------------------
1990 1991 1992 1993 1994 1994 1995
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................ $ 50,836 $ 14,345 $ 33,716 $ 15,500 $ 14,607 $ 26,485 $ 15,593
Total assets................... 535,041 500,706 472,427 460,422 521,492 476,502 539,232
Long-term borrowings........... 205,646 127,235 114,959 75,081 85,125 78,844 75,038
Total debt..................... 214,002 179,872 118,696 79,394 92,361 83,664 82,213
Total stockholders' equity..... 167,419 184,353 202,903 224,488 260,629 235,301 272,888
</TABLE>
- ------------
(1) The ratio of earnings to fixed charges is computed by dividing fixed
charges into earnings from continuing operations before income taxes and
extraordinary items plus fixed charges. Fixed
14
<PAGE> 16
charges include interest expense, interest element of lease rental expense, and
amortization of debt issuance costs.
(2) Represents earnings before interest expense, income taxes,
depreciation, amortization and nonrecurring charges, excluding the additional
revenues from the special Medicaid reimbursements received by one of the
Company's acute care facilities which participates in the Texas Medical
Assistance Program ("EBITDA"). The amounts excluded from each year are as
follows: 1990-$0; 1991-$0; 1992-$29.8 million; 1993-$13.5 million; 1994-$12.4
million. The amounts excluded from the quarters ended March 31, 1994 and 1995
are $3.0 million and $3.3 million, respectively.
(3) Consists of EBITDA and one-third of lease and rental expense.
(4) Includes expenditures for acquisition of businesses and property held
for lease and does not include assumed indebtedness and other liabilities.
(5) Includes property and equipment additions, non-cash capital lease
obligations and acquisition of properties previously leased.
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS OF 1995 COMPARED TO THREE MONTHS OF 1994 (CONSOLIDATED)
Net revenues increased 14% or $26 million to $220.7 million for the three
months ended March 31, 1995 as compared to the comparable prior year period due
primarily to revenue growth at facilities owned during both periods and the
acquisition of a 112-bed acute care hospital in November of 1994. Net revenues
at hospital facilities owned during both periods increased 8% or $15 million for
the three months ended March 31, 1995 as compared to the comparable prior year
period, excluding the additional revenues received from the special Medicaid
reimbursements received by one of the Company's acute care facilities which
participates in the Texas Medical Assistance Program. Upon meeting certain
conditions of participation and serving a disproportionally high share of the
State's low income patients, the hospital became eligible and received
additional reimbursement from the state's disproportionate share hospital fund
totaling $3.3 million and $3.0 million for the three months ended March 31, 1995
and 1994, respectively. These programs are scheduled to terminate in August 1995
and the Company cannot predict whether these programs will continue beyond the
scheduled termination date.
Excluding the net revenue effects of the special Medicaid reimbursement
programs mentioned above, EBITDAR increased 11% or $3.8 million to $37.8 million
for the three months ended March 31, 1995 as compared to $34.0 million in the
comparable prior year period. Overall operating margins, excluding the special
Medicaid reimbursements, were 17.3% for the three months ended March 31, 1995 as
compared to 17.8% in the comparable prior year period.
Acute Care Services
Net revenues from the Company's acute care hospitals and ambulatory
treatment centers accounted for 85% of the consolidated net revenues for each of
the three-month periods ended March 31, 1995 and 1994. Net revenues at the
Company's acute care hospitals owned during both periods increased 9% during the
three months ended March 31, 1995 over the comparable prior year period, after
excluding the revenues received from the special Medicaid reimbursements
described above. Despite the continued shift in the delivery of healthcare
services to outpatient care, the Company's acute care hospitals experienced a 4%
increase in patient days and a 10% increase in admissions for the three months
ended March 31, 1995 as compared to the comparable prior year period. Outpatient
activity at the Company's acute care hospitals continues to increase as gross
outpatient revenues at these hospitals increased 17% for the three months ended
March 31, 1995 over the prior year period and continues to comprise 23% of the
Company's acute care gross patient revenues. The increase is primarily the
result of advances in medical technologies, which allow more services to be
provided on an outpatient basis, increased pressure from Medicare, Medicaid,
health maintenance organizations ("HMOs"), preferred provider organizations
("PPOs") and insurers to reduce hospital stays and provide services, where
possible, on a less expensive outpatient basis and the acquisition of several
physician practices. To accommodate the increased utilization of outpatient
services, the Company has expanded or redesigned several of its outpatient
facilities and services.
In addition, to take advantage of the trend toward increased outpatient
services, the Company has continued to invest in the acquisition and development
of ambulatory surgery and radiation oncology centers which have contributed to
the increase in the Company's outpatient revenues. As of March 31, 1995, the
Company operated or managed 22 outpatient treatment centers, which have
contributed to the increase in the Company's outpatient revenues.
16
<PAGE> 18
Behavioral Health Services
Net revenues from the Company's behavioral health services accounted for
14% and 15% of the consolidated net revenues for the three-month period ended
March 31, 1995 and 1994, respectively. Net revenues at the Company's behavioral
health centers owned during both periods increased 2% during the three months
ended March 31, 1995 over the comparable prior year period due primarily to a
12% increase in admissions and a 1.4% increase in patient days. The average
length of stay was 12.9 days in the 1995 quarter compared to 14.3 days in the
1994 quarter. The reduction in the average length of stay is a result of
changing practices in the delivery of psychiatric care and continued cost
containment pressures from payors which includes a greater emphasis on the
utilization of outpatient services. Management of the Company has anticipated
these trends by developing and marketing new outpatient treatment programs. The
shift to outpatient care is reflected in higher revenues from outpatient
services, as gross outpatient revenues at the Company's behavioral health
centers increased 25% for the three months ended March 31, 1995 as compared to
the comparable prior year quarter and now comprises 16% of behavioral health
gross patient revenues as compared to 13% in the prior year quarter.
Other Operating Results
Depreciation and amortization expense increased $1.4 million for the three
months ended March 31, 1995 as compared to the comparable prior year period due
primarily to the acquisition of a 112-bed acute care hospital in November of
1994 and additional depreciation expense related to capital expenditures and
expansions made in the Company's acute care division.
Interest expense decreased 11% in the 1995 first quarter as compared to
last year's first quarter due to lower average outstanding borrowings.
The effective tax rate was 39% in each of the quarters ended March 31, 1995
and 1994.
1994 COMPARED TO 1993 AND 1992 (CONSOLIDATED)
Net revenues increased 3% ($21 million) to $782 million in 1994 and 4% ($30
million) to $762 million in 1993. Increases in both periods resulted primarily
from revenue growth at facilities owned during each of the last three years, and
the acquisition and development of ambulatory treatment centers, net of the
revenue effects of facilities sold during these periods. Net revenues at
hospital facilities owned during all three periods increased by 6.7% ($46
million) in 1994 over 1993 and 7.2% ($47 million) in 1993 over 1992, excluding,
as discussed above, the additional revenues received from the special Medicaid
reimbursements received by one of the Company's acute care facilities which
participates in the Texas Medical Assistance Program. Upon meeting certain
conditions of participation and serving a disproportionately high share of the
state's low income patients, the hospital became eligible and received
additional reimbursements totalling $12.4 million in 1994, $13.5 million in 1993
and $29.8 million in 1992 from the state's disproportionate share hospital fund.
As discussed above, these programs are scheduled to terminate in August 1995 and
the Company cannot predict whether these programs will continue beyond the
scheduled termination date. Net revenues at the Company's ambulatory treatment
centers increased to $17 million in 1994 from $11 million in 1993 and $2 million
in 1992. The Company sold two hospitals in the fourth quarter of 1993, which
reported net revenues of $38 million in 1993 and $48 million in 1992.
Excluding the revenue effects of the special Medicaid reimbursement
programs, EBITDAR increased from $106 million in 1992 to $113 million in 1993
and to $127 million in 1994. Overall operating margins improved from
approximately 15% in both 1992 and 1993 to 16.5% in 1994. The improvement in the
Company's overall operating margins in 1994 is due primarily to the divestiture
of two low margin acute care facilities in 1993 and lower insurance expense in
1994 as compared to the previous two years.
17
<PAGE> 19
Acute Care Services
Net revenues from the Company's acute care hospitals and ambulatory
treatment centers accounted for 85%, 84% and 84% of consolidated net revenues in
1994, 1993 and 1992, respectively.
Net revenues at the Company's acute care hospitals owned during each of the
last three years increased 9% in 1994 over 1993 and 7% in 1993 over 1992, after
excluding the revenues received from the special Medicaid reimbursements
described above. Despite the continued shift in the delivery of healthcare
services to outpatient care, the Company's acute care hospitals experienced a
10% increase in inpatient admissions and a 7% increase in patient days in 1994
due primarily to additional capacity and expansion of service lines at two of
the Company's larger facilities. Admissions and patient days at these facilities
remained relatively unchanged during 1993 as compared to 1992. Outpatient
activity at the Company's acute care hospitals increased as gross outpatient
revenues at these hospitals increased 16% in 1994 over 1993 and 18% in 1993 over
1992 and comprised 24% of the Company's gross patient revenues in 1994 and 1993
and 23% in 1992. The increase was primarily the result of advances in medical
technologies, which allow more services to be provided on an outpatient basis,
and increased pressure from Medicare, Medicaid, HMOs, PPOs, and insurers to
reduce hospital stays and provide services, where possible, on a less expensive
outpatient basis.
Excluding the revenues received from the special Medicaid reimbursements
described above, operating margins (EBITDAR) at the Company's acute care
hospitals owned during all three years were 19.9%, 19.5% and 21.3% in 1994, 1993
and 1992, respectively. The margin improvement in 1994 over 1993 was primarily
the result of lower insurance expense. The margin decline from 1992 to 1993
resulted primarily from deterioration in payor mix and general industry trends.
Pressure on operating margins is expected to continue due to the industry-wide
trend away from charge based payors which limits the Company's ability to
increase its prices.
Behavioral Health Services
Net revenues from the Company's behavioral health services accounted for
14%, 15% and 15% of consolidated net revenues in 1994, 1993 and 1992,
respectively. Net revenues at the Company's behavioral health centers owned
during each of the last three years decreased 7% in 1994 as compared to 1993 due
primarily to a reduction in patient days. Despite a 12% increase in admissions
in 1994, patient days decreased 3% due to a reduction in the average length of
stay to 13.8 days in 1994 from 15.9 days in 1993. The reduction in the average
length of stay was a result of changing practices in the delivery of psychiatric
care and continued cost containment pressures from payors which includes a
greater emphasis on the utilization of outpatient services. Net revenues at
these hospitals increased 6% in 1993 as compared to 1992 due to a 17% increase
in admissions offset by a reduction in the average length of stay to 15.9 days
in 1993 from an average stay of 20.0 days in 1992. The shift to outpatient care
is reflected in higher revenues from outpatient services, as gross outpatient
revenues at the Company's behavioral health centers increased 17% in 1994 over
1993 and 39% in 1993 over 1992 and comprised 15% of psychiatric gross patient
revenues in 1994 as compared to 13% in 1993 and 10% in 1992.
Operating margins (EBITDAR) at the behavioral health facilities owned
during all three years were 15.8% in 1994, 21.5% in 1993 and 17.6% in 1992. The
decrease in the profit margin in 1994 as compared to 1993 was primarily caused
by the decrease in the facilities net revenues which declined due to an increase
in Medicaid denials, a decrease in days of care delivered and a decline in the
net revenue per day.
Other Operating Results
During 1994, the Company recorded $9.8 million of nonrecurring charges
which includes a $4.3 million loss on the anticipated disposal of two acute care
facilities. The Company exchanged these facilities, along with cash, for a
225-bed medical complex. See "The Company -- Recent and Proposed Acquisitions
and Development Activities." Also included in nonrecurring charges is a $2.8
million
18
<PAGE> 20
write-down in the carrying value of a behavioral health center owned by the
Company and leased to an unaffiliated third party which is currently in default
under the terms of the lease agreement, a $1.4 million write down recorded
against the book value of the real property of a behavioral health center, and
$1.3 million of expenses related to the disposition of a non-strategic business.
Included in the $8.8 million of nonrecurring charges recorded in 1993 is a $4.4
million loss on disposal of two acute care facilities divested during the fourth
quarter of 1993 and $4.4 million related to the winding down or disposition of
non-strategic businesses.
Depreciation and amortization expense increased $2.8 million in 1994 over
1993 due primarily to $1.9 million in such expenses related to the Company's
acquisition of ambulatory treatment centers and the increased depreciation
expense related to capital expenditures and expansions made in the Company's
acute care division. Depreciation and amortization expense decreased
approximately $9.5 million in 1993 as compared to 1992, due primarily to a $13.5
million amortization charge in 1992 resulting from the revaluation of certain
goodwill balances. Partially offsetting this decrease was a $2.4 million
increase in depreciation and amortization expense related to the Company's
acquisitions of outpatient treatment centers.
Interest expense decreased 27% in 1994 as compared to 1993 and 24% in 1993
as compared to 1992 due to lower average outstanding borrowings.
The effective tax rate was 39%, 32% and 51%, in 1994, 1993 and 1992,
respectively. The increase in the effective tax rate for 1994 as compared to
1993 was due to the 1993 tax provision containing a reduction in the state tax
provision. The reduction in the effective tax rate in 1993 as compared to 1992,
in addition to the reduction in the state tax provision mentioned above, was
attributable to the above mentioned $13.5 million goodwill amortization recorded
in the 1992 period, which was not deductible for income tax purposes.
INFLATION
The healthcare industry is very labor intensive and salaries and benefits
are subject to inflationary pressures, as are supply costs which tend to
escalate as vendors pass on the rising costs through price increases. Although
the Company cannot predict its ability to continue to cover future costs
increases, management believes that through the adherence to cost containment
policies, labor management and reasonable price increases, the effects of
inflation, which has not had a material impact on the results of operations
during the last three years, on future operating margins should be manageable.
However, the Company's ability to pass on these increased costs associated with
providing healthcare to Medicare and Medicaid patients may be limited since
although these fixed payments rates are indexed for inflation annually, the
increases have historically lagged behind actual inflation.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $24.1 million during the
first three months of 1995, and $60.6 million, $84.6 million and $81.7 million
for the 1994, 1993 and 1992 fiscal years, respectively. The $24.0 million
decrease in 1994 as compared to 1993 was primarily attributable to an increase
in the number of days of revenues in accounts receivable, acceleration in the
payment of income taxes and an increase in the payments made in settlement of
the Company's self-insurance reserves. The unfavorable change in the outstanding
accounts receivable was caused by a temporary decline in cash collections due to
information system conversions at the Company's hospitals. During each of the
past three years, the net cash provided by operating activities substantially
exceeded the scheduled maturities of long-term debt.
The Company has recently acquired a 225-bed medical complex in Aiken, South
Carolina and entered into an agreement to acquire a 512-bed acute care hospital
located in Bradenton, Florida in exchange for aggregate consideration of
approximately $183 million in cash and two acute care facilities. In addition,
in connection with the acquisition of Edinburg Hospital in 1994, the Company
will invest at least an additional $30 million over a ten-year period to
renovate the existing facility and
19
<PAGE> 21
construct an additional facility within four years. The Company plans to spend
approximately $55 million over a four-year period in connection with the
development of a medical complex in Summerlin, Nevada. See "The
Company -- Recent and Proposed Acquisitions and Development Activities."
Excluding expenditures related to acquisitions, expansions and new services, the
Company believes it will make capital expenditures of approximately $30 million
in each of 1995 and 1996.
The Company expects to finance all capital expenditures and acquisitions
with internally generated funds and borrowed funds. Borrowed funds may be
obtained through the Company's existing commercial paper program, under the
Company's unsecured revolving credit agreement or pursuant to the sale of debt
securities which may be offered hereby. The Company's commercial paper program
provides for loans, secured against patient accounts receivable, of up to $50
million at any time outstanding. The Company's unsecured revolving credit
agreement, which expires on March 31, 2000, provides, subject to certain
conditions, for $225 million of borrowing capacity, until March 31, 1998, $210
million until March 31, 1999 and $185 million until March 31, 2000. As of March
31, 1995, the Company had approximately $236 million of unused borrowing
capacity under its commercial paper program and revolving credit facility. To
reduce the impact of changes in interest rates on the cost of its debt, the
Company, from time to time, enters into interest rate swap agreements.
Currently, the Company has one such agreement with a notional principal amount
of $10 million. The Company also entered into forward starting interest rate
swaps in the notional principal amount of $100 million to hedge the underlying
treasury component of the interest rate on a portion of the debt securities
which may be offered hereby. The Company expects to unwind these swaps on the
issue date of such debt securities resulting in an effective treasury rate
component of approximately 7.15%.
HEALTHCARE INDUSTRY OVERVIEW
Healthcare is one of the largest industries in the United States,
representing total expenditures of approximately $938.3 billion, or 13.9% of
gross domestic product, in 1994 according to the Federal Healthcare Financing
Administration ("HCFA"). Increases in healthcare expenditures, including
hospital expenditures, historically have outpaced inflation due to, among other
factors, the aging of the population and the increased availability and use of
high-technology treatments and tests. According to HCFA, healthcare expenditures
increased by approximately 6.1% in 1994 from approximately $884.0 billion in
1993.
In response to escalating healthcare costs, government and private
purchasers of healthcare services have undertaken substantial revisions in their
payment methodologies and have increased significantly the degree to which they
monitor the utilization of services. Additionally, payors increasingly are
utilizing HMOs and PPOs as cost-effective alternatives to traditional
fee-for-service health insurance plans. See "Business -- Regulation and Other
Factors." Under these systems, hospitals bear the financial risk of providing
healthcare services since they receive a specific, fixed reimbursement for each
treatment, or specific fixed periodic payments based on the number of members of
the HMO or PPO served or eligible for service by that hospital, regardless of
the actual costs of providing the care. These payment systems have resulted in
increased contractual allowances and discounts to hospitals' standard charges
for services and a shift from inpatient to outpatient care.
These changes in payment methodologies have created many changes in the
provision of healthcare. A significant shift from inpatient to outpatient care
has resulted in significant unused hospital capacity and increases in the
utilization of outpatient services and greater outpatient revenues. As a result,
in part, of the changes in the industry, there has been significant
consolidation in the hospital industry over the past few years. In response to
payor trends, integrated healthcare networks have been established to provide a
continuum of patient care in a cost-effective framework.
20
<PAGE> 22
BUSINESS
GENERAL
The principal business of the Company is owning and operating acute care
hospitals, behavioral health centers, ambulatory surgery centers and radiation
oncology centers. Presently, the Company operates 29 hospitals, consisting of 14
acute care hospitals and 15 behavioral health centers, in Arkansas, California,
Florida, Georgia, Illinois, Louisiana, Massachusetts, Michigan, Missouri,
Nevada, Pennsylvania, South Carolina, Texas and Washington. The Company, as part
of its Ambulatory Treatment Centers Division owns outright, or in partnership
with physicians, and operates or manages 24 surgery and radiation oncology
centers located in 14 states.
Services provided by the Company's hospitals include general surgery,
internal medicine, obstetrics, emergency room care, radiology, diagnostic care,
coronary care, pediatric services and psychiatric services. The Company provides
capital resources as well as a variety of management services to its facilities,
including central purchasing, data processing, finance and control systems,
facilities planning, physician recruitment services, administrative personnel
management, marketing and public relations.
BUSINESS STRATEGY
The Company's strategy to enhance its profitability is to continue to
provide high quality, cost-effective healthcare at each of its facilities. Key
elements of the Company's strategy are:
- to establish and maintain market leadership positions in small and
medium-sized markets with favorable demographics;
- to develop or participate in the leading integrated healthcare delivery
system in each of its hospital's markets;
- to develop and maintain strong relationships with physicians;
- to maintain a low cost structure while providing high quality care; and
- to attract managed care contracts.
Establish and Maintain Leadership Positions in Small and Medium-Sized Markets
with Favorable Demographics
The Company believes that small and medium-sized markets provide the
Company with strong opportunities for profitability since such markets typically
are less competitive than major metropolitan markets and have lower cost
structures. The Company strives to enhance its leadership position in its
existing markets by improving the hospital's physical plant, by improving and
increasing the services offered by the hospital and by making complementary
acquisitions or constructing additional facilities. In determining whether to
enter new markets, the Company considers, among other factors, the competitive
situation and demographic profile.
Examples of the Company's development and expansion of operations in small
and medium-sized markets is the Company's recent acquisition and development
activities. In Las Vegas, which is located in the fastest growing MSA in the
nation, the Company owns the 398-bed Valley Hospital. At Valley Hospital, the
Company recently developed an outpatient surgery center, conducted a major
renovation of its emergency room and is establishing a neonatal intensive care
unit. In addition, to further enhance the Company's leadership in Las Vegas, the
Company is developing, with the Howard Hughes Corporation, a medical complex,
including a 120-bed acute care hospital, an ambulatory surgery center, a medical
office building, and a diagnostic center in the community of Summerlin, Nevada,
in western Las Vegas. Howard Hughes Corporation has granted to the Company the
exclusive right to operate medical facilities in Summerlin.
21
<PAGE> 23
In McAllen, Texas, to complement the Company's market leading 428-bed
McAllen Medical Center, the Company recently acquired Edinburg Hospital, located
in Edinburg, north of McAllen. McAllen is in the fourth fastest growing MSA in
the nation. The Company plans to further expand its presence in the McAllen
market by building a new 100-bed acute care hospital in Edinburg and converting
the existing property to a nursing and rehabilitation facility.
The Company's recent acquisition of Aiken Regional Medical Centers
provided, and its planned acquisition of Manatee Memorial Hospital will, if
completed, provide, the Company with two market leaders in markets with
favorable demographics. Aiken, a 225-bed medical center complex located in
Aiken, South Carolina, is the only hospital located in Aiken County, South
Carolina. In addition, to acquire Aiken, the Company exchanged Dallas Family
Hospital and Westlake Medical Center, two hospitals which are not leaders in
their markets and which the Company was unable to link to their respective
market leaders. Manatee, a 512-bed acute care hospital, is one of two hospitals
in Manatee County, Florida. See "Business-Operations."
The Company has also established market leadership positions with most of
its ambulatory surgery centers and radiation oncology centers. The majority of
the Company's surgery centers are the sole free standing providers in their
respective markets and all except one of the Company's free standing radiation
centers are the sole providers. The Company seeks to acquire ambulatory surgery
centers and radiation oncology centers which are the sole free standing
providers in a market since these centers provide a cost-effective alternative
to the local hospital.
Develop Integrated Healthcare Delivery Systems
In each of its hospital's markets, the Company has established or is
developing an integrated healthcare delivery system to offer a full range of
patient care on a cost-effective basis. Through the development of integrated
healthcare delivery systems, the Company believes that it will augment revenues
and market share by attracting an increasing share of large, sophisticated
governmental and private sector managed care contracts. The Company believes
that hospitals are the logical hubs for the development of integrated healthcare
delivery systems due to their highly developed infrastructure, extensive base of
services, sophisticated equipment and skilled personnel. The Company believes
that the development of integrated healthcare delivery systems is accomplished
by (i) maintaining a single hospital's leadership in its market or (ii)
coordinating the services of its hospital with the market leader.
In certain markets where the Company is a market leader, for example Las
Vegas, Nevada, and McAllen, Texas, the Company has positioned its hospitals as
the center of delivery systems by responding to community needs and developing
new services. In Las Vegas, for example, the Company developed an outpatient
surgery center, conducted a major renovation of its emergency room and is
establishing a neonatal intensive care unit. In the Las Vegas and McAllen
markets, the Company has also undertaken development activities. See "The
Company -- Recent and Proposed Acquisitions and Development Activities."
To increase the presence of the Company's behavioral health centers in
southeastern Massachusetts, the Company recently acquired Fuller Memorial
Psychiatric Hospital. Fuller, which is located in close proximity to two of the
Company's other behavioral health centers and its eleven day-treatment clinics,
will augment the Company's ability to serve additional patients in southeastern
Massachusetts.
In markets where the Company is not by itself a market share leader, the
Company attempts to link its hospitals with the market leader. The Company has
effected such a linkage in New Orleans where its hospitals are linked with
Methodist Hospital and East Jefferson Hospital, both of which are their
respective market leaders.
22
<PAGE> 24
Develop and Maintain Strong Relationships with Physicians
The Company believes that its success will depend in large part on
maintaining strong relationships with physicians, and has devoted substantial
management effort and resources to establishing and maintaining such
relationships and to fostering a physician-friendly culture at each of its
hospitals to better serve the needs of patients. The Company attracts physicians
to its hospitals by equipping its hospitals with sophisticated equipment,
constructing medical office buildings adjacent to many of its hospitals,
providing physicians with a large degree of independence in conducting their
hospital practice, supplying a quality nursing and technical staff and
sponsoring training programs to educate physicians on advanced medical
procedures. These efforts serve the dual purposes of developing and maintaining
strong relationships with physicians and better serving the needs of patients.
In addition, consistent with the Company's goal of establishing integrated
healthcare delivery systems, the Company is expanding its alliances with
physicians to create long term hospital/physician linkages. These arrangements
will allow physicians to participate in the delivery of healthcare at the
network level. For example, in Nevada, the Company has established Universal
Health Network, a PPO with approximately 100,000 covered lives. In McAllen, the
Company is pursuing a plan whereby McAllen Medical Center and Edinburg Hospital
will be transferred to a partnership of which the staff physicians will own up
to 5%.
Maintain a Low Cost Structure While Providing High Quality Care
The Company has taken steps to create a low cost structure and believes its
current cost structure will enable it to continue to compete effectively in each
of its current markets. The Company has established standardized management
information systems which provide accurate clinical and financial data for use
by hospital staff, physicians and corporate management. In addition, the Company
closely monitors departmental staffing and has established staffing level
targets for each hospital based on the amount and type of service provided to
the patients. The Company reviews compliance with these staffing targets on a
monthly basis. The Company also reviews patient length of stay, service
utilization, cash flow, accounts receivable collection, inventory levels and
outside purchases. To reduce the cost of supplies, the Company has entered into
national purchasing contracts.
While maintaining its commitment to a low cost structure, the Company has
developed and implemented a continuous quality improvement program designed to
assess all levels of patient care provided in its hospitals. While the basics of
the program are mandated by federal, state and Joint Commission on Accreditation
of Healthcare Organizations ("JCAHO") regulations and standards, the objective
of the program is to meet or exceed the mandates by focusing on hospital
systems, patient, physician and employee concerns. The quality improvement
program is managed by a multidisciplinary committee consisting of physicians,
nurses, ancillary managers and administration. The committee performs peer
review, monitoring all functions within the hospital, identifying opportunities
to improve, recommending actions and following up on the changes to assure
improvement. The committee and its administrative support department, quality
management and the corporate quality improvement services department meet
regularly to address specific problems, program integrity, and ways to improve
patients care under a "Total Quality Management System." Continual review,
analysis and training provided through the quality improvement program provides
patients, physicians and third party payors assurance that efficient, quality
patient care receives the highest priority at each of the Company's hospitals.
The Company's efforts in maintaining high quality care have been recognized.
Recent awards include (i) the 1994 Quality and Productivity Award given by the
United States Senate to Valley Hospital Medical Center, (ii) Keystone Center,
Chalmette Medical Center, Turning Point Hospital, HRI Hospital and The Arbour
receiving JCAHO Accreditation with Commendation (awarded to only 5% of
hospitals, nationally) and (iii) the Company being recognized by the
Pennsylvania Council of Excellence for quality management accomplishment.
23
<PAGE> 25
Attract Managed Care Contracts
The Company has extensive experience in working with managed care
providers. Pressures to control healthcare costs have resulted in a continuing
increase in the percentage of the United States population that is covered by
managed healthcare plans. To increase the cost-effectiveness of healthcare
delivery, managed care payors have introduced new utilization review systems and
have increased the use of discounted and capitated fee arrangements. Further,
managed care payors have attempted, where appropriate, to direct patients to
less intensive alternatives along the continuum of patient care. Management has
responded to this trend by increasing the outpatient services offered at its
hospitals and behavioral health centers. In addition, the Company also continues
to add to its Ambulatory Treatment Centers Division, acquiring nine facilities
in 1994. In determining with which providers to contract, payors consider, among
other factors, the quality of care provided, the range of services, the
geographic coverage and the cost-effectiveness of the care provided. The Company
believes that the development and expansion of its integrated healthcare
delivery systems will enable it to better compete for managed care contracts
with payors, which, in turn, should allow it to expand its patient volume and
cash flow, notwithstanding the reduced rates at which services are provided.
OPERATIONS
After giving effect to the Company's planned acquisition of Manatee
Memorial Hospital, the Company will derive the majority of its revenue from
Valley Hospital, McAllen Medical Center and Manatee Memorial Hospital. Following
is a brief discussion of these facilities and their respective geographic areas:
Las Vegas, Nevada. The Company's Valley Hospital is a 398-bed hospital
located in Las Vegas. Las Vegas is in the fastest growing MSA in the country. On
a pro forma basis, assuming the Adjustments and excluding the Special Medicaid
Reimbursements, Valley Hospital would have contributed 15% of the Company's net
revenues for the three month period ended March 31, 1995, and the year ended
December 31, 1994, and 26% and 28%, respectively, of the Company's EBITDAR for
such periods. To enhance its competitive position in the Las Vegas market,
Valley Hospital recently underwent a major expansion of its emergency room
facility, established an outpatient surgery center and is establishing a
neonatal intensive care unit.
The Company has begun construction of a new facility in Summerlin, Nevada
which is a master planned community located in western Las Vegas. The new
Summerlin Medical Center will be completed in three phases and will consist of a
100,000 square foot medical building, an outpatient surgery and diagnostic
center and a 120-bed acute care hospital. Howard Hughes Corporation has granted
to the Company the exclusive right to operate medical facilities in Summerlin.
See "The Company -- Recent and Proposed Acquisitions and Development
Activities."
McAllen, Texas. McAllen, located in the Rio Grande Valley area of Texas,
is the center of a 200 mile wide consumer market area with more than ten million
people. McAllen and its surrounding communities are in the fourth fastest
growing MSA in the country. Furthermore, the population in McAllen increases
significantly in the winter months with the inflow of retirees from the northern
states. The Company's McAllen Medical Center, a 428-bed facility, is the largest
hospital in the Rio Grande Valley and is the hub of a five hospital delivery
network organized by the Company. The medical center offers a wide range of
services including general medical/surgical care, a 24-hour emergency room,
oncology care, cardiac care, obstetric, pediatric and neonatal care and laser
surgery. On a pro forma basis, assuming the Adjustments and excluding the
Special Medicaid Reimbursements, McAllen Medical Center would have contributed
18% and 17% of the Company's net revenues for the three month period ended March
31, 1995, and the year ended December 31, 1994, respectively, and 28% of the
Company's EBITDAR for each such period.
The Company has recently acquired Edinburg Hospital, a 112-bed acute care
facility. Located eight miles north of McAllen, this facility enhances the
Company's delivery network in this rapidly growing area. The Company plans to
further expand its presence in the McAllen market by building a
24
<PAGE> 26
new 100-bed acute care hospital in Edinburg and converting the existing property
to a nursing and rehabilitation facility.
Manatee County, Florida. Manatee County is located approximately 50 miles
south of Tampa on the Gulf Coast of Florida. The County has a current population
of approximately 250,000. The Company has entered into an agreement to acquire
Manatee Memorial Hospital ("Manatee"), a 512-bed facility which is located in
the County. Until the closing, the Company is managing Manatee for its current
owners.
The hospital, which has a location which will benefit from the continuing
eastern expansion of the County, offers a wide range of services from primary
medical and surgical procedures to obstetric, pediatric, psychiatric and a broad
range of specialized programs. The Manatee Heart Center offers the full range of
cardiac care from catheterization and non-invasive procedures to open heart
surgery. The Manatee Center for Women's Health offers neonatal care in addition
to its obstetric and gynecological services. The Emergency Care Center is a
state-of-the-art facility servicing 90% of the trauma cases in the County.
Manatee also offers a full range of outpatient services to the community. It is
the only hospital in the County to operate a Life Management inpatient and
outpatient program for mentally ill individuals. Recently, Manatee opened its
new Surgery and Outpatient Services Center which provides outpatient services to
the community through twelve new surgical suites and arrays of diagnostic tests
and surgical procedures.
Assuming the Adjustments and excluding the Special Medicaid Reimbursements,
Manatee would have contributed 13% of the Company's net revenues for the three
month period ended March 31, 1995, and the year ended December 31, 1994, and 15%
of the Company's EBITDAR for both such periods.
FACILITIES
The following tables set forth the name, location, type of facility and,
for acute care hospitals and behavioral health centers, the number of beds, for
each of the Company's existing and pending facilities:
ACUTE CARE HOSPITALS
<TABLE>
<CAPTION>
NUMBER
NAME OF FACILITY LOCATION OF BEDS INTEREST
<S> <C> <C> <C>
Auburn General Hospital................ Auburn, Washington 149 Owned
Chalmette Medical Center(1)............ Chalmette, Louisiana 118 Leased
Doctors' Hospital of Shreveport(2)..... Shreveport, Louisiana 136 Leased
Edinburg Hospital...................... Edinburg, Texas 112 Owned
Inland Valley Regional Medical
Center(1)............................ Wildomar, California 80 Leased
McAllen Medical Center(1).............. McAllen, Texas 428 Leased
Northern Nevada Medical Center(3)...... Sparks, Nevada 150 Owned
River Parishes Hospitals(4)............ LaPlace and Chalmette, 216 Leased/Owned
Louisiana
Universal Medical Center............... Plantation, Florida 202 Owned
Valley Hospital Medical Center......... Las Vegas, Nevada 398 Owned
Victoria Regional Medical Center....... Victoria, Texas 147 Owned
Wellington Regional Medical Center(1).. West Palm Beach, Florida 120 Leased
Aiken Regional Medical Centers......... Aiken, South Carolina 225 Owned
Manatee Memorial Hospital(5)........... Bradenton, Florida 512 Acquisition
Pending
</TABLE>
25
<PAGE> 27
BEHAVIORAL HEALTH CENTERS
<TABLE>
<CAPTION>
NUMBER
NAME OF FACILITY LOCATION OF BEDS OWNERSHIP
<S> <C> <C> <C>
The Arbour Hospital......................... Boston, Massachusetts 118 Owned
The BridgeWay(1)............................ North Little Rock, Arkansas 70 Leased
Del Amo Hospital............................ Torrance, California 166 Owned
Forest View Hospital........................ Grand Rapids, Michigan 62 Owned
Fuller Memorial Psychiatric Hospital........ South Attleboro, 82 Owned
Massachusetts
Glen Oaks Hospital.......................... Greenville, Texas 54 Owned
HRI Hospital................................ Brookline, Massachusetts 68 Owned
KeyStone Center(6).......................... Wallingford, Pennsylvania 84 Owned
La Amistad Residential Treatment Center..... Maitland, Florida 56 Owned
Meridell Achievement Center(1).............. Austin, Texas 114 Leased
The Pavilion................................ Champaign, Illinois 46 Owned
River Crest Hospital........................ San Angelo, Texas 80 Owned
River Oaks Hospital......................... New Orleans, Louisiana 126 Owned
Turning Point Hospital(6)................... Moultrie, Georgia 59 Owned
Two Rivers Psychiatric Hospital............. Kansas City, Missouri 80 Owned
</TABLE>
AMBULATORY SURGERY CENTERS
<TABLE>
<CAPTION>
NAME OF FACILITY(8) LOCATION
<S> <C>
Arkansas Surgery Center of Fayetteville................ Fayetteville, Arkansas
Goldring Surgical and Diagnostic Center................ Las Vegas, Nevada
M.D. Physicians Surgicenter of Midwest City............ Midwest City, Oklahoma
Outpatient Surgical Center of Ponca City............... Ponca City, Oklahoma
St. George Surgical Center............................. St. George, Utah
Seacoast Outpatient Surgical Center.................... Somersworth, New Hampshire
Surgery Centers of the Desert.......................... Rancho Mirage, California Palm
Springs, California
The Surgery Center of Chalmette........................ Chalmette, Louisiana
Surgery Center of Littleton............................ Littleton, Colorado
Surgery Center of Springfield.......................... Springfield, Missouri
Surgery Center of Texas................................ Odessa, Texas
Surgical Center of New Albany.......................... New Albany, Indiana
Surgery Center of Corona............................... Corona, California
</TABLE>
26
<PAGE> 28
RADIATION ONCOLOGY CENTERS
<TABLE>
<CAPTION>
NAME OF FACILITY LOCATION
<S> <C>
Auburn Regional Center for Cancer Care................. Auburn, Washington
Bowling Green Radiation Oncology Associates(7)......... Bowling Green, Kentucky
Capital Radiation Therapy Center(7).................... Frankfort, Kentucky
Columbia Radiation Oncology............................ Washington, D.C.
Danville Radiation Therapy Center(7)................... Danville, Kentucky
Glasgow Radiation Oncology Associates(7)............... Glasgow, Kentucky
Madison Radiation Oncology Associates(9)............... Madison, Indiana
McAllen Medical Center Cancer Institute................ McAllen, Texas
Regional Cancer Center at Wellington................... West Palm Beach, Florida
Southern Indiana Radiation Therapy(9).................. Jeffersonville, Indiana
</TABLE>
- ------------
(1) Real property leased from UHT.
(2) Real property leased with an option to purchase.
(3) General partnership interest in limited partnership.
(4) Includes Chalmette Hospital, a 114-bed rehabilitation facility. The
Company owns the LaPlace real property and leases the Chalmette real property
from UHT.
(5) Managed Hospital. The Company has entered into an agreement to acquire
this facility. See "The Company -- Recent and Proposed Acquisitions and
Development Activities."
(6) Addictive disease facility.
(7) Managed Facility. A partnership, in which the Company is the general
partner, owns the real property.
(8) Each facility other than Goldring Surgical and Diagnostic Center and
The Surgery Center of Chalmette are owned in partnership form with the Company
owning general and limited partnership interests in a limited partnership. The
real property is leased from third parties.
(9) A partnership in which the Company is the general partner owns the real
property.
27
<PAGE> 29
BED UTILIZATION AND OCCUPANCY RATES
The following table shows the bed utilization and occupancy rates for the
hospitals operated by the Company for the years indicated, excluding information
relating to hospitals no longer owned by the Company as of December 31, 1994.
Accordingly, the information is presented on a basis different from that used in
preparing the historical financial information included or incorporated by
reference in this Prospectus. 1994 (Pro forma) assumes the effect of the
Adjustments as if they occurred on January 1, 1994.
<TABLE>
<CAPTION>
1994
1990 1991 1992 1993 1994 (PRO FORMA)
-------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Average Licensed Beds
Acute Care Hospitals......... 2,292 2,292 2,292 2,425 2,491 2,998
Behavioral Health Centers.... 1,155 1,162 1,172 1,134 1,137 1,137
Average Available Beds (1)
Acute Care Hospitals......... 1,980 1,980 1,980 2,108 2,177 2,580
Behavioral Health Centers.... 1,151 1,156 1,115 1,132 1,137 1,137
Hospital Admissions
Acute Care Hospitals......... 67,472 70,820 71,042 72,578 78,588 96,296
Behavioral Health Centers.... 8,437 9,520 9,929 11,627 12,964 12,964
Average Length of Patient Stay
(Days)
Acute Care Hospitals......... 5.6 5.5 5.4 5.3 5.2 5.3
Behavioral Health Centers.... 25.5 22.9 20.0 15.8 13.8 13.8
Patient Days (2)
Acute Care Hospitals......... 374,896 387,641 385,652 385,863 409,091 512,372
Behavioral Health Centers.... 215,439 218,061 198,116 184,264 179,238 179,238
Occupancy Rate (3):
Licensed Beds
Acute Care Hospitals......... 45% 46% 46% 44% 45% 47%
Behavioral Health Centers.... 51% 51% 46% 45% 43% 43%
Available Beds
Acute Care Hospitals......... 52% 54% 53% 50% 51% 54%
Behavioral Health Centers.... 51% 52% 49% 45% 43% 43%
</TABLE>
- ------------
(1) "Average Available Beds" is the number of beds which are actually in
service at any given time for immediate patient use with the necessary equipment
and staff available for patient care. A hospital may have appropriate licenses
for more beds than are in service for a number of reasons, including lack of
demand, incomplete construction, and anticipation of future needs.
(2) "Patient Days" is the aggregate sum for all patients of the number of
days that hospital care is provided to each patient.
(3) "Occupancy Rate" is calculated by dividing average patient days (total
patient days divided by the total number of days in the period) by the number of
average beds, either available or licensed.
