<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 16, 1995
Registration No. 33-_________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
UNIVERSAL HEALTH SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 23-2077891
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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:
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
--------------------------------------------
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
<TABLE>
<CAPTION>
==================================================================================================================================
CALCULATION OF REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED PRICE PER UNIT(*) OFFERING PRICE(*) REGISTRATION FEE
REGISTERED
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<S> <C> <C> <C> <C>
DEBT SECURITIES . . . $150,000,000 100% $150,000,000 $51,724.14
==================================================================================================================================
</TABLE>
*Estimated solely for the purpose of calculating the registration fee.
------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
================================================================================
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<PAGE> 3
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE> 4
SUBJECT TO COMPLETION, DATED JUNE 16, 1995
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:
Dillon, Read & Co. Inc. J.P. Morgan Securities Inc.
BA Securities, Inc. Chemical Securities 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 5 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 June __, 1995.
<PAGE> 5
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
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<PAGE> 6
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.
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<PAGE> 7
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 30 hospitals, consisting of
15 acute care hospitals and 15 behavioral health centers, in Arkansas,
California, Florida, Georgia, Illinois, Louisiana, Massachusetts, Michigan,
Missouri, Nevada, Pennsylvania, 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 a letter of intent and 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 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 March 1995, the Company entered into an agreement with a subsidiary
of Columbia/HCA Healthcare Corporation to exchange 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 $45 million in cash, for Aiken Regional
Medical Centers, a 225-bed medical center complex in Aiken, South Carolina.
Aiken is the leading hospital in its market and with its acquisition, the
Company will commence operations in South
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<PAGE> 8
Carolina. The transaction, which is subject to regulatory approval, is
currently scheduled to close in the third quarter of 1995.
The Company has also entered into a letter of intent to purchase
substantially all the assets of Manatee Memorial Hospital, a 512-bed acute care
hospital, located in Bradenton, Florida, for $141 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
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, Manatee Memorial Hospital
and Edinburg Hospital (acquired November 1994), and the dispositions of Dallas
Family Hospital and Westlake Medical Center 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.
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<PAGE> 9
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
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 in, 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 "-- 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
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<PAGE> 10
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 occurrence. Coverage in excess of these limits up to $100
million is maintained with major insurance carriers.
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<PAGE> 11
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.
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<PAGE> 12
PRO FORMA FINANCIAL INFORMATION
In March 1995, the Company entered into an agreement with a subsidiary
of Columbia/HCA Healthcare Corporation ("Columbia") to acquire the operations
and fixed assets of Aiken Regional Medical Centers ("Aiken"), including Aiken
Regional Medical Center, The Carolina Cancer Center and the Aurora Pavilion.
The assets to be acquired include the real property and moveable equipment
together with intangible assets and certain working capital accounts, excluding
accounts receivable.
In exchange for Aiken, the Company agreed to transfer to Columbia the
assets and operations of Westlake Medical Center and Dallas Family Hospital and
approximately $45 million in cash. Coincident with the Aiken transaction, the
Company will acquire the property of Westlake Medical Center which it currently
leases from Universal Health Realty Income Trust ("UHT"), in exchange for other
property consisting of additional real estate assets currently owned by the
Company but related to three acute care facilities currently owned by UHT and
operated by the Company, which will be 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 will then be 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, will be acquired by Columbia.
The Company has entered into a letter of intent to purchase
substantially all of the assets and operations of Manatee Memorial Hospital, a
512-bed acute care hospital located in Bradenton, Florida, for $141 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.
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<PAGE> 13
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> <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.
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<PAGE> 14
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> <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.
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<PAGE> 15
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>
ACQUISISTIONS
THE COMPANY AND PRO FORMA THE COMPANY
HISTORICAL DIVESTITURES (a) ADJUSTMENTS PRO FORMA
---------- ---------------- ----------- ---------
<S> <C> <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.
-12-
<PAGE> 16
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.
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>
-13-
<PAGE> 17
(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.
(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>
-14-
<PAGE> 18
THREE MONTHS ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
THE AIKEN TRANACTION
---------------------------------------
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 2,500 2,322 (456) (420) 3,946
doubtful accounts
Depreciation and 1,430 950 (554) (393) 1,433
amortization
Lease and rental 349 317 (980) (168) (482)
expense
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 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 (687) (210)
Manatee from an affiliate
(c) To eliminate management fees charged by UHS to - (500)
Manatee 500
(d) To adjust operating expenses at Manatee for state 2,000 500
and local taxes other than income taxes and other
operating costs.
(e) To eliminate management fees paid to affiliates of (2,187) (1,053)
Aiken and Manatee.
</TABLE>
-15-
<PAGE> 19
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, 1994 March 31, 1995
----------------- --------------
<S> <C> <C>
(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 2,386 596
assets transferred from UHS to UHT.
(h) To eliminate the historical interest expense at (8,905) (2,393)
Aiken, Manatee and Edinburg.
To record interest on borrowings to finance the Aiken,
Manatee and Edinburg Transactions using borrowings under
the Company's commerical 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
====== =====
(2,027) (98)
(i) To adjust tax expense.