SOURCES OF REVENUE
The Company receives payment for services rendered from private insurers,
including managed care plans, the Federal government under the Medicare program,
state governments under their respective Medicaid programs and directly from
patients. All of the Company's acute care hospitals and most of the Company's
behavioral health centers are certified as providers of Medicare and Medicaid
services by the appropriate governmental authorities. The requirements for
certification are subject to change, and, in order to remain qualified for such
programs, it may be necessary for the Company to
28
<PAGE> 30
make changes from time to time in its facilities, equipment, personnel and
services. Although the Company intends to continue in such programs, there is no
assurance that it will continue to qualify for participation.
The sources of the Company's hospital revenues are charges related to the
services provided by the hospitals and their staffs, such as radiology,
operating rooms, pharmacy, physiotherapy and laboratory procedures, and basic
charges for the hospital room and related services such as general nursing care,
meals, maintenance and housekeeping. Hospital revenues depend upon the occupancy
for inpatient routine services, the extent to which ancillary services and
therapy programs are ordered by physicians and provided to patients, the volume
of out-patient procedures and the charges or negotiated payment rates for such
services. Charges and reimbursement rates for inpatient routine services vary
depending on the type of bed occupied (e.g., medical/surgical, intensive care or
psychiatric) and the geographic location of the hospital.
The following tables show approximate percentages of gross revenue derived
by the Company's acute care hospitals and behavioral health centers owned as of
December 31, 1994 since their respective dates of acquisition by the Company
from third party sources and from all other sources during the five years ended
December 31, 1994. 1994 (Pro forma) assumes the effect of the Adjustments as if
they occurred on January 1, 1994.
PERCENTAGE OF GROSS REVENUES OF ACUTE CARE HOSPITALS
<TABLE>
<CAPTION>
1994
1990 1991 1992 1993 1994 (PRO FORMA)
------ ------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Third Party Payors:
Blue Cross.................. 0.9% 1.4% 0.6% 0.7% 2.3% 2.0%
Medicare.................... 43.2% 44.4% 44.3% 43.8% 41.7% 43.6%
Medicaid.................... 7.0% 8.5% 11.0% 12.0% 12.8% 13.0%
Other Sources (including
patients and private
insurance carriers)......... 48.9% 45.7% 44.1% 43.5% 43.2% 41.4%
------ ------ ------ ------ ------ ------
Total:................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ====== ======
</TABLE>
PERCENTAGE OF GROSS REVENUES OF BEHAVIORAL HEALTH CENTERS
<TABLE>
<CAPTION>
1994
1990 1991 1992 1993 1994 (PRO FORMA)
------ ------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Third Party Payors:
Blue Cross.................. 13.1% 11.3% 10.1% 8.7% 6.7% 6.7%
Medicare.................... 14.6% 17.6% 20.9% 22.1% 25.2% 25.2%
Medicaid.................... 9.3% 4.8% 5.4% 14.2% 20.0% 20.0%
Other Sources (including
patients and private
insurance carriers)......... 63.0% 66.3% 63.6% 55.0% 48.1% 48.1%
------ ------ ------ ------ ------ ------
Total:................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ====== ======
</TABLE>
Net revenues of the Company are reported at the estimated net realizable
amounts from patients, third-party payors, and others for services rendered,
including estimated retroactive adjustments under reimbursement agreements with
third-party payors. The Company does not record net revenue by payor other than
for Medicare and Medicaid. These net revenues are accrued on an estimated basis
in the period the related services are rendered and adjusted in future periods
as final settlements are determined. Medicare and Medicaid net revenues
represented 39%, 43%, 44% and 46% of net patient revenues for the years 1992,
1993, 1994 and 1994 (Pro forma), respectively, excluding the Special Medicaid
Reimbursements.
29
<PAGE> 31
MEDICAL STAFF AND EMPLOYEES
The Company's hospitals are staffed by licensed physicians who have been
admitted to the medical staff of individual hospitals. With a few exceptions,
physicians are not employees of the Company's hospitals and members of the
medical staffs of the Company's hospitals also serve on the medical staffs of
hospitals not owned by the Company and may terminate their affiliation with the
Company's hospitals at any time. Each of the Company's hospitals is managed on a
day-to-day basis by a managing director employed by the Company. In addition, a
Board of Governors, including members of the hospital's medical staff, governs
the medical, professional and ethical practices at each hospital. The Company's
facilities had approximately 10,000 employees at June 1, 1995, of whom 7,500
were employed full-time.
614 of the Company's employees at four of its hospitals are unionized. At
Valley Hospital, unionized employees belong to the Culinary Workers and
Bartenders Union and the International Union of Operating Engineers. Registered
nurses at Auburn General Hospital located in Washington State, are represented
by the Washington State Nurses Association, the practical nurses at Auburn are
represented by the United Food and Commercial Workers and licensed practical
nurses at Auburn are represented by the Service Employees International Union,
Local 6. In addition, at Auburn, the technical employees are represented by the
United Food and Commercial Workers, and the service employees are represented by
the Service Employees International Union. The registered nurses, licensed
practical nurses, certain technicians and therapists, and housekeeping employees
at HRI Hospital in Boston are represented by the Service Employees International
Union. All full-time and regular part-time professional employees of La Amistad
Residential Treatment Center in Maitland, Florida are represented by the United
Nurses of Florida/United Health Care Employees Union. The Company believes that
its relations with its employees are satisfactory.
COMPETITION
In all geographical areas in which the Company operates, there are other
hospitals which provide services comparable to those offered by the Company's
hospitals, some of which are owned by governmental agencies and supported by tax
revenues, and others of which are owned by nonprofit corporations and may be
supported to a large extent by endowments and charitable contributions. Such
support is not available to the Company's hospitals. Certain of the Company's
competitors have greater financial resources, are better equipped and offer a
broader range of services than the Company. Outpatient treatment and diagnostic
facilities, outpatient surgical centers and freestanding ambulatory surgical
centers also impact the healthcare marketplace. In recent years, competition
among healthcare providers for patients has intensified as hospital occupancy
rates in the United States have declined due to, among other things, regulatory
and technological changes, increasing use of managed care payment systems, cost
containment pressures, a shift toward outpatient treatment and an increasing
supply of physicians. The Company's strategies are designed, and management
believes that its facilities are positioned, to be competitive under these
changing circumstances.
REGULATION AND OTHER FACTORS
Within the statutory framework of the Medicare and Medicaid programs, there
are substantial areas subject to administrative rulings, interpretations and
discretion which may affect payments made under either or both of such programs
and reimbursement is subject to audit and review by third party payors.
Management believes that adequate provision has been made for any adjustments
that might result therefrom.
The Federal government makes payments to participating hospitals under its
Medicare program based on various formulae. The Company's general acute care
hospitals are subject to a prospective payment system ("PPS"). PPS pays
hospitals a predetermined amount per diagnostic related group ("DRG") based upon
a hospital's location and the patient's diagnosis.
30
<PAGE> 32
The deficit-reduction legislation passed by Congress in 1987 limits the
increases in PPS reimbursement based on the rate of inflation and the location
of hospitals. Psychiatric hospitals, which are exempt from PPS, are cost
reimbursed by the Medicare program, but are subject to a per discharge
limitation, calculated based on the hospital's first full year in the Medicare
program. Capital related costs are exempt from this limitation.
On August 30, 1991, the Health Care Financing Administration issued final
Medicare regulations establishing a prospective payment methodology for
inpatient hospital capital-related costs. These regulations apply to hospitals
which are reimbursed based upon the prospective payment system and took effect
for cost years beginning on or after October 1, 1991. For each of the Company's
hospitals, the new methodology began on January 1, 1992.
The regulations provide for the use of a 10-year transition period in which
a blend of the old and new capital payment provisions will be utilized. One of
two methodologies will apply during the 10-year transition period: if the
hospital's hospital-specific capital rate exceeds the federal capital rate, the
hospital will be paid on the basis of a "hold harmless" methodology, which is a
blend of actual cost reimbursement and a prospectively determined national
federal capital rate; or, with limited exceptions, if the hospital-specific rate
is below the federal capital rate, the hospital will receive payments based upon
a "fully prospective" methodology, which is a blend of the hospital's actual
base year capital rate and a prospectively determined national federal capital
rate. Each hospital's hospital-specific rate was determined based upon allowable
capital costs incurred during the "base year", which, for all of the Company's
hospitals, is the year ended December 31, 1990. All of the Company's hospitals
are paid under the "hold harmless" methodology except for one hospital, which is
paid under the "fully prospective" methodology.
Within certain limits, a hospital can manage its costs, and, to the extent
this is done effectively, a hospital may benefit from the DRG system. However,
many hospital operating costs are incurred in order to satisfy licensing laws,
standards of the Joint Commission on the Accreditation of Healthcare
Organizations and quality of care concerns. In addition, hospital costs are
affected by the level of patient acuity, occupancy rates and local physician
practice patterns, including length of stay judgments and number and type of
tests and procedures ordered. A hospital's ability to control or influence these
factors which affect costs is, in many cases, limited.
There have been additional proposals either proposed by the Administration
or in Congress to reduce the funds available for the Medicare and Medicaid
programs and to change the method by which hospitals are reimbursed for services
provided to Medicare and Medicaid patients, including free indigent care. The
House of Representatives and the Senate each recently passed bills which would
limit the future rate of growth of the Medicare program from 10% annually to 7%
annually and in the Medicaid Program from 10% annually to 4% annually (under the
House of Representatives' plan). In addition, state governments may, in the
future, reduce funds available under the Medicaid programs which they fund in
part or impose additional restrictions on the utilization of hospital services.
A number of legislative initiatives were proposed in 1994, and others may be
proposed again in 1995, which if enacted would result in major changes in the
healthcare system, nationally and/or at the state level. Several of these
proposals limit the rate of increase in spending for Medicare and other
healthcare costs as part of overall deficit reduction measures. The Company is
unable to predict which bill, if any, will be adopted, or the ultimate impact
its adoption would have on the Company; however, new legislation, if passed,
could have a material adverse effect on the Company's future revenues.
In addition to federal health reform efforts, several states have adopted
or are considering healthcare reform legislation. Several states are planning to
consider wider use of managed care for their Medicaid populations and providing
coverage for some people who presently are uninsured. In Texas, a law was
recently passed which mandates that the State apply for a waiver from current
Medicaid regulations to allow it to require that certain Medicaid participants
be serviced through managed care providers. The Company is unable to predict
whether Texas will be granted such a waiver or the effect on the Company's
business of such law. A number of other states are considering
31
<PAGE> 33
the enactment of managed care initiatives designed to provide low-cost coverage.
The Company currently operates two behavioral health centers with a total of 186
beds in Massachusetts, which has mandated hospital rate-setting. The Company
also operates three hospitals containing an aggregate of 378 beds, and manages,
and has agreed to acquire, one hospital with 512 beds, in Florida that are
subject to a mandated form of rate-setting if increases in hospital revenues per
admission exceed certain target percentages. The Company does not believe that
such regulation has had a material adverse effect on its operations.
Pursuant to Federal legislation, in general, the Federal government is
required to match state funds applied to state Medicaid programs. Several states
have initiated programs under which certain hospital providers are taxed to
generate Medicaid funds which must be matched by the Federal government. New
legislation passed by Congress on November 27, 1991, limits each state's use of
provider taxes after 1994. State programs involving provider taxes in which UHS'
hospitals are participants are in place in Texas, Louisiana, Missouri, Nevada
and Washington. Included in the Company's 1994 financial results is revenue
attributable to these programs, some of which expired in 1994. The Company
cannot predict whether the remaining programs will continue beyond the scheduled
termination dates.
Under the Omnibus Budget Reconciliation Act of 1993 ("OBRA"), enacted by
Congress in late 1993, and effective January 1, 1995, physicians are precluded
from referring Medicare and Medicaid patients for a wide range of services where
the physician has an ownership interest or investment interest in, or
compensation arrangement with, an entity that provides such services. The
legislation includes certain exceptions including, for example, where the
referring physician has an ownership interest in a hospital as a whole or an
ambulatory surgery center if the physician performs services at the center. In
addition, all Medicare providers and suppliers are subject to certain reporting
and disclosure requirements.
In 1991, 1992 and 1993, the Inspector General of the Department of Health
and Human Services ("HHS") issued regulations which provide for "safe harbors";
if an arrangement or transaction meets each of the stipulations established for
a particular safe harbor, the arrangement will not be subject to challenge by
the Inspector General. If an arrangement does not meet the safe harbor criteria,
it will be analyzed under its particular facts and circumstances to determine
whether it violates the Medicare anti-kickback statute which prohibits, in
general, fraudulent and abusive practices, and enforcement action may be taken
by the Inspector General. In addition to the investment interests safe harbor,
other safe harbors include space rental, equipment rental, personal
service/management contracts, sales of a physician practice, referral services,
warranties, employees, discounts and group purchasing arrangements, among
others.
The Company does not anticipate that either the OBRA provisions or the safe
harbor regulations will have material adverse effects upon its operations.
Several states, including Florida and Nevada, have passed new legislation
which limits physician ownership in medical facilities providing imaging
services, rehabilitation services, laboratory testing, physical therapy and
other services. This legislation is not expected to significantly affect the
Company's operations.
All hospitals are subject to compliance with various federal, state and
local statutes and regulations and receive periodic inspection by state
licensing agencies to review standards of medical care, equipment and
cleanliness. The Company's hospitals must comply with the licensing requirements
of federal, state and local health agencies, as well as the requirements of
municipal building codes, health codes and local fire departments. In granting
and renewing licenses, a department of health considers, among other things, the
physical buildings and equipment, the qualifications of the administrative
personnel and nursing staff, the quality of care and continuing compliance with
the laws and regulations relating to the operation of the facilities. State
licensing of facilities is a prerequisite to certification under the Medicare
and Medicaid programs. Various other licenses and permits are also required in
order to dispense narcotics, operate pharmacies, handle radioactive materials
and operate certain
32
<PAGE> 34
equipment. All the Company's eligible hospitals have been accredited by the
Joint Commission on the Accreditation of Healthcare Organizations.
The Social Security Act and regulations thereunder contain numerous
provisions which affect the scope of Medicare coverage and the basis for
reimbursement of Medicare providers. Among other things, this law provides that
in states which have executed an agreement with the Secretary of the Department
of Health and Human Services (the "Secretary"), Medicare reimbursement may be
denied with respect to depreciation, interest on borrowed funds and other
expenses in connection with capital expenditures which have not received prior
approval by a designated state health planning agency. Additionally, many of the
states in which the Company's hospitals are located have enacted legislation
requiring certificates of need ("CON") as a condition prior to hospital capital
expenditures, construction, expansion, modernization or initiation of major new
services. Failure to obtain necessary state approval can result in the inability
to complete an acquisition or change of ownership, the imposition of civil or,
in some cases, criminal sanctions, the inability to receive Medicare or Medicaid
reimbursement or the revocation of a facility's license. The Company has not
experienced and does not expect to experience any material adverse effects from
those requirements.
Health planning statutes and regulatory mechanisms are in place in many
states in which the Company operates. These provisions govern the distribution
of healthcare services, the number of new and replacement hospital beds,
administer required state CON laws, contain healthcare costs, and meet the
priorities established therein. Significant CON reforms have been proposed in a
number of states, including increases in the capital spending thresholds and
exemptions of various services from review requirements. The Company is unable
to predict the impact of these changes upon its operations.
Federal regulations provide that admissions and utilization of facilities
by Medicare and Medicaid patients must be reviewed in order to insure efficient
utilization of facilities and services. The law and regulations require Peer
Review Organizations ("PROs") to 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. PROs may deny payment for services provided,
assess fines and also have the authority to recommend to HHS that a provider
that is in substantial non-compliance with the standards of the PRO be excluded
from participating in the Medicare program. The Company has contracted with PROs
in each state where it does business as to the scope of such functions.
The Company's healthcare operations generate medical waste that must be
disposed of in compliance with federal, state and local environmental laws,
rules and regulations. In 1988, Congress passed the Medical Waste Tracking Act.
Infectious waste generators, including hospitals, now face substantial penalties
for improper arrangements regarding disposal of medical waste, including civil
penalties of up to $25,000 per day of noncompliance, criminal penalties of
$150,000 per day, imprisonment, and remedial costs. The comprehensive
legislation establishes programs for medical waste treatment and disposal in
designated states. The legislation also provides for sweeping inspection
authority in the Environmental Protection Agency, including monitoring and
testing. The Company believes that its disposal of such wastes is in compliance
with all state and federal laws.
LIABILITY INSURANCE
For most of its hospitals, the Company is self-insured for its general
liability risks for claims limited to $5 million per occurrence and for its
professional liability risks for claims limited to $25 million per occurrence.
Coverage in excess of these limits up to $100 million is maintained with major
insurance carriers. During 1994 and 1993, the Company purchased general and
professional liability occurrence policies with commercial insurers for two of
its acute care facilities and six of its behavioral health centers. These
policies include coverage up to $25 million per occurrence for the acute care
hospitals, and from $1 million to $2 million per occurrence for the behavioral
health centers, subject to certain aggregate limits, in each case without the
payment of any deductible, for general and professional liability risks.
Although the Company feels that it currently has adequate insurance coverage,
the
33
<PAGE> 35
commercial policies are limited to one-year terms and require annual
renegotiation or replacement. The Company has no assurance that it will be able
to maintain such insurance in the future on terms acceptable to the Company.
RELATIONS WITH UNIVERSAL HEALTH REALTY INCOME TRUST
The Company serves as advisor to Universal Health Realty Income Trust
("UHT"), which leases to the Company the real property of 7 facilities operated
by the Company. In addition, UHT holds interests in properties owned by
unrelated companies. The Company receives a fee for its advisory services based
on the value of UHT's assets. In addition, certain of the directors and officers
of the Company serve as trustees and officers of UHT. As of June 1, 1995, the
Company owned 7.7% of UHT's outstanding shares and the Company currently has an
option to purchase UHT shares in the future at fair market value to enable it to
maintain a 5% interest.
FINANCING ARRANGEMENTS
The following summarizes the material long-term indebtedness of the
Company. This summary is not a complete description of such indebtedness. Copies
of the material agreements relating to such indebtedness have been filed with
the Commission and the descriptions set forth below are qualified in their
entirety by reference to such agreements.
COMMERCIAL PAPER PROGRAM
The Company has a loan facility pursuant to which it may borrow on a
non-recourse basis up to $50 million, secured by patients accounts receivable.
The Company has sufficient accounts receivable to support a larger program, and,
upon the mutual consent of the Company and its participating lenders, the
commitment can be increased. A commitment fee of 0.76% is required on this
facility. At May 31, 1995, $32,385,000 was available for borrowing under the
facility. The Company's average interest rate, including the commitment fee,
over the five months ended May 31, 1995 was 7.34%.
REVOLVING CREDIT AGREEMENT
The Company has a $225 million unsecured non-amortizing revolving credit
agreement with Morgan Guaranty Trust Company of New York, as agent, and certain
other lenders. Obligations under this agreement are guaranteed by UHS'
subsidiaries. The agreement provides for an initial commitment of $225 million
which will be reduced to $210 million on March 31, 1998, and to $185 million on
March 31, 1999. The agreement will expire on March 31, 2000. Loans under the
agreement bear interest at a rate equal to, at the option of the Company, either
(i) the prime rate or the sum of the certificate of deposit rate and between
0.625% to 1.125%, or (ii) in the case of Eurodollar loans, the sum of the
Eurodollar rate and between 0.500% to 1.000%. A commitment fee ranging from
0.125% to 0.375% is required for the unused portion of the commitment. The
margin over the certificate of deposit, the margin over the Eurodollar rate and
the commitment fee are based on leverage and coverage ratios. In addition, the
agreement contains a provision whereby half of the net consideration in excess
of $25 million from the disposition of assets will be used to reduce the
commitment. At May 31, 1995, $225 million was available for borrowing under the
agreement and the commitment will be reduced to $125 million in the event that
the acquisition of Manatee Memorial Hospital is not consummated by December 31,
1995.
The agreement limits the Company's ability to incur indebtedness, to
declare or pay dividends, to exceed capital expenditure limits, to prepay
subordinated debt, to purchase or redeem the Company's stock, to use proceeds of
the loans other than for its general corporate purposes, to make (additional)
acquisitions, to create or incur liens on assets, or to merge, consolidate,
reorganize, and to liquidate. Also, the agreement requires that the Company meet
certain financial tests, and provides the lenders with the right to terminate
the commitment and to require the payment of all of the amounts outstanding
under the agreement in the event the Company fails to pay amount when due, the
34
<PAGE> 36
Company makes material misrepresentations in its warranties or representations,
the Company commences a voluntary case in bankruptcy or has an involuntary case
in bankruptcy commenced against it, any person acquires 25% or more of its
voting common stock, or the Company fails to perform any covenant pursuant to
the agreement.
OTHER
The Company has an aggregate of $21,724,000 in outstanding revenue bonds at
varying maturities through 2015 secured by liens on the property of four
facilities. Interest is at floating rates which ranged from 5.5% to 6.9% in 1994
and one bond is at a fixed interest rate of 8.3%. The Company also has various
mortgages, notes payable and demand credit facilities which aggregated
approximately $13,300,000 at May 31, 1995.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be issued under the indenture dated as of July 15,
1995 (the "Indenture"), between UHS and PNC Bank, National Association, as
Trustee (the "Trustee"). A copy of the form of Indenture has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
summaries of certain provisions of the Indenture hereunder do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all of the provisions of the Indenture, including the definitions therein of
certain terms and those terms made part of the Indenture by reference to the
Trust Indenture Act of 1939 as in effect on the date of the Indenture. Certain
capitalized terms used below and not defined have the respective meanings
assigned thereto in the Indenture.
GENERAL
The Indenture provides for the issuance by UHS from time to time of its
Debt Securities in one or more Series. The Indenture does not limit the amount
of Debt Securities which may be issued thereunder, and provides that the
specific terms of any Series of Debt Securities shall be set forth in, or
determined pursuant to, an Authorizing Resolution and/or a supplemental
indenture, if any, relating to such Series.
The specific terms of the Series of Debt Securities in respect of which
this Prospectus is being delivered are set forth in the accompanying Supplement
relating thereto, including the following, as applicable:
1. the title of the Series;
2. the aggregate principal amount of the Debt Securities of the Series;
3. the date or dates on which principal and premium, if any, on the Debt
Securities of the Series is payable, and, if applicable, the terms on which such
maturity may be extended;
4. the rate or rates of interest (if any) on the Debt Securities of such
Series (whether floating or fixed), the provisions, if any, for determining such
interest rate or rates and adjustments thereto, the interest payment dates and
the regular record dates with respect thereto;
5. the currency(ies) in which principal, premium, if any, and interest are
payable by UHS, if other than United States dollars;
6. provisions relating to redemption, at the option of UHS, pursuant to a
sinking fund or otherwise or at the option of a Holder and the respective
redemption dates and redemption prices and the terms and conditions for such
redemption;
7. additional or different covenants or Events of Default, if any, with
respect to the Debt Securities of such Series in addition to or in lieu of the
covenants and Events of Default specified in the Indenture; and
35
<PAGE> 37
8. if less than 100% of the principal amount of Debt Securities of such
Series is payable on acceleration or provable in bankruptcy (which may be the
case for securities issued with original issue discount), a schedule of the
amounts which would be so payable or provable from time to time.
The Debt Securities will be issued only in registered form, without
coupons, in denominations of $1,000 and integral multiples thereof, or in such
other currencies or denominations as may be specified in, or pursuant to, the
Authorizing Resolution and/or supplemental indenture relating to such Series of
Debt Securities. The Debt Securities will be senior unsecured obligations of
UHS.
Except as otherwise specified in the Authorizing Resolution and/or
supplemental indenture relating to the Debt Securities in respect of which this
Prospectus is being delivered, principal and interest will be payable, and the
Debt Securities will be transferable, at the office of the Trustee in New York,
New York. At UHS' option, interest may be paid by check mailed to the registered
holders of the Debt Securities. UHS may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection with certain
transfers or exchanges. Initially, the Trustee will act as paying agent and
registrar under the Indenture. UHS may act as paying agent and registrar and may
change any paying agent or registrar without notice.
Except as otherwise specified in the Authorizing Resolution and/or
supplemental indenture relating to the Debt Securities in respect of which this
Prospectus is being delivered, the Debt Securities do not contain event risk
provisions designed to require UHS to redeem the Debt Securities or take other
actions in response to highly leveraged transactions, change in credit rating or
other similar occurrences.
The Debt Securities of a Series may be issued in whole or in part in the
form of one or more global securities ("Global Securities") that will be
deposited with, or on behalf of, a depositary (the "Depositary") identified in
the Supplement relating to such Series. Global Securities may be issued only in
fully registered form and either temporary or permanent form. Unless and until
it is exchanged in whole or in part for the individual Debt Securities
represented thereby, a Global Security (i) may not be transferred except as a
whole and (ii) may only be transferred (A) by the Depositary for such Global
Security to its nominee, (B) by a nominee of such Depositary to such Depositary
or another nominee of such Depositary or (C) by such Depositary or any such
nominee to a successor Depositary or nominee of such successor Depositary. The
specific terms of the depositary arrangement with respect to a Series of Debt
Securities will be described in the Supplement relating to such Series.
DEFINITIONS
"Attributable Debt" means, with respect to any Sale and Leaseback
Transaction as of any particular time, the present value (discounted at the rate
of interest implicit in the terms of the lease) of the obligations of the lessee
under such lease for net rental payments during the remaining term of the lease
(including any period for which such lease has been extended or may, at the
option of UHS, be extended).
"Consolidated Net Tangible Assets" means the total assets appearing on a
consolidated balance sheet of UHS and its Consolidated Subsidiaries (as defined
in the Indenture), less, without duplication: (i) current liabilities; (ii) all
intangible assets and deferred charges; and (iii) deferred income tax assets.
"Funded Debt" means all Indebtedness maturing one year or more from the
date of the creation thereof, all Indebtedness directly or indirectly renewable
or extendible, at the option of the debtor, by its terms or by the terms of any
instrument or agreement relating thereto, to a date one year or more from the
date of the creation thereof, and all Indebtedness under a revolving credit or
similar agreement obligating the lender or lenders to extend credit over a
period of one year or more, even though such Indebtedness may also conform to
the definition of Short-Term Borrowing (as defined in the Indenture).
36
<PAGE> 38
"Indebtedness" means (i) any liability of any person (a) for borrowed
money, (b) evidenced by a note, debenture or similar instrument (including a
purchase money obligation) given in connection with the acquisition of any
property or assets (other than inventory or similar property acquired in the
ordinary course of business), including securities, or (c) for the payment of
money relating to a Capitalized Lease Obligation (as defined in the Indenture);
(ii) any guarantee by any person of any liability of others described in the
preceding clause (i); and (iii) any amendment, renewal, extension or refunding
of any liability of the types referred to in clauses (i) and (ii) above.
"Lien" means any mortgage, lien, pledge, charge, or other security interest
or encumbrance of any kind.
"Principal Property of UHS" shall mean any property, plant, equipment or
facility of UHS or any Subsidiary of UHS, except that any property, plant,
equipment or facility of UHS or any Subsidiary of UHS which does not equal or
exceed 3% of Consolidated Net Tangible Assets shall not constitute a Principal
Property of UHS unless the Board of Directors or management of UHS deems it to
be material to UHS and its Subsidiaries, taken as a whole. Principal Property of
UHS shall not include accounts receivable or inventory of UHS or any Subsidiary
of UHS; provided, however, that individual items of property, plant, equipment
or individual facilities of UHS or any Subsidiary of UHS shall not be combined
in determining whether such property, plant, equipment or facility constitutes a
Principal Property of UHS, whether or not they are the subject of the same
transaction or series of transactions.
"Sale and Leaseback Transaction" is defined in the "Restrictions on Sales
and Leasebacks" covenant described below.
"Stated Maturity" when used with respect to any security or any installment
of interest thereon means the date specified in such security as the fixed date
on which the principal of such security or such installment of interest is due
and payable.
"Subsidiary" means (i) a corporation a majority of whose capital stock with
voting power, under ordinary circumstances, to elect directors is at the time,
directly or indirectly, owned by UHS, by UHS and a Subsidiary (or Subsidiaries)
of UHS or by a Subsidiary (or Subsidiaries) of UHS or (ii) any person (other
than a corporation) in which UHS, a Subsidiary (or Subsidiaries) of UHS or UHS
and a Subsidiary (or Subsidiaries) of UHS, directly or indirectly, at the date
of determination thereof has at least majority ownership interest.
RESTRICTIONS ON LIENS
UHS will not, and will not permit any Subsidiary of UHS to, incur, create,
assume or otherwise become liable with respect to any Indebtedness secured by a
Lien, or guarantee any Indebtedness with a guarantee which is secured by a Lien,
on any Principal Property of UHS or any shares of Capital Stock or Indebtedness
of any Consolidated Subsidiary, without effectively providing that the Debt
Securities (together with, if UHS shall so determine, any other Indebtedness of
UHS then existing or thereafter created ranking equally with the Debt
Securities) shall be secured equally and ratably with (or, at the option of UHS,
prior to) such secured Indebtedness so long as such secured Indebtedness shall
be so secured; provided, however, that this covenant will not apply to
Indebtedness secured by: (a) Liens existing on the date of the Indenture; (b)
Liens in favor of governmental bodies to secure progress, advance or other
payments; (c) Liens existing on property, Capital Stock or Indebtedness at the
time of acquisition thereof (including acquisition through lease, merger or
consolidation) or Liens to secure the payment of all or any part of the purchase
price thereof or the purchase price of construction, installation, renovation,
improvement or development thereon or thereof or to secure any Indebtedness
incurred prior to, at the time of, or within 360 days after the later of the
acquisition, completion of such construction, installation, renovation,
improvement or development or the commencement of full operation of such
property or within 360 days after the acquisition of such Capital Stock or
Indebtedness for the purpose of financing all or any part of the purchase price
thereof; (d) Liens securing Indebtedness in an aggregate amount which, at the
time of incurrence and together with all outstanding Attributable Debt in
respect of Sale and Leaseback Transactions permitted by clause
37
<PAGE> 39
(y) in the "Restrictions on Sales and Leasebacks" covenant, does not exceed 5%
of the Consolidated Net Tangible Assets of UHS and its Subsidiaries; and (e) any
extension, renewal or replacement (or successive extensions, renewals or
replacements), as a whole or in part, of any Liens referred to in the foregoing
clauses (a) through (d) inclusive; provided, that such extension, renewal or
replacement of such Lien is limited to all or any part of the same property,
Capital Stock or Indebtedness that secured the Lien extended, renewed or
replaced (plus improvements on such property), and that such secured
Indebtedness at such time is not increased.
RESTRICTIONS ON SALES AND LEASEBACKS
UHS will not, and will not permit any Subsidiary of UHS to, sell or
transfer any Principal Property of UHS, with UHS or such Subsidiary taking back
a lease of such Principal Property of UHS (a "Sale and Leaseback Transaction"),
unless (i) such Principal Property of UHS is sold within 360 days from the date
of acquisition of such Principal Property of UHS or the date of the completion
of construction or commencement of full operations of such Principal Property of
UHS, whichever is later, or (ii) UHS or such Subsidiary, within 120 days after
such sale, applies or causes to be applied to the retirement of Funded Debt of
UHS or any Subsidiary (other than Funded Debt of UHS which by its terms or the
terms of the instrument pursuant to which it was issued is subordinate in right
of payment to the Debt Securities) an amount not less than the greater of (A)
the net proceeds of the sale of such Principal Property of UHS or (B) the fair
value (as determined in any manner approved by the Board of Directors) of such
Principal Property of UHS. The provisions of this covenant shall not prevent a
Sale and Leaseback Transaction (x) if the lease entered into by UHS or such
Subsidiary in connection therewith is for a period, including renewals, of not
more than 36 months, (y) if UHS or such Subsidiary would, at the time of
entering into such Sale and Leaseback Transaction, be entitled, with out equally
and ratably securing the Debt Securities, to create or assume a Lien on such
Principal Property of UHS securing Indebtedness in an amount at least equal to
the Attributable Debt in respect of such Sale and Leaseback Transaction pursuant
to clause (d) above in the "Restrictions on Liens" covenant or (z) involving a
Sale and Leaseback of a Principal Property of UHS to UHT not exceeding 5% of
Consolidated Net Tangible Assets.
RANKING
The Debt Securities constitute senior unsecured obligations of UHS. As of
May 31, 1995, UHS had approximately $35 million of indebtedness outstanding
which would rank pari passu with the Debt Securities. Creditors of UHS'
Subsidiaries will have a claim on the assets of such Subsidiaries which will be
prior to the holders of the Debt Securities. Indebtedness under UHS' revolving
credit agreement is guaranteed by Subsidiaries of UHS. Except as otherwise
specified in the Authorizing Resolution and/or supplemental indenture relating
to the Debt Securities in respect of which this Prospectus is being delivered,
there are no limitations in the Indenture relating to the Debt Securities on the
amount of additional Indebtedness which may rank pari passu with the Debt
Securities or on the amount of Indebtedness, secured or otherwise, which may be
incurred or preferred stock which may be issued by any of UHS' Subsidiaries;
provided, that the incurrence of secured Indebtedness by UHS is subject to the
limitations set forth in the "Restrictions on Liens" covenant.
DISCHARGE
Except as specifically set forth in the Indenture, UHS may terminate its
obligations under any Series of Debt Securities and the Indenture with respect
to such Series, at any time, (a) by delivering all outstanding Debt Securities
of such Series to the Trustee for cancellation and paying any other sums payable
by it under such Debt Securities and the Indenture with respect to such Series,
or (b) after giving notice to the Trustee of its intention to defease all of the
Debt Securities of such Series by irrevocably depositing with the Trustee or a
paying agent (other than UHS or a Subsidiary) (i) in the case of any Debt
Securities of any Series denominated in United States dollars, cash or U.S.
Government Obligations (as defined in the Indenture) sufficient to pay all
remaining Indebtedness on
38
<PAGE> 40
such Debt Securities and (ii) in the case of any Debt Securities of any Series
denominated in any currency other than United States dollars, an amount of the
Required Currency (as defined in the Indenture) sufficient to pay all remaining
Indebtedness on such Debt Securities; provided that if such irrevocable deposit
pursuant to (b) above is made on or prior to one year from the Stated Maturity
for payment of principal of such Series of Debt Securities, UHS shall have
delivered to the Trustee either an opinion of counsel with no material
qualifications or a favorable ruling of the Internal Revenue Service, in either
case to the effect that holders of such Debt Securities (i) will not recognize
income, gain or loss for Federal income tax purposes as a result of such deposit
(and the defeasance contemplated in connection therewith) and (ii) will be
subject to Federal income tax on the same amounts and in the same manner and at
the same time as would have been the case if such deposit and defeasance had not
occurred.
MERGER AND CONSOLIDATION
UHS shall not consolidate with or merge with or into any other corporation
or transfer all or substantially all of its property and assets as an entirety
to any person, in one or a series of related transactions, unless (i) UHS shall
be the continuing person or the corporation formed by such consolidation or into
which UHS is merged or to which the properties and assets of UHS as an entirety
are transferred is a corporation organized and existing under the laws of the
United States or any State thereof or the District of Columbia which expressly
assumes all of the obligations of UHS under the Debt Securities and the
Indenture and (ii) immediately before and immediately after giving effect to
such transaction, no Event of Default and no event which, after notice or lapse
of time or both, would become an Event of Default shall have occurred and be
continuing.
MODIFICATION AND WAIVER
Modification and amendment of the Indenture may be made by UHS and the
Trustee with the consent of the holders of not less than a majority in principal
amount of the outstanding Debt Securities of all Series affected thereby (voting
as a single class); provided that such modification or amendment may not,
without the consent of the holder of the Debt Securities affected thereby, (i)
extend the Stated Maturity of the principal of or any installment of interest
with respect to the Debt Securities; (ii) reduce the principal amount of, or the
rate of interest on, or alter the redemption provisions with respect to, the
Debt Securities; (iii) change the currency of payment of principal of or
interest on the Debt Securities; (iv) impair the right to institute suit for the
enforcement of any payment on or with respect to the Debt Securities; (v) reduce
the above-stated percentage of holders of the Debt Securities necessary to
modify or amend the Indenture; or (vi) modify the foregoing requirements or
reduce the percentage of outstanding Debt Securities necessary to waive any
covenant or past default. Holders of not less than a majority in principal
amount of the outstanding Debt Securities of all Series affected thereby (voting
as a single class) may waive certain past defaults and may waive compliance by
UHS with any provision of the Indenture or such Debt Securities (subject to the
immediately preceding sentence); provided, that, only the holders of a majority
in principal amount of Debt Securities of a particular Series may waive
compliance with a provision of the Indenture or the Debt Securities of such
Series having applicability solely to such Series.
EVENTS OF DEFAULT AND NOTICE THEREOF
The term "Event of Default" when used in the Indenture with respect to any
Series of Debt Securities, means any one of the following: (i) failure of UHS to
pay interest on such Series of Debt Securities within 30 days of when due or
principal on such Series of Debt Securities when due (including any sinking fund
installment); (ii) failure to perform any other agreement in the Debt Securities
of such Series or the Indenture other than an agreement relating solely to
another Series of Debt Securities for 30 days after notice; (iii) acceleration
of Indebtedness of UHS or any Significant Subsidiary (as defined in the
Indenture) under the terms of the instruments evidencing such Indebtedness
aggregating more than $5 million at the time outstanding; (iv) a default in the
payment
39
<PAGE> 41
of principal of or interest in respect of any Indebtedness of UHS or any
Significant Subsidiary having an outstanding principal amount of $5 million
individually or in the aggregate; (v) judgments for the payment of more than $5
million at the time outstanding rendered against UHS or any Significant
Subsidiary and not discharged within 60 days after such judgment becomes final
and nonappealable; and (vi) certain events of bankruptcy, insolvency or
reorganization with respect to UHS or any Significant Subsidiary. Additional or
different Events of Default, if any, applicable to the Series of Debt Securities
in respect of which this Prospectus is being delivered are specified in the
accompanying Supplement.
The Indenture provides that the Trustee shall, within 60 days after the
occurrence of any default (the term "default" to include the events specified
above without grace or notice) with respect to any Series of Debt Securities
actually known to it, give to the holders of such Debt Securities notice of such
default; provided that, except in the case of a default in the payment of
principal of or interest on any of the Debt Securities or in the payment of any
sinking fund installment, the Trustee shall be protected in withholding such
notice if it in good faith determines that the withholding of such notice is in
the interest of the holders of such Debt Securities. The Indenture will require
UHS to certify to the Trustee quarterly as to whether any default occurred
during such quarter.
In case an Event of Default (other than an Event of Default resulting from
bankruptcy, insolvency or reorganization of UHS) with respect to any Debt
Securities of such Series shall occur and be continuing, the Trustee or the
holders of at least 25% in aggregate principal amount of the Debt Securities of
such Series then outstanding, by notice in writing to UHS (and to the Trustee if
given by the holders of the Debt Securities of such Series), may declare all
unpaid principal of and accrued interest on such Debt Securities then
outstanding to be due and payable immediately. In case an Event of Default
resulting from certain events of bankruptcy, insolvency or reorganization of UHS
shall occur, all unpaid principal of and accrued interest on all Debt Securities
then outstanding shall be due and payable immediately without any declaration or
other act on the part of the Trustee or the holders of any Debt Securities. Such
acceleration may be annulled and past defaults (except, unless theretofore
cured, a default in payment of principal of or interest on the Debt Securities
of such Series) may be waived by the holders of a majority in principal amount
of the Debt Securities of such Series then outstanding upon the conditions
provided in the Indenture.
The Indenture provides that no holder of the Debt Securities of such Series
may pursue any remedy under the Indenture unless the Trustee shall have failed
to act after, among other things, notice of an Event of Default and request by
holders of at least 25% in principal amount of the Debt Securities of the Series
of which the Event of Default has occurred and the offer to the Trustee of
indemnity satisfactory to it; provided, however, that such provision does not
affect the right to sue for enforcement of any overdue payment on such Debt
Securities.
THE TRUSTEE
PNC Bank, National Association will be Trustee under the Indenture. The
Indenture contains certain limitations on the right of the Trustee, as a
creditor of UHS, to obtain payment of claims in certain cases, or to realize on
certain property received in respect of any such claim as security or otherwise.
The Trustee will be permitted to engage in other transactions; provided,
however, if it acquires any conflicting interest, it must eliminate such
conflict or resign.
The holders of a majority in principal amount of all outstanding Debt
Securities of a Series (or if more than one Series is affected thereby, of all
Series so affected voting as a single class) will have the right to direct the
time, method and place of conducting any proceeding for exercising any remedy or
power available to the Trustee.
In case an Event of Default shall occur (and shall not be cured) and is
known to the Trustee, the Trustee shall exercise such of the rights and powers
vested in it by the Indenture and use the same degree of care and skill in its
exercise as a prudent person would exercise or use under the circumstances in
the conduct of his own affairs. Subject to such provisions, the Trustee will be
under no
40
<PAGE> 42
obligation to exercise any of its rights or powers under the Indenture at the
request of any of the holders of Debt Securities unless they shall have offered
to the Trustee security and indemnity satisfactory to it.
GOVERNING LAW
The Indenture and the Debt Securities will be governed by the laws of the
State of New York.
PLAN OF DISTRIBUTION
UHS may sell the Debt Securities in any of three ways: (i) through
underwriters or dealers; (ii) directly to a limited number of institutional
purchasers or to a single purchaser; or (iii) through agents. The underwriters
for any offering may include Dillon, Read & Co. Inc., J.P. Morgan Securities
Inc., BA Securities, Inc., Chemical Securities Inc., NationsBanc Capital
Markets, Inc. and Smith Barney Inc. Any such dealer or agent, in addition to any
underwriter, may be deemed to be an underwriter within the meaning of the
Securities Act of 1933. The terms of the offering of the Series of Debt
Securities with respect to which this Prospectus is being delivered are set
forth in the accompanying Supplement, including the name or names of any
underwriters, dealers or agents, the purchase price of such Series and the
proceeds to UHS from such sale, any underwriting discounts and other items
constituting underwriters' compensation, the initial public offering price and
any discounts or concessions which may be allowed or reallowed or paid to
dealers and any securities exchanges on which the Series may be listed.
If underwriters are used in the sale, the Debt Securities will be acquired
by the underwriters for their own account and may be resold from time to time in
one or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale. The Debt
Securities may be offered to the public either through underwriting syndicates
represented by managing underwriters or directly by one or more underwriters
acting alone. Unless otherwise set forth in the Supplement, the obligation of
the underwriters to purchase the Debt Securities described in the accompanying
Supplement will be subject to certain conditions precedent and the underwriters
will be obligated to purchase all such Debt Securities if any are so purchased
by them. Any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers may be changed from time to time.
The Debt Securities may be sold directly by UHS or through agents
designated by UHS from time to time. Any agents involved in the offer or sale of
the Debt Securities in respect of which this Prospectus is being delivered are
named, and any commissions payable by UHS to such agents are set forth in the
accompanying Supplement. Unless otherwise indicated in the Supplement, any such
agent will be acting on a best efforts basis for the period of its appointment.
If dealers are utilized in the sale of any Debt Securities, UHS will sell
the Debt Securities to the dealers, as principals. Any dealer may resell the
Debt Securities to the public at varying prices to be determined by the dealer
at the time of resale. The name of any dealer and the terms of the transaction
will be set forth in the Supplement with respect to the Debt Securities being
offered thereby.
Underwriters will not be obligated to make a market in any Debt Securities.
UHS cannot predict the activity of trading in, or liquidity of, any Debt
Securities.
Agents, dealers and underwriters will be entitled under agreements entered
into with UHS to indemnification by UHS against certain civil liabilities,
including liabilities under the Securities Act of 1933, or to contribution by
UHS to payments they may be required to make in respect thereof. Agents, dealers
and underwriters may be customers of, engage in transactions with or perform
services for UHS in the ordinary course of business.
41
<PAGE> 43
LEGAL MATTERS
Certain legal matters with respect to the validity of the Debt Securities
will be passed upon for UHS by Fulbright & Jaworski L.L.P., 666 Fifth Avenue,
New York, New York 10103. Anthony Pantaleoni, a director of UHS who owns less
than one percent of the outstanding capital stock of UHS, is a partner of
Fulbright & Jaworski L.L.P. Certain legal matters with respect to a particular
issue of Debt Securities will be passed upon for the underwriters, dealers or
agents, if any, by Cahill Gordon & Reindel, a partnership including a
professional corporation, 80 Pine Street, New York, New York 10005.
EXPERTS
The consolidated financial statements and schedule of Universal Health
Services, Inc. and subsidiaries as of December 31, 1994 and 1993, and for each
of the three years in the period ended December 31, 1994, and the financial
statements of Aiken Regional Medical Centers as of and for the year ended
December 31, 1994, included or incorporated by reference in this Registration
Statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included or incorporated by reference herein in reliance upon the authority of
said firm as experts in giving said reports.
The combined financial statements of Manatee Hospitals and Health Systems,
Inc. at August 31, 1993 and 1994, and for the years then ended appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent Certified Public Accountants, as set forth in their report thereon
appearing elsewhere herein and in the Registration Statement, and are included
in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
42
<PAGE> 44
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
Report of Independent Public Accountants.............................................. F-2
Consolidated Statements of Income for the Three Years in the Period Ended December 31,
1994 (audited)...................................................................... F-3
Consolidated Balance Sheets as of December 31, 1993 and 1994 (audited)................ F-4
Consolidated Statements of Stockholders' Equity for the Three Years Ended December 31,
1994 (audited)...................................................................... F-5
Consolidated Statements of Cash Flows for the Three Years Ended December 31, 1994
(audited)........................................................................... F-6
Notes to Consolidated Financial Statements............................................ F-7
Consolidated Statements of Income for the Three Months Ended March 31, 1994
(unaudited) and March 31, 1995 (unaudited).......................................... F-18
Condensed Consolidated Balance Sheets as of March 31, 1995 (unaudited) and December
31, 1994 (audited).................................................................. F-19
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31,
1994 (unaudited) and March 31, 1995 (unaudited)..................................... F-20
Notes to Condensed Consolidated Financial Statements.................................. F-21
AIKEN REGIONAL MEDICAL CENTERS, INC.
Report of Independent Public Accountants.............................................. F-22
Balance Sheet for the Year Ended December 31, 1994 and for the Three Months Ended
March 31, 1995 (unaudited).......................................................... F-23
Statement of Income for the Year Ended December 31, 1994 and the Three Months Ended
March 31, 1994 and 1995 (unaudited)................................................. F-24
Statement of Stockholders' Equity..................................................... F-25
Statements of Cash Flows.............................................................. F-26
Notes to Financial Statements......................................................... F-27
MANATEE HOSPITALS AND HEALTH SYSTEMS, INC.
Report of Independent Certified Public Accountants.................................... F-31
Combined Balance Sheets as of August 31, 1993 and 1994 (audited) and as of March 31,
1995 (unaudited).................................................................... F-32
Combined Statements of Revenue and Expenses for the Years Ended August 31, 1993 and
1994 (audited) and for the Seven Months Ended March 31, 1994 and March 31, 1995
(unaudited)......................................................................... F-34
Combined Statements of Changes in Fund Balances for the Years Ended August 31, 1993
and 1994 (audited) and for the Seven Months Ended March 31, 1995 (unaudited)........ F-35
Combined Statements of Cash Flows for the Years Ended August 31, 1993 and 1994
(audited) and for the Seven Months Ended March 31, 1994 and March 31, 1995
(unaudited)......................................................................... F-36
Notes to Combined Financial Statements................................................ F-37
</TABLE>
F-1
<PAGE> 45
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Universal Health Services, Inc.:
We have audited the accompanying consolidated balance sheets of Universal
Health Services, Inc. (a Delaware corporation) and subsidiaries as of December
31, 1993 and 1994, and the related consolidated statements of income, common
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1994. These consolidated financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Universal Health Services, Inc. and subsidiaries as of December 31, 1993 and
1994, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1994 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
February 16, 1995
F-2
<PAGE> 46
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31
<TABLE>
<CAPTION>
1992 1993 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net revenues................................... $731,227,000 $761,544,000 $782,199,000
Operating charges
Operating expenses........................... 285,922,000 299,645,000 298,108,000
Salaries and wages........................... 265,017,000 280,041,000 286,297,000
Provision for doubtful accounts.............. 45,008,000 55,409,000 58,347,000
Depreciation & amortization.................. 49,059,000 39,599,000 42,383,000
Lease and rental expense..................... 33,854,000 34,281,000 34,097,000
Interest expense, net........................ 11,414,000 8,645,000 6,275,000
Nonrecurring charges......................... -- 8,828,000 9,763,000
------------ ------------ ------------
Total operating charges...................... 690,274,000 726,448,000 735,270,000
------------ ------------ ------------
Income before income taxes................... 40,953,000 35,096,000 46,929,000
Provision for income taxes................... 20,933,000 11,085,000 18,209,000
------------ ------------ ------------
Net income................................... $ 20,020,000 $ 24,011,000 $ 28,720,000
============ ============ ============
Earnings per common & common share
equivalents (fully diluted)............... $ 1.43 $ 1.71 $ 2.02
============ ============ ============
Weighted average number of common shares and
equivalents............................... 14,970,000 14,819,000 14,389,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 47
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------
1993 1994
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents....................................................... $ 569,000 $ 780,000
Accounts receivable, net of allowance of $28,444,000 in 1993 and $34,957,000 in
1994 for doubtful accounts.................................................... 78,605,000 84,818,000
Supplies........................................................................ 12,617,000 15,723,000
Deferred income taxes........................................................... 7,733,000 12,942,000
Other current assets............................................................ 2,475,000 4,126,000
------------ ------------
Total current assets............................................................ 101,999,000 118,389,000
PROPERTY AND EQUIPMENT
Land............................................................................ 29,026,000 34,159,000
Buildings and improvements...................................................... 284,510,000 314,545,000
Equipment....................................................................... 191,483,000 218,844,000
Property under capital lease.................................................... 18,937,000 24,782,000
------------ ------------
523,956,000 592,330,000
Less accumulated depreciation................................................... 231,509,000 265,059,000
------------ ------------
292,447,000 327,271,000
Construction in progress........................................................ 9,985,000 4,372,000
------------ ------------
302,432,000 331,643,000
OTHER ASSETS
Excess of cost over fair value of net assets acquired........................... 38,089,000 38,762,000
Deferred income taxes........................................................... -- 2,742,000
Deferred charges................................................................ 1,697,000 1,527,000
Other........................................................................... 16,205,000 28,429,000
------------ ------------
55,991,000 71,460,000
------------ ------------
$ 460,422,000 $ 521,492,000
============ ============
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt............................................ $ 4,313,000 $ 7,236,000
Accounts payable................................................................ 34,038,000 37,185,000
Accrued liabilities
Compensation and related benefits............................................. 16,565,000 20,208,000
Interest...................................................................... 3,247,000 2,442,000
Other......................................................................... 25,789,000 32,294,000
Federal and state taxes....................................................... 2,547,000 4,417,000
------------ ------------
Total current liabilities....................................................... 86,499,000 103,782,000
DEFERRED INCOME TAXES........................................................... 3,863,000 --
OTHER NONCURRENT LIABILITIES.................................................... 70,491,000 71,956,000
LONG-TERM DEBT.................................................................. 75,081,000 85,125,000
COMMITMENTS AND CONTINGENCIES
COMMON STOCKHOLDERS' EQUITY
Class A Common Stock, voting, $.01 par value; authorized 12,000,000 shares;
issued and outstanding 1,139,123 shares in 1993 and 1,090,527 in 1994......... 11,000 11,000
Class B Common Stock, limited voting, $.01 par value; authorized 50,000,000
shares; issued and outstanding 12,171,454 shares in 1993 and 12,591,854 in
1994.......................................................................... 122,000 126,000
Class C Common Stock, voting, $.01 par value; authorized 1,200,000 shares;
issued and outstanding 114,482 shares in 1993 and 109,622 in 1994............. 1,000 1,000
Class D Common Stock, limited voting, $.01 par value; authorized 5,000,000
shares; issued and outstanding 26,223 shares in 1993 and 22,769 in 1994....... -- --
Capital in excess of par value, net of deferred compensation of $291,000 in 1993
and $414,000 in 1994.......................................................... 80,878,000 88,295,000
Retained earnings............................................................... 143,476,000 172,196,000
------------ ------------
224,488,000 260,629,000
------------ ------------
$ 460,422,000 $ 521,492,000
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 48
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1992 1993, AND 1994
<TABLE>
<CAPTION>
CAPITAL IN
CLASS A CLASS B CLASS C CLASS D EXCESS OF RETAINED
COMMON COMMON COMMON COMMON PAR VALUE EARNINGS TOTAL
-------- --------- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1992.............. $ 14,000 $ 121,000 $ 2,000 $ 1,000 $ 84,770,000 $ 99,445,000 $184,353,000
Common Stock Issued.................. -- -- -- -- 1,134,000 -- 1,134,000
Converted.......................... (2,000) 4,000 (1,000) (1,000) -- -- --
Repurchased........................ -- (2,000) -- -- (2,924,000) -- (2,926,000)
Amortization of deferred
compensation....................... -- -- -- -- 361,000 -- 361,000
Cancellation of stock grant.......... -- -- -- -- (39,000) -- (39,000)
Net income........................... -- -- -- -- -- 20,020,000 20,020,000
-------- --------- -------- -------- ------------ ------------ ------------
BALANCE JANUARY 1, 1993.............. 12,000 123,000 1,000 -- 83,302,000 119,465,000 202,903,000
Common Stock Issued.................. -- 1,000 -- -- 518,000 -- 519,000
Converted.......................... (1,000) 1,000 -- -- -- -- --
Repurchased........................ -- (3,000) -- -- (3,233,000) -- (3,236,000)
Amortization of deferred
compensation....................... -- -- -- -- 333,000 -- 333,000
Cancellation of stock grant.......... -- -- -- -- (42,000) -- (42,000)
Net income........................... -- -- -- -- -- 24,011,000 24,011,000
-------- --------- -------- -------- ------------ ------------ ------------
BALANCE JANUARY 1, 1994.............. 11,000 122,000 1,000 -- 80,878,000 143,476,000 224,488,000
Common Stock Issued.................. -- 9,000 -- -- 20,308,000 -- 20,317,000
Repurchased........................ -- (5,000) -- -- (13,144,000) -- (13,149,000)
Amortization of deferred
compensation....................... -- -- -- -- 277,000 -- 277,000
Cancellation of stock grant.......... -- -- -- -- (24,000) -- (24,000)
Net income........................... -- -- -- -- -- 28,720,000 28,720,000
-------- --------- -------- -------- ------------ ------------ ------------
BALANCE DECEMBER 31, 1994............ $ 11,000 $ 126,000 $ 1,000 -- $ 88,295,000 $172,196,000 $260,629,000
======== ========= ======== ======== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 49
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------
1992 1993 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................. $ 20,020,000 $ 24,011,000 $ 28,720,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............ 49,059,000 39,599,000 42,383,000
Provision for self-insurance reserves.... 21,193,000 20,755,000 10,810,000
Other non-cash charges................... -- 8,828,000 9,763,000
Changes in assets and liabilities, net of
effects from acquisitions and dispositions:
Accounts receivable...................... 7,608,000 12,928,000 (4,380,000)
Accrued interest......................... (256,000) (412,000) (805,000)
Accrued and deferred income taxes........ (9,955,000) (8,990,000) (9,944,000)
Other working capital accounts........... 3,960,000 4,858,000 1,710,000
Other assets and deferred charges........ (2,120,000) (5,804,000) (3,064,000)
Other.................................... 620,000 1,002,000 (42,000)
Payments made in settlement of
self-insurance claims.................. (8,398,000) (12,135,000) (14,527,000)
------------ ------------ ------------
Net cash provided by operating
activities............................. 81,731,000 84,640,000 60,624,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions............ (33,244,000) (47,319,000) (43,998,000)
Disposition of assets....................... 2,652,000 227,000 1,132,000
Acquisition of properties previously
leased................................... -- (3,218,000) (5,771,000)
Acquisition of businesses................... (7,188,000) (11,526,000) (16,794,000)
Acquisition of assets held for lease........ -- -- (9,059,000)
Disposition of businesses................... 12,355,000 18,492,000 3,791,000
Other investments........................... -- -- (1,079,000)
------------ ------------ ------------
Net cash used in investing activities....... (25,425,000) (43,344,000) (71,778,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional borrowings....................... 15,375,000 1,800,000 45,469,000
Reduction of long-term debt................. (85,900,000) (46,496,000) (21,981,000)
Issuance of common stock.................... 1,134,000 519,000 1,026,000
Repurchase of common shares................. (2,926,000) (3,236,000) (13,149,000)
------------ ------------ ------------
Net cash provided by (used in) financing
activities............................... (72,317,000) (47,413,000) 11,365,000
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................. (16,011,000) (6,117,000) 211,000
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD...................................... 22,697,000 6,686,000 569,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD...... $ 6,686,000 $ 569,000 $ 780,000
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid............................... $ 11,670,000 $ 9,057,000 $ 7,080,000
Income taxes paid, net of refunds........... $ 31,086,000 $ 19,901,000 $ 28,153,000
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
See Notes 2, 3 and 6
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Universal Health Services, Inc. (the "Company") is primarily engaged in
owning and operating acute care and psychiatric hospitals and ambulatory
treatment centers. The consolidated financial statements include the accounts of
the Company, and its majority-owned subsidiaries and partnerships controlled by
the Company as the managing general partner. All significant intercompany
accounts and transactions have been eliminated. The more significant accounting
policies follow:
NET REVENUES: Net revenues are reported at the estimated net realizable
amounts from patients, third-party payers, and others for services rendered,
including estimated retroactive adjustments under reimbursement agreements with
third-party payers. These net revenues are accrued on an estimated basis in the
period the related services are rendered and adjusted in future periods as final
settlements are determined. Medicare and Medicaid net revenues represented 39%,
43% and 44% of net patient revenues for the years 1992, 1993 and 1994,
respectively, excluding the additional revenues from special Medicaid
reimbursement programs described in Note 9.
PROPERTY AND EQUIPMENT: Property and equipment are stated at cost.
Expenditures for renewals and improvements are charged to the property accounts.
Replacements, maintenance and repairs which do not improve or extend the life of
the respective asset are expensed as incurred. The Company removes the cost and
the related accumulated depreciation from the accounts for assets sold or
retired and the resulting gains or losses are included in the results of
operations.
Depreciation is provided on the straight-line method over the estimated
useful lives of buildings and improvements (twenty to forty years) and equipment
(five to fifteen years).
OTHER ASSETS: The excess of cost over fair value of net assets acquired in
purchase transactions, net of accumulated amortization of $47,663,000 in 1993
and $52,261,000 in 1994 is amortized using the straightine method over periods
ranging from five to forty years. During 1992 the Company recorded a $13.5
million charge to amortization expense due to a revaluation of certain goodwill
balances.
During 1994, the Company established an employee life insurance program
covering approximately 2,500 employees. At December 31, 1994, the cash surrender
value of the policies ($41.3 million) was recorded net of related loans ($41.0
million) and is included in other assets.
LONG-LIVED ASSETS: It is the Company's policy to review the carrying value
of long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying value of such assets may not be recoverable. If such
review indicates that the carrying value of the asset is not recoverable, it is
the Company's policy to reduce the carrying amount of such assets to fair value.
EARNINGS PER COMMON AND COMMON SHARE EQUIVALENTS: Earnings per share are
based on the weighted average number of common shares outstanding during the
year adjusted to give effect to common stock equivalents. The 1994, 1993 and
1992 earnings per share have been adjusted to reflect the assumed conversion of
the Company's convertible debentures. In April 1994, the Company redeemed the
debentures which reduced the fully diluted number of shares outstanding by
451,233.
INCOME TAXES: The Company and its subsidiaries file consolidated Federal
tax returns. Deferred taxes are recognized for the amount of taxes payable or
deductible in future years as a result of differences between the tax bases of
assets and liabilities and their reported amounts in the financial statements.
OTHER NONCURRENT LIABILITIES: Other noncurrent liabilities include the
long-term portion of the Company's professional and general liability and
workers' compensation reserves and minority interests in majority owned
subsidiaries and partnerships.
F-7
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENT OF CASH FLOWS: For purposes of the consolidated statements of
cash flows, the Company considers all highly liquid investments purchased with
maturities of three months or less to be cash equivalents. Interest expense in
the consolidated statements of income is net of interest income of $515,000,
$498,000 and $266,000 in 1992, 1993 and 1994, respectively.
INTEREST RATE SWAP AGREEMENTS: In managing interest rate exposure, the
Company at times enters into interest rate swap agreements. When interest rates
change, the differential to be paid or received is accrued as interest expense
and is recognized over the life of the agreements.
RECLASSIFICATIONS: Certain prior year amounts have been reclassified to
conform with the current year's presentation.
2) ACQUISITIONS, DISPOSITIONS AND CLOSURES
1994 -- During 1994 the Company purchased majority interests in two
separate partnerships which own and operate outpatient surgery facilities. One
of these partnerships was merged with an existing partnership in which the
Company held a majority ownership. The Company also agreed to manage the
operations of, and purchased a majority interest in, three separate partnerships
which lease fixed assets to four radiation therapy centers located in Kentucky.
In addition, the Company purchased one radiation center and majority interests
in two separate partnerships which own and operate radiation therapy centers.
Total consideration for these acquisitions was $14.5 million in cash, and the
assumption of liabilities totalling $3.0 million.
In November 1994, the Company acquired a 112-bed acute care hospital
located in Edinburg, Texas for net cash of approximately $11.3 million and the
assumption of liabilities totalling $2.2 million. In connection with this
acquisition, the Company committed to invest at least an additional $30 million,
over a four year period, to renovate the existing facility and construct an
additional facility.
During the fourth quarter of 1994, the Company signed a letter of intent to
acquire a 225-bed acute and psychiatric care hospital located in Aiken, South
Carolina in exchange for a 104-bed acute care hospital, a 126-bed acute and
psychiatric care hospital and cash. The majority of the real estate assets of
the 126-bed facility are currently being leased from Universal Health Realty
Income Trust (the "Trust") pursuant to the terms of an operating lease which
expires in 2000. The Company anticipates exchanging additional real estate
assets with the Trust as consideration for the purchase of the real estate
assets of this facility (See Note 8). The closing of this transaction, which is
expected to be completed during the second quarter of 1995, is subject to a
number of conditions including regulatory approval. As a result of this
transaction a $4.3 million charge is included in the 1994 consolidated statement
of income.
Also during the fourth quarter of 1994, the Company signed a letter of
intent to acquire a 512-bed acute care hospital located in Bradenton, Florida.
The closing of this transaction is subject to a number of conditions. Although
management does not expect to close this transaction until the second quarter of
1995, the Company began to manage the hospital in January, 1995 under a separate
management contract. Total cash consideration for the Aiken and Bradenton
acquisitions is expected to approximate $200 million.
Operating results of the hospital located in Edinburg have been included in
the financial statements only from the date of acquisition. Assuming the above
Edinburg, Aiken and Bradenton acquisitions had been completed as of January 1,
1994 the unaudited pro forma net revenues and net income would have been $952
million and $32 million, respectively. In addition, the unaudited pro forma
earnings per share would have been $2.25. The unaudited pro forma financial
information may not be indicative of results that would have been reported if
the acquisitions had occurred at the beginning of 1994 and may not be indicative
of future operating results.
F-8
<PAGE> 52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1993 -- During 1993 the Company purchased a radiation therapy center and
majority interests in four separate partnerships which own and operate
ambulatory surgery facilities for $11.5 million in cash and the assumption of
liabilities totaling $300,000.
During the fourth quarter, the Company sold the operations and fixed assets
of a 124-bed acute care hospital for approximately $7.8 million in cash. The
Company also sold the operations and certain fixed assets of a 134-bed acute
care hospital for cash of $1.5 million. Concurrently, the Company sold certain
related real property to Universal Health Realty Income Trust (the "Trust"), an
affiliate and the lessor of this 134-bed acute care hospital, for $1 million in
cash and a note receivable of $900,000 (see Note 8). In connection with this
transaction, the Company's lease with the Trust for this property was
terminated. The disposition of these two facilities resulted in a pre-tax loss
of $4.4 million ($2.2 million after tax), which is included in nonrecurring
charges in the 1993 consolidated statement of income.
Also during 1993, the Company recorded a pre-tax charge of $4.4 million
related to the winding down or disposition of other non-strategic businesses
which is included in nonrecurring charges in the 1993 consolidated statement of
income.
1992 -- During 1992 the Company purchased majority interests in four
separate partnerships which own and operate ambulatory surgery facilities for
$7.2 million in cash and the assumption of liabilities totaling $5.4 million.
Also during 1992, the Company discontinued operations at a 96-bed acute
care hospital and sold the fixed assets of this facility for $3.4 million. The
closing and sale of this hospital did not have a material impact on the
consolidated financial statements.
3) LONG-TERM DEBT
A summary of long-term debt follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1993 1994
----------- -----------
<S> <C> <C>
LONG-TERM DEBT:
Notes payable (including obligations under capitalized
leases of $12,132,000 in 1993 and $14,004,000 in 1994)
with varying maturities through 2001; weighted average
interest at 7.0% in 1993 and 6.9% in 1994 (see Note 6
regarding capitalized leases)........................... $13,727,000 $19,442,000
Mortgages payable, interest at 6.0% to 11.0% with varying
maturities through 2000................................. 3,811,000 3,745,000
Revolving credit and demand notes.......................... 4,600,000 8,950,000
Commercial paper........................................... -- 38,500,000
Revenue bonds:
interest at floating rates ranging from 5.5% to 6.9% and
one at a fixed rate of 8.3% at December 31, 1994 with 18,200,000 18,200,000
varying maturities through 2015....................... 9,151,000 3,524,000
Subordinated debt....................................... 29,905,000 --
----------- -----------
79,394,000 92,361,000
Less-Amounts due within one year........................ 4,313,000 7,236,000
----------- -----------
$75,081,000 $85,125,000
=========== ===========
</TABLE>
During 1994, the Company increased its commercial paper facility from $25
million to $50 million. The facility is a daily valued program which is secured
by patient accounts receivable. The Company has sufficient patient receivables
to support a larger program, and upon the mutual consent of the
F-9
<PAGE> 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company and the participating lending institutions, the commitment can be
increased. A fee of .76% is required on this $50 million commitment. Outstanding
amounts of commercial paper that can be refinanced through available borrowings
under the Company's revolving credit agreement are classified as long-term.
The Company entered into an unsecured $125 million non-amortizing revolving
credit agreement in 1994 which matures in August of 1999 and provides for
interest, at the Company's option, at the prime rate, certificate of deposit
rate plus 5/8% to 1 1/8% or Euro-dollar plus 1/2% to 1%. A fee ranging from
1/8% to 3/8% is required on the unused portion of this commitment. The margins
over the certificate of deposit, the Euro-dollar rates and the commitment fee
are based upon leverage and coverage ratios. At December 31, 1994 the applicable
margins over the certificate of deposit and the Euro-dollar rate were 7/8% and
3/4%, respectively, and the commitment fee was 1/4%. There are no compensating
balance requirements. The agreement contains a provision whereby 50% of the net
consideration, in excess of $25 million, from the disposition of assets will be
applied to reduce commitments. At December 31, 1994, the Company had $125
million of unused borrowing capacity, and there were no borrowings outstanding
under this revolving credit agreement.
The average amounts outstanding during 1992, 1993 and 1994 under the
revolving credit and demand notes and commercial paper program were $47,318,000,
$25,069,000 and $16,324,000, respectively, with corresponding effective interest
rates of 5.5%, 4.6% and 7.9%, including commitment fees. The maximum amounts
outstanding at any month-end were $91,650,000, $46,800,000 and $47,450,000
during 1992, 1993 and 1994, respectively.
The Company has entered into interest rate swap agreements to reduce the
impact of changes in interest rates on its floating rate revolving credit and
demand notes and commercial paper program. At December 31, 1994, the Company had
two interest rate swap agreements with commercial banks having a total notional
principal amount of $30 million. These agreements call for the payment of
interest at a fixed rate by the Company in return for the payment by the
commercial banks of a variable rate interest, which effectively fixes the
Company's interest rate on a portion of its floating rate debt at 11.9%. The
interest rate swap agreements in the amounts of $20 million and $10 million
expire in January, 1995 and March, 1996, respectively. The effective interest
rate on the Company's revolving credit and demand notes and commercial paper
program including interest rate swap expense was 11.2%, 13.9% and 16.1% during
1992, 1993 and 1994, respectively. Additional interest expense recorded as a
result of the Company's hedging activity was $4,158,000, $3,160,000 and
$1,981,000 in 1992, 1993 and 1994, respectively. The Company is exposed to
credit loss in the event of non-performance by the counterparties to the
interest rate swap agreements. These counterparties are major financial
institutions and the Company does not anticipate nonperformance by the
counterparties which are rated AA or better by Moody's Investors Service. The
cost to terminate the swap obligations at December 31, 1993 and 1994, was
approximately $4,870,000 and $2,133,000, respectively.
Covenants relating to long-term debt require maintenance of a minimum net
worth, specified debt to total capital, debt to EBITDA and fixed charge coverage
ratios. Covenants also limit the Company's ability to incur additional senior
debt and to pay cash dividends and repurchase its shares and limit capital
expenditures, among other restrictions.
During 1994, the Company called its 7 1/2% subordinated convertible
debentures due 2008. Approximately $11 million of the debentures were redeemed
in cash and $19 million were converted to the Company's class B stock.
Substantially all of the Company's accounts receivable are pledged as
collateral to secure debt.
The fair value of the Company's long-term debt at December 31, 1994 was
approximately equal to its carrying value.
F-10
<PAGE> 54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is currently negotiating an increase to its revolving credit
agreement. In connection with this transaction and other potential debt
transactions to finance the acquisitions discussed in Note 2, the Company has
entered into two options for interest rate swap agreements to become effective
June, 1995, with a notional amount of $75 million and expiration dates in 2005.
Aggregate maturities follow:
<TABLE>
<S> <C>
1995.................................................. $ 7,236,000
1996.................................................. 5,721,000
1997.................................................. 4,540,000
1998.................................................. 2,647,000
1999.................................................. 48,733,000
Later................................................. 23,484,000
-----------
Total................................................. $92,361,000
===========
</TABLE>
4) COMMON STOCK
During 1993 and 1994, the Company repurchased 224,800 and 509,800 shares of
Class B Common Stock, respectively, at an average purchase price of $14.39 and
$25.79 per share, respectively, or an aggregate of approximately $3.2 million
and $13.2 million, respectively. All repurchases during 1994 were made
subsequent to March 1, 1994. The Company's ability to repurchase its shares is
limited by long-term debt covenants to $50 million plus 50% of cumulative net
income since March, 1994. Under the terms of these covenants, the Company had
the ability to repurchase an additional $61.6 million of its Common Stock as of
December 31, 1994. The repurchased shares are treated as retired.
At December 31, 1994 2,598,439 shares of Class B Common Stock were reserved
for issuance upon conversion of shares of Class A, C and D Common Stock
outstanding, for issuance upon exercise of options to purchase Class B Common
Stock, and for issuance of stock under other incentive plans. Class A, C and D
Common Stock are convertible on a share for share basis into Class B Common
Stock.
In 1994, the Company adopted a Stock Compensation Plan which was approved
by the Board of Directors. Under the terms of the Stock Compensation Plan,
shares may be granted to key employees of the Company and to consultants and
independent contractors. Shares may not be granted to officers or directors of
the Company. The Plan will terminate on November 16, 2004, unless terminated
sooner by the Board.
At December 31, 1994 the Company has reserved 50,000 shares of its Class B
Common Stock for the Stock Compensation Plan. In 1994, 1,800 shares were issued.
In 1992, the Company adopted a Stock Bonus Plan and a Stock Ownership Plan,
both of which were approved by the stockholders at the 1992 annual meeting.
Under the terms of the Stock Bonus Plan, eligible employees may elect to receive
all or part of their annual bonuses in shares of restricted stock (the "Bonus
Shares"). Those electing to receive Bonus Shares also receive additional
restricted shares in an amount equal to 20% of their Bonus Shares (the "Premium
Shares"). Restrictions on one-half of the Bonus Shares and one-half of the
Premium Shares lapse after one year and the restrictions on the remaining shares
lapse after two years. The Company has reserved 150,000 shares of Class B Common
Stock for this plan and has issued 58,178 shares at December 31, 1994.
Under the terms of the Stock Ownership Plan, eligible employees may
purchase shares of common stock, directly from the Company, at the market price.
The Company will loan each eligible employee an amount equal to 90% of the
purchase price for the shares. The loans, which are partially recourse to the
employee, bear interest at the applicable Federal rate and are due five years
from the purchase date. Shares purchased under this plan are restricted from
sale or transfer. Restrictions on one-half of the
F-11
<PAGE> 55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shares lapse after one year and restrictions on the remaining shares lapse after
two years. The Company has reserved 100,000 shares of Class B Common Stock for
this plan. As of December 31, 1994, 31,234 shares were sold under the terms of
this plan.
The Company also has a Restricted Stock Purchase Plan which allows eligible
participants to purchase shares of Class B Common Stock at par value, subject to
certain restrictions. Under the terms of this plan, 300,000 shares of Class B
Common Stock have been reserved for purchase by officers, key employees and
consultants. The restrictions lapse as to one-third of the shares on the third,
fourth and fifth anniversary dates of the purchase. The Company has issued
153,513 shares under this plan, of which 45,000 and 41,336 became fully vested
during 1993 and 1994, respectively. Compensation expense, based on the
difference between the market price on the date of purchase and par value, is
being amortized over the restriction period and was $265,000 in 1992, $240,000
in 1993, $148,000 in 1994.
Stock options to purchase Class B Common Stock have been granted to
officers, key employees and directors of the Company under various plans. During
1994, subject to shareholder approval, the Board of Directors approved a 600,000
share increase in the reserve for Class B Common Stock available for grant,
pursuant to the terms of the 1992 Stock Option Plan. All stock options were
granted with an exercise price equal to the fair market value on the date of the
grant. Options are exercisable ratably over a four year period beginning one
year after the date of the grant. The options expire five years after the date
of the grant.
Information with respect to these options is summarized as follows:
<TABLE>
<CAPTION>
AVERAGE
OUTSTANDING OPTIONS NUMBER OF SHARES OPTION PRICE
---------------- ------------
<S> <C> <C>
Balance, January 1, 1992.................................... 148,002 $ 7.80
Granted................................................... 135,000 $12.72
Exercised................................................. (78,487) $ 6.82
Cancelled................................................. (4,340) $12.67
---------------- ------------
Balance, January 1, 1993.................................... 200,175 $11.40
Granted................................................... 7,400 $14.88
Exercised................................................. (40,238) $ 7.23
Cancelled................................................. (3,000) $12.50
---------------- ------------
Balance, January 1, 1994.................................... 164,337 $12.53
Granted................................................... 560,750 $22.05
Exercised................................................. (15,988) $10.98
Cancelled................................................. (5,500) $16.64
---------------- ------------
Balance, December 31, 1994.................................. 703,599 $20.12
============== ==========
</TABLE>
Options for 299,350 shares, subject to shareholder approval as described
above, were available for grant at December 31, 1994. At December 31, 1994,
options for 71,801 shares of Class B Common Stock with an aggregate purchase
price of $893,445 (average of $12.44 per share) were exercisable.
F-12
<PAGE> 56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5) INCOME TAXES
Components of income tax expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1992 1993 1994
----------- ----------- -----------
<S> <C> <C> <C>
Currently payable
Federal......................................... $28,495,000 $17,315,000 $27,014,000
State........................................... 3,949,000 1,136,000 3,009,000
----------- ----------- -----------
32,444,000 18,451,000 30,023,000
----------- ----------- -----------
Deferred
Federal......................................... (10,110,000) (6,482,000) (10,412,000)
State........................................... (1,401,000) (884,000) (1,402,000)
----------- ----------- -----------
(11,511,000) (7,366,000) (11,814,000)
----------- ----------- -----------
Total........................................... $20,933,000 $11,085,000 $18,209,000
=========== =========== ===========
</TABLE>
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," (SFAS
109). Under SFAS 109, deferred taxes are required to be classified based on the
financial statement classification of the related assets and liabilities which
give rise to temporary differences. The net effect of the impact of the 1993 tax
law changes on the 1993 current and deferred tax provisions was immaterial.
Deferred taxes result from temporary differences between the financial
statement carrying amounts and the tax bases of assets and liabilities. The
components of deferred taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1993 1994
----------- -----------
<S> <C> <C>
Self-insurance reserves...................................... $29,134,000 $28,944,000
Doubtful accounts and other reserves......................... 6,270,000 9,921,000
State income taxes........................................... (1,546,000) (126,000)
Other deferred tax assets.................................... 491,000 382,000
Depreciable and amortizable assets........................... (22,434,000) (17,319,000)
Conversion from cash basis to accrual basis of accounting.... (7,634,000) (5,017,000)
Other deferred tax liabilities............................... (411,000) (1,101,000)
----------- -----------
Total deferred taxes....................................... $ 3,870,000 $15,684,000
=========== ===========
</TABLE>
A reconciliation between the federal statutory rate and the effective tax
rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate............................................. 34.0% 35.0% 35.0%
Nondeductible (deductible) depreciation, amortization and other.... 13.0 (3.9) 1.6
State taxes, net of Federal income tax benefit..................... 4.1 0.5 2.2
---- ---- ----
Effective tax rate................................................. 51.1% 31.6% 38.8%
==== ==== ====
</TABLE>
F-13
<PAGE> 57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1993 and 1994, the Company reviewed its deferred state tax balances and
as a result reduced its tax provision by $780,000 and $390,000, respectively.
The net deferred tax assets and liabilities are comprised as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1993 1994
----------- -----------
<S> <C> <C>
Current deferred taxes
Assets..................................................... $10,723,000 $16,622,000
Liabilities................................................ (2,990,000) (3,680,000)
----------- -----------
Total deferred taxes -- current............................ 7,733,000 12,942,000
Noncurrent deferred taxes
Assets..................................................... 25,172,000 22,625,000
Liabilities................................................ (29,035,000) (19,883,000)
----------- -----------
Total deferred taxes -- noncurrent......................... (3,863,000) 2,742,000
----------- -----------
Total deferred taxes......................................... $ 3,870,000 $15,684,000
=========== ===========
</TABLE>
The assets and liabilities classified as current relate primarily to the
allowance for uncollectible patient accounts and the current portion of the
temporary differences related to self-insurance reserves and the change in
accounting method. Under SFAS 109, a valuation allowance is required when it is
more likely than not that some portion of the deferred tax assets will not be
realized. The Company has not provided a valuation allowance since management
believes that all of the deferred tax assets will be realized through the
reversal of temporary differences that result in deferred tax liabilities and
through expected future taxable income.
6) LEASE COMMITMENTS
Certain of the Company's hospital and medical office facilities and
equipment are held under operating or capital leases which expire through 2013
(See Note 8). Certain of these leases also contain provisions allowing the
Company to purchase the leased assets during the term or at the expiration of
the lease at fair market value. A summary of property under capital lease
follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1993 1994
----------- -----------
<S> <C> <C>
Land, buildings and equipment................................ $18,937,000 $23,697,000
Less: accumulated amortization............................... 6,400,000 10,426,000
----------- -----------
$12,537,000 $13,271,000
=========== ===========
</TABLE>
F-14
<PAGE> 58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum rental payments under lease commitments with a term of more
than one year as of December 31, 1994 are as follows:
<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES
-------------- ----------------
<S> <C> <C>
1995........................................................ $ 5,581,000 $ 23,693,000
1996........................................................ 4,716,000 21,011,000
1997........................................................ 3,363,000 18,371,000
1998........................................................ 1,618,000 17,012,000
1999........................................................ 381,000 16,405,000
Later Years................................................. -- 36,536,000
----------- ------------
Total minimum rental........................................ $ 15,659,000 $133,028,000
============
Less: Amount representing interest.......................... 1,655,000
-----------
Present value of minimum rental commitments................. 14,004,000
Less: Current portion of capital lease obligations.......... 4,729,000
-----------
Long-term portion of capital lease obligations.............. $ 9,275,000
-----------
</TABLE>
Capital lease obligations of $7,310,000, $5,371,000, $4,654,000 in 1992,
1993 and 1994, respectively, were incurred when the Company entered into capital
leases for new equipment.
7) COMMITMENTS AND CONTINGENCIES
The Company is self-insured for its general liability risks for claims
limited to $5 million per occurrence and for its professional liability risks
for claims limited to $25 million per occurrence. Coverage in excess of these
limits up to $100 million is maintained with major insurance carriers. During
1993 and 1994, the Company purchased a general and professional liability
occurrence policy with a commercial insurer for one of its larger acute care
facilities. This policy includes coverage up to $25 million per occurrence for
general and professional liability risks.