</TABLE>
-16-
<PAGE> 20
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/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(3) $4,800 ---- $7,188 $11,526 $25,853 $ ---- $ ----
Other(4) $29,125 $43,196 $40,554 $55,908 $54,423 $11,871 $13,536
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 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 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. 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) Includes expenditures for acquisition of businesses and property held for
lease and does not include assumed indebtedness and other liabilities.
(4) Includes property and equipment additions, non-cash capital lease
obligations and acquisition of properties previously leased.
-17-
<PAGE> 21
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
-18-
<PAGE> 22
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.
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
-19-
<PAGE> 23
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.
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
-20-
<PAGE> 24
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 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 facility's 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 expects to exchange 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 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
-21-
<PAGE> 25
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 entered into an agreement to acquire a 225-bed medical
complex in Aiken, South Carolina and a letter of intent to acquire a 512-bed
acute care hospital located in Bradenton, Florida in exchange for aggregate
consideration of approximately $186 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 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
-22-
<PAGE> 26
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.
-23-
<PAGE> 27
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.
-24-
<PAGE> 28
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 30 hospitals,
consisting of 15 acute care hospitals and 15 behavioral health centers, in
Arkansas, California, Florida, Georgia, Illinois, Louisiana, Massachusetts,
Michigan, Missouri, Nevada, Pennsylvania, 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
therapy 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.
-25-
<PAGE> 29
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.
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 planned acquisitions of Aiken Regional Medical Centers
and 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 is exchanging Dallas Family Hospital and Westlake Medical Center, two
hospitals which are not leaders in their markets and which the Company has been
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.
-26-
<PAGE> 30
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.
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
-27-
<PAGE> 31
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.
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.
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<PAGE> 32
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 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 a letter of
intent 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.
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<PAGE> 33
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>
NAME OF FACILITY LOCATION NUMBER 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(5) Aiken, South Carolina 225 Acquisition
Pending
Manatee Memorial Hospital(6) Bradenton, Florida 512 Acquisition
Pending
</TABLE>
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<PAGE> 34
BEHAVIORAL HEALTH CENTERS
<TABLE>
<CAPTION>
NAME OF FACILITY LOCATION NUMBER OF BEDS OWNERSHIP
---------------- -------- -------------- ---------
<S> <C> <C> <C>
The Arbour Hospital Boston, Massachusetts 118 Owned
The BridgeWay(1) North Little Rock, 70 Leased
Arkansas
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(7) 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(7) Moultrie, Georgia 59 Owned
Two Rivers Psychiatric Hospital Kansas City, Missouri 80 Owned
</TABLE>
AMBULATORY SURGERY CENTERS
<TABLE>
<CAPTION>
NAME OF FACILITY(9) 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>
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<PAGE> 35
RADIATION ONCOLOGY CENTERS
<TABLE>
<CAPTION>
NAME OF FACILITY LOCATION
---------------- --------
<S> <C>
Auburn Regional Center for Cancer Care Auburn, Washington
Bowling Green Radiation Oncology Bowling Green, Kentucky
Associates(8)
Capital Radiation Therapy Center(8) Frankfort, Kentucky
Columbia Radiation Oncology Washington, D.C.
Danville Radiation Therapy Center(8) Danville, Kentucky
Glasgow Radiation Oncology Associates(8) Glasgow, Kentucky
Madison Radiation Oncology Associates(10) Madison, Indiana
McAllen Medical Center Cancer Institute McAllen, Texas
Regional Cancer Center at Wellington West Palm Beach, Florida
Southern Indiana Radiation Therapy(10) 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) The Company has entered into an agreement to exchange the operations
and fixed assets of Westlake Medical Center, a 126-bed acute care
facility in Westlake, California, and Dallas Family Hospital, a
104-bed hospital in Dallas, Texas for Aiken Regional Medical Centers.
The real property of Westlake is currently leased from UHT. See "The
Company - Recent and Proposed Acquisitions and Development
Activities."
(6) Managed Hospital. The Company has executed a letter of intent to
acquire this facility. See "The Company - Recent and Proposed
Acquisitions and Development Activities."
(7) Addictive disease facility.
(8) Managed Facility. A partnership, in which the Company is the general
partner, owns the real property.
(9) 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.
(10) A partnership in which the Company is the general partner owns the
real property.
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>
1990 1991 1992 1993 1994 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
</TABLE>
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<PAGE> 36
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1994 (PRO
---- ---- ---- ---- ---- ---------
FORMA)
------
<S> <C> <C> <C> <C> <C> <C>
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 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
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<PAGE> 37
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% 100% 100% 100% 100% 100%
------ ------ ------ ------ ------ ------
</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% 100% 100% 100% 100% 100%
------ ------ ------ ------ ------ ------
</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.
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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.
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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.
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
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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 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
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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 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
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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 statues 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
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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.
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 8 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
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<PAGE> 44
between 0.500% to 1.00%. 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 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 ___, 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.
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<PAGE> 45
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
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,
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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).
"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
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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
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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 (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.
-45-
<PAGE> 49
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 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
-46-
<PAGE> 50
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 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.
-47-
<PAGE> 51
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.
-48-
<PAGE> 52
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 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. and Chemical Securities 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.
-49-
<PAGE> 53
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.
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 L.L.P., 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.