As of December 1993 and 1994, the reserve for professional and general
liability risks was $65.2 million and $62.4 million, respectively, of which $8.3
million in 1993 and $11.0 million in 1994 is included in current liabilities.
Self-insurance reserves are based upon actuarially determined estimates.
The Company has outstanding letters of credit totalling $20 million related
to the Company's self-insurance programs ($11.0 million), as support for various
debt instruments ($.4 million) and as support for a loan guarantee for an
unaffiliated party ($8.6 million). The Company has also guaranteed approximately
$2 million of loans.
During 1994, the Company signed letters of intent to acquire a 512-bed
acute care hospital located in Bradenten, Florida and a 225-bed acute and
psychiatric care facility located in Aiken, South Carolina. These transactions,
which are subject to a number of conditions, are expected to be completed during
the second quarter of 1995. In addition to the exchange of certain real estate
assets, the total cash consideration for these acquisitions is expected to
approximate $200 million. Additionally, the Company is committed to invest at
least an additional $30 million, over a four year period, to renovate the
existing facility and construct an additional facility related to its 1994
acquisition of a 112-bed acute care hospital located in Edinburg, Texas. (See
Note 2).
The Company estimates the cost to complete major construction projects in
progress at December 31, 1994 will approximate $12.3 million.
The Company has entered into a long-term contract with a third party to
provide certain data processing services for its acute care and psychiatric
hospitals. This contract expires in 1999.
F-15
<PAGE> 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Various suits and claims arising in the ordinary course of business are
pending against the Company. In the opinion of management, the outcome of such
claims and litigation will not materially affect the Company's consolidated
financial position or results of operations.
8) RELATED PARTY TRANSACTIONS
At December 31, 1994, the Company held approximately 8% of the outstanding
shares of Universal Health Realty Income Trust (the "Trust"). Certain officers
and directors of the Company are also officers and/or Directors of the Trust.
The Company accounts for its investment in the Trust using the equity method of
accounting. The Company's pre-tax share of income/(loss) from the Trust was
($110,000), $757,000 and $1,095,000 in 1992, 1993 and 1994 respectively, and is
included in net revenues in the accompanying consolidated statements of income.
The carrying value of this investment at December 31, 1993 and 1994 was
$7,375,000 and $8,404,000, respectively, and is included in other assets in the
accompanying consolidated balance sheets. The market value of this investment at
December 31, 1993 and 1994 was $10,352,000 and $11,261,000, respectively.
During 1993, pursuant to the terms of its lease with the Trust, the Company
purchased the real property of a 48-bed psychiatric hospital located in Texas
for $3.2 million. The real property of this hospital was previously leased by
the Company and base rental payments continued under the existing lease until
the date of sale. Operations at this hospital were discontinued during the first
quarter of 1992; however, the facility is currently being utilized for
outpatient services at one of the Company's acute care hospitals. Also during
1993, the Company sold to the Trust certain real estate assets of a 134-bed
hospital located in Illinois for approximately $1.9 million. These assets
consisted of additions and improvements made to the facility by the Company
since the sale of the major portion of the real estate assets to the Trust in
1986. The operations of this facility were sold during 1993 to an operator
unaffiliated with the Company.
As of December 31, 1994, the Company leased eight hospital facilities from
the Trust with initial terms expiring in 1999 through 2003. These leases contain
up to six 5-year renewal options. Future minimum lease payments to the Trust are
included in Note 6. The terms of the lease provide that in the event the Company
discontinues operations at the leased facility for more than one year, the
Company is obligated to offer a substitute property. If the Trust does not
accept the substitute property offered, the Company is obligated to purchase the
leased facility back from the Trust at a price equal to the greater of its then
fair market value or the original purchase price paid by the Trust (See Note 2).
Total rent expense under these operating leases was $17,000,000 in 1992,
$16,600,000 in 1993 and $15,700,000 in 1994. The Company received an advisory
fee of $913,000 in 1992, $880,000 in 1993 and $909,000 in 1994 from the Trust
for investment and administrative services provided under a contractual
agreement which is included in net revenues in the accompanying consolidated
statements of income.
In connection with various stock based compensation plans, $405,000 and
$118,000 of loans made to certain officers and key employees were forgiven in
1992 and 1994, respectively, and charged to compensation expense.
At January 1, 1992, the Company had a non-interest bearing demand note from
a principal officer which was fully forgiven during 1992. Compensation expense
charged to operations related to this note was $393,000 in 1992.
A member of the Company's Board of Directors is a partner in the law firm
used by the Company as its principal outside counsel.
F-16
<PAGE> 60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9) QUARTERLY RESULTS (UNAUDITED)
The following tables summarize the Company's quarterly financial data for
the two years ended December 31, 1994.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1993 QUARTER QUARTER QUARTER QUARTER
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues................... $195,305,000 $187,453,000 $186,332,000 $192,454,000
Income before income taxes..... $ 13,120,000 $ 9,735,000 $ 7,503,000 $ 4,738,000
Net income..................... $ 8,611,000 $ 6,478,000 $ 5,157,000 $ 3,765,000
Earnings per share (fully
diluted)..................... $ 0.60 $ 0.46 $ 0.37 $ 0.28
============ ============ ============ ============
</TABLE>
Net revenues in 1993 include $13.5 million of additional revenues received
from special Medicaid reimbursement programs. Of the amount received, $4.6
million was recorded in each of the first and second quarters, $1.0 million was
recorded in the third quarter and $3.3 million was recorded in the fourth
quarter. These amounts were recorded in the periods that the Company met all of
the requirements to be entitled to these reimbursements. The first quarter
operating results also include approximately $4.1 million of expenses related to
the disposition of ancillary businesses and the second quarter operating results
include a $3.2 million increase in the reserves for the Company's self-insurance
programs. Net revenues in the third quarter include $3.0 million of unfavorable
adjustments related to prior year reimbursement issues and the fourth quarter
operating results includes a $4.7. million pre-tax loss on disposal of two acute
care hospitals and the winding down or disposition of non-strategic businesses.
The Company's effective tax rate in the fourth quarter was significantly lower
than other quarters due to the disposition of two acute care hospitals resulting
in the recoupment of previously non-deductible charges.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1994 QUARTER QUARTER QUARTER QUARTER
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues................... $194,432,000 $192,199,000 $191,512,000 $204,056,000
Income before income taxes..... $ 16,794,000 $ 13,357,000 $ 9,622,000 $ 7,156,000
Net income..................... $ 10,287,000 $ 8,153,000 $ 5,835,000 $ 4,445,000
Earnings per share (fully
diluted)..................... $ 0.72 $ 0.57 $ 0.41 $ 0.32
============ ============ ============ ============
</TABLE>
Net revenues in 1994 include $12.4 million of additional revenues received
from special Medicaid reimbursement programs. Of this amount, $3.0 million was
recorded in each of the first and second quarters, $3.1 million in the third
quarter and $3.3 million in the fourth quarter. These programs are scheduled to
terminate in August, 1995. These amounts were recorded in the periods that the
Company met all of the requirements to be entitled to these reimbursements. Net
revenues in the fourth quarter also include $3.0 million of proceeds related to
the Company's previously disposed UK operations. The first quarter operating
results also include approximately $1.3 million of expenses related to the
disposition of a non-strategic business. The second quarter results include a
$2.8 million write-down recorded against the book value of the real property of
a psychiatric hospital owned by the Company and leased to an unaffiliated third
party, which is currently in default under the terms of the lease. Also included
in operating expenses during the second quarter is a $1.1 million favorable
adjustment made to reduce the Company's workers compensation reserves. The
fourth quarter results include a $1.3 million write-down recorded against the
book value of the real property of a psychiatric hospital owned by the Company
and for which its lease was terminated by an unaffiliated third party and a $4.3
million charge related to the anticipated disposition of two acute care
hospitals. (See Note 2).
F-17
<PAGE> 61
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(000'S OMITTED EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1994 1995
--------- ---------
<S> <C> <C>
Net revenues....................................................... $ 194,432 $ 220,715
Operating charges:
Operating expenses............................................... 74,327 84,469
Salaries and wages............................................... 69,870 78,021
Provision for doubtful accounts.................................. 13,208 17,185
Depreciation and amortization.................................... 9,920 11,310
Lease and rental expense......................................... 8,491 8,772
Interest expense, net............................................ 1,822 1,614
-------- --------
177,638 201,371
-------- --------
Income before income taxes......................................... 16,794 19,344
Provision for income taxes......................................... 6,507 7,503
-------- --------
Net Income......................................................... $ 10,287 $ 11,841
======== ========
Earnings per common and common equivalent share:................... $ 0.72 $ 0.85
======== ========
Weighted average number of common shares and equivalents:.......... 14,761 13,942
======== ========
</TABLE>
See accompanying notes to these condensed consolidated financial statements.
F-18
<PAGE> 62
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(000'S OMITTED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1994 1995
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................................... $ 780 $ 1,832
Accounts receivable, net...................................... 84,818 90,511
Supplies...................................................... 15,723 15,827
Deferred income taxes......................................... 12,942 18,491
Other current assets.......................................... 4,126 5,407
--------- ---------
Total current assets....................................... 118,389 132,068
--------- ---------
Property and equipment.......................................... 596,702 608,070
Less: accumulated depreciation.................................. (265,059) (272,650)
--------- ---------
331,643 335,420
--------- ---------
OTHER ASSETS:
Excess of cost over fair value of net assets acquired......... 38,762 37,572
Deferred income taxes......................................... 2,742 2,742
Deferred charges.............................................. 1,527 1,630
Other......................................................... 28,429 29,800
--------- ---------
71,460 71,744
--------- ---------
$ 521,492 $ 539,232
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt.......................... $ 7,236 $ 7,175
Accounts payable and accrued liabilities...................... 92,129 92,072
Federal and state taxes....................................... 4,417 17,228
--------- ---------
Total current liabilities.................................. 103,782 116,475
--------- ---------
Other noncurrent liabilities.................................... 71,956 74,831
--------- ---------
Long-term debt, net of current maturities....................... 85,125 75,038
--------- ---------
COMMON STOCKHOLDERS' EQUITY:
Class A Common Stock, 1,090,527 shares outstanding in 1994,
1,090,527 in 1995.......................................... 11 11
Class B Common Stock, 12,591,854 shares outstanding in 1994,
12,618,277 in 1995......................................... 126 126
Class C Common Stock, 109,622 shares outstanding in 1994,
109,622 in 1995............................................ 1 1
Class D Common Stock, 22,769 shares outstanding in 1994,
21,953 in 1995............................................. 0 0
Capital in excess of par, net of deferred compensation of
$414,000 in 1994 and $332,000 in 1995...................... 88,295 88,713
Retained earnings............................................. 172,196 184,037
--------- ---------
260,629 272,888
--------- ---------
$ 521,492 $ 539,232
========= =========
</TABLE>
See accompanying notes to these condensed consolidated financial statements.
F-19
<PAGE> 63
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1994 1995
--------- --------
(000'S UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................... $ 10,287 11,841
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation & amortization................................... 9,920 11,310
Provision for self-insurance reserves......................... 2,900 4,504
Changes in assets & liabilities, net of effects from acquisitions
and dispositions:
Accounts receivable........................................... (5,946) (5,693)
Accrued interest.............................................. (1,601) (1,891)
Accrued and deferred income taxes............................. 3,458 7,262
Other working capital accounts................................ (3,840) (105)
Other assets and deferred charges............................. (171) (2,085)
Other......................................................... 171 529
Payments made in settlement of self-insurance claims.......... (3,889) (1,566)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES........................ 11,289 24,106
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions.............................. (11,871) 13,536)
Disposition of assets......................................... 250 250
-------- --------
NET CASH USED IN INVESTING ACTIVITIES............................ (11,621) 13,286)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional borrowings......................................... 2,284 0
Reduction of long-term debt................................... 0 (10,148)
Issuance of common stock...................................... 278 380
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.............. 2,562 (9,768)
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS.............................. 2,230 1,052
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD..................... 569 780
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD........................... $ 2,799 $ 1,832
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid.................................................... $ 3,423 $ 3,505
======== ========
Income taxes paid, net of refunds................................ $ 3,049 $ 241
======== ========
</TABLE>
See accompanying notes to these condensed consolidated financial statements.
F-20
<PAGE> 64
UNIVERSAL HEALTH SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) GENERAL
The consolidated financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission and reflect all adjustments which, in the
opinion of the Company, are necessary to fairly present results for the interim
periods. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the accompanying disclosures are
adequate to make the information presented not misleading. It is suggested that
these financial statements be read in conjunction with the financial statements,
accounting policies and the notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
(2) EARNINGS PER SHARE
Earnings per share are based on the weighted average number of common
shares outstanding during the year adjusted to give effect to common stock
equivalents. Earnings per share have been adjusted for the three months ended
March 31, 1994 to reflect the assumed conversion of the Company's convertible
debentures. In April 1994, the Company redeemed the debentures which reduced the
fully diluted number of shares outstanding by 451,233.
(3) UNUSUAL ITEMS
Included in net revenues for the three month periods ended March 31, 1994
and 1995 was $3.0 million and $3.3 million, respectively, of additional revenues
received from special Medicaid reimbursements received by one of the Company's
acute care facilities which participates in the Texas Medical Assistance
Program. Upon meeting certain conditions of participation and serving a
disproportionally high share of the state's low income patients, the hospital
became eligible and received additional reimbursement from the state's
disproportionate share hospital fund. This program is scheduled to terminate in
August 1995 and the Company cannot predict whether this program will continue
beyond the scheduled termination date.
(4) OTHER LIABILITIES
Other noncurrent liabilities include the long-term portion of the Company's
professional and general liability and workers' compensation reserves.
(5) COMMITMENT AND CONTINGENCIES
Under certain agreements, the Company has committed or guaranteed an
aggregate of $20,000,000 related principally to the Company's self-insurance
programs and as support for various debt instruments and loan guarantees.
F-21
<PAGE> 65
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Aiken Regional Medical Centers:
We have audited the accompanying balance sheet of Aiken Regional Medical
Centers as of December 31, 1994, and the related statements of income,
stockholder's equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Aiken Regional Medical
Centers as of December 31, 1994, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
June 6, 1995
F-22
<PAGE> 66
AIKEN REGIONAL MEDICAL CENTERS
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1994 1995
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.......................................................... $ 2,042 $ 1,537
Accounts receivable, net of contractual allowances and
allowance for doubtful accounts of $14,582 and $16,639 in
1995 (unaudited) (Note 1).................................. 14,988 15,431
Supplies (Note 1)............................................. 2,102 2,128
Other current assets.......................................... 223 193
-------- --------
Total current assets....................................... 19,355 19,289
-------- --------
PROPERTY AND EQUIPMENT (Note 1):
Land.......................................................... 3,249 3,249
Buildings and improvements.................................... 25,976 25,976
Equipment..................................................... 27,334 27,384
-------- --------
56,559 56,609
Less -- Accumulated depreciation.............................. (13,484) (14,358)
-------- --------
43,075 42,251
Construction in progress...................................... 56 150
-------- --------
43,131 42,401
-------- --------
GOODWILL (Note 1)............................................... 8,005 7,946
-------- --------
OTHER ASSETS (Note 1)........................................... 1,625 1,897
-------- --------
$ 72,116 $ 71,533
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable.............................................. $ 3,721 $ 2,140
Accrued liabilities........................................... 1,809 1,615
Other current liabilities..................................... 1,986 2,235
-------- --------
Total current liabilities.................................. 7,516 5,990
-------- --------
DEBT ALLOCATED FROM AFFILIATE (Note 3).......................... 9,464 4,500
-------- --------
DUE TO AFFILIATE (Note 6)....................................... 25,934 30,755
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 2)
STOCKHOLDER'S EQUITY:
Common stock.................................................. 1 1
Additional paid-in capital.................................... 99 157
Retained earnings............................................. 29,102 30,130
-------- --------
29,202 30,288
-------- --------
$ 72,116 $ 71,533
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE> 67
AIKEN REGIONAL MEDICAL CENTERS
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31
DECEMBER 31, ---------------------
1994 1994 1995
------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C>
NET REVENUES.............................................. $ 84,012 $ 19,898 $ 22,289
------- ------- -------
OPERATING CHARGES:
Operating expenses (Note 6)............................. 35,386 8,728 9,781
Salaries and wages...................................... 25,637 6,080 6,445
Provision for doubtful accounts......................... 9,687 2,479 2,322
Depreciation and amortization (Note 1).................. 3,824 911 950
Lease and rental expense (Note 2)....................... 1,445 404 317
Interest expense, net of interest income of $193, $5 and
$30, respectively (Note 6)........................... 337 82 60
Management fees (Note 6)................................ 841 210 660
------- ------- -------
Total operating charges.............................. 77,157 18,894 20,535
------- ------- -------
INCOME BEFORE INCOME TAXES................................ 6,855 1,004 1,754
PROVISION FOR INCOME TAXES (Note 5)....................... 2,816 412 726
------- ------- -------
NET INCOME................................................ $ 4,039 $ 592 $ 1,028
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE> 68
AIKEN REGIONAL MEDICAL CENTERS
STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN CAPITAL RETAINED EARNINGS
------------ --------------- -----------------
<S> <C> <C> <C>
JANUARY 1, 1994............................... $ 1 $ 99 $ 25,063
Net income.................................. -- -- 4,039
--- ---- -------
DECEMBER 31, 1994............................. 1 99 29,102
Net income (unaudited)...................... -- -- 1,028
Capital contribution (unaudited)............ -- 58 --
--- ---- -------
MARCH 31, 1995 (unaudited).................... $ 1 $ 157 $ 30,130
=== ==== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE> 69
AIKEN REGIONAL MEDICAL CENTERS
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31
DECEMBER 31, ---------------------
1994 1994 1995
------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.............................................. $ 4,039 $ 592 $ 1,028
Adjustments to reconcile net income to net cash provided
by operating activities--
Depreciation and amortization........................ 3,824 911 950
Provision for doubtful accounts...................... 9,687 2,479 2,322
Change in operating assets and liabilities--
Accounts receivable................................ (9,869) (2,580) (2,765)
Other current assets............................... (186) (12) 4
Other assets....................................... (199) (15) (289)
Accounts payable................................... 334 (367) (1,579)
Other accrued liabilities.......................... 274 334 111
------- ------- -------
Net cash provided by operating activities....... 7,904 1,342 (218)
------- ------- -------
INVESTING ACTIVITIES:
Additions to property and equipment..................... (2,315) (580) (144)
------- ------- -------
Net cash used in investing activities........... (2,315) (580) (144)
------- ------- -------
FINANCING ACTIVITIES:
Due to affiliate, net................................... (4,158) 1,509 4,821
Repayment of debt....................................... -- (1) (4,964)
------- ------- -------
Net cash (used in) provided by financing
activities.................................... (4,158) 1,508 (143)
------- ------- -------
CHANGE IN CASH............................................ 1,431 2,270 (505)
CASH, BEGINNING OF PERIOD................................. 611 611 2,042
------- ------- -------
CASH, END OF PERIOD....................................... $ 2,042 $ 2,881 $ 1,537
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE> 70
AIKEN REGIONAL MEDICAL CENTERS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Aiken Regional Medical Centers (the "Company") owns and operates a 225 bed
facility comprised of an acute care hospital (Aiken Regional Medical Center), a
psychiatric hospital (Aurora Pavillion) and a cancer center (The Carolina Cancer
Center) in Aiken, South Carolina. The Company is a wholly-owned subsidiary of
Columbia/HCA.
In 1989, the Company's then parent (HCA) was acquired in a leveraged buyout
transaction accounted for as a purchase. Accordingly, the accompanying financial
statements include adjustments to reflect to allocation of HCA's cost, including
an adjustment to increase the carrying value of property and equipment to fair
value ($5,728,000) and to allocate the excess of cost over the fair value of
tangible assets acquired to goodwill ($9,364,000).
The more significant accounting policies follow:
Net Revenues
Net revenues are reported at the estimated net realizable amounts from
patients, third-party payors, and others for services rendered, including
estimated retroactive adjustments under reimbursement agreements with
third-party payors. These net revenues are accrued on an estimated basis in the
period the related services are rendered and adjusted in future periods as final
settlements are determined. Medicare and Medicaid revenues represented 39% and
14%, respectively, of net revenues for the year ended December 31, 1994. Net
revenues in 1994 include $330,000 of favorable adjustments relating to prior
year reimbursement issues.
The Company participates in the State of South Carolina's Medicaid
Disproportionate Share Program. This program provides additional reimbursement
to eligible hospitals based on the unreimbursed costs incurred in providing
health care services to Medicaid and underinsured patients. Net revenues in 1994
include approximately $4.9 million of additional reimbursement recorded under
this program as follows (in thousands):
<TABLE>
<S> <C>
State fiscal year 1989..................................... $2,400
State fiscal year 1994 (for the period January 1, 1994 to
June 30, 1994)........................................... 988
State fiscal year 1995 (for the period July 1, 1994 to
December 31, 1994)....................................... 1,521
------
$4,909
======
</TABLE>
In 1994, the Company successfully filed an appeal relating to its
eligibility to participate in the State's fiscal year 1989 program. As a result
of a settlement reached with the State, the Company recorded $2.4 million of net
proceeds received in the third quarter, which amount is included in the table
above.
Under the provisions of the State's fiscal year 1995 program, the Company
will be entitled to additional disproportionate share payments through June 30,
1995. Management expects that the Company will be eligible for additional
amounts under the State's fiscal year 1996 program (July 1, 1995 through June
30, 1996), although the amounts to be received under that program cannot
presently be estimated. Management is unable to predict whether these
disproportionate share payments will continue beyond the end of the State's
fiscal year 1996.
F-27
<PAGE> 71
AIKEN REGIONAL MEDICAL CENTERS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Statements of Cash Flows
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Supplies
Supplies are valued at the lower of cost (first-in, first-out) or market.
Property and Equipment
Property and equipment are stated at cost as described above. Expenditures
for renewals and improvements are charged to the property accounts.
Replacements, maintenance and repairs that do not improve or extend the life of
the respective assets are expensed as incurred. The Company removes the cost and
the related accumulated depreciation from the accounts for assets sold or
retired, and resulting gains or losses are included in the results of
operations.
Depreciation is provided using the straight-line method over the estimated
useful lives of buildings and improvements (ranging from 5 to 40 years) and
equipment (ranging from 4 to 20 years).
Goodwill
The goodwill amount recorded as described above is being amortized over 40
years. In 1994, amortization expense of $234,000 was charged to operations.
Other Assets
Other assets consist primarily of loans made to physicians. These loans
have maturities ranging from 3 to 6 years and interest rates ranging from 0% to
8.5%.
2. COMMITMENTS AND CONTINGENCIES:
During the fourth quarter of 1994, the Company's parent signed a letter of
intent to exchange Aiken Regional Medical Centers for a 104-bed acute care
hospital, a 126-bed acute and psychiatric care hospital and cash. The closing of
this transaction, which is expected to be completed during June of 1995, is
subject to a number of conditions, including regulatory approval. The following
assets and liabilities of Aiken Regional Medical Centers are excluded from this
exchange: cash and cash equivalents, all intercompany receivables, restricted
funds, accounts receivable, inventory, capital lease obligations and long-term
indebtedness.
The Company's parent insures a substantial portion of its professional
liability risks through a wholly-owned insurance subsidiary.
Minimum rental commitments under operating leases having an initial or
remaining noncancelable lease term of more than one year as of December 31,
1994, are as follows:
<TABLE>
<S> <C>
1995 $ 414,000
1996 304,000
1997 283,000
1998 239,000
Thereafter............................................. --
----------
$1,240,000
==========
</TABLE>
F-28
<PAGE> 72
AIKEN REGIONAL MEDICAL CENTERS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Various suits and claims arising in the ordinary course of business are
pending against the Company. In the opinion of management, the outcome of such
claims and litigation will not materially affect the Company's financial
position or results of operations.
3. DEBT ALLOCATED FROM AFFILIATE:
The Company's parent has allocated a portion of its outstanding debt to
Aiken Regional Medical Centers. In addition, the parent allocates interest
incurred on the outstanding balance of this obligation (see Note 6).
4. EMPLOYEE RETIREMENT PLANS:
The Company's employees are eligible to participate in various retirement
plans sponsored by Columbia/HCA. Company contributions to these plans represent
a percentage of the employee's pay, a percentage of the employee's pay based on
years of service or a match of the employee's contribution. Total expense
recognized by the Company under these plans was $499,000 in 1994.
5. INCOME TAXES:
The Company's parent generally does not allocate federal and state income
taxes to its subsidiary companies, including Aiken Regional Medical Centers. For
financial reporting purposes only, the Company has estimated a tax provision for
federal and state income taxes as if the Company filed a separate tax return.
The components of income tax provision for the year ended December 31,
1994, are as follows:
<TABLE>
<S> <C>
Current provision:
Federal..................................... $ 3,613,000
State....................................... 543,000
-----------
4,156,000
-----------
Deferred benefit:
Federal..................................... (1,165,000)
State....................................... (175,000)
-----------
(1,340,000)
-----------
$ 2,816,000
===========
</TABLE>
The financial statements reflect the accounting for income taxes under the
provisions of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("FAS 109"). Under FAS 109, deferred taxes are required to be
provided based on the temporary differences between the financial statement
carrying amounts and the tax bases of assets and liabilities. Temporary
differences giving rise to deferred taxes as of December 31, 1994, include
doubtful accounts and other reserves, depreciable and amortizable assets and the
conversion of cash basis to accrual basis of accounting.
Since the Company's parent does not directly charge its subsidiaries for
federal and state income taxes, all accrued and deferred tax liabilities have
been included in the amount due to affiliate in the accompanying balance sheet.
The Company's effective tax rate (41.1%) differs from its federal statutory
rate (35%) due primarily to the effect of non-deductible depreciation and
amortization (2.8%) and state income taxes, net of federal benefit (3.3%).
F-29
<PAGE> 73
AIKEN REGIONAL MEDICAL CENTERS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. RELATED-PARTY TRANSACTIONS:
Columbia/HCA supports the Company in various operating areas and provides
centralized cash management and other treasury services. All such intercompany
transactions have been included in the accompanying financial statements and are
reflected in the amount due to affiliate.
Certain common expenses of the consolidated group, including workers'
compensation insurance, general and professional liability insurance and data
processing services, are allocated to the individual subsidiaries.
Parent Company allocations in the accompanying statement of income for the
year ended December 31, 1994, are as follows:
<TABLE>
<S> <C>
Included in operating expenses
Insurance.................................... $ 919,000
Data processing fees......................... 395,000
Other........................................ 22,000
----------
1,336,000
Management fees................................ 841,000
Interest....................................... 533,000
----------
Total..................................... $2,710,000
==========
</TABLE>
F-30
<PAGE> 74
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
MANATEE HOSPITALS AND HEALTH SYSTEMS, INC.
We have audited the accompanying combined balance sheets of Manatee
Hospitals and Health Systems, Inc. as of August 31, 1993 and 1994, and the
related combined statements of revenue and expenses, changes in fund balances,
and cash flows for the years then ended. These financial statements are the
responsibility of the Organization's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Manatee Hospitals
and Health Systems, Inc. at August 31, 1993 and 1994, and the combined results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Tampa, Florida
October 24, 1994
F-31
<PAGE> 75
MANATEE HOSPITALS AND HEALTH SYSTEMS, INC.
COMBINED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
AUGUST 31
----------------------- MARCH 31
1993 1994 1995
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
GENERAL FUND
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 4,989 $ 6,903 $ 4,185
Short-term investments................................. 6,046 10,305 12,062
Accounts receivable, less allowance for doubtful
accounts of $5,436 and $5,139 at August 31, 1993 and
1994, respectively, and $4,968 at March 31, 1995
(unaudited)......................................... 19,291 17,169 22,237
Inventories............................................ 2,793 2,517 2,609
Prepaid expenses and other assets...................... 347 237 465
Current portion of assets whose use is limited......... 4,634 5,070 1,577
-------- -------- --------
Total current assets..................................... 38,100 42,201 43,135
Assets whose use is limited, less current portion........ 13,454 11,342 11,403
Property, plant and equipment:
Land and land improvements............................. 4,545 4,545 4,545
Leasehold improvements................................. 107 108 108
Buildings.............................................. 52,902 56,153 57,127
Equipment.............................................. 25,543 28,362 29,045
Less allowances for depreciation....................... (27,507) (32,516) (35,462)
-------- -------- --------
55,590 56,652 55,363
Construction in progress............................... 1,432 641 256
-------- -------- --------
57,022 57,293 55,619
Due from affiliated organizations........................ 11,915 16,926 21,387
Other assets:
Debt issue costs, less accumulated amortization of
$3,373 and $3,960 at August 31, 1993 and 1994,
respectively, and $4,303 at March 31, 1995
(unaudited)......................................... 3,326 2,739 2,396
Acquisition costs, less accumulated amortization of
$655 and $728 at August 31, 1993 and 1994,
respectively, and $771 at March 31, 1995
(unaudited)......................................... 1,386 1,313 1,270
Other.................................................. 1,010 911 885
-------- -------- --------
5,722 4,963 4,551
-------- -------- --------
Total assets............................................. $ 126,213 $ 132,725 $ 136,095
======== ======== ========
RESTRICTED FUND
Due from general fund.................................... $ 914 $ 828 $ --
======== ======== ========
</TABLE>
F-32
<PAGE> 76
COMBINED BALANCE SHEETS -- (CONTINUED)
<TABLE>
<CAPTION>
AUGUST 31
----------------------- MARCH 31
1993 1994 1995
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
GENERAL FUND
LIABILITIES AND FUND BALANCE
Current liabilities:
Accounts payable and accrued expenses.................. $ 6,887 $ 6,882 $ 5,324
Accrued employee compensation and related
liabilities......................................... 4,666 5,766 7,249
Accrued interest payable............................... 3,796 3,732 1,163
Estimated third-party settlements...................... 366 1,250 2,392
Other current liabilities.............................. 2,369 2,310 2,297
Current portion of long-term debt...................... 1,557 1,645 1,737
-------- -------- --------
Total current liabilities................................ 19,641 21,585 20,162
Other liabilities........................................ 777 759 532
Long-term debt, less current portion and escrowed
funds.................................................. 83,894 82,259 80,869
Fund balance............................................. 21,901 28,122 34,532
-------- -------- --------
Total liabilities and fund balance....................... $ 126,213 $ 132,725 $ 136,095
-------- -------- --------
RESTRICTED FUND
Fund balance............................................. $ 914 $ 828 $ --
======== ======== ========
</TABLE>
See accompanying notes.
F-33
<PAGE> 77
MANATEE HOSPITALS AND HEALTH SYSTEMS, INC.
COMBINED STATEMENTS OF REVENUE AND EXPENSES
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEVEN-MONTH PERIOD
YEAR ENDED AUGUST 31 ENDED MARCH 31
------------------------ ----------------------
1993 1994 1994 1995
--------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net patient service revenue................. $ 118,005 $ 114,814 $ 69,995 $ 72,524
Other revenue............................... 1,849 2,399 1,156 1,950
-------- -------- ------- -------
Total revenue............................... 119,854 117,213 71,151 74,474
Expenses:
Salaries and wages........................ 40,393 38,444 22,970 23,596
Employee benefits......................... 10,539 10,587 6,342 6,536
Supplies and other........................ 39,173 39,382 23,534 24,548
Provision for doubtful accounts........... 9,666 8,663 5,572 5,349
Depreciation and amortization............. 5,622 5,768 3,286 3,341
Interest.................................. 7,779 7,440 4,463 4,974
-------- -------- ------- -------
Total expenses.............................. 113,172 110,284 66,167 68,344
-------- -------- ------- -------
6,682 6,929 4,984 6,130
Allocated costs............................. (1,474) (1,336) (835) (849)
-------- -------- ------- -------
Income from operations...................... 5,208 5,593 4,149 5,281
Nonoperating gains.......................... 345 628 286 504
-------- -------- ------- -------
Excess of revenue over expenses............. $ 5,553 $ 6,221 $ 4,435 $ 5,785
======== ======== ======= =======
</TABLE>
See accompanying notes.
F-34
<PAGE> 78
MANATEE HOSPITALS AND HEALTH SYSTEMS, INC.
COMBINED STATEMENTS OF CHANGES IN FUND BALANCES
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEVEN-MONTH
PERIOD
YEAR ENDED AUGUST 31 ENDED
--------------------- MARCH 31
1993 1994 1995
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
GENERAL FUND
Balance at beginning of period............................ $ 16,248 $ 21,901 $ 28,122
Excess of revenue over expenses........................... 5,553 6,221 5,785
Transfer from restricted fund............................. 100 -- 825
Transfer to Foundation.................................... -- -- (200)
------- ------- -------
Balance at end of period.................................. $ 21,901 $ 28,122 $ 34,532
======= ======= =======
RESTRICTED FUND
Balance at beginning of period............................ $ 929 $ 914 $ 828
Restricted expenditures................................... -- (86) (3)
Restricted donations...................................... 85 -- --
Transfer to general fund.................................. (100) -- (825)
------- ------- -------
Balance at end of period.................................. $ 914 $ 828 $ --
======= ======= =======
</TABLE>
See accompanying notes.
F-35
<PAGE> 79
MANATEE HOSPITALS AND HEALTH SYSTEMS, INC.
COMBINED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEVEN-MONTH PERIOD
YEAR ENDED AUGUST 31 ENDED MARCH 31
--------------------- ---------------------
1993 1994 1994 1995
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES AND NONOPERATING GAINS
Excess of revenue over expenses.................... $ 5,553 $ 6,221 $ 4,435 $ 5,785
Adjustments to reconcile excess of revenue over
expenses to net cash provided by operating
activities and nonoperating gains:
Depreciation and amortization................. 5,622 5,768 3,286 3,341
Change in current assets and current
liabilities, exclusive of cash and cash
equivalents and current portions of
noncurrent assets and liabilities........... 1,405 4,450 (972) (6,075)
Increase (decrease) in other liabilities...... 65 (18) (92) (227)
------- ------- ------- -------
Net cash provided by operating activities and
nonoperating gains............................... 12,645 16,421 6,657 2,824
INVESTING ACTIVITIES
Purchases of property, plant and equipment......... (4,453) (5,331) (3,760) (1,281)
Increase in short-term investments................. (3,105) (4,259) (3,050) (1,757)
Decrease in assets whose use is limited............ 1,389 1,746 5,039 3,432
(Increase) decrease in other assets................ (5) 99 118 26
Restricted donations (expenditures)................ 85 (86) (103) (3)
------- ------- ------- -------
Net cash (used in) provided by investing
activities....................................... (6,089) (7,831) (1,756) 417
FINANCING ACTIVITIES
Transfer to Foundation............................. -- -- -- (200)
Payments to affiliated organizations............... (5,972) (5,011) (1,659) (4,461)
Repayment of long-term debt........................ (2,140) (1,665) (1,825) (1,298)
------- ------- ------- -------
Net cash used in financing activities.............. (8,112) (6,676) (3,484) (5,959)
------- ------- ------- -------
(Decrease) increase in cash and cash equivalents... (1,556) 1,914 1,417 (2,718)
Cash and cash equivalents at beginning of period... 6,545 4,989 4,989 6,903
------- ------- ------- -------
Cash and cash equivalents at end of period......... $ 4,989 $ 6,903 $ 6,406 $ 4,185
======= ======= ======= =======
</TABLE>
See accompanying notes.
F-36
<PAGE> 80
MANATEE HOSPITALS AND HEALTH SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
AUGUST 31, 1994
1. OPERATIONS AND ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations and Organization
Manatee Hospitals and Health Systems, Inc. (the Organization) is a
not-for-profit corporation affiliated through common corporate membership with
Baptist Hospitals and Health Systems, Inc. (BHHS), an Arizona not-for-profit
corporation. The Organization consists of Manatee Memorial Hospital (the
Hospital) and related affiliates, Trumed, Inc., Intermed America, Inc., and
Manatee Memorial Hospital Foundation, Inc. (the Foundation). The Hospital
provides acute care inpatient and ambulatory care services, and Trumed, Inc. and
Intermed America, Inc. provide home health care services and outpatient care
services, respectively. The Foundation conducts fund-raising activities
primarily for the benefit of the Hospital. The operations of these affiliates
are combined in the accompanying financial statements. All significant
intercompany transactions have been eliminated.
The Organization purchased from Manatee County (the County) the assets and
assumed the obligations of Manatee Memorial Hospital on July 25, 1984. The
Organization entered into an agreement with the County to provide medical care
to qualified indigent County residents. The agreement requires the Organization
to provide $150,000 of medical education services to County residents annually
through September 1, 2000. As additional consideration, the Organization has
agreed to make its best efforts to make certain capital improvements and
additions to the Organization and to limit future management fees to BHHS to a
certain percentage of gross patient service charges.
Mission Statement and Nonoperating Gains and Losses
The primary mission of the Organization is to provide health care services
through its acute care and specialty care facilities. Only those activities
directly associated with the furtherance of this purpose are considered to be
operating activities. Other activities that result in gains or losses unrelated
to the primary mission of the Organization are considered to be nonoperating.
Charity Care
The Organization provides care to patients that meet certain criteria under
its charity care policy without charge or at amounts less than its established
rates. A patient is classified as a charity patient by reference to certain
policies established by the Organization. Partial payments to which the
Organization is entitled from public assistance and other programs on behalf of
patients that meet the Organization's charity care criteria are reported as
patient service revenue. The Organization considers the difference between
established rates and such partial payments from public assistance and other
programs to be charity care.
The Organization maintains records to identify the level of charity care
provided. These records include the amount of charges foregone for services and
supplies furnished under its charity care policy. The level of charity care
provided (charges foregone, based upon established rates) totaled $22,200,000 in
1993 and $24,000,000 in 1994.
F-37
<PAGE> 81
MANATEE HOSPITALS AND HEALTH SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Net Patient Service Revenue
Net patient service revenue includes amounts estimated by management to be
reimbursable by Medicare, Medicaid, and other third-party programs. The
Organization recognizes estimated final settlements due from or to third-party
programs. The final determination of reimbursement amounts is subject to audit
by the intermediaries and final settlements are reflected in these statements
for cost reports through the year ended August 31, 1992. Differences between
estimated provisions and final settlements are reflected as net patient service
revenue in the fiscal year the cost reports are finalized. Net patient service
revenue includes approximately $1,994,000 recognized in the current year due to
changes in estimated settlements. Presented below are the components of net
patient service revenue presented in the combined statements of revenue and
expenses:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
------------------------
1993 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Total patient service charges...................... $ 201,375 $ 202,028
Less contractual adjustments and other deductions
from revenue..................................... (83,370) (87,214)
-------- --------
Net patient service revenue........................ $ 118,005 $ 114,814
======== ========
</TABLE>
Estimated Medicare Settlements
The Organization is covered under the Medicare Prospective Payment System
(PPS) and is reimbursed a predetermined amount for inpatient services based, for
the most part, on the Diagnosis Related Group (DRG) assigned to the patient.
Since the amount is prospectively determined, retroactive settlements are not
made for inpatient services under PPS.
Medicare outpatient services, bad debts, home health care services, and
certain capital-related costs are reimbursed on a cost basis. Medicare cost
reports are filed annually for reimbursement of these costs. Retroactive cost
settlements are estimated and recorded in the financial statements for these
amounts.
Charges for services to patients under the Medicare program as a percent of
gross patient service charges approximated 54 percent in 1993 and 55 percent in
1994.
Inventories
Inventories are valued at the lower of cost (first-in, first-out method) or
market.
Cash and Cash Equivalents
Cash and cash equivalents include investments in highly liquid instruments
with a maturity of three months or less at date of acquisition, excluding
amounts whose use is limited by Board designation or other arrangements under
trust agreements.
Investments and Investment Income
Marketable securities are carried at cost which approximates market value.
Investment earnings on assets whose use is limited are reported as other
revenue. All other investment earnings are reported as nonoperating gains.
F-38
<PAGE> 82
MANATEE HOSPITALS AND HEALTH SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Property, Plant and Equipment
Property, plant and equipment is recorded at historical cost at date of
acquisition or fair market value at date of donation. Depreciation expense is
computed using the straight-line method. At August 31, 1994, the estimated cost
to complete construction projects is approximately $200,000.
Income Taxes
The Hospital and Trumed, Inc. are exempt from federal income taxes under
Section 501(c)(3) of the Internal Revenue Code and from state income taxes under
the provisions of Chapter 220.13 of the Florida Statutes. The Foundation is
exempt under Section 509(a)(3) of the Internal Revenue
Code. Accordingly, income earned in furtherance of the Organization's tax-exempt
purpose is exempt from federal and state income taxes. Intermed America, Inc. is
a taxable entity. No provision has been made for income taxes since the amount
is immaterial.
Accrued Employee Benefits
The Organization has a plan for granting paid absences which combines all
time normally granted for vacations and holidays. The benefits are accrued
monthly and presented in the financial statements as a current liability.
Restricted Fund
The Restricted Fund consists of specific purpose donor restricted assets.
Debt Issue Costs
Debt issue costs are amortized over the term of the related obligations
using the straight-line method and the related amortization is included in
depreciation and amortization expense.
Reclassifications
Certain reclassifications were made to the 1993 financial statements to
conform to the 1994 presentation. These reclassifications had no effect on
excess of revenue over expenses.
2. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods are used by the Organization in estimating the market
value disclosures for certain financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates market value.
Short-term investments: The values for U.S. Government securities
which comprise short-term investments are based on quoted market prices.
Assets whose use is limited: The carrying amount of assets whose use
is limited, which consist primarily of cash and cash equivalents and U.S.
Government securities, approximates market value. Market value for U.S.
Government securities is estimated based on quoted market prices for those
or similar investments.
Long-term debt: The fair value of the Organization's long-term debt is
based on the quoted market prices for the outstanding issues.
F-39
<PAGE> 83
MANATEE HOSPITALS AND HEALTH SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying amount and market values of the Organization's financial
instruments at August 31, 1994 are as follows:
<TABLE>
<CAPTION>
CARRYING MARKET
AMOUNT VALUE
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............................ $ 6,903 $ 6,903
Short-term investments............................... 10,305 10,204
Assets whose use is limited.......................... 16,412 16,418
Long-term debt, less escrowed funds.................. 83,904 93,289
</TABLE>
3. ASSETS WHOSE USE IS LIMITED
Assets whose use is limited consist of:
<TABLE>
<CAPTION>
AUGUST 31
----------------------
1993 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Assets held for payment of bond principal and
interest (Bond Fund)............................... $ 4,634 $ 4,742
Assets held to provide a reserve for the payment of
principal and interest (Reserve Fund).............. 10,409 10,109
Assets held for payment of construction in progress
(Acquisition Fund)................................. 1,638 --
Asset held under self-insurance trust arrangements... 1,407 1,561
------- -------
18,088 16,412
Less current portion................................. (4,634) (5,070)
------- -------
$ 13,454 $ 11,342
======= =======
</TABLE>
Assets held under self-insurance trust arrangements are amounts designated
by the Board of Directors to pay for medical malpractice, workers' compensation
and general liability claims within the deductible provisions of the insurance
coverage.
Assets whose use is limited consist of United States Government securities,
money market funds invested in United States Government securities, and cash and
repurchase agreements. All such investments are carried at cost plus accrued
interest.
F-40
<PAGE> 84
MANATEE HOSPITALS AND HEALTH SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT
The Organization was obligated under long-term debt agreements as follows:
<TABLE>
<CAPTION>
AUGUST 31
------------------------
1993 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Industrial Development Revenue Bonds, Series
1991............................................. $ 21,306 $ 21,124
Industrial Development Revenue Refunding Bonds:
Series 1988...................................... 5,040 5,040
Series 1987...................................... 53,093 53,098
Series 1985, Serial and Term Bonds............... 54,522 53,251
Series 1985, Compound Interest Bonds............. 3,588 3,943
Other.............................................. 267 98
Escrowed investments for retirement of bonds....... (52,365) (52,650)
-------- --------
85,451 83,904
Less current portion............................... (1,557) (1,645)
-------- --------
$ 83,894 $ 82,259
======== ========
</TABLE>
Industrial Development Revenue Bonds and Industrial Development Revenue
Refunding Bonds described above are net of unamortized issue discounts at August
31, 1993 and 1994 of $670,000 and $621,800, respectively.
All bonds were issued pursuant to a Master Trust Indenture entered into
between the Obligated Group and an Arizona bank, as trustee. The Obligated Group
consists of Phoenix Baptist Hospital and Medical Center, Inc., Medical
Environments, Inc., Northwest Development, Inc., and Manatee Hospitals and
Health Systems, Inc. Each member of the Obligated Group has issued indebtedness
under the provisions of the Master Trust Indenture, which constitute separate
issues of each issuer. The indebtedness of each issuer is collateralized by a
deed of trust and mortgage and a security agreement granting security interests
on certain encumbered property of Phoenix Baptist Hospital and Manatee Memorial
Hospital.
The Master Trust Indenture provides for the joint and several liability on
the part of each Obligated Group member for the payment of any notes issued
under the Master Trust Indenture (see Note 8). The Master Trust Indenture places
certain restrictions on the operations of the Obligated Group, which, among
other things, includes minimum debt service coverage ratios, limits on
encumbrances and liens, limits on additional indebtedness, and minimum insurance
coverage.
In 1985, the Obligated Group refunded Series 1984 Bonds in advance of the
scheduled maturity dates and was legally released from being the primary obligor
on the Series 1984 Bonds. A portion of the proceeds from the Series 1985 Revenue
Refunding Bonds was used to purchase government securities that were placed in a
depository trust. The earnings and principal maturities of the securities in the
depository trust will be sufficient to provide timely and adequate funds for the
payment of all principal and interest on the refunded Series 1984 Bonds.
Therefore, these assets and the Series 1984 Bonds (principal amount of
$52,375,000 and $51,650,000 as of August 31, 1993 and 1994, respectively) are
not included in the Organization's financial statements. A portion of the
proceeds from the Series 1985 Revenue Refunding Bonds are held by the trustee in
the Reserve Fund solely as security for the Series 1985 Revenue Refunding Bonds.
The Series 1985 Revenue Refunding Bonds bear interest at rates ranging from
8.30% to 9.75%, payable annually with principal due September 1, 2014.
F-41
<PAGE> 85
MANATEE HOSPITALS AND HEALTH SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The proceeds of the Series 1987 Bonds were used to pay issuance costs and
the remainder was used to purchase government securities which have been
deposited into an escrow account administrated by the trustee. The investment
income from the government securities, along with the principal, will be used
for payment of interest on the Series 1987 Bonds through September 1, 1995, at
which time the remaining proceeds will be used to partially redeem the serial
and term bonds of the Series 1985 Bonds and redeem the compound interest bonds
of the Series 1985 Bonds. Also on September 1, 1995 the Organization will begin
paying debt service on the 1987 Bonds. Deposits with the trustee for debt
service payments after the crossover date of September 1, 1995 will be equal to
10% of the aggregate principal amount of the Series 1987 Bonds. The Series 1987
Bonds bear interest from 8.00% to 8.25%, payable semiannually and principal
payable annually beginning September 1, 2002 through September 1, 2014.
The proceeds of the Series 1988 Bonds were used to pay issuance costs and
the remainder to purchase government securities to be deposited in an escrow
account. The earnings and principal will be used primarily for payment of
interest and principal on the serial and term bonds of the Series 1985 through
September 1, 1998. The Series 1988 Bonds bear interest from 7.00% to 7.20%,
payable semiannually with principal payable semiannually beginning February 15,
1999 through September 1, 2001.
The proceeds of the Series 1991 Bonds were used to finance the costs of
constructing and equipping a new surgery center and the first two floors of an
adjacent medical office building, fund the Reserve Fund, pay interest on the
Series 1991 Bonds during the estimated construction period, and pay issuance
costs. The Series 1991 Bonds bear interest from 8.25% to 9.25% and mature at
various dates through 2021.
Future maturities of long-term debt, including sinking fund requirements,
are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
(IN THOUSANDS)
<S> <C>
1995 $1,645
1996 1,762
1997 1,966
1998 2,105
1999 2,270
</TABLE>
During 1993 and 1994, gross interest costs incurred approximated
$12,401,000 and $12,261,000, respectively. Investment income earned on the
escrowed funds established with proceeds of the Series 1987 Bonds is recorded as
a reduction to interest expense and approximated $4,622,000 and $4,651,000 in
1993 and 1994, respectively. The Organization paid $11,221,000 and $11,799,000
during 1993 and 1994, respectively. The Organization capitalized interest of
$170,000 during 1994.
At August 31, 1994, the Organization has available a $1,500,000 line of
credit. No amounts were outstanding under this agreement at August 31, 1994.
5. TRANSACTIONS WITH AFFILIATED ORGANIZATIONS
The amounts due from affiliated organizations reflected in the combined
balance sheets relate to transactions with BHHS and other affiliates and
generally represent working capital advances. The ultimate recoverability of
amounts due from affiliated organizations is dependent upon those affiliates'
ability to generate cash flow from operations sufficient in amount to support
continuing operations and repay working capital advances. Interest is calculated
on the outstanding balance in the intercompany
F-42
<PAGE> 86
MANATEE HOSPITALS AND HEALTH SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
account at the beginning of each month based upon the prime rate of Bank One
Arizona. Intercompany interest income of $455,000 and $879,169 in 1993 and 1994
and data processing fees of $1,914,000 and $1,856,000 in 1993 and 1994, are
included in other revenue and operating expenses, respectively, in the
accompanying combined statements of revenue and expenses.
Allocated costs represent the Organization's share of the costs incurred by
BHHS in providing accounting, administrative, consulting and other services to
its affiliates.
6. MALPRACTICE INSURANCE
Under its occurrence-basis commercial insurance coverage, the Organization
is liable for specified deductible provisions up to a maximum of $100,000 per
claim. The Organization funds coverage for the deductible provisions based on
actuarial determinations and deposits such funds into a revocable trust account.
Losses from asserted claims and from unasserted claims identified under the
Organization's incident reporting system are accrued based on estimates that
incorporate the Organization's past experience as well as other considerations
including the nature of each claim or incident. No accrual for possible losses
attributable to incidents that may have occurred but that have not been
identified under the incident reporting system has been made because the amount
is not reasonably estimable. In management's opinion, any such incidents would
not have a material adverse effect on the operations or financial position of
the Organization.
7. PENSION PLAN
The Organization has a defined benefit pension plan covering substantially
all of its employees. The benefits are based on years of service and the
employee's highest compensation for any five years of employment. The
Organization's funding policy is to contribute annually at least the minimum
amount that should be funded in accordance with the provisions of ERISA.
Contributions are intended to provide not only for benefits attributed to
service to date but also for those expected to be earned in the future.
F-43
<PAGE> 87
MANATEE HOSPITALS AND HEALTH SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The plan's funded status and amounts recognized in the Organization's
combined balance sheets as of August 31 are as follows:
<TABLE>
<CAPTION>
1993 1994
------------ ------------
<S> <C> <C>
Actuarial present value of benefit obligations as of June 30:
Accumulated benefit obligation, including vested benefits
of $16,761,644 and $16,522,393 for 1993 and 1994,
respectively............................................ $ 17,869,077 $ 17,645,529
============ ============
Projected benefit obligation for service rendered to date.... $(21,455,741) $(20,131,971)
Plan assets at fair value, primarily listed stock and U.S.
Obligations................................................ 14,586,842 15,696,103
------------ ------------
Projected benefit obligation in excess of plan assets........ (6,868,899) (4,435,868)
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions......... 4,320,460 1,388,615
Unrecognized net transition obligation....................... 488,108 433,874
------------ ------------
(2,060,331) (2,613,379)
Pension plan funding for July and August..................... 88,000 111,303
------------ ------------
Accrued Pension Costs Included in Accrued Employee
Compensation and Related Liabilities....................... $ (1,972,331) $ (2,502,076)
============ ============
Net pension cost included the following components:
Service cost -- benefits earned during the period.......... $ 1,202,681 $ 1,334,715
Interest cost on projected benefit obligation.............. 1,494,834 1,743,139
Actual return on plan assets............................... (1,174,581) (142,628)
Net amortization and deferral.............................. 284,237 (842,035)
------------ ------------
Net Periodic Pension Cost.................................... $ 1,807,171 $ 2,093,191
============ ============
</TABLE>
Significant actuarial assumptions used in measuring benefit obligations and
the expected return on plan assets are as follows:
<TABLE>
<CAPTION>
1993 1994
------ ------
<S> <C> <C>
Weighted-average discount rate.......................... 8.5% 8.25%
Weighted-average rate of compensation increase.......... 4.75% 4.75%
Expected rate of return on assets....................... 9.0% 9.0%
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
The Organization is a member of an Obligated Group which, at August 31,
1994, consists of Medical Environments, Inc., Phoenix Baptist Hospitals and
Medical Center, Inc. (Phoenix Baptist), Northwest Development, Inc., and Manatee
Hospitals and Health Systems, Inc. This group is obligated for the payment of
principal and interest on bonds issued under a Master Trust Indenture (see Note
4). As of August 31, 1994, the Organization is contingently liable for debt
service payments on outstanding bonds totaling $90,883,000 which are payable by
other members of the Obligated Group. In the opinion of management of the
Organization, no contingent payments will be made by the Organization on
outstanding bonds of the other members of the Obligated Group.
F-44
<PAGE> 88
MANATEE HOSPITALS AND HEALTH SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The future minimum lease payments under noncancelable operating leases with
terms greater than one year are as follows:
<TABLE>
<CAPTION>
OPERATING AMOUNT
YEAR (IN THOUSANDS)
<S> <C>
1995........................................ $1,243
1996........................................ 688
1997........................................ 352
1998........................................ 132
1999........................................ 12
------
$2,427
======
</TABLE>
Rental expense on operating leases was approximately $1,677,000 and
$1,807,000 for 1993 and 1994, respectively.
9. SUBSEQUENT EVENT
Subsequent to year end, Manatee Hospitals and Health Systems, Inc. entered
into negotiations for a letter of intent to sell all assets of the Organization.
The anticipated sale will be contingent upon the completion of due diligence by
the buyer and applicable regulatory approvals. It is anticipated that the
Organization will recognize a gain on this sale.
10. UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited interim combined financial statements include all
adjustments, consisting only of normal recurring accruals, which the
Organization considers necessary for a fair presentation of the financial
position of the Organization as of March 31, 1995 and the results of operations
for the seven-month periods ended March 31, 1994 and 1995, as presented in the
accompanying unaudited interim combined financial statements.
As described in Note 9, the Organization is negotiating to sell all its
assets to Universal Health Services, Inc. (UHS). In connection with the proposed
sale, the Organization is being jointly managed by BHHS and UHS. The
Organization paid UHS management fees of $500,000 which are included in supplies
and other expenses in the statement of revenue and expenses for the seven-month
period ended March 31, 1995.
As described in Note 4, the proceeds of the Series 1987 Bonds were used to
pay issuance costs and the remainder was used to purchase government securities
which have been deposited into an escrow account. The government securities
matured in February 1995. Under the terms of the escrow agreement, the
Organization cannot reinvest the proceeds of the investments that matured in
February 1995. Consequently, the Organization will not recognize any investment
earnings on these funds between February 1995 and September 1, 1995.
During November 1994, the Organization transferred $200,000 from its
restricted fund to the Manatee Memorial Hospital Foundation, Inc. (an affiliated
organization).
F-45
<PAGE> 89
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER
PERSON HAS BEEN AUTHORIZED BY THE
COMPANY TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATIONS OTHER
THAN THOSE CONTAINED OR INCORPORATED
BY REFERENCE IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY
THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED.
NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY
STATE IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR WHICH
THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANYONE TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information.................. 2
Incorporation of Certain Documents
by Reference......................... 2
The Company............................ 3
Risk Factors........................... 4
Use of Proceeds........................ 6
Pro Forma Financial Information........ 7
Selected Financial and Other Data...... 14
Managements' Discussion and Analysis
of Financial Condition and
Results of Operations................ 16
Healthcare Industry Overview........... 20
Business............................... 21
Financing Arrangements................. 34
Description of Debt Securities......... 35
Plan of Distribution................... 41
Legal Matters.......................... 42
Experts................................ 42
Index to Financial Statements.......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
UNIVERSAL HEALTH
SERVICES, INC.
----------------
$150,000,000
DEBT SECURITIES
-----------
PROSPECTUS
-----------
DILLON, READ & CO. INC.
J.P. MORGAN SECURITIES INC.
BA SECURITIES, INC.
CHEMICAL SECURITIES INC.
NATIONSBANC CAPITAL MARKETS, INC.
SMITH BARNEY INC.
- ---------------------------------------
- ---------------------------------------
<PAGE> 90
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is an itemized statement of all estimated amounts of all
expenses payable by the Registrant in connection with the registration of the
Notes offered hereby, other than underwriting discounts and commissions:
<TABLE>
<S> <C>
Registration Fee -- Securities and Exchange Commission................. $ 51,724.14
Securities rating service fee.......................................... $ 40,000
Blue Sky fees and expenses............................................. $ 20,000
Accountants' fees and expenses......................................... $140,000
Legal fees and expenses................................................ $100,000
Printing and engraving expenses........................................ $ 7,500
Trustee Fees........................................................... $ 5,000
Miscellaneous.......................................................... $ 35,775.86
-----------
Total........................................................ $400,000.00
===========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of Delaware permits
indemnification of directors, officers and employees of a corporation under
certain conditions and subject to certain limitations. Section 7 of the By-Laws
of the Company contains provisions for the indemnification of directors and
officers of the Company.
ITEM 16. EXHIBITS.
<TABLE>
<S> <C>
1 -- Form of Standard Underwriting Provisions and Term Agreement.*
4.1 -- Form of Indenture under which the Debt Securities are to be issued.*
4.2 -- Form of Note (included in Exhibit 4.1).*
5 -- Opinion of Fulbright & Jaworski L.L.P.*
12 -- Computation of Ratio of Earnings to Fixed Charges.*
23.1 -- Consent of Arthur Andersen LLP.*
23.2 -- Consent of Ernst & Young L.L.P.*
23.3 -- Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5.)*
24 -- Power of Attorney (included on signature page).*
25 -- Statement of Eligibility of the Trustee on Form T-1.*
99.1 -- Asset Exchange Agreement among C/HCA Development, Inc., Universal Health
Services, Inc., Aiken Regional Medical Centers, Inc., Dallas Family Hospital,
Inc., Westlake Medical Center, Inc. and UHS of Delaware, Inc., as amended.*
99.2 -- Asset Purchase Agreement among Baptist Hospitals and Health Systems, Inc. and
Affiliated Florida Companies and Manatee Memorial Hospital, L.P. and
Universal Health Services, Inc., dated as of June 30, 1995.
</TABLE>
- ---------------
* Previously filed.
II-1
<PAGE> 91
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment of this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
of any material change to such information in the registration
statement;
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8 and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-2
<PAGE> 92
(d) The undersigned hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 93
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF KING OF PRUSSIA, COMMONWEALTH OF PENNSYLVANIA, ON
JULY 14, 1995.
UNIVERSAL HEALTH SERVICES, INC.
By: /s/ ALAN B. MILLER
------------------------------------
Alan B. Miller
Chairman of the Board, President
& Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ALAN B. MILLER Chairman of the Board, President, July 14, 1995
------------------------------------------ Chief Executive Officer and
Alan B. Miller Director (Principal Executive
Officer)
LEONARD W. CRONKHITE, JR., M.D.* Director July 14, 1995
- --------------------------------------------
Leonard W. Cronkhite, Jr., M.D.
JOHN H. HERRELL* Director July 14, 1995
- --------------------------------------------
John H. Herrell
ROBERT H. HOTZ* Director July 14, 1995
- --------------------------------------------
Robert H. Hotz
MARTIN MYERSON* Director July 14, 1995
- --------------------------------------------
Martin Myerson
SIDNEY MILLER* Director July 14, 1995
- --------------------------------------------
Sidney Miller
ANTHONY PANTALEONI* Director July 14, 1995
- --------------------------------------------
Anthony Pantaleoni
/s/ KIRK E. GORMAN Senior Vice President and July 14, 1995
- -------------------------------------------- Chief Financial Officer
Kirk E. Gorman (Principal Financial Officer)
* /s/ KIRK E. GORMAN
- --------------------------------------------
By: Kirk E. Gorman
as Attorney-in-fact
</TABLE>
II-4
<PAGE> 94
EXHIBIT INDEX
<TABLE>
<S> <C>
99.2 -- Asset Purchase Agreement among Baptist Hospitals and Health Systems, Inc. and
Affiliated Florida Companies and Manatee Memorial Hospital, L.P. and
Universal Health Services, Inc., dated as of June 30, 1995.
</TABLE>
<PAGE> 1
EXHIBIT 99.2
ASSET PURCHASE AGREEMENT
AMONG
BAPTIST HOSPITALS AND HEALTH SYSTEMS, INC.
AND
AFFILIATED FLORIDA COMPANIES
AND
MANATEE MEMORIAL HOSPITAL, L.P.
AND
UNIVERSAL HEALTH SERVICES, INC.
DATED AS OF JUNE 30, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
1. Purchase and Sale of Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Assets Conveyed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2. Payment of the Purchase Price and Assumption of Liabilities. . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Adjustments and Prorations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.3 Liabilities Assumed by the Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.4 Liabilities Retained by the BHHS Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.5 Instruments of Conveyance and Transfer of Books and Records . . . . . . . . . . . . . . . . . . . 11
3. Representations and Warranties of the BHHS Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.1 Organization, Capitalization, Authorization, Etc. . . . . . . . . . . . . . . . . . . . . . . . . 13
3.1.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.1.2 Governing Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.2 Ownership of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.3 Authority and No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.4 Financial Statements, Books and Records and Change in Condition. . . . . . . . . . . . . . . . . . 16
3.4.1 Financial Statements Provided . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.4.2 Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.4.3 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.4.4 Events Subsequent to the Balance Sheet Date . . . . . . . . . . . . . . . . . . . . . . . 18
3.5 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.6 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.7 Property to Operate Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.8 Trade Names, Trademarks, Copyrights, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.10 Compliance with Laws; Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.11 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
3.12 Employee and Labor Matters and Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
3.13 Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
3.14 Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3.15 Professional Staff, Medicare, Medicaid and Other Health Care Programs . . . . . . . . . . . . . . 44
3.16 Facility Surveys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
3.17 Suppliers and Providers of Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
3.18 Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
3.19 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
3.20 No Illegal or Improper Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
3.21 Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
3.22 No Misleading Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
3.23 No Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
4. Representations and Warranties of the Purchaser and UHS . . . . . . . . . . . . . . . . . . . . . . . . . 51
4.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
4.2 Authority and No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
4.3 Defaults, Consents, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
4.4 No Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5. Obligations Before and After Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
5.1 BHHS Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
5.1.1 Access to Premises and Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
5.1.2 Conduct of Business in Ordinary Course . . . . . . . . . . . . . . . . . . . . . . . . . 55
5.1.3 Representations and Warranties True at Closing . . . . . . . . . . . . . . . . . . . . . 56
5.1.4 Further Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
5.1.5 Interviewing Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
5.1.6 No Shopping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
5.1.7 Non-Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
5.1.8 Tax Returns Through Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
5.1.9 Subsequent Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
5.1.10 FIRPTA Affidavits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
5.2 BHHS/Purchaser/UHS Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
5.2.1 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
5.2.2 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
5.2.3 Confidentiality Obligations of the Parties . . . . . . . . . . . . . . . . . . . . . . . 61
5.3 Purchaser/UHS Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
5.3.1 Representations and Warranties True at Closing . . . . . . . . . . . . . . . . . . . . . 61
5.3.2 Further Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
5.3.3 Employment of BHHS Florida Affiliates Personnel . . . . . . . . . . . . . . . . . . . . . 61
5.3.4 Bulk Sales Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
5.3.5 Purchaser/UHS Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
6. Conditions Precedent to the Performance of UHS and the Purchaser. . . . . . . . . . . . . . . . . . . . . 64
6.1 Accuracy of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
6.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
6.3 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
6.4 Certification by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
6.5 Opinion of the BHHS Entities' Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
6.6 Absence of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
6.7 Legal Prohibition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
6.8 Consents, Approvals, Permits, Licenses, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
6.9 Property Tax Records; Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
6.10 Closing Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
6.11 Supplemental Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
6.12 Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
7. Conditions Precedent to the BHHS Entities' Performance . . . . . . . . . . . . . . . . . . . . . . . . . . 70
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
7.1 Accuracy of Representations and Warranties of UHS and the Purchaser . . . . . . . . . . . . . . . 70
7.2 Performance; Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
7.3 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
7.4 Absence of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
7.5 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
7.6 Opinion of Counsel for UHS and the Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
7.7 Long Term Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
7.8 Delivery of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
7.9 State Birds and Flowers Commemorative Collection . . . . . . . . . . . . . . . . . . . . . . . . . 73
7.10 Receipt of Valuation Document . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
8. Joint Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
8.1 Access to Books and Records; Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
8.2 Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
8.3 Employee Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
9. Certain Actions After the Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
10. The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
11. Survival of Representations; Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
11.1 Survival of Representations, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
11.2 Indemnification by the BHHS Entities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
11.3 Indemnification by the Purchaser and UHS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
11.4 Procedure for Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
11.5 Limitations on Indemnification Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
12. Entire Agreement; Modification, Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
13. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
14. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
15. Successors and Assigns; Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
16. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
17. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
18. No Third-Party Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
19. Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
20. Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
21. Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
22. Additional Assumed Liability of Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
23. No Partnership or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
</TABLE>
-iv-
<PAGE> 6
ASSET PURCHASE AGREEMENT
AGREEMENT, made as of the 30th day of June, 1995, by and among (i)
MANATEE MEMORIAL HOSPITAL, L.P., a Delaware limited partnership (the
"Purchaser"), and an indirect subsidiary of UNIVERSAL HEALTH SERVICES, INC.
("UHS"), a Delaware corporation, (ii) UHS, (iii) BAPTIST HOSPITALS AND HEALTH
SYSTEMS, INC., an Arizona non-profit corporation ("BHHS"), and (iv) the
corporations listed on Exhibit A hereto, each a Florida corporation and an
affiliate of BHHS (collectively, the "BHHS Florida Affiliates"). BHHS and the
BHHS Florida Affiliates are sometimes collectively referred to herein as the
"BHHS Entities."
W I T N E S S E T H :
WHEREAS, BHHS directly or indirectly controls the BHHS Florida
Affiliates, which provide health care related services in the state of Florida
through the operation of the health care facilities listed on Exhibit A hereto
(collectively, the "Facilities"), including Manatee Memorial Hospital (the
"Hospital"), First Care Clinic, a portion of Health Park East, and Florida Home
Health Services - Manasota;
WHEREAS, the Purchaser desires to purchase and the BHHS Florida
Affiliates (with the approval of BHHS) desire to sell substantially all of the
assets used by the BHHS Florida Affiliates in the operation of the Facilities,
upon the terms and subject to the conditions set forth in this Agreement; and
WHEREAS, the Purchaser has deposited $250,000 with BHHS to evidence its
good faith intention to consummate the transactions contemplated hereunder;
<PAGE> 7
NOW, THEREFORE, in consideration of the mutual promises and agreements
hereinafter contained, the parties hereto agree as follows:
1. Purchase and Sale of Assets.
1.1 Assets Conveyed. At the closing of the transactions
contemplated hereby (the "Closing") on the Closing Date (as hereinafter
defined), and upon the basis of the representations, warranties, covenants and
agreements contained herein, each of the BHHS Florida Affiliates shall sell,
transfer, assign, convey and deliver to the Purchaser, and the Purchaser shall
purchase on the terms set forth herein, all of the BHHS Florida Affiliates'
right, title and interest in and to their respective assets ("Assets"), except
for the Excluded Assets as provided for in Section 1.2, free and clear of all
liens, charges, claims, pledges, security interests, equities and encumbrances
of any nature whatsoever (collectively, "Liens"), except for Permitted
Encumbrances. "Permitted Encumbrances" shall mean (a) liens of current taxes not
yet due and payable; (b) those easements, rights of way, servitudes,
restrictions, liens and other matters described in Schedule 3.6(b) hereto; (c)
mechanics', carriers', workers', repairmen's and other similar liens arising or
incurred in the ordinary course of business; (d) Liens created by the Purchaser
or UHS and (e) the Assumed Liabilities (as defined below). The "Assets" shall
mean all those personal, tangible and intangible properties, and the real
property and improvements of the BHHS Florida Affiliates used in connection with
the operation of the Facilities as set forth below other than Excluded Assets
(as defined below) including without limitation, those more particularly
described in the Schedules to this Section 1.1, including the going concern
value of the BHHS Florida Affiliates, if any, including assets described in (a)
through (i), below:
-2-
<PAGE> 8
(a) Contractual Rights: all rights and benefits and
obligations (arising after the Closing Date) of the BHHS Florida Affiliates
under all contracts relating to the operation of the Facilities as listed on
Schedule 1.1(a) hereto (which also recites those contracts, the assignment of
which by their terms requires third party consent) including leases to the
extent such rights and benefits can be assigned (the "Assumed Contracts");
(b) Licenses and Permits: to the extent permitted by
applicable law and regulation, all licenses and permits held or used by the BHHS
Florida Affiliates in connection with the ownership of the Assets and the
conduct of the operations of the Facilities as listed on Schedule 1.1(b) hereto;
(c) Equipment: all equipment, computers, computer hardware
and software (subject to any restrictions by licensors on the assignment
thereof), tools, supplies, furniture, vehicles, and other tangible personal
property and assets owned or leased by the BHHS Florida Affiliates related to
the Facilities as of the date of this Agreement, as such items may be modified
prior to Closing in the ordinary course of business. Such items shall be listed
on Schedule 1.1(c) to be furnished by UHS no later than July 31, 1995, which
Schedule shall be reasonably satisfactory to BHHS;;
(d) Leases: to the extent permitted by the applicable
lease agreement, all the interest of and the rights and benefits accruing to the
BHHS Florida Affiliates as lessees under (i) the leases relating to the Leased
Properties and all leasehold improvements and fixtures relating thereto as
defined and described in Schedule 3.6 hereto and (ii) the leases or rental
agreements covering equipment, computers, computer hardware and software used at
the Facilities, all such leases as described in Schedule 1.1(a) and 3.11 hereto;
(e) Current Assets: all accounts and notes receivable
(including without limitation, any claims, remedies and other rights related
thereto) rights to
-3-
<PAGE> 9
payment for services rendered through the Closing Date, all claims for amounts
due, or that may become due from Medicare, Medicaid or any other health care or
payment intermediary resulting from cost reports or other adjustments, usable
inventories of supplies relating to the Facilities and prepaid expenses relating
to the Facilities on the Closing Date arising in connection with the BHHS
Florida Affiliates' conduct of the operations of the Facilities ("Current
Assets");
(f) Records: all operating data and records of the BHHS
Florida Affiliates relating to the BHHS Florida Affiliates, the Facilities and
the Assets, including without limitation, client lists and records, patient
records, referral sources, research and development reports and records,
production reports and records, equipment logs, operating guides and manuals,
projections, copies of financial, accounting and personnel records,
correspondence and other similar documents and records except as to medical
records, if any, which are prohibited by law to be transferred and assigned
without patient approval and except as to attorney-client communications and
attorney work product and BHHS Florida Affiliates' Board and Board Committee
minutes;
(g) Intellectual Property: all of the intangible and
intellectual property of the BHHS Florida Affiliates used in the operation of
the Facilities, including all software (including all source codes and object
codes, to the extent such are legally and contractually permitted to be
transferred), products, research data, marketing plans and strategies,
forecasts, trademarks, servicemarks (but restricting use by Purchaser and UHS of
the servicemark "Design of Cross with Sunburst numbered T16379 to Florida only),
tradenames (but restricting use by Purchaser and UHS of the tradename "Med-Vet"
to Florida only), licenses (if transferable), copyrights, operating
-4-
<PAGE> 10
rights, permits and other similar intangible property and rights relating to the
Facilities as such property and rights are listed in Schedule 1.1(g);
(h) Real Property: all of the land and leasehold interests
described in Schedule 3.6 and the improvements, fixtures and other property
located thereon that is classified under Florida law as real property; and
(i) Certificate of Need: the certificate of need (the
"CON") described in Schedule 1.1(i) hereto (to the extent legally permitted to
be transferred);
(j) Pension Plans: all assets of the Manatee Memorial
Hospital Retirement Plan (the "Retirement Plan"), provided the Retirement Plan
is assumed by Purchaser in accordance with Section 8.3; and
(k) Judgment Rights: all judgments of record in favor of
any of the BHHS Florida Affiliates.
1.2 Excluded Assets. Anything to the contrary in Section 1.1
notwithstanding, the Assets shall exclude and the Purchaser shall not purchase
the following (collectively, the "Excluded Assets"):
(a) cash, cash equivalents and short-term investments;
(b) any and all accounts receivable respecting an
intercompany transaction among the BHHS Entities and any other affiliate of
BHHS, whether or not such transaction relates to the provision of goods and
services, tax sharing arrangements, payment arrangements, intercompany charges
or balances, or the like;
(c) securities or other instruments or investments
constituting current assets other than accounts and notes receivable as set
forth in Section 1.1(e);
-5-
<PAGE> 11
(d) restricted funds (assets whose use is limited as set
forth in the August Balance Sheet (as hereinafter defined) or assets of a
similar nature arising after the date of the August balance sheet);
(e) prepaid insurance, self insurance trust funds and
charitable contributions, pledges and deferred gifts provided that no such
contributions shall consist of tangible assets other than cash or cash
equivalents;
(f) video conferencing equipment; and
(g) those other items which the Purchaser in its sole
discretion determines not to purchase, including without limitation, those
specifically set forth in Schedule 1.2 hereto. Purchaser shall advise BHHS in
writing at least ten (10) days prior to Closing those other items which
Purchaser does not intend to purchase. Any items so excluded shall not reduce
the Purchase Price (as hereinafter defined).
2. Payment of the Purchase Price and Assumption of Liabilities.
2.1 Purchase Price. The purchase price (the "Purchase Price")
for the Assets shall be $139,218,000 payable as follows:
(a) $250,000 (the "First Deposit") has been deposited in
escrow with Bank One of Arizona, the principal and interest amounts of which
shall be released to BHHS or its nominee affiliate on the Closing Date or
released to UHS in whole, all in accordance with the terms of the Escrow
Agreement annexed as Exhibit B hereto (the "Escrow Agreement").
(b) $7,750,000 (the "Second Deposit") has been deposited
in escrow with Bank One of Arizona at the time of the signing of this Agreement,
the principal and interest amounts of which will be released to BHHS or its
nominee
-6-
<PAGE> 12
affiliate on the Closing Date or released to UHS in whole, all in accordance
with the terms of the Escrow Agreement.
(c) $131,218,000 (the "Closing Payment") shall be payable
by certified or bank check or wired Federal funds on the Closing Date to such
account as shall be designated by BHHS no later than 5 days prior to the Closing
Date subject to adjustment as provided in Section 2.2 hereof.
2.2 Adjustments and Prorations.
(a) The Closing Payment shall be reduced to the extent
"Working Capital" (accounts receivable net (including Medicare and Medicaid
receivables) plus inventory, plus other current assets transferred to Purchaser
less accounts payable less accrued payroll and related expenses less other
current liabilities and all current liabilities assumed pursuant to Section 2.3
hereof (including Medicare and Medicaid liabilities assumed by Purchaser)
calculated consistent with the July 31, 1994 interim unaudited balance sheet of
the BHHS Florida Affiliates is less than $9,900,000 on the Closing Date; and the
Closing Payment shall be increased to the extent Working Capital (as defined
herein) is greater than $9,900,000 on the Closing Date.
(b) Within 60 days after the Closing Date, the BHHS
Entities and the Purchaser shall prorate as of the Closing Date, ad valorem
taxes, if any, on the Assets, including any and all ad valorem property taxes on
the Real Property or the Improvements.
2.3 Liabilities Assumed by the Purchaser. In further
consideration for the sale of the Assets, on and as of the Closing Date, the
Purchaser shall assume and agree to pay, perform and discharge the Assumed
Liabilities. Subject to Section 8.3, and except as otherwise specifically
provided herein, for purposes of this Agreement,
-7-
<PAGE> 13
the term "Assumed Liabilities" shall include, and shall be limited solely to any
and all obligations of the BHHS Florida Affiliates relating to the Assets and
(a) reflected on the August Balance Sheet (as defined below) to the extent they
are liabilities on the Closing Date, (b) current liabilities calculated
consistent with the July 31, 1994 unaudited balance sheet of the BHHS Florida
Affiliates accruing from and after August 31, 1994 in the ordinary course of
business, or (c) accruing from and after the Closing Date, other than those
obligations which the Purchaser expressly does not assume in accordance with
Section 2.4 below. Without limiting the generality of the foregoing, the
Purchaser will assume (i) all Assumed Contracts and capital and operating leases
of the BHHS Entities relating to the operation of the Facilities (which leases
are set forth on Schedules 1.1(a) and/or 3.6 and/or 3.11 hereto), (ii) all
current liabilities calculated consistent with the July 31, 1994 unaudited
balance sheet of the BHHS Florida Affiliates to employees for compensation and
fringe benefits, incentive payments, accrued bonuses, vacation, sick leave,
maternity and other leave and earned time, all to the extent, and only to the
extent, such liabilities are reflected in the August Balance Sheet or arose
after the date of the August Balance Sheet pursuant to plans and arrangements in
existence on that date, (iii) in accordance with Section 8.3, the liabilities
and sponsorship of the Retirement Plan (described in Section 1.1(j)), (iv) all
liabilities for amounts due or that may become due to the Medicare, Medicaid or
any other health care reimbursement or payment intermediary resulting from cost
report or other adjustments or depreciation or other reimbursement recapture
reflected in the August Balance Sheet or liabilities arising after the date of
the August Balance Sheet and, except with respect to Medicare recapture,
reflected as a current liability calculated consistent with the July 31, 1994
unaudited balance sheet of the BHHS Florida
-8-
<PAGE> 14
Affiliates, and (v) all liabilities for unemployment compensation and workers'
compensation and the Florida Patient Medical Assistance Trust Fund ("PMATF") as
reflected on the August Balance Sheet or arising after the date of the August
Balance Sheet in the ordinary course of business and reflected as a current
liability calculated consistent with the July 31, 1994 unaudited balance sheet
of the BHHS Florida Affiliates. The Purchaser will also assume the obligations
of Manatee Hospitals and Health Systems, Inc. under its indigent care agreement,
dated September 1, 1990, with the County of Manatee as it may be amended from
time to time; provided, however, that Purchaser shall not assume any liability
which is not a current liability (i.e.,not included in the calculation of
Working Capital in accordance with Section 2.2 (c) hereof) calculated consistent
with the July 31, 1994 Unaudited Balance Sheet in excess of $1,891,000 in the
aggregate.
2.4 Liabilities Retained by the BHHS Entities. Notwithstanding
anything to the contrary contained herein, the Purchaser shall not assume any
debts, obligations or liabilities of the BHHS Entities not expressly assumed
pursuant to Section 2.3 hereof or elsewhere in this Agreement; and, the BHHS
Entities shall continue to be obligated to pay, perform and discharge their
respective debts, obligations and liabilities and hold the Purchaser harmless
from any such liabilities, including without limitation:
(a) any and all obligations for the payment of any long
term indebtedness existing at the Closing Date (including the current portion
thereof) relating to the BHHS Entities whether or not set forth on the August
Balance Sheet;
(b) any and all accrued interest through the Closing Date;
-9-
<PAGE> 15
(c) any and all liabilities respecting an intercompany
transaction among the BHHS Entities and any other affiliate of BHHS, whether or
not such transaction relates to the provision of goods and services, tax sharing
arrangements, payment arrangements, intercompany charges or balances, or the
like;
(d) except for (i) the Assumed Liabilities, and (ii) any
liabilities arising solely from actions or omissions of UHS, its agents,
employees or affiliates pursuant to the Management Services Agreement or
otherwise, any and all actual or contingent liabilities or obligations of or
demands upon the BHHS Entities arising from acts or omissions of the BHHS
Entities (actual or alleged) prior to the Closing Date including liabilities or
obligations arising from breach by any BHHS Entity of any Assumed Contract, or
any liabilities now existing or which may hereafter exist by reason of any
alleged violation of law or Governmental regulation or any other claims arising
out of any act or omission of the BHHS Entities prior to the Closing Date
including, without limitation, any malpractice claims or liabilities;
(e) all liabilities arising out of or in connection with
the existence of Hazardous Materials (as defined in Section 3.10(c)) upon,
about, beneath or migrating to or from the Owned Property (as defined in Section
3.6(a)) on or before the Closing Date or the existence on or before the Closing
Date of any violation of any Environmental Laws (as defined in Section 3.10(c))
pertaining to any such Owned Property or the operation of the Facilities or any
other business operated therefrom;
(f) federal, state and local income taxes, if any, payable
with respect to any activities of the BHHS Entities through the Closing Date;
-10-
<PAGE> 16
(g) sales and other taxes (including, without limitation,
use taxes) payable with respect to the business or operations of BHHS Entities
through the Closing Date or the transactions contemplated hereby;
(h) any liability or obligation to any broker, finder,
investment banker or other intermediary engaged by any BHHS Entity in connection
with the sale of the Assets (including) without limitation, the transactions
contemplated by this Agreement;
(i) the BHHS Entities' obligations and liabilities arising
under this Agreement;
(j) except as specifically provided otherwise in Sections
2.3(ii), 2.3(iii) or 8.3, any liability for benefits or otherwise which has
arisen or may arise under or in connection with any Employee Plan (as defined in
3.12(a); and
(k) any liability arising out of any medical malpractice
or workers' compensation other than as specified in Section 2.3 or similar acts
or omissions arising prior to the Closing Date.