-50-
<PAGE> 54
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-17
Condensed Consolidated Balance Sheets as of March 31, 1995 (unaudited)
and December 31, 1994 (audited) . . . . . . . . . . . . . . . . . . . . . . . F-18
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1994 (unaudited) and March 31, 1995 (unaudited) . . . . . . . . . . F-19
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . . . . F-20
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-32
Combined Balance Sheets as of August 31, 1993 and 1994 (audited)
and as of March 31, 1995 (unaudited). . . . . . . . . . . . . . . . . . . . . F-33
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-35
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-36
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-37
Notes to Combined Financial Statements . . . . . . . . . . . . . . . . . . . . . . F-38
</TABLE>
F - 1
<PAGE> 55
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> 56
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> 57
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Assets December 31
- -------- -----------------------------
1993 1994
------------ -----------
<S> <C> <C>
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
============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F - 4
</TABLE>
<PAGE> 58
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> 59
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
<TABLE>
<CAPTION>
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> 60
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.
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.
F - 7
<PAGE> 61
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.
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.
F - 8
<PAGE> 62
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 18,200,000 18,200,000
rate of 8.3% at December 31, 1994 with 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
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.
F - 9
<PAGE> 63
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.
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.
F - 10
<PAGE> 64
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 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.
F - 11
<PAGE> 65
Information with respect to these options is summarized as follows:
<TABLE>
<CAPTION>
AVERAGE
NUMBER OPTION
OUTSTANDING OPTIONS OF SHARES 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.
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.
F - 12
<PAGE> 66
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>
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.
F - 13
<PAGE> 67
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>
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 OPERATING
YEAR LEASES 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, Flordia 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
F - 14
<PAGE> 68
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.
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 cer tain 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 - 15
<PAGE> 69
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 - 16
<PAGE> 70
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 - 17
<PAGE> 71
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 - 18
<PAGE> 72
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(000'S UNAUDITED)
1994 1995
---------- -----------
<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 - 19
<PAGE> 73
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 - 20
<PAGE> 74
AIKEN REGIONAL MEDICAL CENTERS
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994
TOGETHER WITH AUDITORS' REPORT
F - 21
<PAGE> 75
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, Pa.,
June 6, 1995
F - 22
<PAGE> 76
AIKEN REGIONAL MEDICAL CENTERS
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1994 1995
--------------- ---------------
<S> <C> <C>
ASSETS (Unaudited)
------
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> 77
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> 78
AIKEN REGIONAL MEDICAL CENTERS
STATEMENTS OF STOCKHOLDER'S EQUITY
(in thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital 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 _ 58 _
------ ----- ------------
MARCH 31, 1995 (unaudited) $ 1 $ 157 $ 30,130
====== ===== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 25
<PAGE> 79
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> 80
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>
F - 27
<PAGE> 81
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.
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%.
F - 28
<PAGE> 82
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>
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.
F - 29
<PAGE> 83
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%).
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.
F - 30
<PAGE> 84
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 - 31
<PAGE> 85
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 - 32
<PAGE> 86
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 - 33
<PAGE> 87
<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 - 34
<PAGE> 88
Manatee Hospitals and Health Systems, Inc.
Combined Statements of Revenue and Expenses
(Amounts in Thousands)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31 SEVEN-MONTH PERIOD 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 - 35
<PAGE> 89
Manatee Hospitals and Health Systems, Inc.
Combined Statements of Changes in Fund Balances
(Amounts in Thousands)
<TABLE>
<CAPTION>
SEVEN-MONTH
PERIOD ENDED
YEAR ENDED AUGUST 31 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 - 36
<PAGE> 90
Manatee Hospitals and Health Systems, Inc.
Combined Statements of Cash Flows
(Amounts in Thousands)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31 SEVEN-MONTH PERIOD 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 - 37
<PAGE> 91
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
F - 38
<PAGE> 92
Manatee Hospitals and Health Systems, Inc.
Notes to Combined Financial Statements (continued)
1. OPERATIONS AND ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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.
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.
F - 39
<PAGE> 93
Manatee Hospitals and Health Systems, Inc.
Notes to Combined Financial Statements (continued)
1. OPERATIONS AND ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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.
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
F - 40
<PAGE> 94
Manatee Hospitals and Health Systems, Inc.
Notes to Combined Financial Statements (continued)
1. OPERATIONS AND ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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.
F - 41
<PAGE> 95
Manatee Hospitals and Health Systems, Inc.
Notes to Combined Financial Statements (continued)
2. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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.
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>
F - 42
<PAGE> 96
Manatee Hospitals and Health Systems, Inc.
Notes to Combined Financial Statements (continued)
3. ASSETS WHOSE USE IS LIMITED (CONTINUED)
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.
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
F - 43
<PAGE> 97
Manatee Hospitals and Health Systems, Inc.
Notes to Combined Financial Statements (continued)
4. LONG-TERM DEBT (CONTINUED)
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.
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.
F - 44
<PAGE> 98
Manatee Hospitals and Health Systems, Inc.
Notes to Combined Financial Statements (continued)
4. LONG-TERM DEBT (CONTINUED)
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 qSeries 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.
F - 45
<PAGE> 99
Manatee Hospitals and Health Systems, Inc.
Notes to Combined Financial Statements (continued)
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 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
F - 46
<PAGE> 100
Manatee Hospitals and Health Systems, Inc.
Notes to Combined Financial Statements (continued)
7. PENSION PLAN (CONTINUED)
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.
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>
F - 47
<PAGE> 101
Manatee Hospitals and Health Systems, Inc.
Notes to Combined Financial Statements (continued)
7. PENSION PLAN (CONTINUED)
Significant actuarial assumptions used in measuring benefit obligations and the
expected return on plan assets are as follows:
<TABLE>
<CAPTION>
JULY 1
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.
The future minimum lease payments under noncancelable operating leases with
terms greater than one year are as follows:
<TABLE>
<CAPTION>
OPERATING
YEAR AMOUNT
------ ------------------
(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.
F - 48
<PAGE> 102
Manatee Hospitals and Health Systems, Inc.
Notes to Combined Financial Statements (continued)
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 - 49
<PAGE> 103
<TABLE>
==================================================================================================
<S> <C>
$150,000,000
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 UNIVERSAL HEALTH SERVICES, INC.
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. DEBT SECURITIES
-----------------
TABLE OF CONTENTS
Page
----
Available Information . . . . . . . . . . . . . 2 --------------------
Incorporation of Certain Documents by
Reference . . . . . . . . . . . . . . . . . 2 PROSPECTUS
The Company . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . 5 --------------------
Use of Proceeds . . . . . . . . . . . . . . . 8
Pro Forma Financial Information . . . . . . . . 9
Selected Financial and Other Data . . . . . . . 17
Managements' Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . 18
Healthcare Industry Overview . . . . . . . . . 23
Business . . . . . . . . . . . . . . . . . . . 25
Description of Debt Securities . . . . . . . . 41
Plan of Distribution . . . . . . . . . . . . . 49
Legal Matters . . . . . . . . . . . . . . . . 50
Experts . . . . . . . . . . . . . . . . . . . . 50
Index to Financial Statements . . . . . . . . . F-1
==================================================================================================
</TABLE>
<PAGE> 104
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.
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.
II-1
<PAGE> 105
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.
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.
II-2
<PAGE> 106
(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.
(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> 107
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 JUNE 14, 1995.
UNIVERSAL HEALTH SERVICES, INC.
By: Alan B. Miller
---------------------------------------
Alan B. Miller
Chairman of the Board, President
& Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Alan B. Miller and Kirk E. Gorman his
true and lawful attorneys-in-fact and agents, each acting alone, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this
Registration Statement, including post-effective amendments, and to file the
same, with all exhibits thereto, and all documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, and hereby ratifies and confirms all that said
attorneys-in-fact and agents, each acting alone, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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>
Alan B. Miller Chairman of the Board, President, June 14, 1995
----------------------------------------- Chief Executive Officer and
Alan B. Miller Director (Principal Executive
Officer)
Leonard W. Cronkhite, Jr., M.D. Director June 14, 1995
-----------------------------------------
Leonard W. Cronkhite, Jr., M.D.
</TABLE>
II-4
<PAGE> 108
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
John H. Herrell Director June 14, 1995
-----------------------------------------
John H. Herrell
Robert H. Hotz Director June 14, 1995
-----------------------------------------
Robert H. Hotz
Martin Myerson Director June 14, 1995
-----------------------------------------
Martin Myerson
Sidney Miller Director June 14, 1995
-----------------------------------------
Sidney Miller
Anthony Pantaleoni Director June 14, 1995
-----------------------------------------
Anthony Pantaleoni
Kirk E. Gorman Senior Vice President and June 14, 1995
----------------------------------------- Chief Financial Officer
Kirk E. Gorman (Principal Financial Officer)
</TABLE>
II-5
<PAGE> 109
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Page
- ------- ----
<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 & Jawsorski 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
<PAGE> 1
EXHIBIT 1
____________ __, 1995
UNIVERSAL HEALTH SERVICES, INC.
DEBT SECURITIES
STANDARD UNDERWRITING AGREEMENT PROVISIONS
1. Introductory. Universal Health Services, Inc., a Delaware
corporation (the "Company"), proposes to issue and sell from time to time
certain of its debt securities registered under the registration statement
referred to in Section 2(a) ("Registered Securities"). The Registered
Securities will be issued under an indenture, dated as of , 1995
(such indenture as amended or supplemented is herein referred to as the
"Indenture"), between the Company and PNC Bank, N.A., Trustee, in one or more
series, which series may vary as to interest rates, maturities, redemption
provisions, selling prices and other terms, with all such terms for any
particular series of the Registered Securities being determined at the time of
sale. Particular series of the Registered Securities will be sold pursuant to
a Terms Agreement referred to in Section 3, for resale in accordance with terms
of offering determined at the time of sale.
The Registered Securities involved in any such offering are
hereinafter referred to as the "Securities." The firm or firms which agree to
purchase the Securities are hereinafter referred to as the "Underwriters" of
such Securities, and the representative or representatives of the Underwriters,
if any, specified in a Terms Agreement referred to in Section 3 are hereinafter
referred to as the "Representatives"; provided, however, that if the Terms
Agreement does not specify any representative of the Underwriters, the term
"Representatives," as used in this Agreement (other than in the second sentence
of Section 3), shall mean the Underwriters.