2.5 Instruments of Conveyance and Transfer of Books and
Records.
(a) At the Closing, the BHHS Florida Affiliates shall
deliver to the Purchaser such deeds, bills of sale, endorsements, assignments
and other instruments of sale, conveyance, transfer and assignment as are
required pursuant to the provisions hereof in the required form and substance,
in order to convey to the Purchaser good and marketable title to (or valid and
enforceable leasehold, license or similar interests in) the Assets, free and
clear of all Liens except Permitted Encumbrances. Subject to reimbursement
pursuant to Section 13 hereof, the BHHS
-11-
<PAGE> 17
Florida Affiliates shall pay all sales, transfer or stamp taxes, or similar
charges, payable by reason of the sale, assignment, transfer and delivery
hereunder of the Assets.
(b) At the Closing, and except as may otherwise be
provided for herein, the BHHS Florida Affiliates shall use all reasonable
efforts to deliver to the Purchaser all written consents which are required
under any Assumed Contract being assigned to the Purchaser hereunder; provided,
however, that as to any Assumed Contract the assignment of which by its terms
requires prior consent of the parties thereto, if such consent is not obtained
prior to or on the Closing Date, the BHHS Florida Affiliates shall use all
reasonable efforts to obtain such consents promptly following the Closing Date
and deliver constructive use of BHHS Florida Affiliates rights (and obligations)
thereunder pending delivery of such consents.
(c) At the Closing, the BHHS Florida Affiliates shall
deliver general warranty deeds to the Owned Property conveying good and
marketable title, free and clear of all mortgages, liens, charges or other
encumbrances except for the Permitted Encumbrances. The BHHS Florida Affiliates
shall deliver standard ALTA fee owner's title insurance policies (the "Title
Policies") insuring title to each parcel of Owned Property in the Purchaser as
prospective fee owner, subject only to the Permitted Encumbrances, in the
aggregate amount of $41,770,000, which aggregate amount shall be allocated as
follows: (i) $8,000,000 from Attorneys' Title Insurance Fund, Inc. ("Attorneys'
Fund"); and (ii) $33,770,000 from Commonwealth Land Title Insurance Company
("Commonwealth": Commonwealth and Attorneys' Fund are sometimes hereinafter
referred to collectively as the "Title Companies"). The Title Companies shall
act as co-insurers for their respective Title Policies, with the amount under
each of such policies to be further allocated for re-insurance with such other
title insurance
-12-
<PAGE> 18
companies and in such amounts as shall be reasonably satisfactory to the
Purchaser. The BHHS Entities shall also deliver surveys of the Owned Property
made by a registered land surveyor bearing a certificate addressed to the
Purchaser and the Title Companies, signed by the surveyor, certifying that the
survey was actually made on the ground and that there are no encumbrances except
as shown, and complying with the minimum detail requirements for ALTA/ACSM and
land Title Surveys as adopted by the American Land Title Association and the
American Congress on Surveying and Mapping 1992. The survey shall provide
sufficient detail to provide the basis for the Title Companies to issue their
respective Title Policies without the general exception for survey matters.
Notwithstanding the foregoing, no survey shall be required hereunder for Units 1
and 2 of Manatee M.O.B., a condominium. The BHHS Entities shall pay all premiums
and other expenses relating to such survey and title insurance policy commitment
including, without limitation, the title insurance premium subject to Section 13
hereof. The BHHS Entities shall pay all transfer taxes and recording fees
payable by reason of the delivery or recording of the general warranty deeds to
the Owned Property subject to Section 13 hereof.
3. Representations and Warranties of the BHHS Entities.
In order to induce the Purchaser to enter into and perform this
Agreement, the BHHS Entities, jointly and severally, represent, warrant and
agree as follows:
3.1 Organization, Capitalization, Authorization, Etc.
3.1.1 Organization. Each of the BHHS Entities is a
corporation duly organized, validly existing and in good standing under the laws
of its respective state of incorporation as set forth on Schedule 3.1.1 hereto,
with all the requisite power
-13-
<PAGE> 19
and authority to execute, deliver and perform this Agreement and to hold the
properties, rights and assets and to carry on the businesses now conducted by
it. Each of the BHHS Entities is qualified to do business as a foreign
corporation in each jurisdiction in which the nature of the business conducted
by it or its ownership or leasing of property make such qualification necessary
except where such failure to qualify would not have a material adverse effect on
the BHHS Entities, all of which jurisdictions are set forth on Schedule 3.1.1
hereto.
3.1.2 Governing Documents. Copies of the Articles of
Incorporation and By-Laws of each of the BHHS Entities have heretofore been
delivered to the Purchaser and are true, complete and correct.
3.2 Ownership of Assets. Except as set forth in Schedule 3.2
hereto, the BHHS Florida Affiliates are the legal and beneficial owner of their
respective Assets described in Section 1.1 hereto, free and clear of any Liens
other than Permitted Encumbrances, and each BHHS Florida Affiliate has full
right, power and authority to sell, transfer, assign, convey and deliver all of
the Assets to be sold by each of them, respectively, hereunder and delivery
thereof will convey to Purchaser good and marketable title to said Assets, free
and clear of any Liens other than Permitted Encumbrances.
3.3 Authority and No Conflict. (a) Each BHHS Entity has full
right, power and authority to execute, deliver and carry out the terms of this
Agreement and all documents and agreements necessary to give effect to the
provisions of this Agreement, and this Agreement has been duly authorized,
executed and delivered by each BHHS Entity. The execution and delivery of this
Agreement by each BHHS Entity does not, and consummation of the transactions
contemplated hereby will not
-14-
<PAGE> 20
(a) conflict with, or result in any violation of or default or loss of any
benefit under, any provision of the Articles of Incorporation or By-laws of any
BHHS Entity; (b) conflict with, or result in any violation of or default or loss
of any material benefit under, any permit, concession, grant, franchise, law,
rule or regulation, or any judgment, decree or order of any court or other
governmental agency or instrumentality to which any BHHS Entity is a party or to
which any of their respective properties are subject; (c) conflict with, or
result in a breach or violation of or default or loss of any material benefit
under, or accelerate the performance required by, the terms of any agreement,
contract, indenture or other instrument to which any BHHS Entity is a party or
to which any of the Assets is subject (other than the Bonds as to which there
will be a defeasance or tender pursuant to Section 7.7), or constitute a default
or loss of any right thereunder or an event which, with the lapse of time or
notice or both, might result in a default or loss of any right thereunder or the
creation of any Lien upon any of the Assets; or (d) result in any suspension,
revocation, impairment, forfeiture or nonrenewal of (i) any License (as defined
in Section 3.18) relating to the ownership and operation of health care
facilities which are the subject of the transactions contemplated hereby;
subject, however, to UHS and/or the Purchaser obtaining new licenses for its
operations of the facilities; or (ii) any other material License related to the
Assets or the Assumed Liabilities. All action and other authorizations
prerequisite to the execution of this Agreement and the consummation of the
transactions contemplated by this Agreement have been taken or prior to the
Closing Date will have been taken or obtained by each BHHS Entity. This is a
valid and binding agreement of each BHHS Entity enforceable in accordance with
its terms, subject to the effect of bank-
-15-
<PAGE> 21
ruptcy, insolvency, reorganization, arrangement, moratorium, fraudulent
conveyance or other similar laws affecting the rights of creditors.
(b) The execution, delivery and performance by the BHHS
Entities of this Agreement, and the performance of the transactions contemplated
by this Agreement, do not require the authorization, consent, approval,
certification, license or order of, or any filing with, any court or
governmental agency of such a nature that the failure to obtain the same would
have a material adverse effect on the Assets, except for compliance with the HSR
Act (as hereinafter defined) and except for (i) such governmental
authorizations, consents, approvals, certifications, licenses and orders that
customarily accompany the transfer of health care facilities such as the
Facilities, (ii) receipt of a favorable ruling from the Internal Revenue Service
or bond counsel opinion described in Section 7.7 hereof, or (iii) as otherwise
provided for in this Agreement.
3.4 Financial Statements, Books and Records and Change in
Condition.
3.4.1 Financial Statements Provided. The BHHS Florida
Affiliates have delivered to the Purchaser true, correct and complete copies of
the audited balance sheet of the BHHS Florida Affiliates as of August 31, 1994
(the "August Balance Sheet") and the related statements of operations, and
statements of fund balance and cash flows for the 12 months then ended, together
with notes to such financial statements together with the report thereon of
Ernst & Young L.L.P., independent public accountants (the "August Financial
Statements"). The August Financial Statements are in accordance with the books
and records of the BHHS Florida Affiliates and have been prepared in accordance
with generally accepted accounting principles consistently followed throughout
the period covered thereby (except as otherwise indicated in the notes
-16-
<PAGE> 22
thereto), and the balance sheets included therein present fairly as of August
31, 1994 the financial condition of each of the BHHS Florida Affiliates. The
statements of operations, and statements of fund balance and cash flows included
in the August Financial Statements present fairly the results of operations,
fund balance and cash flows of the BHHS Florida Affiliates for the periods
indicated, and the notes included in the August Financial Statements present
fairly the information purported to be shown thereby. The statements of
operations included in the August Financial Statements do not contain any items
of material non-recurring income or other income not earned in the ordinary
course of business except as expressly specified therein. The BHHS Florida
Affiliates have also delivered to the Purchaser the July 31, 1994 Interim
Unaudited Balance Sheet of the BHHS Florida Affiliates referenced in Section
2.2(a).
3.4.2 Receivables. The accounts receivable of all kinds of
the BHHS Florida Affiliates which are included in the Assets, net of the
allowance for doubtful accounts applicable thereto included in the balance
sheets included in the August Financial Statements arose in the usual and
ordinary course of business of the BHHS Florida Affiliates from arms'-length
transactions, and to the knowledge of the BHHS Florida Affiliates, except as set
forth on Schedule 3.4.2 hereto, there do not exist any defenses, counterclaims
and set-offs known to the BHHS Florida Affiliates which would materially
adversely affect such receivables, and all such receivables are actual and bona
fide receivables representing obligations for the total dollar amount thereof
shown on the books of the BHHS Florida Affiliates. The BHHS Florida Affiliates
have fully performed all obligations with respect thereto which they were
obligated to perform to the date hereof. The BHHS Florida Affiliates have
delivered to the Purchaser an aging schedule for the accounts receivable as of
April 30, 1995.
-17-
<PAGE> 23
3.4.3 Inventories. All inventories of the BHHS Florida
Affiliates set forth on the August Balance Sheets, and all inventories acquired
subsequent to August 31, 1994 (the "Balance Sheet Date") are valued at the lower
of cost (applied on a first-in-first-out basis) or market in accordance with
generally accepted accounting principles. All inventories included in the Assets
consist, and at the Closing will consist, of a quality and quantity usable and
saleable in the ordinary course of business without discount or reduction,
except for items of obsolete materials, all of which have been written down on
the August Balance Sheets to realizable market value. The present quantities of
inventory of the BHHS Florida Affiliates are and at Closing will be consistent
with the past inventory practices of the respective BHHS Florida Affiliates.
3.4.4 Events Subsequent to the Balance Sheet Date. Since
the Balance Sheet Date there has been no material adverse change in the assets
or liabilities, or in the business or condition, financial or otherwise, or in
the results of operations or, to the knowledge of the BHHS Entities, material
adverse change in the reasonably expectable prospects (except for any change in
prospects which may arise from regulatory or legislative changes in the health
care industry, for which no representation is made), of any BHHS Florida
Affiliate, whether as a result of revocation of any License or right to do
business, fire, explosion, accident, casualty, labor trouble, flood, drought,
riot, storm, condemnation or act of God or otherwise, and, to the knowledge of
the BHHS Entities, no fact or condition exists or is contemplated or threatened
which could reasonably be anticipated to cause such a change in the future.
-18-
<PAGE> 24
Since the Balance Sheet Date and except as listed on Schedule
3.4.4 hereto, no BHHS Florida Affiliate has (a) borrowed any amount or incurred
or become subject to any material liability (absolute, accrued or contingent),
other than current liabilities incurred and liabilities under contracts entered
into, all of which were in the ordinary course of business; (b) discharged or
satisfied any Lien or incurred or paid any obligation or liability (absolute,
accrued or contingent) other than current liabilities shown on the most recent
balance sheet included in the August Financial Statements and current
liabilities incurred since the Balance Sheet Date in the ordinary course of
business; (c) declared or made any payment or distribution (whether in cash,
securities, other property or any combination thereof) on or in respect of the
capital stock of the BHHS Florida Affiliates; (d) mortgaged, pledged or
subjected to Lien any of its assets, tangible or intangible (including the
Assets), other than in the ordinary course of business consistent with past
practices; (e) sold, assigned or transferred any of its tangible assets or
canceled any debt or claim except in the ordinary course of business; (f) sold,
assigned, transferred or granted any license with respect to any trademark,
trade name, service mark, copyright, trade secret or other intangible assets
except in the ordinary course of business; (g) suffered any material loss of
property or waived any right of substantial value whether or not in the ordinary
course of business; (h) suffered any material adverse change in its relations
with, or any material loss or, to its knowledge, material adverse threatened
loss of, any of its material suppliers, managed care contracts, physician
relationships or Medicare or Medicaid contracts; (i) other than in the ordinary
course of business and consistent with past practice, (1) entered into any
employment, deferred compensation or other similar agreement (or any amendment
to any such existing agreement) or arrangement with any of its directors,
officers or
-19-
<PAGE> 25
employees, (2) increased any benefits payable under any existing severance or
termination pay policies or employment agreements, or (3) increased the
compensation, bonus or other benefits payable to any of its directors, officers
or employees; (j) made any material change in the manner of its business or
operations, including without limitation any change in the manner in which any
BHHS Florida Affiliate extends credit to patients or otherwise deals with
patients; (k) made any material change in any method of accounting or accounting
practice, except for any such changes required by reason of a concurrent change
in generally accepted accounting principles or disclosed in the August Financial
Statements; (l) written off as uncollectible any accounts or notes receivable in
excess of reserves; (m) been the subject of any material labor dispute or, to
its knowledge, threat thereof; (n) entered into any material transaction except
in the ordinary course of business or as otherwise contemplated hereby; or (o)
entered into any commitment (contingent or otherwise) to do any of the
foregoing.
3.5 Absence of Undisclosed Liabilities. No BHHS Florida
Affiliate has any direct debt, liability or obligation of any nature, whether
accrued, absolute, contingent or otherwise, and whether due or to become due,
which is not reflected or reserved against in the August Financial Statements
except for (a) those which are not required by generally accepted accounting
principles to be so reflected, (b) those which were incurred in the ordinary
course of business and are usual and normal in amount both individually and in
the aggregate; or (c) otherwise disclosed on a Schedule to the Agreement.
3.6 Real Property.
(a) Schedule 3.6 hereto identifies all interests in real
property including land and improvements held by the BHHS Florida Affiliates as
of the date
-20-
<PAGE> 26
hereof, together with the nature of such interest. To the extent that any such
interest is shared, Schedule 3.6(a) also sets forth the nature and proportion of
the sharing arrangement. Each of the properties on Schedule 3.6(a) is identified
either as a property in which the BHHS Florida Affiliate holds all or a portion
of the fee title (individually, an "Owned Property" and collectively, the "Owned
Properties"), or all or a portion of a leasehold estate in the property
(individually, a "Leased Property" and collectively, the "Leased Properties").
The Owned Properties and the Leased Properties are collectively referred to
herein as "Real Property."
(b) The BHHS Florida Affiliates have good, valid and
marketable title to each Owned Property free and clear of all Liens whatsoever
except for Permitted Encumbrances identified in Schedule 3.6(b). The BHHS
Florida Affiliates' occupation, possession and use of the Leased Properties has
not been disturbed in any material respect and no written claim has been
asserted or, to the knowledge of the BHHS Entities, threatened, adverse to the
respective rights of the BHHS Florida Affiliates to the continued occupation,
possession and use of the Leased Properties, as currently utilized and as
presently contemplated to be utilized.
(c) Except as disclosed by Schedule 3.6(c), all buildings,
structures, improvements, fixtures, facilities, equipment, all components of all
buildings, structures and other improvements included within the Owned Property,
including but not limited to the roofs and structural elements thereof and the
heating, ventilation, air conditioning, plumbing, electrical, mechanical, sewer,
waste water, storm water, paving and parking equipment, systems and facilities
included therein (collectively, the "Improvements") are in reasonably good
operating condition and repair, subject to normal wear and maintenance (taking
due regard for the age of each of the Improve-
-21-
<PAGE> 27
ments involved and in comparison in the aggregate to similar improvements in
comparable facilities of comparable age) and are usable in the regular and
ordinary course of business, and no material maintenance, repair or necessary
replacement thereof has knowingly been deferred. As used in the preceding
sentence, "material" shall mean as to any single maintenance, repair or
replacement item that the cost thereof shall be greater than $10,000. Except as
set forth on Schedule 3.6(c), to the knowledge of each BHHS Entity, there are no
unsatisfied requirements for any material repairs, restorations or improvements
to the Owned Property and Improvements from any foreign or domestic court,
administrative agency or commission or other governmental authority or
instrumentality (a "Governmental Entity"), except as conducted in the regular
and ordinary course of business. All material repairs to the Owned Property and
Improvements have been paid for, accrued on the August financial statements or
are consistent with the budget for any BHHS Florida Affiliate at which such
repair is being made. No portion of the Owned Property has suffered any material
damage by fire or other casualty which heretofore has not been repaired in all
material respects. No Person other than the BHHS Florida Affiliates owns any
material Improvements necessary to the operation of the business of the BHHS
Florida Affiliates. Except as disclosed on Schedule 3.6 with respect to the
walls, roof and subterranean portions, if any, of the Improvements, presently
there is no material water, chemical or gaseous seepage, diffusion or other
intrusion into said buildings, including any subterranean portions which would
impair in any material respect the beneficial use of the Owned Property and
Improvements by the Purchaser in any material manner.
-22-
<PAGE> 28
(d) The use and operation of the Owned Property and
Improvements by the relevant BHHS Florida Affiliates is not in material
violation of any relevant use statutes, rules, regulations, ordinances, orders,
writs, injunctions, judgments, decrees, awards and restrictions, including
without limitation, zoning and land use laws (collectively, "Use Laws") of any
applicable Governmental Entity having jurisdiction over any such Owned Property
and Improvements. The construction of the Improvements on each parcel of Owned
Property is not in material violation of any relevant use statutes, rules,
regulations, ordinances, orders, writs, injunctions, judgments, decrees, awards
and restrictions, including without limitation, all laws relating to the
construction and safety of the Improvements and access thereto by the
handicapped (collectively, "Construction Laws" and, collectively with the Use
Laws, "Real Property Laws") of every Governmental Entity having jurisdiction
over any such Improvements in connection with the use and operation of the Owned
Property and Improvements by the relevant BHHS Florida Affiliates. Effective as
of the Closing, the Purchaser shall have the right under all Real Property Laws
to continue the use and operation of the Owned Property and Improvements for
their current uses in the operation of the business of the BHHS Florida
Affiliates. No BHHS Entity has received any written notice of any violation of
or investigation regarding any Real Property Laws. With the exception of the
Permitted Encumbrances and except to the extent disclosed by the survey required
to be delivered herein, none of the Owned Property or the Improvements, the
appurtenances thereto or the equipment therein or the operation or maintenance
thereof violates any restrictive covenant or encroaches on any property owned by
others or any easement, right of way or other encumbrance or restriction
affecting the Owned Property and/or Improvements in any manner which would,
-23-
<PAGE> 29
individually or in the aggregate, interfere in any material respect with the
use, occupancy or operation thereof as currently used, occupied and operated.
With the exception of the Permitted Encumbrances and except to the extent
disclosed by the survey required to be delivered hereunder, no building or
structure of any third party encroaches upon the Owned Property or any easement
or right of way benefiting the Owned Property. The BHHS Florida Affiliates have
provided the Purchaser with copies of the most recent title reports in their
possession relating to the Owned Property and all title insurance policies
currently in effect with respect to such Owned Property. Notwithstanding the
foregoing, the provisions of subparagraphs (c) and (d) shall not apply to Parcel
3 as described in Section 3.6(a) (the Auxiliary House) except to the extent it
results in a material liability to a third party.
(e) No BHHS Entity has received written notice of, nor do
they otherwise have knowledge of, any condemnation, fire, health, safety,
building, zoning or other land use regulatory proceedings, either instituted or
planned to be instituted, which would have a material adverse effect on the use
and operation of any portion of the Owned Property and/or Improvements for their
respective intended purposes or the value of any material portion of the Owned
Property or Improvements, nor except as described on Schedule 3.6(e) hereto, has
any BHHS Entity received notice of any special improvements, liens, assessments
or assessment proceedings affecting any of the Owned Property or Improvements,
nor has any BHHS Entity received any written notice of violation or claimed
violation of any Real Property Law.
(f) To the knowledge of the BHHS Entities and except as
disclosed on Schedule 3.6(f), all water, sewer, gas, electric, telephone and
drainage facilities, and all other utilities required by any applicable law or
by the current use and
-24-
<PAGE> 30
operation of the Owned Property and Improvements are installed to the property
lines of the Owned Property, are connected (pursuant to valid permits to the
extent required) to municipal or public utility services or proper drainage
facilities, are fully operable and are adequate to service the Owned Property
and Improvements as currently used in the operation of the business of the BHHS
Florida Affiliates and to permit compliance with the requirements of all
applicable Real Property Laws. The BHHS Florida Affiliates have no knowledge or
notice of any fact or condition which could result in the termination or
reduction of the current access from the Owned Property to existing roads or to
sewer or other utility services presently serving the Owned Property.
(g) All licenses, permits, certificates (including without
limitation certificates of occupancy), easements and rights of way, including
proof of dedication, required from all Governmental Entities having jurisdiction
over the Owned Property for the use and operation of the Owned Property and
Improvements as currently used in the operation of the business of the BHHS
Florida Affiliates and to provide for vehicular and pedestrian ingress to and
egress from the Owned Property have been obtained, except where the failure to
obtain any such license, permit, certificate, easement or right of way would not
have a material adverse effect on the value or use of the Owned Property by the
BHHS Florida Affiliates or the Purchaser. The transactions contemplated hereby
will not require the issuance of any new or amended license, permit or
certificate except for any licenses or certificates of need (or waiver thereof)
required by the State of Florida Agency for Health Care Administration.
(h) The Owned Property is located in an area identified as
a "flood hazard area" by the United States Department of Housing and Urban
Develop-
-25-
<PAGE> 31
ment as shown in the survey delivered to the Purchaser pursuant to Section
2.5(c) hereof, or otherwise disclosed on Schedule 3.6(h), which survey, to the
knowledge of the BHHS Florida Affiliates, is accurate and complete in all
material respects. None of the BHHS Florida Affiliates has granted any easements
or entered into an arrangement or agreement since the date of such survey which
would cause any change to be made in such survey if such survey was performed as
of the date hereof.
(i) None of the representations and warranties set forth
in this Section 3.6 shall be deemed to pertain to any asbestos in the Real
Property or Improvements or its condition.
(j) Nothing in this Section 3.6 shall be deemed to
constitute a representation or warranty that any of the Improvements include any
or all current medical or technological advances or are so-called "state of the
art."
(k) Notwithstanding anything to the contrary contained
herein, to the extent the repairs and maintenance listed on Schedule 3.6(k)
hereto have been made or for which contracts have been entered into, the BHHS
Entities make no representation or warranty as to those items that are the
subject of such repairs or maintenance.
3.7 Property to Operate Facilities. To the knowledge of each
BHHS Entity, and except as set forth in Schedule 3.7, the Assets constitute, in
the aggregate, all the assets and property necessary for the conduct of the
Facilities as currently conducted. All the assets and property of each BHHS
Florida Affiliate necessary or useful in the conduct of the Facilities are
located at the Real Property. To the knowledge of each BHHS Entity, and except
as set forth in Schedule 3.7, all tangible personal property is in reasonably
good operating condition and repair in all material
-26-
<PAGE> 32
respects, reasonable wear and tear excepted, taking due regard for the age of
each of the items of personal property involved and in comparison in the
aggregate to similar property in comparable facilities of comparable age, and is
suitable for use in the ordinary conduct of the operations of the Facilities,
and no material maintenance, repair or necessary replacement has knowingly been
deferred. Nothing in this Section 3.7 shall be deemed to constitute a
representation or warranty that any of the items of personal property include
any or all current medical or technological advances or are so-called "state of
the art."
3.8 Trade Names, Trademarks, Copyrights, Etc. Schedule 3.8
contains a schedule of all trade names, trademarks, service marks, copyrights,
patents or applications for patents, and trade secrets used by the BHHS Florida
Affiliates in the operation of the Facilities and their respective businesses or
in which they have any rights (including licenses), together with a brief
description of each. To the BHHS Florida Affiliates' knowledge, no BHHS Florida
Affiliate has infringed, or is now infringing, upon any trade name, trademark,
service mark, copyright, patent or trade secret belonging to a third party and
no BHHS Florida Affiliate has received any written notice of infringement upon
or conflict with the asserted rights of others. Except as set forth on Schedule
3.8 hereto, none of such names, marks, copyrights or patents, however, are
registered with the United States Patent and Trademark Office or the United
States Copyright Office. To the knowledge of the BHHS Florida Affiliates there
are no trade names, trademarks, service marks, copyrights, patents or
applications for patents and trade secrets other than those listed on Schedule
3.8 which are necessary for the conduct of the respective businesses of the BHHS
Florida Affiliates as now being conducted, the loss of which could materially
and adversely
-27-
<PAGE> 33
affect the prospects, operations or condition, financial or otherwise, of the
Facilities. No director, officer, stockholder, or, to the knowledge of the BHHS
Entities, employee, of any BHHS Entity or any predecessor has any interest in
any of the foregoing rights.
3.9 Litigation. Except as set forth on Schedule 3.9
hereto, there is no action, suit, arbitration, proceeding or investigation
pending or, to the knowledge of the BHHS Entities, threatened against or
affecting any BHHS Florida Affiliate or any of their respective properties or
rights or any of their respective officers or directors in their capacities as
such, assets or business, whether at law or in equity, by or before any
Governmental Entity. With respect to each litigation or claim described in
Schedule 3.9, copies of all pleadings, filings, judgments, orders, attachments,
impositions of or recordings of liens and other documents have been furnished or
made available to the Purchaser, except where doing so may jeopardize the legal
position of any BHHS Entity.
3.10 Compliance with Laws; Environmental Matters.
(a) Each BHHS Florida Affiliate is in compliance with all
applicable laws, rules or regulations relating to or affecting the operation,
conduct or ownership of its respective properties or business (including without
limitation any that relate to the ownership and operation of hospitals and
health care facilities, consumer protection, health and safety, products and
services, proprietary rights, anti-competitive practices, collective bargaining,
equal opportunity and improper payments), except for violations that
individually or in the aggregate would not have a material adverse effect. No
BHHS Entity nor, to the knowledge of the BHHS Entities, any directors or
officers in their capacity as such, is in default with respect to any order,
writ, injunction or
-28-
<PAGE> 34
decree, known to, or served upon, any BHHS Entity, of any Governmental Entity
relating to the operation or ownership of the Assets. To the knowledge of the
BHHS Entities, there is no existing law, rule, regulation or order, whether
Federal, state or local, which would prohibit or materially restrict any BHHS
Entity from, or otherwise materially adversely affect any BHHS Entity in,
conducting its business in any jurisdiction in which it is now conducting
business or in which it currently proposes to conduct business.
(b) No BHHS Entity has received any notice of any claim,
requirement or demand of any Governmental Entity having or claiming any
licensing, certifying, supervising, evaluating or accrediting authority over the
BHHS Entities or their business to rework or redesign the Facilities,
professional staff or professional services, procedures or practices in any
material respect or to provide a material amount of additional furniture,
fixtures, equipment or inventory so as to make such Facilities conform to or
comply with applicable law.
(c) The BHHS Florida Affiliates and their respective
officers and directors in their capacities as such, have not engaged in any
activities which are prohibited under any laws, or the regulations promulgated
pursuant to such Laws or related state or local laws, statutes or regulations or
which are prohibited by rules of professional conduct, including but not limited
to the following: (i) knowingly and willfully making or causing to be made a
false statement or representation of a material fact in any application for any
benefit or payment; (ii) knowingly and willfully making or causing to be made
any false statement or representation of a material fact for use in determining
rights to any benefit or payment; (iii) presenting or causing to be
-29-
<PAGE> 35
presented a claim for reimbursement for services under Medicare, Medicaid, or
other state health care programs that is for an item or service that is known or
should be known to be (a) not provided as claimed, or (b) false or fraudulent;
(iv) failing to disclose knowledge by a claimant of the occurrence of any event
affecting the initial or continued right to any benefit or payment on its own
behalf or on behalf of another, with intent to fraudulently secure such benefit
or payment; (v) knowingly and willfully offering, paying, soliciting or
receiving any remuneration (including any kickback, bribe, or rebate), directly
or indirectly, overtly or covertly, in cash or in kind (a) in return for
referring an individual to a person for the furnishing or arranging for the
furnishing of any item or service for which payment may be made in whole or in
part by Medicare or Medicaid, or other state health care program, or (b) in
return for purchasing, leasing, or ordering or arranging for or recommending
purchasing, leasing, or ordering any good, facility, service, or item for which
payment may be made in whole or in part by Medicare or Medicaid or other state
health care program; (vi) knowingly making a payment, directly or indirectly, to
a physician as an inducement to reduce or limit necessary services to
individuals who are under the direct care of the physician and who are entitled
to benefits under Medicare, Medicaid, or other state health care programs; (vii)
providing to any person information that is known or should be known to be false
or misleading that could reasonably be expected to influence the decision when
to discharge a patient from a Facility; (viii) knowingly and willfully making or
causing to be made or inducing or seeking to induce the making of any false
statement or representation (or omitting to state a material fact required to be
stated therein or necessary to make the statements contained therein not
misleading) of a material fact
-30-
<PAGE> 36
with respect to (a) the conditions or operations of a Facility in order that the
Facility may qualify for Medicare, Medicaid or other state health care program
certification, or (b) information required to be provided under Section 1124A of
the Social Security Act (42 U.S.C. Section 1320a-3); (ix) knowingly and
willfully (a) charging for any Medicaid service money or other consideration at
a rate in excess of the rates established by the state, or (b) charging,
soliciting, accepting or receiving, in addition to amounts paid by Medicaid, any
gift money, donation or other consideration (other than a charitable, religious
or other philanthropic contribution from an organization or from a person
unrelated to the patient) (x) as a precondition of admitting the patient, or (y)
as a requirement for the patient's continued stay in the Facility.
(d) (i) Specifically, without limiting the representations
contained in subsection (a) hereof, except as disclosed in Schedule 3.10(d), the
BHHS Florida Affiliates have obtained all permits and licenses which are
required to conduct their respective businesses under all applicable Federal,
state, county and local environmental statutes, laws, regulations, ordinances,
rules, judgments, orders and decrees regulating the treatment, storage,
recycling, transportation, release or disposal of any Hazardous Materials (as
defined below) into the environment (collectively, "Environmental Laws"). Except
as disclosed in Schedule 3.10(d), each BHHS Florida Affiliate is in material
compliance (1) with the terms and conditions of all such permits and licenses
and (2) with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
any Environmental Law applicable to it in connection with the conduct of its
business or in any regulation, code, plan, order, decree, judgment, injunction,
notice or demand
-31-
<PAGE> 37
letter issued, entered, promulgated or approved under any applicable
Environmental Law. In addition, except as disclosed in Schedule 3.10(d), no
notice, notification, demand, request for information, citation, summons or
order has been issued, no complaint has been filed, no penalty has been assessed
to the knowledge of the BHHS Entities, and no investigation or review is pending
or threatened by any Governmental Entity or any executive, legislative,
judicial, regulatory or administrative entity with respect to any alleged
failure by any BHHS Florida Affiliate to have any permit or license required for
the generation, treatment, storage, recycling, transportation, release or
disposal of any asbestos; PCBs; petroleum or petroleum products; or hazardous
material, hazardous substance, extremely hazardous substance, regulated
substance, industrial waste, residual waste, solid waste, toxic substances,
toxic pollutants, contaminants or pollutants as any of these terms is currently
defined under any Environmental Laws (collectively "Hazardous Materials")
generated by or relating to any BHHS Florida Affiliate or any of their
respective properties (or, to the knowledge of the BHHS Entities, any
predecessor to any of the businesses or assets of the BHHS Florida Affiliates
with respect to such businesses or assets) whether or not occurring at or on
property owned or operated by any BHHS Florida Affiliate. Except as disclosed in
Schedule 3.10(d), no BHHS Florida Affiliate has, nor are any of their respective
properties subject to, any material liability, contingent or otherwise, arising
out of or resulting from the release, leakage, pouring, emission, emptying,
injection, pumping, escaping, leaching, dumping, discharge, spillage, storage,
burying or other disposal, whether on its own premises or through other persons,
of any Hazardous Materials, (ii) except as disclosed by Schedule 3.10(d), (A)
there are no Hazardous
-32-
<PAGE> 38
Substances (as such term is defined in the Comprehensive Environment Response,
Compensation and Liability Act of 1980 ("CERCLA") and equivalent state laws) in,
beneath or migrating to or from the Owned Property and (B) except as set forth
on Schedule 3.10(d), there are no underground storage tanks for Hazardous
Substances, active or abandoned, at any property now or previously owned or
operated by any BHHS Florida Affiliate, and (iii) there are no encumbrances in
favor of any Governmental Entity for (A) any liability under Environmental Laws
or (B) damages arising from or costs incurred by such Governmental Entity in
response to a release or threatened release of Hazardous Substances into the
environment (collectively, "Environmental Encumbrances") arising under or
pursuant to any Environmental Laws, and no governmental actions have been taken
or, to the knowledge of the BHHS Entities that are in process which could
reasonably be anticipated to subject the business of the BHHS Florida Affiliates
to such Environmental Encumbrances and no BHHS Florida Affiliate is required to
place any notice or restriction relating to the presence of Hazardous Substances
at any facility owned or managed by the BHHS Florida Affiliates in any deed to
such property.
(e) None of the representations and warranties set forth
in this Section 3.10 shall be deemed to pertain to any asbestos in the Real
Property or Improvements or its condition.
(f) Radon Gas: radon is a naturally occurring radioactive
gas that, when it has accumulated in a building in sufficient quantity, may
present health risks to persons who are exposed to it over time. Levels of radon
that exceed Federal
-33-
<PAGE> 39
guidelines have been found in buildings in Florida. Additional information
regarding radon and radon testing may be obtained from the county public health
unit.
3.11 Contracts.
(a) The BHHS Florida Affiliates have no existing contract,
obligation or commitment (written or oral) (other than obligations involving
annual payments of less than $50,000 or $750,000 in the aggregate) of any
nature, including without limitation the following, except as set forth on
Schedule 3.11:
(i) Employment, bonus, severance or consulting
agreements, retirement, stock bonus, stock option, or similar
plans other than those agreements or plans that are set forth
in Schedule 3.12;
(ii) Loan or other agreements, notes, indentures, or
instruments relating to or evidencing indebtedness for borrowed
money or mortgaging, pledging or granting or creating a lien or
security interest or other encumbrance on any of the assets of
any BHHS Florida Affiliate or any agreement or instrument
evidencing any guaranty by any BHHS Florida Affiliate of
payment or performance by any other person;
(iii) Agreements with any labor union or collective
bargaining organization or other labor agreements;
(iv) Any contract or series of contracts with the same
person for the furnishing or purchase of equipment, goods or
services;
(v) Any joint venture contract or arrangement or other
agreement involving a sharing of profits or expenses to which
any BHHS Florida Affiliate is a party or by which any of them
is bound;
-34-
<PAGE> 40
(vi) Agreements which would, after the Closing Date,
limit the freedom of the Purchaser to compete in any line of
business or in any geographic area or with any person;
(vii) Agreements providing for acquisition or disposition
of the assets, businesses or a direct or indirect ownership
interest in any BHHS Florida Affiliate including without
limitation the contract pursuant to which Manatee was purchased
from the County of Manatee;
(viii) Any lease under which any BHHS Florida Affiliate is
either lessor or lessee;
(ix) Any contract, commitment or arrangement not made in
the ordinary course of business of any BHHS Florida Affiliate,
including without limitation, any powers-of-attorney giving any
person authority to act on behalf of any BHHS Florida
Affiliate;
(x) Any license, agreement, or arrangement, whether as
licensor, licensee, or otherwise, with respect to any trade
name, trademark, service mark, copyright, patent or trade
secret;
(xi) Any contract or series of contracts, commitments or
arrangement relating to the provision of goods or services for
any BHHS Florida Affiliate by any person who, to the knowledge
of any BHHS Entity, is related to, or an affiliate of, any BHHS
Entity or any officer, director or stockholder of any BHHS
Entity, and any contract or series of contracts, commitments or
arrangement relating to the provision of goods or services for
any BHHS Florida Affiliate by any person the terms of which, to
-35-
<PAGE> 41
the knowledge of any BHHS Entity, were not determined on an
arms' length basis;
(xii) Any contract with any managed care, preferred
provider or other similar entity;
(xiii) Any patient care or pharmacy vending contract not
entered into in the ordinary course of business; or
(xiv) Agreements with any Governmental Entity, including
without limitation Medicare and Medicaid provider agreements
and indigent care contracts.
True and correct copies of all contracts, agreements, arrangements and similar
instruments set forth on Schedule 3.11 have been provided or made available to
the Purchaser. Each contract, agreement, arrangement, plan, lease (including
lease agreements with respect to the Leased Properties under which any BHHS
Florida Affiliate is either lessor or lessee) or similar instrument to which any
BHHS Florida Affiliate is a party, and which is listed on Schedule 3.11
(collectively, the "BHHS Florida Affiliate Contracts"), is a valid and binding
obligation of the BHHS Florida Affiliate party thereto and, to the best
knowledge of the BHHS Florida Affiliates, the other parties thereto, enforceable
in accordance with its terms (except as the enforceability thereof may be
limited by any applicable bankruptcy, insolvency or other laws affecting
creditors' rights generally or by general principles of equity, regardless of
whether such enforceability is considered in equity or at law), and is in full
force and effect (except for any BHHS Florida Affiliate Contracts which by their
terms expire after the date hereof or are terminated after the date hereof in
accordance with the
-36-
<PAGE> 42
terms thereof), and neither any BHHS Florida Affiliate nor, to the knowledge of
the BHHS Florida Affiliates, any other party thereto (except Serving Software)
has breached any material provision of, nor is in default in any material
respect under the terms of (and, to the knowledge of the BHHS Florida
Affiliates, no condition exists which, with the passage of time, the giving of
notice, or both (including consummation of the transactions contemplated
hereby), would result in a material default under the terms of), any of the BHHS
Florida Affiliate Contracts.
(b) (1) Except as set forth on Schedule 3.11, no purchase
contracts or commitments of any BHHS Florida Affiliate continue for a period of
more than 12 months or are in quantities or amounts in excess of the normal,
ordinary, usual and current requirements of its respective business or in excess
of market prices generally available to purchasers of similar quantities; (ii)
no BHHS Florida Affiliate Contract requires any BHHS Florida Affiliate to
provide services at a fixed price; (iii) no BHHS Florida Affiliate has
outstanding any bid, contract, commitment or proposal which, if not executory,
would be required to be disclosed on Schedule 3.11 either (x) continuing for a
period of more than 12 months or (y) quoting prices which are determined in a
manner which is not consistent with past experience; and (2) none of such BHHS
Florida Affiliate Contracts obligates any BHHS Florida Affiliate to perform
services which any BHHS Entity knows or has reason to believe are at a price
which would result in a material net loss on the provision of services, or are
pursuant to terms or conditions it cannot reasonably expect to satisfy or
fulfill in their entirety.
-37-
<PAGE> 43
3.12 Employee and Labor Matters and Plans.
(a) Schedule 3.12 lists each of the following plans,
contracts, policies and arrangements which is currently sponsored, maintained or
contributed to by, or otherwise binding upon, any BHHS Florida Affiliate for the
benefit of any current or former employee, director or other personnel
(including any such plan, contract, policy or arrangement approved or adopted
before, but effective on or after, the date of this Agreement): (i) the
Retirement Plan, (ii) any other "employee benefit plan," as such term is defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA")
whether or not in fact subject to the provisions of ERISA, and (iii) any other
employment, consulting, collective bargaining, stock option, stock bonus, stock
purchase, phantom stock, incentive, bonus, deferred compensation, retirement,
severance, vacation, dependent care, employee assistance, fringe benefit,
medical, dental, sick leave, death benefit, golden parachute or other
compensatory plan, contract, policy or arrangement which is not an employee
benefit plan as defined in Section 3(3) of ERISA (each such plan, contract,
policy and arrangement being herein referred to as an "Employee Plan").
(b) With respect to each Employee Plan, the BHHS Entities
have delivered to the Purchaser true and complete copies of (i) each contract,
plan document, policy statement, summary plan description and other written
material governing or describing the Employee Plan and/or any related funding
arrangements (including without limitation any related trust agreement or
insurance company contract) or, if there are no such written materials, a
summary description of the Employee Plan and (ii), where applicable, (1) the
last two annual reports (5500 series) filed with the
-38-
<PAGE> 44
Internal Revenue Service (the "IRS") or the Department of Labor, (2) the most
recent balance sheet and financial statement, (3) the most recent actuarial
report or valuation statement, (4) the most recent determination letter issued
by the IRS, as well as any other determination letter, private letter ruling,
opinion letter or prohibited transaction exemption issued by the IRS or the
Department of Labor within the last six years and any application therefor which
is currently pending and (5) the last PBGC-1 filed with the Pension Benefit
Guaranty Corporation (the "PBGC").
(c) Each Employee Plan has been maintained and
administered in accordance with its material terms and in substantial compliance
with the material provisions of applicable law, including without limitation
applicable disclosure, reporting, funding and fiduciary requirements imposed by
ERISA and/or the Code. All contributions, insurance premiums, benefits and other
payments required to be made to or under each Employee Plan have been made
timely and in accordance with the governing documents and in substantial
compliance with applicable law. With respect to each Employee Plan, except as
disclosed in Schedule 3.12: (i) no application, proceeding or other matter is
pending before the IRS, the Department of Labor, the PBGC or any other
Governmental Entity (other than routine disclosures, reports and filings); (ii)
no action, suit, proceeding or claim (other than routine claims for benefits) is
pending or, to the best knowledge of the BHHS Entities, has been threatened; and
(iii) to the best knowledge of the BHHS Entities, no fact exists which could
give rise to an action, suit, proceeding or claim which, if asserted, could
result in a material liability or expense to any BHHS Florida Affiliate or the
plan assets.
-39-
<PAGE> 45
(d) With respect to each Employee Plan which is an
"employee benefit plan" within the meaning of Section 3(3) of ERISA or which is
a "plan" within the meaning of Section 4975(e) of the Code, to the knowledge of
the BHHS Entities there has occurred no transaction which is prohibited by
Section 406 of ERISA or which constitutes a "prohibited transaction" under
Section 4975(c) of the Code and with respect to which a prohibited transaction
exemption has not been granted and is not currently in effect.
(e) Schedule 3.12 identifies each funded Employee Plan
which is an employee pension plan within the meaning of Section 3(2) of ERISA
(other than a multiemployer plan within the meaning of Section 3(37) of ERISA).
With respect to each such Employee Plan, (i) the Employee Plan is a qualified
plan under Section 401(a) or 403(a) of the Code, and its related trust is exempt
from Federal income taxation under Section 501(a) of the Code, (ii) a favorable
IRS determination letter is currently in effect and, since the date of the last
determination letter, the Employee Plan has not been amended or, to the
knowledge of the BHHS Entities, operated in a manner which would adversely
affect its qualified status and no event has occurred which has caused or could
cause the loss of such status, (iii) the remedial amendment period for the Plan
to reflect the requirements of the Tax Reform Act of 1986 and subsequent
legislation through the Omnibus Budget Reconciliation Act of 1993 will not
expire before December 31, 1996, (iv) there has been no termination or partial
termination within the meaning of Section 411(d)(3) of the Code, (v) with
respect to each such Employee Plan which is covered by Section 412 of the Code,
there has been no accumulated funding deficiency, whether or not waived, within
the meaning of
-40-
<PAGE> 46
Section 302(a)(2) of ERISA or Section 412 of the Code, and there has been no
failure to make a required installment by its due date under Section 412(m) of
the Code and (vi) with respect to the Retirement Plan, (1) no reportable event
within the meaning of Section 4043(b) of ERISA and the regulations thereunder
has occurred, (2) no notice of intent to terminate the plan has been provided to
participants or filed with the PBGC under Section 4041 of ERISA, nor has the
PBGC instituted or threatened to institute any proceeding under Section 4042 of
ERISA to terminate the plan and (3) no liability has been incurred under Title
IV of ERISA to the PBGC or otherwise (except for the payment of PBGC premiums).
No BHHS Florida Affiliate has ceased operations at a facility so as to become
subject to the provisions of Section 4068(f) of ERISA, withdrawn as a
substantial employer so as to become subject to the provisions of Section 4063
of ERISA or ceased making contributions to any Employee Plan which is a pension
plan subject to Section 4064(a) of ERISA.
(f) Each trust which is intended to be exempt from Federal
income taxation pursuant to Section 501(c)(9) of the Code has been identified as
such on Schedule 3.12, and each such trust satisfies the requirements of that
Section and is covered by a favorable IRS determination letter, and neither the
trust nor any related plan has been amended or, to the knowledge of the BHHS
Entities, operated since the date of the most recent determination letter in a
manner which would adversely affect such exempt status.
(g) No Employee Plan listed on Schedule 3.12 is a
multiemployer plan within the meaning of Section 3(37) of ERISA. No BHHS Florida
Affiliate is, or within six years prior to the date hereof was, obligated to
contribute or otherwise is or
-41-
<PAGE> 47
was a party to any such multiemployer plan. No BHHS Florida Affiliate has
incurred or expects to incur any withdrawal liability under Title IV of ERISA
(either as a contributing employer or as part of a controlled group which
includes a contributing employer) in connection with a complete or partial
withdrawal from a multiemployer plan.
(h) The BHHS Florida Affiliates have complied in all
material respects with the provisions of Section 4980(B) of the Code with
respect to any Employee Plan or benefit arrangement which is a group health plan
within the meaning of Section 5001(b)(1) of the Code. No BHHS Florida Affiliate
maintains, contributes to, or is obligated under any plan, contract, policy or
arrangement providing health or death benefits (whether or not insured) to
current or former employees or other personnel beyond the termination of their
employment (or other services) for such BHHS Affiliate, except as required in
accordance with Code Section 4980(B). Except as set forth in Schedule 3.12, the
BHHS Florida Affiliates have reserved the right to unilaterally terminate and/or
amend each Employee Plan at any time.
(i) Schedule 3.12 sets forth a complete and accurate list
showing the names, titles, length of employment or service, the rate of
compensation and the amount of accrued paid time-off that is payable upon
termination of all current officers of each BHHS Florida Affiliate and of all
employees of or consultants to each BHHS Florida Affiliate that received, for
the year ended December 31, 1994, or are expected to receive, during the year
ending December 31, 1995, annual base salary or other compensation in excess of
$60,000. None of such personnel is a party or subject to any oral or written
employment, bonus, pension, profit-sharing, deferred compensation,
-42-
<PAGE> 48
percentage compensation, employee benefit (including without limitation medical
disability, life insurance and other welfare benefit plans), incentive, pension
or retirement plans, fringe benefit or termination or severance agreements,
plans or commitments other than a plan, policy agreement or commitment listed on
Schedule 3.12. The BHHS Florida Affiliates are not in default with respect to
any of the foregoing obligations.
(j) There have been no Federal or state government audits
of the equal employment opportunity practices of the BHHS Florida Affiliates
during the preceding 12-month period. To the knowledge of the BHHS Entities,
there is no strike, dispute, slowdown or stoppage pending or threatened against
or involving any BHHS Florida Affiliate. To the knowledge of the BHHS Entities,
no BHHS Florida Affiliate has received written notice from any union or group of
employees setting forth demands for representation, elections or present or
future changes in wages, terms of employment or working conditions.
(k) Schedule 3.12 sets forth all outstanding loans and
other advances (other than travel advances in the ordinary course of business
which do not exceed $1,000 per individual) made by any BHHS Florida Affiliate to
any of its officers, directors, employees, stockholders or consultants.
3.13 Insurance Policies. Schedule 3.13 contains a correct and
complete description of all insurance policies of the BHHS Florida Affiliates
covering the BHHS Florida Affiliates and their respective employees, agents and
assets. Each such policy is in full force and effect and, to the knowledge of
the BHHS Entities, is reasonably adequate in coverage and amount to insure
against customarily insured risks to which
-43-
<PAGE> 49
the BHHS Florida Affiliates and their employees, businesses, properties and
other assets may likely be exposed in the operation of their respective
business. All premiums with respect to such insurance policies have been paid on
a timely basis, and no notice of cancellation or termination has been received
with respect to any such policy. To the knowledge of the BHHS Entities, no BHHS
Florida Affiliate has failed to give any notice or present any claim thereunder
in due and timely fashion. To the knowledge of the BHHS Entities, and except as
set forth on Schedule 3.13, there are no pending claims against such insurance
by any BHHS Florida Affiliate as to which the insurers have denied coverage or
otherwise reserved rights. Since January 1, 1994, no BHHS Florida Affiliate has
been refused any insurance with respect to its assets or operations, nor has its
coverage been limited, by any insurance carrier to which it has applied for any
such insurance or with which it has carried insurance.
3.14 Records. The BHHS Florida Affiliates have records that
accurately reflect its transactions and accounting controls sufficient so that
such transactions are (i) in all material respects executed in accordance with
each of their respective management's general or specific authorization and (ii)
recorded in conformity with generally accepted accounting principles.
3.15 Professional Staff, Medicare, Medicaid and Other Health
Care Programs.
(a) The professional licensed provider staff of the
Hospital consists substantially of the persons whose names and status are set
forth on Schedule 3.15 hereto.
-44-
<PAGE> 50
(b) Each BHHS Florida Affiliate is certified for
participation in the Medicare and Florida Medical Assistance ("Medicaid")
programs, and has a current and valid provider contract with such programs.
(c) The BHHS Florida Affiliates have timely filed or
caused to be timely filed all cost reports and other reports of every kind
whatsoever required by any Governmental Entity to be made by them with respect
to the purchase of services by third-party purchasers, including but not limited
to Medicare and Medicaid programs and other insurance carriers, all such reports
are complete and accurate in all material respects. The BHHS Florida Affiliates
have paid or caused to be paid all refunds, discounts or adjustments which have
become due in accordance with said reports as filed and have not been notified
that there is any further liability now due (whether or not disclosed in any
report heretofore or hereafter made) for any such refund, discount or
adjustment, or any interest or penalties accruing with respect thereto. The BHHS
Florida Affiliates have delivered to the Purchaser complete copies of all of
their Medicare and Medicaid Cost Reports submitted by the BHHS Florida
Affiliates for the two most recent fiscal years.
(d) Each BHHS Florida Affiliate and, to the knowledge of
the BHHS Entities, their respective officers and directors (acting in their
capacities as such), have not engaged in any activities which (i) could subject
such person to sanctions under 42 U.S.C. Section 1320a-7 (other than
subparagraph (b)(7) thereof) or (ii) at the time such activities were engaged in
were known or reasonably could have been known to be prohibited under Federal
Medicare and Medicaid statutes, 42 U.S.C. Section Section 1320a-7a and 1320a-7b,
or the regulations promulgated pursuant to such statutes or
-45-
<PAGE> 51
related state or local statutes or regulations or which are prohibited by rules
of professional conduct.
3.16 Facility Surveys. True and complete copies of any and all
licensure survey reports and any and all Medicare and/or Medicaid and JCAHO
survey reports issued within the 24-month period preceding the execution of this
Agreement with respect to each Facility for which surveys are conducted by the
appropriate state or Federal agencies having jurisdiction thereof and JCAHO have
been furnished to the Purchaser, along with true and complete copies of any and
all plans of correction which the agencies required to be submitted in response
to said survey reports.
3.17 Suppliers and Providers of Services.
(a) Schedule 3.17 lists all suppliers of goods to, and
providers of services to, the BHHS Florida Affiliates to which the BHHS Florida
Affiliates made payments during the fiscal year ended August 31, 1994 or expect
to make payments during the year ending August 31, 1995, in excess of five
percent of any BHHS Florida Affiliate's operating expenses as reflected on its
statement of operations for such year (collectively, "Suppliers").
(b) Except as set forth on Schedule 3.17 pertaining to
not-for-profit discounts, no BHHS Entity has any information which might
reasonabl indicate that any of the Suppliers listed on Schedule 3.17 intends to
cease selling or rendering services to, or dealing with, the BHHS Florida
Affiliates, nor has any information been brought to their attention which might
reasonably lead them to believe any such Supplier intends to alter in any
material respect the amount of sales or service or the extent of dealings with
the Purchaser, or would alter in any material respect the sales
-46-
<PAGE> 52
or service or dealings in the event of the consummation of the transactions
contemplated hereby.
(c) Except as set forth at Schedule 3.17, no BHHS Entity
(or any entity controlled by any BHHS Entity) nor, to the knowledge of the BHHS
Entities, any of their respective executive officers or directors (or any entity
controlled by any executive officer or director) owns, directly or indirectly,
any interest in (excepting less than 2% stock holdings for investment purposes
in securities of publicly held and traded companies), or is an officer,
director, employee, partner or consultant of, any person which is, or is engaged
in business as, a competitor, lessor, lessee or Supplier of any of the BHHS
Florida Affiliates.
3.18 Licenses. Each BHHS Florida Affiliate, and, to the
knowledge of BHHS Entities, its respective officers and directors possess all
governmental registrations, certificates of need, consents, qualifications and
accreditations materially relating to the ownership or operation of health care
facilities, and other material licenses, permits, authorizations and approvals
that are required by every Governmental Entity for the conduct of the business
of such BHHS Florida Affiliate and the use of its properties as presently
conducted or used including without limitation all material licenses required
under any Federal, state or local law relating to, public health and safety, or
employee health and safety (collectively, "Licenses"). Schedules 1.1(b) and
1.1(i) contain a true and complete list of the Licenses, exclusive of any
Licenses with respect to state or local sales, use or other Taxes (as defined in
Section 3.19). All of the Licenses are in full force and effect and no action or
claim is pending nor, to the knowledge of the BHHS Florida Affiliates, is
threatened to revoke or
-47-
<PAGE> 53
terminate any License or declare any License invalid in any material respect. No
BHHS Florida Affiliate or any of its officers or directors or, to the knowledge
of the BHHS Entities, employees is in default in any material respect under any
of such Licenses and, to the knowledge of the BHHS Entities, other than as set
forth on the Facility survey reports, copies of which have been provided to the
Purchaser, no event has occurred and no condition exists which, with the giving
of notice, the passage of time, or both, would constitute a default thereunder,
which default could reasonably be expected to have a material adverse effect on
the business or operations of any BHHS Florida Affiliate.
3.19 Taxes.
(a) Except as specifically set forth in Schedule 3.19, (i)
the BHHS Florida Affiliates have filed on a timely basis (taking into account
any extensions received from the relevant taxing authorities) all returns and
reports of Taxes (which for the purposes of this Agreement shall include all
U.S. federal, state, local and foreign income, profits, franchise,
unincorporated business, capital, general corporate, sales, use, occupation,
property, excise and any and all other taxes) relating to the Assets or the
Facilities that are or were required to be filed with the appropriate taxing
authorities in all jurisdictions in which such returns and reports are or were
required to be filed, and all such returns and reports are true, correct and
complete in all material respects, (ii) all Taxes (including interest, additions
to tax and penalties thereon together with interest on such additions to tax and
penalties) relating to the Assets or the Facilities that are due from or may be
asserted against the BHHS Florida Affiliates (including deferred taxes) in
respect of or attributable to all periods ending
-48-
<PAGE> 54
on or before the Closing Date have been fully paid, deposited or adequately
provided for on the books and financial statements of the BHHS Florida
Affiliates and the Facilities or are being contested in good faith by
appropriate proceedings, (iii) no issues have been raised (or are currently
pending) by any taxing authority in connection with any of the returns and
reports referred to in clause (i) which might be determined adversely to the
BHHS Florida Affiliates and which would have a material adverse effect on the
Facilities, (iv) the BHHS Florida Affiliates have not given or been requested to
give waivers or extensions of any statute of limitations with respect to the
payment of Taxes relating to the Facilities, and (v) no tax liens which have not
been satisfied or discharged by payment or concession by the relevant taxing
authority or as to which sufficient reserves have not been established on the
books and financial statements of the BHHS Florida Affiliates and the Facilities
are in force as of the date hereof with respect to any of the assets of the BHHS
Florida Affiliates and the Facilities.
(b) To the BHHS Entities' knowledge, all deficiencies
proposed in writing by taxing authorities which would have a material adverse
effect on the Facilities have been paid, reserved against, settled or are being
contested in good faith by appropriate proceedings.
(c) All Taxes relating to the Assets or the Facilities
that the BHHS Florida Affiliates are or were required by law to withhold, to
deposit or to collect have been duly withheld, deposited or collected and, to
the extent required, have been paid to the relevant taxing authority or have
been accrued and reflected in the accounts of the Facilities.
-49-
<PAGE> 55
3.20 No Illegal or Improper Transactions. No BHHS Entity has,
nor, to the knowledge of the BHHS Entities, have any of their respective
directors or officers, in their capacities as such, directly or indirectly used
funds or other assets of any BHHS Florida Affiliate, or made any promise or
undertaking in such regard, for (a) illegal contributions, gifts, entertainment
or other expenses relating to political activity; (b) illegal payments to or for
the benefit of governmental officials or employees, whether domestic or foreign;
(c) illegal payments to or for the benefit of any person, firm, corporation or
other entity, or any director, officer, employee, agent or representative
thereof; or (d) the establishment or maintenance of a secret or unrecorded fund;
and there have been no false or fictitious entries made in the books or records
of any BHHS Florida Affiliate.
3.21 Related Party Transactions. To the knowledge of the BHHS
Entities, except as set forth in Schedule 3.21, and except for compensation to
employees for services rendered, no current director or officer of the Hospital
is presently, or during the last fiscal year has been, (a) a party to any
material transaction with the Hospital (including, but not limited to, any
contract, agreement or other arrangement providing for the furnishing of
services by, or rental of real or personal property from, or otherwise requiring
payments to, any such director, officer, or shareholder, or (b) the direct or
indirect owner of an interest in any corporation, firm, association or business
organization which is a present competitor, supplier or customer of the Hospital
with respect to the business, nor does any such person receive income from any
source other than the Hospital which should properly accrue to the Hospital.
-50-
<PAGE> 56
3.22 No Misleading Statements. This Agreement and the
information and schedules referred to herein and the written information that
has been furnished to the Purchaser in connection with the transactions
contemplated hereby do not include any untrue statement of a material fact and
do not omit to state any material fact necessary to make the statements
contained herein or therein, in light of the circumstances under which they were
made, not misleading.
3.23 No Broker. The BHHS Entities represent and warrant that
they have not dealt with any broker or finder in connection with any of the
transactions contemplated by this Agreement, except for Ernst & Young, whose
fees and expenses shall be the sole responsibility of BHHS.
4. Representations and Warranties of the Purchaser and UHS.
In order to induce the BHHS Entities to enter into and perform
this Agreement, the Purchaser and UHS, jointly and severally, represent and
warrant as follows:
4.1 Organization. UHS is a corporation, and Purchaser is a
limited partnership, each duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization, and has all requisite
power and authority to execute, deliver and perform this Agreement and to
consummate the transactions contemplated hereby. Each of UHS and the Purchaser
is duly qualified to transact business as a foreign corporation or limited
partnership, as the case may be, in each
-51-
<PAGE> 57
state in which the nature of the business conducted by it or its ownership or
leasing of property make such qualification necessary, except where such failure
to qualify would not have a material adverse effect on the Purchaser or UHS.
4.2 Authority and No Conflict. Each of UHS and the Purchaser
has the full power and authority to execute, deliver and carry out its
obligations under this Agreement and all documents and agreements necessary to
give effect to the provisions of this Agreement. This Agreement has been duly
authorized, executed and delivered by each of UHS and the Purchaser, and the
execution of this Agreement and the consummation of the transactions
contemplated hereby will not (a) conflict with, or result in any violation of or
default or loss of any benefit under, any provision of the Certificate of
Incorporation or By-laws of UHS or the Agreement of Limited Partnership of
Purchaser; (b) conflict with, or result in any violation of or default or loss
of any material benefit under, any permit, concession, grant, franchise, law,
rule or regulation, or any judgment, decree or order of any court or other
governmental agency or instrumentality to which UHS or Purchaser is a party or
to which any of their respective properties are subject; (c) conflict with, or
result in a breach or violation of or default or loss of any material benefit
under, or accelerate the performance required by, the terms of any agreement,
contract indenture or other instrument to which UHS or Purchaser is a party, or
constitute a default or loss of any right thereunder or an event which, with the
lapse of time or notice or both, might result in a default. All action and other
authorizations prerequisite to the execution of this Agreement and the
consummation of the transactions contemplated by this Agreement have been taken
or prior to the Closing Date will have been taken or obtained by UHS and the
Purchaser.
-52-
<PAGE> 58
This is a valid and binding agreement of UHS and the Purchaser enforceable
against each of them, respectively, in accordance with its terms, subject to the
effect of bankruptcy, insolvency, reorganization, arrangement, moratorium,
fraudulent conveyance or other similar laws affecting the rights of creditors.
4.3 Defaults, Consents, Etc. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby will not
result in a violation by UHS or the Purchaser of, or constitute a default by UHS
or the Purchaser under, any material contractual obligation of UHS or the
Purchaser or any legal requirement applicable to UHS or the Purchaser. No
approval, consent, authorization or other order of, and no declaration, filing,
registration, qualification or recording with, any governmental authority or any
other person, including, without limitation, any party to any contractual
obligation of UHS or the Purchaser, is required to be made by or on behalf of
UHS or the Purchaser or such governmental authority or other person for the
execution, delivery or performance of this Agreement by UHS and the Purchaser
except for those contemplated hereby or which have been or will be obtained or
for which waivers will be obtained prior to the Closing.
4.4 No Broker. UHS and the Purchaser represent and warrant that
neither of them has dealt with any broker or finder in connection with any of
the transactions contemplated by this Agreement and, to their knowledge, no
broker or other person is entitled to any commission or finder's fee in
connection with any of such transactions.
-53-
<PAGE> 59
5. Obligations Before and After Closing.
5.1 BHHS Agreement. From and after the date hereof, the BHHS
Entities agree that:
5.1.1 Access to Premises and Information. The Purchaser,
UHS and their counsel, accountants, and other representatives will, with
reasonable advance notice, have reasonable access during normal business hours
to the BHHS Florida Affiliates, the Facilities and to all their properties,
books, accounts and records, contracts and documents (other than attorney-client
communications and attorney work product and Board and Board Committee Minutes
relating to the sale of the Facilities) of or relating to the business of the
Facilities provided that such access shall not interfere with the operation of
the Facilities. In connection with the exercise by Purchaser or UHS of their
rights hereunder, Purchaser and UHS agree to promptly repair any damage they
cause to the properties or any of the improvements. Purchaser and UHS shall
indemnify and hold the BHHS Entities harmless from and against any and all
costs, claims, actions, damages, demands, expenses (including reasonable
attorney's fees), injuries, judgments, liabilities, penalties, losses, and
suits, suffered, sustained or incurred by any of the BHHS Entities arising from
or in any way related to the exercise by Purchaser or UHS of their rights
hereunder. The BHHS Entities will use all reasonable efforts to furnish or cause
to be furnished to the Purchaser, UHS and their representatives all data and
information concerning the business, finances, and properties of the BHHS
Florida Affiliates and the Facilities that may reasonably be requested. Any of
the BHHS Florida Affiliates reserves the right to require that any
-54-
<PAGE> 60
representative of the Purchaser or UHS desiring access hereunder be accompanied
by the representative of the appropriate BHHS Florida Affiliate.
5.1.2 Conduct of Business in Ordinary Course. Subject to
UHS' rights and obligations under that certain Management Services Agreement
effective January 16, 1995 (the "Management Agreement"), the BHHS Florida
Affiliates will carry on their respective businesses (including the operation of
the Facilities) diligently, in the ordinary course and in substantially the same
manner as such business has previously been carried out, and will not, without
the prior written consent of Purchaser, which consent shall not be unreasonably
withheld, make or institute any unusual or novel purchase, sale, lease,
management, accounting policy or operation that will vary materially from those
methods used by it during the 12 month period ending on the date of this
Agreement.
Without limiting the foregoing, and except as may be in
the ordinary course of business consistent with past practices, from the date
hereof until the Closing Date, as it relates to the Facilities and their
operation, the BHHS Entities will (i) not increase any compensation payable to
any employees or consultants (except in the ordinary course of business); (ii)
not enter into, materially amend or terminate any material contract, agreement,
permit or lease without the prior written consent of the Purchaser which consent
shall not be unreasonably withheld; (iii) not enter into any commitment to
borrow money, mortgage, pledge, or subject to lien, charge or encumbrance any of
the Assets except in the ordinary course of conduct of business or as
contemplated hereunder; (iv) not sell or transfer any of the Assets or cancel
any claim applicable to the Facilities except in the ordinary course of conduct
of business
-55-
<PAGE> 61
or as contemplated hereunder; (v) keep in full force and effect all insurance
relating to the business of the BHHS Florida Affiliates, including the
Facilities, comparable in amount and scope of coverage to that now maintained;
(vi) perform all material obligations under Licenses, the BHHS Florida Affiliate
Contracts and other documents relating to or affecting conduct of business of
the BHHS Florida Affiliates, including the Facilities, all in the same manner as
heretofore performed; (vii) use all reasonable efforts to maintain and preserve
the Assets, the Facilities and their respective business organizations intact,
their good will and relationships with their officers, employees, Suppliers,
professional staff and others having a business relationship with them, and
maintain all Licenses requisite to the conduct of their businesses as now
conducted except for any changes therein resulting from the ordinary course of
conduct of business or as contemplated hereunder; and (viii) maintain in working
condition all equipment, and other personal property, reasonable wear and tear
excepted.
5.1.3 Representations and Warranties True at Closing. All
representations and warranties of the BHHS Entities set forth in this Agreement
will also be true and correct in all material respects as of the Closing Date as
if made on that date. The BHHS Entities each undertake to revise all Schedules
hereto as may be necessary from the date hereof until the Closing Date. Any such
revisions made pursuant to this Section shall be deemed to be conclusively
accepted by Purchaser and UHS and shall be deemed to cure any breach of any
representation or warranty made in this Agreement unless the Purchaser
specifically informs the BHHS Florida Affiliates otherwise in writing within ten
(10) business days of receipt of any such change.
-56-
<PAGE> 62
5.1.4 Further Authorization. The BHHS Entities will take,
or cause to be taken, such further actions as may be necessary or appropriate to
authorize the execution, delivery and performance of this Agreement by them.
5.1.5 Interviewing Employees. The Purchaser shall be
permitted to interview employees of the BHHS Florida Affiliates engaged in the
Facilities for the purpose of offering employment to such employees in
accordance with Section 5.3.3 hereof, provided that any such interviewing will
not interfere with the performance by employees of their jobs.
5.1.6 No Shopping. From the date of this Agreement until
the termination hereof, no BHHS Entity nor any of their respective officers,
directors, stockholders, agents or representatives shall provide information to,
solicit any indications of interest from, or negotiate with, any third party
with respect to any possible sale of stock or assets, merger or other business
combination or similar transaction involving the BHHS Florida Affiliates and/or
the Facilities until the termination of this Agreement in accordance with the
terms hereof.
5.1.7 Non-Competition. Each BHHS Entity agrees that
neither it nor any of its affiliated entities will, for a period of five (5)
years from the Closing Date directly or indirectly (i) own, build, invest in,
assist in the development of, or have any management role in, any firm,
corporation, business or other organization or enterprise engaged, directly or
indirectly, in the provision of health care services within thirty miles of any
Facility, (ii) solicit for employment any employee of the Facilities purchased
by Purchaser pursuant to the terms of this Agreement, or (iii) interfere with,
disrupt or attempt to disrupt the relationship between UHS and the Purchaser or
any
-57-
<PAGE> 63
of their affiliates and any of their respective lessors, lessees, licensors,
licensees, customers or suppliers pertaining to the Facilities. If any court
determines that any of the restrictive covenants set forth in this Section
5.1.7, or any part of such covenants, is unenforceable because of the duration
of such provision or the area covered thereby, such court shall have the power
to reduce the duration or area of such provision and, in its reduced form, such
provision shall then be enforceable and shall be enforced.
5.1.8 Tax Returns Through Closing Date. The BHHS Florida
Affiliates shall prepare and file on a timely basis all reports and returns of
Taxes relating to the Assets or the Facilities with respect to all periods
through and including the Closing Date and shall pay or cause to be paid when
due all Taxes relating to the Assets or the Facilities for such periods,
including any interest, additions to tax or penalties thereon together with
interest on such additions to tax or penalties except as otherwise assumed by
the Purchaser pursuant to this Agreement. The BHHS Florida Affiliates shall be
entitled to receive any tax refund of Taxes attributable to the Assets or
conduct of the Facilities in respect of any period prior to and through the
Closing Date to the extent paid by the BHHS Florida Affiliates.
5.1.9 Subsequent Liability. If, subsequent to the Closing
Date, any liability for Taxes relating to the Assets or the conduct of the
Facilities is imposed on the Purchaser with respect to any period prior to and
through the Closing Date which has not otherwise been assumed by the Purchaser
pursuant to this Agreement, then the BHHS Florida Affiliates shall indemnify and
hold the Purchaser harmless, from and against, and shall pay, the full amount of
such Tax liability, including any interest,
-58-
<PAGE> 64
additions to tax and penalties thereon, together with interest on such additions
to tax or penalties (as well as reasonable attorneys' or other fees and
disbursements of the Purchaser incurred in determination thereof or in
connection therewith), or the BHHS Florida Affiliates shall, at their sole
expense and in their reasonable discretion, either settle any Tax claim that may
be the subject of indemnification under this Section 5.1.9 at such time and on
such terms as they shall deem appropriate or assume the entire defense thereof,
provided, however, that no BHHS Florida Affiliate shall in any event take any
position in such settlement or defense that subjects the Purchaser to any civil
fraud or any civil or criminal penalty. Notwithstanding the foregoing, no BHHS
Florida Affiliate shall consent, without the prior written consent of the
Purchaser, which prior written consent shall not be unreasonably withheld, to
any change in the treatment of any item which would, in any manner whatsoever,
affect the tax liability of the Purchaser for a period subsequent to the Closing
Date.
5.1.10 FIRPTA Affidavits. At the Closing, the BHHS
Entities shall execute and deliver to the Purchaser affidavits complying in all
respects with Section 1445(b)(2) of the Code and the Purchaser agrees that,
except as otherwise provided in Section 1445(b)(7) of the Code and the Treasury
Regulations promulgated pursuant thereto, upon the execution and delivery of
such affidavits to the Purchaser, no deduction shall be made or claimed against
the Purchase Price of the Assets by reason of the requirements of Section 1445
of the Code.
5.2 BHHS/Purchaser/UHS Agreement. The BHHS Entities, the
Purchaser and UHS agree that:
-59-
<PAGE> 65
5.2.1 Consents. Each of the BHHS Entities, the Purchaser
and UHS, as promptly as practicable, (i) will make, or cause to be made, all
filings and submissions under laws, rules and regulations applicable to it, or
to its subsidiaries and affiliates, as may be required for it to consummate the
transactions contemplated hereby including without limitation, all filings under
the Hart Scott Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"); (ii) will use its reasonable efforts to obtain, or cause to be obtained,
all authorizations, approvals, consents and waivers from all persons and
Governmental Entities necessary to be obtained by it, or any subsidiaries or
affiliates, in order for it so to consummate such transactions; and (iii) will
use all reasonable efforts to take, or cause to be taken, all other actions
necessary, proper or advisable in order for it to fulfill its obligations
hereunder. The BHHS Florida Affiliates shall cooperate with efforts by the
Purchaser to obtain consents necessary to any assignment to the Purchaser of
Licenses necessary to operate the Facilities. The BHHS Entities, the Purchaser
and UHS will coordinate and cooperate with one another in exchanging information
and supplying such reasonable assistance as may be reasonably requested by each
in connection with the foregoing. The Purchaser and UHS shall each use all
reasonable efforts to assist the BHHS Entities in obtaining all consents
required under the Assumed Contracts as a result of this Agreement and the
transactions contemplated hereby.
5.2.2 Public Announcements. Unless and to the extent
required by law, each party hereto will agree in advance prior to the issuance
by either of any press release or the making of any public statement with
respect to this Agreement and the transactions contemplated hereby and shall not
issue any such press release or
-60-
<PAGE> 66
make any such public statement without the agreement of the other party, which
agreement shall not be unreasonably withheld. In the event that either party is
required to issue a press release or make a public statement by law, it will use
all reasonable efforts to notify the other party of the contents thereof in
advance of the issuance or making thereof.
5.2.3 Confidentiality Obligations of the Parties. The
confidentiality obligations of the parties from the time of the execution of
this Agreement are contained in Exhibit C.
5.3 Purchaser/UHS Agreement. The Purchaser and UHS agree that:
5.3.1 Representations and Warranties True at Closing. All
representations and warranties of the Purchaser and UHS set forth in this
Agreement will also be true and correct as of the Closing Date as if made on
that date.
5.3.2 Further Authorization. The Purchaser and UHS will
take, or cause to be taken, such further actions as may be necessary or
appropriate to authorize the execution, delivery and performance of this
Agreement by them.
5.3.3 Employment of BHHS Florida Affiliates Personnel. The
Purchaser shall offer to employ all personnel of the BHHS Florida Affiliates
listed on Schedule 5.3.3 hereto on an at-will basis at substantially the same
wage rates and substantially the same positions in effect for such employees as
of the Closing Date. The Purchaser shall provide a comprehensive benefit package
to such employees comparable to the benefits provided to similarly situated
employees at other UHS facilities. The Purchaser will also offer retention of
the medical staff with the same privileges (subject to then applicable medical
staff by-law requirements) to all persons
-61-
<PAGE> 67
on the medical staff of the Facilities on the Closing Date. Each employee will
carry over to his employment with the Purchaser full credit for years of service
with the BHHS Florida Affiliates for determining eligibility and vesting under
employee benefits of the Purchaser (other than plans which are adopted after the
Closing Date and which do not give credit for past service), and for determining
the period of employment under a vacation, sick leave or other paid time off
plan of Purchaser as well as for determining other entitlements and terms of
employment affected by seniority under the Purchaser's employment policies. The
Purchaser shall be liable for accrued sick leave, vacation or paid time off to
the extent provided in Section 2.3(ii) hereto, and shall make such amounts
available to employees in accordance with the Purchaser's standard policies
concerning the use of paid time-off. An employee of the BHHS Florida Affiliates
who becomes an employee of the Purchaser ("Transferred Employees") will be
eligible to participate in the Purchaser's group health plan on the day
following the Closing Date or, if later, the first day after the Closing Date on
which the employee is actively at work for the Purchaser and the Purchaser shall
waive the normal 30-day waiting period for entry into such plan. If an employee
of the BHHS Florida Affiliates becomes covered under the Purchaser's group
health plan, then any pre-existing condition limitation under the Purchaser's
plan will be waived unless the waiver is prohibited by the plan document, by an
insurance policy maintained as part of the plan or by applicable law, provided
that the pre-existing condition limitation will apply with respect to any such
employee who, as of the Closing Date, is subject to a similar limitation under
the group medical plan(s) of the BHHS Florida Affiliates. The BHHS Florida
Affiliates will remain liable for any COBRA coverage applicable to their current
and former employees (and beneficiaries) in respect of their participation in a
group
-62-
<PAGE> 68
health plan of any of the BHHS Affiliates; and Purchaser shall have COBRA
responsibility only for those employees of the BHHS Florida Affiliates who (a)
become employees of the Purchaser, and (b) become covered under the Purchaser's
group health plan. For purposes of pre-existing condition limitations, the
commencement date for determining lapse of time shall be deemed to be the date
employees become covered by the applicable BHHS plan. Notwithstanding any
provision herein, no term of this Agreement shall be deemed to create any
contract between the Purchaser and any such employee which gives the employee
the right to be retained in the employment of the Purchaser or any related
employer, or to interfere with any employer's right to terminate employment at
any time or to change its policies regarding salaries, benefits and other
employment matters at any time or from time to time. The representations,
warranties, covenants and agreements contained herein are for the sole benefit
of the parties hereto, and employees are not intended to be and shall not be
construed as beneficiaries hereof. Purchaser shall assume responsibility for
compliance with the federal Worker Adjustment and Retraining Notification Act,
29 U.S.C. Section 2101 et seq., in connection with post-closing involuntary
termination of Transferred Employees, and shall indemnify the BHHS Entities
pursuant to Section 11.3 hereof for any liabilities associated with
non-compliance, provided, however, that Section 11.3(c) shall not apply with
respect to such indemnification.
In addition, the Purchaser shall assume responsibility for
any unemployment compensation that results from any involuntary termination of
former employees of the BHHS Florida Affiliates after the Closing Date, and the
Purchaser and UHS shall indemnify the BHHS Entities under Section 11.3 for any
unemployment
-63-
<PAGE> 69
compensation that may be imposed on the BHHS Entities for such post-closing
terminations, provided, however, that Section 11.3(c) shall not apply with
respect to such indemnification.
5.3.4 Bulk Sales Law. The Purchaser and UHS hereby waive
compliance by the BHHS Florida Affiliates with all applicable bulk sales laws;
provided, however, that this waiver shall not relieve the BHHS Entities of their
indemnification obligations to UHS and the Purchaser pursuant to Section 11.2
hereof as a result of the BHHS Florida Affiliates' non-compliance with any
applicable bulk sales or similar laws.
5.3.5 Purchaser/UHS Compliance. The Purchaser and UHS
agree that they shall comply with all provisions of the Management Agreement.
6. Conditions Precedent to the Performance of UHS and the
Purchaser. The obligations of UHS and the Purchaser under this Agreement are
subject to the satisfaction, at or before the Closing, of all the conditions set
out below. UHS and the Purchaser may waive any or all of these conditions in
whole or in part without prior notice; provided, however, that no such waiver of
a condition shall constitute a waiver by UHS or the Purchaser of any of their
other rights or remedies, at law or in equity, if the BHHS Entities are in
default of any of the representations, warranties, or covenants contained in
this Agreement, except to the extent that such defaults are expressly waived.
6.1 Accuracy of Representations and Warranties. All
representations and warranties by the BHHS Florida Affiliates in this Agreement
or in any written agreement or in any written statement that is delivered to UHS
or the Purchaser pursuant to this Agreement will be true and correct in all
material respects on and as of the Closing Date as though made on that date.
-64-
<PAGE> 70
6.2 Performance. The BHHS Florida Affiliates will have
performed, satisfied, and complied in all material respects with all covenants,
agreements, and conditions required by this Agreement to be performed or
complied with by them on or before the Closing Date.
6.3 No Material Adverse Change. There shall have been no change
in the Assets, tangible property, condition, financial or otherwise, results of
operations of the BHHS Florida Affiliates and the Facilities from August 31,
1994 which in the aggregate are materially adverse (unless UHS in its role as
manager under the Management Agreement shall have contributed to any changes in
any material respect).