2. Representations and Warranties of the Company. The
Company represents and warrants to, and agrees with, each Underwriter that:
<PAGE> 2
-2-
(a) the Company is permitted to use Form S-3 under the
Securities Act of 1933, as amended (the "Act"), and has filed with the
Securities and Exchange Commission (the "Commission") a registration statement
on such Form (the file number of which is set forth in the Terms Agreement),
which has become effective, for the registration under the Act of the
Registered Securities. Such registration statement, as amended at the date of
this Agreement, meets the requirements set forth in Rule 415(a)(1)(x) under the
Act and complies in all other material respects with said Rule. Such
registration statement, including the exhibits thereto, as amended at the date
of any Terms Agreement, is hereinafter called the "Registration Statement" and
the prospectus included in the Registration Statement, as supplemented to
reflect the terms of the Securities and the plan of distribution thereof, in
the form in which it shall be filed with the Commission pursuant to Rule 424(b)
is hereinafter called the "Prospectus." Any reference herein to the
Registration Statement or the Prospectus shall be deemed to include the
documents incorporated by reference therein pursuant to Item 12 of Form S-3
which were filed under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), on or before the date of this Agreement or the date of the
Prospectus, as the case may be, and any reference herein to the terms "amend,"
"amendment" or "supplement" with respect to the Registration Statement or the
Prospectus shall be deemed to include the filing of any document under the
Exchange Act after the date of this Agreement or the date of the Prospectus, as
the case may be, deemed to be incorporated therein by reference;
(b) as of the date of any Terms Agreement, when the
Prospectus is first filed pursuant to Rule 424(b) under the Act, when, prior to
the time of purchase (as defined in Section 3), any amendment to the
Registration Statement becomes effective (including the filing of any document
incorporated by reference in the Registration Statement) and at the time of
purchase, the Registration Statement and the Prospectus will fully comply in
all material respects with the provisions of the Act and the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"), and the Registration
Statement will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, and the Prospectus will not contain an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; provided,
<PAGE> 3
-3-
however, that the Company makes no warranty or representation with respect to
any statement contained in the Registration Statement or the Prospectus in
reliance upon and in conformity with information concerning the Underwriters
and furnished in writing by or on behalf of any Underwriter through the
Representatives to the Company expressly for use in the Registration Statement
or the Prospectus; the documents incorporated by reference in the Prospectus,
at the time they were filed with the Commission, complied in all material
respects with the requirements of the Exchange Act, and do not contain an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading;
(c) as of the date of any Terms Agreement, the Company
has an authorized capitalization as set forth under the heading entitled
"Actual" in the section of the Registration Statement and the Prospectus
entitled "Capitalization" and, as of the time of purchase, the Company shall
have an authorized capitalization as set forth under the heading entitled "As
Adjusted" in the section of the Registration Statement and the Prospectus
entitled "Capitalization"; all of the issued and outstanding shares of capital
stock of the Company and of each Subsidiary (as defined below) have been duly
and validly authorized and issued and are fully paid and non-assessable; each
of the Company and each Subsidiary that is a corporation have been duly
incorporated and is validly existing as a corporation in good standing under
the laws of its respective state of incorporation, and each Subsidiary that is
a partnership has been duly organized and is validly existing under the
partnership laws of its respective state of organization, in each case with
full power and authority to own its properties and conduct its business as
described in the Registration Statement the Prospectus, to execute and deliver
the Terms Agreement and the Indenture and to issue and sell the Securities as
contemplated in the Terms Agreement;
(d) the Company and each of its subsidiaries (the
"Subsidiaries" which term shall be deemed to include, solely for purposes of
this Agreement, Universal Health Realty Income Trust) are duly qualified or
licensed by and are in good standing in each jurisdiction in which they conduct
their respective businesses and in which the failure, individually or in the
aggregate, to be so licensed or qualified could have a material adverse effect
on the operations, business or condition of the Company and its Subsidiaries,
taken as a whole; and the Company
<PAGE> 4
-4-
and each of its Subsidiaries are in compliance in all material respects with
the laws, orders, rules, regulations and directives issued or administered by
such jurisdictions;
(e) neither the Company nor any of its Subsidiaries is in
breach of, or in default under (nor has any event occurred which with notice,
lapse of time, or both would constitute a breach of, or default under), its
respective charter or by-laws or in the performance or observance of any
obligation, agreement, covenant or condition contained in any indenture,
mortgage, deed of trust, bank loan or credit agreement or other agreement or
instrument to which the Company or any of its Subsidiaries is a party or by
which any of them is bound, the effect of any of which could have a material
adverse effect on the operations, business or condition of the Company and its
Subsidiaries, taken as a whole; and the execution, delivery and performance of
the Terms Agreement and the Indenture and the issuance of the Securities and
consummation of the transactions contemplated hereby and thereby will not
conflict with, or result in any breach of or constitute a default under (nor
constitute any event which with notice, lapse of time, or both would constitute
a breach of, or default under), any provisions of the charter or by-laws of the
Company or any of its Subsidiaries or under any provision of any license,
indenture, mortgage, deed of trust, bank loan or credit agreement or other
material agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which any of them or their respective properties
may be bound or affected, or under any federal, state, local or foreign law,
regulation or rule or any decree, judgment or order applicable to the Company
or any of its Subsidiaries;
(f) the Indenture has been duly authorized, executed and
delivered by the Company and, assuming due execution by the Trustee, is a
legal, valid and binding agreement of the Company, enforceable in accordance
with its terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally and general principles of equity;
(g) the Securities have been duly authorized by the
Company and when executed and delivered by the Company will constitute legal,
valid and binding obligations of the Company enforceable in accordance with
their terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally and general principles of equity;
<PAGE> 5
-5-
(h) as of the date of any Terms Agreement, the applicable
Terms Agreement has been duly authorized, executed and delivered by the
Company;
(i) the Securities and the Indenture conform in all
material respects to the descriptions thereof contained in the Registration
Statement and Prospectus;
(j) no approval, authorization, consent or order of or
filing with any national, state or local governmental or regulatory commission,
board, body, authority or agency is required in connection with the issuance
and sale of the Securities as contemplated hereby other than compliance with
the Act and the Trust Indenture Act and the qualification under the securities
or blue sky laws of the various jurisdictions in which the Securities are being
offered by the Underwriters;
(k) Arthur Andersen L.L.P., whose reports on the
consolidated financial statements of the Company and its Subsidiaries and on
the financial statements of Aiken Regional Medical Centers, Inc., and Ernst &
Young whose reports on the financial statements of Manatee Memorial Hospital,
are filed with the Commission as part of the Registration Statement and
Prospectus, are independent public accountants as required by the Act and the
applicable published rules and regulations thereunder;
(l) each of the Company and its Subsidiaries has all
necessary licenses, authorizations, consents and approvals and has made all
necessary filings required under any federal, state, local or foreign law,
regulation or rule, and has obtained all necessary authorizations, consents and
approvals from other persons, in order to conduct its respective business;
neither the Company nor any of its Subsidiaries is in violation of, or in
default under, any such license, authorization, consent or approval or any
federal, state, local or foreign law, regulation or rule or any decree, order
or judgment applicable to the Company or any of its Subsidiaries the effect of
which could have a material adverse effect on the Company and its Subsidiaries
taken as a whole;
(m) all legal or governmental proceedings, contracts or
documents of a character required to be described in the Registration Statement
or the Prospectus or to be filed as an exhibit to the Registration Statement
have been so described or filed as required;
<PAGE> 6
-6-
(n) there are no actions, suits or proceedings pending
or, to its knowledge, threatened against the Company or any of its Subsidiaries
or any of their respective properties, at law or in equity, or before or by any
federal, state, local or foreign governmental or regulatory commission, board,
body, authority or agency which could result in a judgment, decree or order
having a material adverse effect on the business, condition, prospects or
property of the Company and its Subsidiaries taken as a whole;
(o) the audited financial statements included in the
Registration Statement and the Prospectus present fairly the consolidated
financial position of the Company and its Subsidiaries as of the dates
indicated and the consolidated results of operations and cash flows of the
Company and its Subsidiaries for the periods specified; such financial
statements have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis during the periods involved;
(p) each of the Company and each of its hospitals that
participate in federal Medicare and Medicaid programs is a certified
participating provider in and under all federal Medicare and Medicaid programs;
and, each of the Company and each of its Subsidiaries and hospitals is a
certificated participating provider, to the extent required, in all other
third-party payment programs from which it receives revenues (collectively,
"Programs"); no action, investigation or proceeding is pending, or to the best
of the Company's knowledge, threatened to suspend, limit, terminate, condition,
or revoke the status of any of the Company or any of its Subsidiaries as a
provider in any such Program, and neither the Company nor any of its
Subsidiaries has been provided notice by any third-party payor or any
administrator on behalf thereof of its intention to suspend, limit, terminate,
revoke, condition or fail to renew in whole or in part or which action,
investigation, proceeding, suspension, limitation, termination, revocation,
condition, or failure of renewal, would singly or in the aggregate, have a
material adverse effect on the Company and its Subsidiaries taken as a whole;
(q) subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, and except
as may be otherwise stated in the Registration Statement or Prospectus, there
has not been (A) any material and unfavorable change, financial or otherwise,
in the business, properties, prospects, regulatory environment, results of
<PAGE> 7
-7-
operations or condition (financial or otherwise), present or prospective, of
the Company and its Subsidiaries taken as a whole, (B) any transaction, which
is material to the Company and its Subsidiaries taken as a whole, contemplated
or entered into by the Company or either of its Subsidiaries or (C) any
obligation, contingent or otherwise, directly or indirectly, incurred by the
Company or any of its Subsidiaries which is material to the Company and its
Subsidiaries taken as a whole;
(r) the Company and each of its Subsidiaries have good
title to all properties and assets owned by them and have good leasehold
interests in each property and asset leased by them, in each case free and
clear of all pledges, liens, encumbrances, security interests, charges,
mortgages and defects, except as described in the Prospectus (including in the
financial statements included therein and the documents incorporated by
reference therein) and except as such do not materially affect the value of
such property and as such do not interfere with the use made and proposed to be
made of such properties by the Company and the Subsidiaries;
(s) the business, operations and facilities of the
Company and each of the Subsidiaries have been and are being conducted in
substantial compliance with all applicable laws, ordinances, rules,
regulations, licenses, permits, approvals, plans, authorizations or
requirements relating to occupational safety and health, or pollution, or
protection of health or the environment, or reclamation (including, without
limitation, those relating to emissions, discharges, releases or threatened
releases of pollutants, contaminants or hazardous or toxic substances,
materials or wastes into ambient air, surface water, groundwater or land, or
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of chemical substances, pollutants,
contaminants or hazardous or toxic substances, materials or wastes, whether
solid, gaseous or liquid in nature) or otherwise relating to remediating real
property of any governmental department, commission, board, bureau, agency or
instrumentality of the United States, any state or political subdivision
thereof, or any foreign jurisdiction, and all applicable judicial or
administrative agency or regulatory decrees, awards, judgments and orders
relating thereto, except any violation thereof which would not, individually or
in the aggregate, have a material adverse effect on the properties, assets,
prospects, operations, business or condition (financial or otherwise) of the
Company and the Subsidiaries, taken as a whole; and neither the Company nor any
of the Subsidiaries has received any notice from a
<PAGE> 8
-8-
governmental instrumentality or any third party alleging any violation thereof
or liability thereunder (including, without limitation, liability for costs of
investigating or remediating sites containing hazardous substances and/or
damages to natural resources);
(t) there is no claim pending or, to the best knowledge
of the Company, threatened or contemplated under any federal, state, local or
foreign law, rule or regulation governing pollution or protection of the
environment (the Environmental Laws) against the Company or any of the
Subsidiaries which, if adversely determined, would have a material adverse
effect on the properties, assets, prospects, operation, business or condition
(financial or otherwise) of the Company and the Subsidiaries, taken as a whole;
there are no past or present actions or conditions including, without
limitation, the release of any hazardous substance or waste regulated under any
Environmental Law that are likely to form the basis of any such claim against
the Company or any of the Subsidiaries which, if adversely determined, would
have a material adverse effect on the properties, assets, prospects, operation,
business or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole;
(u) the Company and each of the Subsidiaries have filed
all federal or state income and franchise tax returns required to be filed and
have paid all taxes shown thereon as due, and neither the Company nor any of
its Subsidiaries is in default in any material respect in the payment of any
taxes which were payable pursuant to said returns or any assessments with
respect thereto; all material tax liabilities of the Company and the
Subsidiaries are adequately provided for on the books of the Company and the
Subsidiaries; and
(v) except as otherwise described in the Prospectus, the
Company, either directly or through one or more Subsidiaries, has in effect,
with financially sound insurers, insurance with respect to its business and
properties and the business and properties of the Subsidiaries against loss or
damage of the kind customarily insured against by corporations engaged in the
same or similar businesses and similarly situated, of such type and in such
amounts as are customarily carried under similar circumstances by such other
corporations.
3. Purchase and Offering of Securities. The obligation of
the Underwriters to purchase the Securities will be evidenced by an exchange of
written communications (the "Terms
<PAGE> 9
-9-
Agreement") at the time the Company determines to sell the Securities. The
Terms Agreement will incorporate by reference the provisions of this Agreement,
except as otherwise provided therein, and will specify (1) the firm or firms
which will be Underwriters, (2) the names of any Representatives, (3) the
principal amount of Securities to be purchased by each Underwriter and the
purchase price to be paid by the Underwriters, (4) the terms of the Securities
not already specified in the Indenture, (5) the time and date on which delivery
of the Securities will be made to the Representatives for the accounts of the
several Underwriters against payment by the several Underwriters through the
Representatives of the purchase price in New York Clearing House funds (such
time and date, or such other time and date not later than seven full business
days thereafter as the Representatives and the Company agree to as to time and
date for payment and delivery, being herein and in the Terms Agreement referred
to as the "time of purchase"), (6) the place of delivery and payment and (7)
such other matters, including any additional representations and warranties,
agreements and/or conditions, as the Company and the Representatives may agree
upon.
The obligations of the Underwriters to purchase the Securities
will be several and not joint. The Securities delivered to the Underwriters at
the time of purchase will be in definitive fully registered form, in such
denominations and registered in such names as the Representatives may request.
Certificates for the Securities shall be registered in such
names and in such denominations as the Representatives may request not less
than one full Business Day(1) in advance of the Closing Date.
4. Certain Covenants of the Company: The Company hereby
agrees:
(a) to furnish such information as may be required and
otherwise to cooperate in qualifying the Securities for offering and sale under
the securities or blue sky laws of such states as the Representatives may
designate and to maintain such qualifications in effect as long as required for
the distribution of the Securities, provided that the Company shall not be
required to qualify as a foreign corporation or to
____________________
(1) As used herein, "Business Day" shall mean a day in which the New
York Stock Exchange is open for trading.