6.4 Certification by the Company. UHS and the Purchaser will
have received certificates, dated the Closing Date, signed by the President and
Chief Financial Officer of each of the BHHS Entities, respectively, certifying,
in such detail as UHS and the Purchaser and their counsel may reasonably
request, that the conditions specified in Sections 6.1, 6.2 and 6.3 hereof have
been fulfilled in all material respects, including, but not limited to,
certified copies of all resolutions of the BHHS Entities pertaining to corporate
authorization of the execution, delivery and performance of this Agreement.
6.5 Opinion of the BHHS Entities' Counsel. UHS and the
Purchaser shall have received from Gardner, Carton & Douglas, counsel to the
BHHS Entities an opinion, which opinion may rely on opinions from other counsel
to BHHS, dated the Closing Date, in form and substance reasonably satisfactory
to UHS and the Purchaser.
6.6 Absence of Litigation. No action, suit, or proceeding
before any court or any Governmental Entity, pertaining to the transactions
contemplated by this Agreement or to their consummation, will have been
instituted or threatened in writing
-65-
<PAGE> 71
on or before the Closing Date (except for any action, suit or proceeding
dismissed by the court or Governmental Entity or any threat which is frivolous).
6.7 Legal Prohibition. On the Closing Date, no injunction or
order shall be in effect prohibiting consummation of the transactions
contemplated hereby or which would make the consummation of such transactions
unlawful and no action or proceeding shall have been instituted and remain
pending before a Governmental Entity to restrain or prohibit the transactions
contemplated by this Agreement and no adverse decision shall have been made by
any such Governmental Entity which is reasonably likely to materially adversely
affect the BHHS Florida Affiliates and the Facilities. No federal, state or
local statute, rule or regulation shall have been enacted the effect of which
would be to prohibit, materially restrict, impair or delay the consummation of
the transactions contemplated hereby or materially restrict or impair the
ability of the Purchaser to own or conduct the business of the BHHS Florida
Affiliates.
6.8 Consents, Approvals, Permits, Licenses, etc. The waiting
period under the HSR Act shall have expired or been terminated and all material
authorizations, consents, waivers, approvals, orders, registrations,
qualifications, designations, declarations, filings or other action required
with or from any Governmental Entity (including without limitation receipt of
licenses (or commitments to issue licenses) to own and operate the Facilities in
Florida and for the Purchaser to conduct the business of the BHHS Florida
Affiliates as currently conducted, approvals of the U.S. Department of Justice,
the Federal Trade Commission and the Florida agencies responsible for hospital
licensing and the CON or nonaction of the U.S. Department of Justice and the
Federal Trade Commission within the applicable waiting period) in connection
with the execution, delivery and performance of this Agreement and the
consummation of
-66-
<PAGE> 72
the transactions contemplated hereby shall have been duly obtained and shall be
reasonably satisfactory to UHS and the Purchaser and their counsel, and copies
thereof shall be delivered to UHS and the Purchaser no later than three (3) days
prior to the Closing. No such consent or approval (a) shall be conditioned on
the material modification, cancellation or termination of any material Assumed
Contract, or (b) shall impose on UHS or the Purchaser any material condition or
provision or requirement with respect to the Facilities or their operation that
is more restrictive in any material respect than or different in any material
respect from the conditions imposed upon such operation prior to Closing, unless
UHS and the Purchaser give their prior written approval, which consent shall not
be unreasonably withheld.
6.9 Property Tax Records; Appraisal. UHS and the Purchaser
shall have received such property tax records of the BHHS Florida Affiliates as
they shall have reasonably requested, and an appraisal of the Assets (including
the Owned Property but not the leased property) solely for the purpose of
allocating the agreed Purchase Price by a qualified appraiser, reasonably
satisfactory to the BHHS Entities and to UHS and the Purchaser, which records
and appraisal will be used in arriving at and supporting the allocation of the
Purchase Price for the Assets referred to in Section 8.2 hereof. The cost of the
appraisal shall be borne equally by the BHHS Entities and the Purchaser.
6.10 Closing Matters. All proceedings to be taken by the BHHS
Entities in connection with the consummation of the transactions contemplated
hereby and all certificates, opinions, instruments and other documents required
to effect the
-67-
<PAGE> 73
transactions contemplated hereby shall be reasonably satisfactory in form and
substance to UHS and the Purchaser and their counsel.
6.11 Supplemental Disclosure. If the BHHS Florida Affiliates
shall have supplemented or amended any Schedule pursuant to their obligations
set forth in Section 5.1.3 hereof, with the result that there is a material
adverse effect to the Purchaser and UHS, UHS and the Purchaser shall not have
given notice to the BHHS Entities within the time permitted by Section 5.1.3,
that, as a result of information provided to UHS and the Purchaser in connection
with any or all of such amendments or supplements, UHS and the Purchaser have
determined not to proceed with the consummation of the transactions contemplated
hereby.
6.12 Risk of Loss. The risk of loss or damage to any of the
tangible property, transfer of which is contemplated hereby, shall remain with
the BHHS Florida Affiliates until the Closing and they shall maintain their
insurance policies covering the assets and the Owned Property through the
Closing. With respect to the Owned Property:
(a) If prior to the Closing, all or any part of the Owned
Property is destroyed or damaged by fire or the elements or by any other cause,
the respective BHHS Florida Affiliates shall within ten (10) days provide
written notice thereof to Purchaser and shall also provide Purchaser, together
with such notice, copies of all insurance then in force relating to such Owned
Property, whereupon Purchaser may, by written notice to the BHHS Entities within
twenty (20) days after receipt of notice of the occurrence, elect in writing not
to purchase the Assets if such damage exceeds $1,000,000 and if the respective
BHHS Florida Affiliates do not agree to repair, restore and replace such Owned
Property to Purchaser's reasonable satisfaction and in
-68-
<PAGE> 74
compliance with all state licensing requirements and Laws within 120 days of the
notice of the casualty delivered to Purchaser. Purchaser's election to so
terminate may be exercised, however, if after the respective BHHS Florida
Affiliates agree to so repair, restore and replace, they fail to substantially
effect such repair, restoration and replacement within such 120 day period. Upon
such election, this Agreement shall wholly cease and terminate. If all or any
part of the Owned Property is so destroyed but this Agreement is not so
terminated by Purchaser, this Agreement shall not be affected, but Purchaser
shall retain all of the respective BHHS Florida Affiliates' right, title and
interest in and to the policies of insurance insuring against the loss and their
interest in sums payable thereunder and they shall pay to Purchaser the amount
of any deductibles under such insurance policies and any payments theretofore
made on account of the destruction or damage unless already applied to repairs.
(b) In the event of the institution of any proceeding
involving the proposed taking by eminent domain or a taking by eminent domain of
all or any portion of the Owned Property prior to Closing, which would
materially injure, damage, or decrease the value of the Owned Property in any
material respect, Purchaser shall have the right and option to elect to cancel
and terminate this Agreement by giving the BHHS Entities notice to such effect
within thirty (30) days after its receipt of written notice of any such
occurrence, whereupon this Agreement shall be deemed to be terminated. The
respective BHHS Florida Affiliates shall within ten (10) days furnish Purchaser
with written notice of any such occurrence and all available data related
thereto. Should Purchaser so terminate this Agreement, this Agreement shall
cease and terminate. If Purchaser does not so terminate this Agreement,
Purchaser shall accept the Owned Property subject to such proceeding or without
the portion of the Owned
-69-
<PAGE> 75
Property taken, and the Purchaser shall retain all of the right, title and
interest of the respective BHHS Florida Affiliates as owner of the Owned
Property, in and to such proceeding and the proceeds of the award to be made in
such proceeding, and they shall turn over to Purchaser the proceeds of any award
(or payment made pending the making of the award) already received by them to
the extent not retained by the respective BHHS Florida Affiliates.
All insurance proceeds attributable to the damage,
destruction, or casualty loss of any of the assets other than the Owned Property
prior to the Closing Date not expended in the replacement of such assets by the
respective BHHS Florida Affiliates shall be assigned to Purchaser at the
Closing, and the Purchase Price shall be reduced by an amount equal to the
deductible amount not expended in the replacement of such assets under the
applicable insurance policy.
7. Conditions Precedent to the BHHS Entities' Performance.
The obligations of the BHHS Entities under this Agreement are
subject to the satisfaction, at or before the Closing, of all the following
conditions. The BHHS Entities may waive any or all of these conditions in whole
or in part without prior notice; provided, however, that no such waiver of a
condition shall constitute a waiver of any of the BHHS Entities' other rights or
remedies, at law or in equity, if UHS or the Purchaser is in default of any of
the representations, warranties or covenants contained in this Agreement, except
to the extent that such defaults are expressly waived.
7.1 Accuracy of Representations and Warranties of UHS and the
Purchaser. All representations and warranties by UHS and the Purchaser contained
in this Agreement or in any written statement delivered by UHS and the Purchaser
-70-
<PAGE> 76
under this Agreement at the Closing will be true in all material respects on and
as of the Closing Date as though such representations and warranties were made
on and as of that date.
7.2 Performance; Authorization. UHS and the Purchaser will have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed or complied
with by it on or before the Closing Date.
7.3 Certificates. The BHHS Entities will have received
certificates, dated the Closing Date, signed by the President and Chief
Financial Officer of UHS and of the Purchaser certifying, in such detail as the
BHHS Entities may reasonably request, that the conditions specified in Sections
7.1 and 7.2 hereof have been fulfilled in all material respects, including, but
not limited to, certified copies of all resolutions of UHS and the Purchaser
pertaining to authorization of the execution, delivery and performance of this
Agreement by UHS and the Purchaser.
7.4 Absence of Litigation. No action, suit, or proceeding
before any court or any governmental body or authority pertaining to the
transactions contemplated by this Agreement or to their consummation, will have
been instituted or threatened on or before the Closing Date.
7.5 Consents. The waiting period under the HSR Act shall have
expired or been terminated. All agreements and consents necessary to permit the
consummation by the BHHS Entities, UHS and the Purchaser of the transactions
contemplated by this Agreement shall have been obtained by the BHHS Entities,
UHS and the Purchaser, respectively, and delivered to the BHHS Entities, UHS and
the Purchaser, respectively, and no Governmental Entity having jurisdiction over
the transactions
-71-
<PAGE> 77
contemplated hereby shall have taken any action to enjoin or prevent the
consummation of such transactions. As to any Assumed Contract the assignment of
which by its terms requires prior consent of the parties thereto, if such
consent is not obtained prior to or on the Closing Date, the respective BHHS
Florida Affiliates shall use all reasonable efforts to obtain such consents
promptly following the Closing Date and deliver constructive use of BHHS Florida
Affiliate rights (and obligations) thereunder pending delivery of such consents.
7.6 Opinion of Counsel for UHS and the Purchaser. The BHHS
Entities shall have received from Fulbright & Jaworski L.L.P., counsel to UHS
and the Purchaser, and from Bond counsel acceptable to the BHHS Entities, a
written opinion, dated the Closing Date, in form and substance satisfactory to
the BHHS Entities.
7.7 Long Term Bonds. The Closing will be conditioned upon the
receipt by BHHS of a favorable ruling from the Internal Revenue Service or
receipt of an opinion from Mudge Rose Guthrie Alexander & Ferdon ("Mudge Rose")
(which opinion is reaffirmed as of the Closing Date) satisfactory to BHHS and
UHS relating to the defeasance or tender/purchase of certain long-term bonds
(the "Bonds") issued by or on behalf of certain of the BHHS Florida Affiliates,
and their Arizona affiliates described at Schedule 7.7. UHS, at the cost of
BHHS, will assist BHHS in obtaining the ruling from the Internal Revenue Service
relating to the defeasance of the Bonds. In the event BHHS becomes aware at any
time that Mudge Rose is no longer able to deliver a satisfactory opinion, then
BHHS agrees to file a request for a ruling from the Internal Revenue Service
within 15 business days from the date it is advised that Mudge Rose can no
longer deliver such opinion, and the parties shall postpone the Closing and the
Management Agreement shall be extended on its current terms for a period of 90
days.
-72-
<PAGE> 78
During such 90-day period, the parties shall negotiate in good faith for a
possible revision of the Purchase Price and amounts payable under the Management
Agreement. If no such agreement is reached, Purchaser shall have the option of
terminating this Agreement and the Management Agreement or extending the Closing
Date hereunder (with all other terms of this agreement remaining in effect) and
the term of the Management Agreement, provided that during such extended term
BHHS shall pay a delay penalty of $75,000 per month to Purchaser commencing
immediately following such 90 day period.
7.8 Delivery of Documents. All proceedings to be taken by UHS
and the Purchaser in connection with the consummation of the transactions
contemplated hereby and all certificates, opinions, instruments and other
documents required to effect the transactions contemplated hereby shall be
reasonably satisfactory in form and substance to the BHHS Entities and their
counsel.
7.9 State Birds and Flowers Commemorative Collection. Purchaser
shall have made arrangements satisfactory to the BHHS Entities for the
preservation and display of the "State Birds and Flowers Commemorative Mint
Stamp Collection" paintings maintained by the BHHS Florida Affiliates.
7.10 Receipt of Valuation Document. The BHHS Florida Affiliates
shall have received on or before July 7, 1995 from an independent third party
valuation consultant an opinion that the transactions contemplated hereby are
fair from a financial point of view to the BHHS Florida Affiliates, or such
other documentation as to value reasonably satisfactory to the BHHS Florida
Affiliates (the "Valuation Document"); provided that this condition shall be
deemed waived unless the BHHS Florida Affiliates shall have notified the
Purchaser on or before July 10, 1995 of the
-73-
<PAGE> 79
failure to receive such Valuation Document by such date, in which event the BHHS
Florida Affiliates or the Purchaser shall have the right to terminate this
Agreement within 5 days after such date; provided further that in the event the
opinion of Mudge Rose referenced in Section 7.7 hereof is not received and BHHS
seeks a ruling from the Internal Revenue Service referred to in such Section, it
shall be a further condition to the BHHS Florida Affiliates' obligations
hereunder that the BHHS Florida Affiliates shall have received a Valuation
Document on or before the date 45 days prior to the extended Closing Date,
provided that this condition shall be deemed waived unless the BHHS Florida
Affiliates shall have notified the Purchaser on or before 40 days prior to the
extended Closing Date of the failure to receive such Valuation Document by such
date.
8. Joint Covenants.
8.1 Access to Books and Records; Cooperation. Following the
Closing, UHS and the Purchaser shall cooperate with and permit BHHS and its
affiliates and representatives and in accordance with applicable law,
governmental authorities, (including, without limitation, their counsel and
auditors), during normal business hours, to have reasonable access to, and
examine and make copies of, all books and records of the BHHS Florida
Affiliates, or otherwise relating to the Assets for periods prior and subsequent
to Closing to the extent necessary to audit reports or maintain or defend
positions or comply in connection with any investigation, claim, liquidation or
proceeding. Such books and records shall not be destroyed for at least five
years after the Closing, and UHS and the Purchaser agree that, prior to the
destruction or disposition of any such books or records at any time within five
years after the Closing Date, UHS and the Purchaser shall provide not less than
45 days', nor more than 90 days', prior written notice to BHHS of such proposed
destruction or disposal. If BHHS desires to obtain any of such documents, it may
do so by notifying UHS and the
-74-
<PAGE> 80
Purchaser in writing at any time prior to the date scheduled for such
destruction or disposal. In such event, UHS and the Purchaser shall not destroy
such documents and the parties shall then promptly arrange for the delivery of
such documents to BHHS, its successors or assigns. All out-of-pocket costs
associated with the delivery of the requested documents shall be paid by BHHS.
UHS and the Purchaser shall cooperate with BHHS in the defense of any
litigation, investigation, claim or proceeding related to the BHHS Entities
including the provision of witnesses and records in a timely manner as
reasonably requested by BHHS. UHS and Purchaser also agree (a) to abide by any
applicable confidentiality privileges all as in the ordinary course of business;
(b) to promptly notify the applicable BHHS Entity in writing of any claim or
threatened claim against any such BHHS Entity or its present, previous or future
directors or officers arising out of any matter relating to the Assets; (c) to
promptly deliver to the applicable BHHS Entity all correspondence or other
written materials received by UHS or Purchaser after Closing pertaining to such
BHHS Entity or its present, previous or future directors or officers; and (d) to
require any subsequent owner or operator of the Assets for a period of five
years from the date hereof to also agree in writing to be bound by this Section
8.1.
8.2 Allocation of Purchase Price. The Purchase Price shall be
allocated in its entirety among the Assets and the Non-Competition Agreement in
accordance with Schedule 8.2 hereto and as required by Section 1060 of the Code
and Treasury Regulations promulgated thereunder to the extent reasonably
satisfactory to UHS, the Purchaser and the BHHS Entities. The BHHS Entities, UHS
and the Purchaser shall file all information and tax returns (and any amendments
thereto) in a manner consistent with this Section 8.2 and comply with the
applicable information reporting requirements of Section 1060 of the Code and
Treasury Regulations promulgated thereunder. If, contrary to the intent of the
parties hereto as expressed in this Section 8.2,
-75-
<PAGE> 81
any taxing authority makes or proposes an allocation different from that
contained in this Section 8.2, the BHHS Entities and Purchaser shall cooperate
with each other in good faith to contest such taxing authority's allocation (or
proposed allocation), provided, however, that, after consultation with the party
adversely affected by such allocation (or proposed allocation), another party
hereto may file such protective claims or returns as may reasonably be required
to protect its interests.
8.3 Employee Plans. Except as otherwise specifically provided
in Section 2.3(ii) or (iii), or in this section, the Purchaser does not and will
not assume the sponsorship of, or the responsibility for contributions to or any
liability or obligation in connection with, any Employee Plan or any other
compensatory plan, program, arrangement or agreement for the benefit of any
employee or agent or former employee or agent (and their respective
beneficiaries) of the BHHS Florida Affiliates. Effective immediately after the
Closing Date, the Purchaser will assume sponsorship of the Retirement Plan
(defined in Section 1.1(j)), or, at the election of Purchaser, the parties will
arrange for the transfer of assets, subject to benefit liabilities, by the
Retirement Plan to a new or existing qualified pension plan maintained by
Purchaser. In either case, all of the assets of the Retirement Plan, subject to
all of the benefit liabilities thereof, shall be transferred to and assumed by
the Purchaser. The BHHS Entities, at their sole expense, shall take such actions
as are necessary in order to maintain the qualified status of the Retirement
Plan through the Closing Date. On or as soon as practicable after the Closing
Date, the BHHS Entities shall provide Purchaser with such records and
information as may be reasonably requested in order to enable Purchaser to carry
out its responsibilities with respect to the Retirement Plan after the Closing
Date. Purchaser and the BHHS Entities will cooperate fully with each other and,
will execute and furnish such documents and take such other and further action
as may be reasonably requested by the other in connection with the orderly and
proper
-76-
<PAGE> 82
transfer and assumption of assets and liabilities of the Retirement Plan as
contemplated herein. The provisions of this section will not affect the
Purchaser's obligations imposed by Section 5.3.3. The Purchaser shall be
permitted to terminate or freeze accruals under the Retirement Plan; provided,
however, that Purchaser complies with the specific obligations pertaining to the
Retirement Plan which are incorporated in Section 22 of this Agreement.
9. Certain Actions After the Closing.
9.1 Delivery of Property Received by the BHHS Entities, UHS or
the Purchaser After Closing. From and after the Closing, the Purchaser shall
have the right and authority to collect, for the account of the Purchaser, all
assets which shall be transferred or are intended to be transferred to the
Purchaser as part of the Assets as provided in this Agreement, and to endorse
with the name of the BHHS Florida Affiliates any checks or drafts received on
account of any such assets. The BHHS Entities agree that they will transfer or
deliver to the Purchaser, promptly after the receipt thereof, any cash or other
property which the BHHS Entities receive after the Closing Date in respect of
any assets transferred or intended to be transferred to the Purchaser as part of
the Assets under this Agreement. In addition, UHS and the Purchaser agree that
they will transfer or deliver to the BHHS Entities, promptly after receipt
thereof, any cash or other property which UHS or the Purchaser receives after
the Closing Date in respect of any assets not transferred or intended to be
transferred to the Purchaser as part of the Assets under this Agreement.
9.2 Purchaser Appointed Attorney for the BHHS Florida
Affiliates. The BHHS Florida Affiliates, effective at the Closing Date, hereby
constitute and appoint the Purchaser, its successors and assigns, the true and
lawful attorney of the BHHS Florida Affiliates, in the name of either the
Purchaser or the respective BHHS Florida
-77-
<PAGE> 83
Affiliates (as the Purchaser shall determine in its sole discretion) but for the
benefit of the Purchaser: (i) to institute and prosecute all proceedings which
the Purchaser may reasonably deem proper in order to collect, assert or enforce
any claim, right or title of any kind of the Purchaser in or to the Assets as
provided for in this Agreement; (ii) to defend or compromise upon at least five
days advance written notice to the BHHS Entities any and all actions, suits or
proceedings in respect of any of the Assets, and to do all such acts and things
in relation thereto as the Purchaser shall reasonably deem advisable; and (iii)
to take all action which the Purchaser, its successors or assigns may reasonably
deem proper in order to provide for the Purchaser, its successors or assigns,
the benefits under any of the Assets where any required consent of another party
to the sale or assignment thereof to the Purchaser pursuant to this Agreement
shall not have been obtained. The BHHS Florida Affiliates acknowledge that the
foregoing powers are coupled with an interest and shall be irrevocable. Except
as otherwise provided by Section 9.1, the Purchaser shall be entitled to retain
for its own account any amounts collected pursuant to the foregoing powers,
including any amounts payable as interest in respect thereof. The Purchaser
agrees to act in good faith in seeking to collect, assert or enforce any claim
against any third party in accordance with this Section 9.2.
9.3 Subrogation of the Purchaser. In the event the Purchaser
shall become liable for or suffer any damage with respect to any matter which
was covered by insurance maintained by the BHHS Entities on or prior to the
Closing Date, the BHHS Florida Affiliates agree that the Purchaser shall be and
hereby is, to the extent permitted under such policies and to the extent
consistent with Section 11 hereof,
-78-
<PAGE> 84
subrogated to any rights of the BHHS Florida Affiliates under such insurance
coverage, and, in addition, the BHHS Entities agree to promptly remit to the
Purchaser any insurance proceeds which they may receive on account of any such
liability or damage to the extent of the damages suffered by Purchaser.
9.4 Payment of Liabilities. Following the Closing Date each of
the Purchaser and the BHHS Florida Affiliates agree to discharge in accordance
with their terms the Assumed Liabilities and the Excluded Liabilities,
respectively, as provided in the Agreement.
10. The Closing.
Assuming the satisfaction or the waiver of satisfaction of the
conditions contained herein (including but not limited to those specified in
Sections 6 and 7 hereof), all documents (which shall be dated as of August 31,
1995) shall be executed and delivered at the offices of Gardner Carton &
Douglas, 321 North Clark Street, Chicago, Illinois, on August 4, 1995 and the
Closing shall occur on August 31, 1995 (the "Closing Date"), or at such other
time and place as the parties hereto may mutually agree but in no event later
than the Termination Date unless the approvals specified in Sections 6.8 or 7.5
or 7.7 have not yet been obtained. If one or more of such requested approvals is
denied, the Termination Date shall be sixty (60) days after written notice to
UHS or Purchaser thereof. Furthermore, the Closing Date shall not occur until
such time as the BHHS Arizona Affiliates have completed the refinancing of
certain of their bonds, so long as that refinancing is completed on or prior to
the Termination Date. If the transaction is not closed on or before September
30, 1995 (or as extended by written agreement of the parties) (the latest such
date, the "Termination Date" (except to the extent that the applications for the
regulatory approvals specified
-79-
<PAGE> 85
in Sections 6.8 or 7.7 are still pending, in which case the Termination Date
shall be 60 days after notice to UHS of the denial of such approvals), the
Deposit shall be disbursed in accordance with the terms of the Escrow Agreement.
If the pending applications for regulatory approvals are granted after September
30, 1995 but not later than June 30, 1996, then the Closing Date shall be within
sixty days thereafter. If the regulatory approvals are not granted on or before
June 30, 1996, then June 30, 1996 shall be the Termination Date. If the Closing
does not occur on August 31, 1995 due solely to default of the Purchaser, then
Purchaser shall pay the BHHS Entities all resulting loss and expense incurred by
them due to their ordering of time-limited securities on or after August 1, 1995
for a bond refinancing in anticipation of an August 31, 1995 Closing whether or
not there is a subsequent Closing. This shall not limit any other remedies to
which they would be entitled (including retention of the First and Second
Deposits) if Closing does not occur thereafter by September 30, 1995 due solely
to default by Purchaser. If the Closing does not occur on August 31, 1995 due
solely to the default of the BHHS Entities, then the BHHS Entities shall pay UHS
all resulting funding costs incurred by UHS due to their issuance of debt
securities for all periods from August 31, 1995 until the Closing Date (or until
the Contract is terminated) whether or not there is a subsequent closing. UHS
funding costs shall equal the product of (i) the difference between (x) the
interest rate on its publicly offered Senior Debt Securities, as adjusted by any
interest rate hedge entered into by the Purchaser in connection with the
issuance of such Securities and (y) the average rate of United States Treasury
bills with a maturity of thirty days, based on the weekly average of the rates
therefor in Federal Reserve Statistical Release H.15 for the period Closing is
delayed multiplied by (ii) the Purchase Price. This shall not limit the other
remedies
-80-
<PAGE> 86
to which Purchaser or UHS would be entitled if Closing does not occur by
September 30, 1995 due to default of the BHHS Entities. The parties shall be
deemed in default if such party fails or refuses to close the transaction
despite the satisfaction or waiver of all conditions to Closing set forth herein
(other than those conditions which have not been satisfied due to the willful or
grossly negligent acts or omissions of the defaulting party).
11. Survival of Representations; Indemnification.
11.1 Survival of Representations, Etc. All representations and
warranties contained in this Agreement shall survive the Closing and shall
remain in full force and effect until the expiration of two (2) years from the
Closing Date, and, thereafter, in any case, to the extent a claim in writing is
made prior to such expiration with respect to any breach of such representation
or warranty until such claim is finally determined or settled; provided,
however, that (i) the representations and warranties of the BHHS Entities
contained in Section 3.23 hereof, and the representations and warranties of UHS
and the Purchaser contained in Section 4.4 hereof and (ii) the representations
and warranties of the BHHS Entities contained in Sections 3.15, 3.19, and 3.20
and (iii) the covenants among the BHHS Entities, UHS and the Purchaser contained
in Sections 5.1.8, 5.1.9 and 5.1.10 of the Agreement shall remain in full force
and effect until the expiration of the applicable statute of limitations.
11.2 Indemnification by the BHHS Entities. The BHHS Entities,
jointly and severally, shall defend and indemnify UHS and the Purchaser and hold
UHS and the Purchaser wholly harmless from and against any and all losses,
liabilities, damages, costs (including, without limitation, court costs and
costs of appeal) and expenses
-81-
<PAGE> 87
(including, without limitation, reasonable attorneys' fees of one counsel) that
UHS and the Purchaser incurs as a result of, or with respect to:
(a) any inaccuracy in or breach of any representation or
warranty of any of the BHHS Entities contained in this Agreement to the extent
UHS and/or the Purchaser suffer damage by reason of such breach;
(b) except as expressly assumed by the Purchaser under
this Agreement or in the documents executed at Closing, any claim or cause of
action against or liability or obligation (actual or alleged), of any nature
whatsoever arising out of or relating to the use or operation of the Facilities
or any other business of the BHHS Entities prior to the Closing Date, or any act
or omission of the BHHS Entities, or any of their agents, employees, or
officers, occurring prior to the Closing Date, including, without limitation,
any claim or cause of action arising out of or relating to any act of
malpractice of any of them occurring prior to the Closing Date.
(c) Except with respect to the representations set forth
in Sections 3.2 (Ownership of Assets), 3.19 (Taxes) and 3.23 (No Broker),
liabilities not assumed by Purchaser hereunder and specific covenants or
agreements by any of the BHHS Entities hereunder, the indemnity provided for by
Section 11.2(a) shall not apply to any claim, or the cost of defense thereof
until the aggregate of all claims made under Section 11.2(a), and the cost of
defense thereof total an aggregate of $350,000, in which event this indemnity
shall apply to all such claims.
11.3 Indemnification by the Purchaser and UHS. The Purchaser
and UHS, jointly and severally, shall defend and indemnify the BHHS Entities and
hold the BHHS Entities wholly harmless from and against any and all losses,
liabilities, damages, costs (including, without limitation, court costs and cost
of appeal) and
-82-
<PAGE> 88
expenses (including, without limitation, reasonable attorneys' fees of one
counsel) that the BHHS Entities incur as a result of, or with respect to:
(a) any inaccuracy in or breach of any representation,
warranty, covenant or agreement of UHS or the Purchaser contained in this
Agreement to the extent any of the BHHS Entities suffer damage by reason of such
breach;
(b) any claim, cause of action, liability or obligation
(actual or alleged), of any nature whatsoever arising out of or relating to the
use or operation of the facilities on or after the Closing Date or any act or
omission of UHS or the Purchaser, or any of their agents, employees, officers,
successors, assigns or affiliates, occurring on or after the Closing Date (or
during the time prior to the Closing Date during which UHS or Purchaser
participates in the management of the Facilities), including, without
limitation, any claim or cause of action arising out of or relating to any act
of malpractice, occurring after the Closing Date.
(c) Except with respect to the representation set forth in
Section 4.4 (No Broker), liabilities specifically assumed by Purchaser hereunder
and specific covenants or agreements of the Purchaser hereunder, the indemnity
provided by Section 11.3(a) shall not apply to any claim, or the cost of defense
thereof, until the aggregate of all claims made under Section 11.3(a), and the
cost of defense thereof total an aggregate of $350,000, in which event this
indemnity shall apply to all such claims.
11.4 Procedure for Indemnification. The following procedure
shall apply with respect to any claims or proceedings covered by the foregoing
agreements to indemnify and hold harmless:
(i) The party who is seeking indemnification (the
"Claimant") shall give written notice to the party from whom
indemnification is sought
-83-
<PAGE> 89
(the "Indemnitor") promptly after the Claimant learns of the
claim or proceeding but (with respect to breaches of
representations and warranties only) not later than the period
after the Closing Date (if any) specified in Section 11.1
hereof, setting forth with reasonable specificity the basis for
the claim; provided that the failure to give such notice shall
not relieve the Indemnitor of its obligations hereunder if the
Claimant uses its best efforts to mitigate Claimant's damages,
except to the extent it is actually damaged thereby.
(ii) With respect to any third-party claims or proceedings
as to which the Claimant is entitled to indemnification, the
Indemnitor shall have the right to select and employ counsel of
its own choosing to defend against any such claim or
proceeding, to assume control of the defense of such claim or
proceeding, and to compromise, settle or otherwise dispose of
the same, if the Indemnitor deems it advisable to do so, all at
the expense of the Indemnitor; provided, however that the
Claimant may employ counsel, of its own choosing, at its sole
expense. The parties will fully cooperate in any such action,
and shall make available to each other any books or records
useful for the defense of any such claim or proceeding. The
Claimant may, at its sole expense, retain separate counsel in
connection therewith, which counsel shall be consulted by
Indemnitor regarding the resolution of any claim. Subject to
the foregoing, the Claimant shall not settle or compromise any
such third party claim
-84-
<PAGE> 90
without the prior consent of the Indemnitor, which consent
shall not be unreasonably withheld.
11.5 Limitations on Indemnification Rights. Indemnification
shall be due only to the extent of the loss or damage actually suffered (i.e.,
reduced by any offsetting or related asset or service received and by any
recovery from any third party, such as an insurer, taxing body or other
governmental agency. Each party shall be obligated to take reasonable actions to
receive such benefits.) No claim for indemnification for breach of any
representation or warranty (but not claims under Section 11.2(b) or 11.3(b)) by
Claimant under this Agreement may be made more than two (2) years after the
Closing Date, except that any claim for breach of the representations contained
in Sections 3.15, 3.19 3.20, 3.23 and 4.4 may be made within six months after
expiration of statute of limitations.
12. Entire Agreement; Modification, Waiver.
This Agreement and its Schedules and Exhibits constitute the
entire agreement between the parties pertaining to the subject matter contained
in it and supersedes all prior and contemporaneous agreements, representations,
and understandings of the parties other than the Management Agreement, effective
January 16, 1995, by and between UHS and UHS of Florida, Inc. and the BHHS
Entities and other than the Escrow Agreement by and between UHS and the BHHS
Entities and Bank One, Arizona N.A. No supplement, modification, or amendment of
this Agreement will be binding unless executed in writing by all of the parties.
No waiver of any of the provisions of this Agreement will be deemed, or will
constitute, a waiver of any other
-85-
<PAGE> 91
provisions, whether or not similar, nor will any waiver constitute a continuing
waiver. No waiver will be binding unless executed in writing by the party making
the waiver.
13. Expenses. The parties shall each bear their respective legal,
accounting and other expenses in connection with the transactions contemplated
hereby whether or not the transaction is consummated. Notwithstanding the
foregoing, the BHHS Florida Affiliates shall be responsible for all closing
costs, including without limitation title costs, title insurance (based on an
amount not to exceed the value allocated to the Owned Property and Improvements
in the allocation referred to in Section 8.2 hereof), recording fees and
transfer and other taxes arising from the transactions contemplated hereby,
provided that UHS will reimburse the BHHS Florida Affiliates for one-half of
such costs up to a maximum reimbursement of $250,000.
14. Further Assurances.
The parties from time to time will execute and deliver such
additional documents and instruments and take such additional actions as may be
necessary to carry out the transactions contemplated by the Agreement.
15. Successors and Assigns; Assignment.
This Agreement will be binding on, and inure to the benefit of,
the parties hereto and their respective legal representatives, successors and
assigns. Purchaser may, upon providing written notice to the BHHS Entities,
assign all of its rights and obligations hereunder to an affiliate of UHS,
provided that no such assignment shall relieve Purchaser or UHS from its
obligations hereunder.
16. Notices.
All notices, requests, demands and other communications
required or permitted to be given or made under this Agreement will be in
writing and will be
-86-
<PAGE> 92
delivered personally or will be sent postage prepaid by United States registered
or certified mail, return receipt requested or by overnight courier service as
follows:
(a) To the BHHS Entities at:
Baptist Hospitals and Health Systems, Inc.
2224 West Northern Avenue
Suite D-300
Phoenix, AZ 85021
Attention: Gerald L. Wissink, President
with copies to:
(b) To the BHHS Entities at:
Baptist Hospitals and Health Systems, Inc.
2224 West Northern Avenue
Suite D-300
Phoenix, AZ 85021
Attention: William J. Alsentzer, Jr., Esq. and to:
(c) Gardner, Carton & Douglas
c/o Michael W. Peregrine, Esq.
321 North Clark Street, Suite 3400
Chicago, IL 60610-4795
(b) To the Purchaser at:
UHS of Florida, Inc.
c/o Universal Health Services, Inc.
Universal Corporate Center
367 South Gulph Road
King of Prussia, PA 19406
Attention: President
with a copy to:
Universal Health Services, Inc.
Universal Corporate Center
367 South Gulph Road
King of Prussia, PA 19406
Attention: General Counsel
17. Governing Law.
This Agreement will be construed in accordance with, and
governed by, the laws of the State of Florida.
-87-
<PAGE> 93
18. No Third-Party Rights.
Each signatory hereto agrees that it is its specific intent to
create no third-party rights by virtue of this agreement other than as expressly
set forth herein.
19. Execution in Counterparts.
This Agreement may be executed simultaneously in one or more
counterparts and each of which shall be deemed an original agreement, but all of
which altogether shall constitute one and the same instrument.
20. Knowledge.
For purposes hereof, "knowledge," "known to" or similar phrases
shall mean matters actually known to the officers of the BHHS Entities listed on
Schedule 3.1.1.
21. Access to Information.
Purchaser and UHS will make available to the BHHS Entities
financial statements of Purchaser and UHS and such other financial records and
other documents concerning Purchaser and UHS as the BHHS Entities may reasonably
request, as well as any communications from, to or with any governmental or
regulatory agency.
22. Additional Assumed Liability of Purchaser.
To the extent required by such agreement, the Purchaser shall
perform all requirements of paragraph 14.01 of that certain May 9, 1984
Acquisition Agreement between MHHS and the County of Manatee, which paragraph is
hereby incorporated by reference for the benefit of certain employees of Manatee
Memorial Hospital as stated therein. These obligations shall be made applicable
to any subsequent owner or operator of Manatee Memorial Hospital.
-88-
<PAGE> 94
23. No Partnership or Agency.
None of the BHHS Entities shall be considered to be in
partnership or joint venture with nor an affiliate of any of Purchaser or UHS
nor shall Purchaser nor UHS be considered to be in partnership or joint venture
with nor an affiliate of any of the BHHS Entities, nor shall any BHHS Entity be
considered to be an agent of Purchaser or UHS nor Purchaser or UHS be an agent
of any BHHS Entity.
-89-
<PAGE> 95
IN WITNESS WHEREOF, the parties have executed this Agreement as
of June 30, 1995.
MANATEE MEMORIAL HOSPITAL, L.P.
By: UHS OF MANATEE, INC., General Partner
By: /s/ Steve Filton
------------------------
BAPTIST HOSPITALS AND HEALTH SYSTEMS, INC
By: /s/ Gerald L. Wissink
------------------------
MANATEE HOSPITALS AND HEALTH SYSTEMS, INC.
By: /s/ Gerald L. Wissink
------------------------
INTERMED AMERICA INC.
By: /s/ Gerald L. Wissink
------------------------
FLORIDA HOME HEALTH SERVICES - MANASOTA, INC.
By: /s/ Gerald L. Wissink
------------------------
-90-
<PAGE> 96
GUARANTEE
Universal Health Services, Inc., a Delaware corporation, hereby
unconditionally guarantees all obligations of the Purchaser under that certain
Asset Purchase Agreement dated June 30, 1995. In case of any breach by the
Purchaser of its obligations hereunder, any or all of the BHHS Entities may
proceed without notice against UHS immediately without first proceeding against
Purchaser.
UNIVERSAL HEALTH SERVICES, INC.
By: /s/ Steve Filton
---------------------------
June 30, 1995
-91-
<PAGE> 97
CONFIDENTIALITY OBLIGATIONS
Until the Closing Date, each party shall keep all information
obtained from any other party either before or after the date of this Agreement
confidential, and no party shall reveal such information to, nor produce copies
of any written information for, any person outside its management group or its
professional advisors without the prior written consent of the other parties,
unless such party is compelled to disclose such information by judicial or
administrative process or by any other requirements of Law. If the transactions
contemplated by this Agreement should fail to close for any reason, each party
shall return to the original provider as soon as practicable all originals and
copies of written information provided to such party by or on behalf of any
other party and none of such information shall be used by any party, or their
employees, agents or representatives in the business operations of any party.
Notwithstanding the foregoing, each party's obligations hereunder shall not
apply to any information or document which is or becomes available to the public
other than as a result of a disclosure by such party in violation of this
Agreement or other obligation of confidentiality under which such information
may be held or becomes available to the party on a non-confidential basis from a
source other than such other party or its officers, directors, employees,
representatives or agents. The parties' obligations hereunder shall survive the
termination of this Agreement.
<PAGE> 98
EXHIBITS
A - BHHS Florida Affiliates and Facilities
B - Escrow Agreement
C - Confidentiality
<PAGE> 99
SCHEDULES
1.1(a) Contractual Rights and Obligations; Third Party Consent;
Assignable Leases
1.1(b) Licenses and Permits
1.1(c) Description of Tangible Personal Property
1.1(g) Intangible and Intellectual Property
1.1(i) Certificate of Need
1.2 Other Excluded Assets
3.1.1 State of Incorporation and Qualification
3.2 Ownership of Assets - Exceptions
3.4.2 Accounts Receivable
3.4.4 Material Adverse Events Subsequent to Balance Sheet Date
3.6 Description of Real Property, Permitted Encumbrances, Property,
Plant and Equipment ("Improvements") Exceptions, Notices,
Survey, Repairs and Maintenance
3.7 Tangible Personal Property Exceptions
3.8 Trade Names, Trademarks, Copyrights, Etc.
3.9 Litigation
3.10(d) Compliance with Laws: Environmental Matters
3.11 Contracts
3.12 Employee and Labor Matters and Plans
3.13 Insurance Policies; Insurance Coverage Claim Exceptions
3.15 Professional Licensed Staff
3.17 Suppliers of Goods and Providers of Services
<PAGE> 100
3.19 Taxes
3.21 Related Party Transactions
5.3.3 BHHS Florida Affiliates Personnel
7.7 Long Terms Bonds
8.2 Allocation of Purchase Price