<PAGE> 10
-10-
consent to the service of process under the laws of any such state (except
service of process with respect to the offering and sale of the Securities);
and to promptly advise the Representatives of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose;
(b) to make available to the Representatives in New York
City, within one full Business Day after the execution of any Terms Agreement,
and thereafter from time to time to furnish to the Underwriters, as many copies
of the Prospectus (or of the Prospectus as amended or supplemented if the
Company shall have made any amendments or supplements thereto after the date of
such Terms Agreement) as the Underwriters may request for the purposes
contemplated by the Act;
(c) to advise the Representatives promptly and (if
requested by the Representatives) to confirm such advice in writing, (i) when
any post-effective amendment to the Registration Statement becomes effective
and (ii) when the Prospectus is filed with the Commission pursuant to Rule
424(b) under the Act (which the Company agrees to file in a timely manner under
such Rule);
(d) to advise the Representatives promptly, confirming
such advice in writing, of any request by the Commission for amendments or
supplements to the Registration Statement or Prospectus or for additional
information with respect thereto, or of notice of institution of proceedings
for, or the entry of a stop order suspending the effectiveness of the
Registration Statement and, if the Commission should enter a stop order
suspending the effectiveness of the Registration Statement, to make every
reasonable effort to obtain the lifting or removal of such order as soon as
possible; to advise the Representatives promptly of any proposal to amend or
supplement the Registration Statement or Prospectus including by filing any
documents that would be incorporated therein by reference;
(e) to furnish to the Representatives and, upon request,
to each of the other Underwriters during the period in which any of the
Securities are outstanding (i) copies of any reports or other communications
which the Company shall send to its holders of Securities or stockholders or
shall from time to time publish or publicly disseminate, (ii) copies of all
annual, quarterly and current reports filed with the Commission on Forms 10-K,
10-Q and 8-K, or such other similar form as may
<PAGE> 11
-11-
be designated by the Commission, and (iii) such other information as the
Representatives may reasonably request regarding the Company or its
Subsidiaries;
(f) to advise the Underwriters promptly of the happening
of any event known to the Company within the time during which a prospectus
relating to the Securities is required to be delivered under the Act which, in
the judgment of the Company, would require the making of any change in the
Prospectus then being used, or in the information incorporated therein by
reference, so that the Prospectus would not include an untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they are made, not
misleading, and, during such time, to prepare and furnish, at the Company's
expense, to the Underwriters promptly such amendments or supplements to such
Prospectus as may be necessary to reflect any such change and to furnish to the
Representatives a copy of such proposed amendment or supplement before filing
any such amendment or supplement with the Commission;
(g) to make generally available to its security holders,
and to deliver to the Representatives, an earnings statement of the Company
(which will satisfy the provisions of Section 11(a) of the Act) covering a
period of twelve months beginning after the date of the applicable Terms
Agreement as soon as is reasonably practicable after the termination of such
twelve-month period;
(h) to furnish the Representatives and counsel for the
Underwriters signed copies of the Registration Statement, as initially filed
with the Commission, and of all amendments thereto (including all exhibits
thereto and documents incorporated by reference therein) and sufficient
conformed copies of the foregoing (other than exhibits) for distribution of a
copy to each of the other Underwriters;
(i) to furnish to the Representatives as early as
practicable prior to the time of purchase, but no later than two Business Days
prior thereto, a copy of the latest available unaudited interim consolidated
financial statements, if any, of the Company and its Subsidiaries which have
been read by the Company's independent certified public accountants, as stated
in their letter to be furnished pursuant to Section 6(b) below;
<PAGE> 12
-12-
(j) to apply the net proceeds from the sale of the
Securities in the manner set forth under the caption "Use of Proceeds" in the
Prospectus;
(k) to pay all expenses, fees and taxes (other than any
transfer taxes and fees and disbursements of counsel for the Underwriters
except as set forth under Section 5 hereof and (iii) and (iv) below) in
connection with (i) the preparation and filing of the Registration Statement,
each Preliminary Prospectus, the Prospectus, and any amendments or supplements
thereto, and the printing and furnishing of copies of each thereof to the
Underwriters and to dealers (including costs of mailing and shipment), (ii) the
preparation, issuance, execution, authentication and delivery of the
Securities, (iii) the word processing and/or printing of this Agreement, the
Terms Agreement, an Agreement Among Underwriters, any dealer agreements, any
Statements of Information and Powers of Attorney, the Indenture, and the
reproduction and/or printing and furnishing of copies of each thereof to the
Underwriters and to dealers (including costs of mailing and shipment), (iv) the
qualification of the Securities for offering and sale under state laws and the
determination of their eligibility for investment under state law as aforesaid
(including the legal fees and filing fees and other disbursements of counsel
for the Underwriters) and the printing and furnishing of copies of any blue sky
surveys or legal investment surveys to the Underwriters and to dealers, (v) any
listing of the Securities on any securities exchange and any registration
thereof under the Exchange Act, (vi) any fees payable to investment rating
agencies with respect to the Securities, (vii) any filing for review of the
public offering of the Securities by the National Association of Securities
Dealers, Inc. and (viii) the performance of the Company's other obligations
hereunder;
(l) to furnish to the Representatives, before filing with
the Commission subsequent to the date of the applicable Terms Agreement and
during the period referred to in paragraph (f) above, a copy of any document
proposed to be filed pursuant to Sections 13, 14 or 15(d) of the Exchange Act;
and
(m) from the date of any Terms Agreement and until the
date that is ten days after the time of purchase specified in such agreement,
the Company will not, without the Representatives' prior consent, offer, sell,
contract to sell or otherwise dispose of debt securities of the Company covered
by the
<PAGE> 13
-13-
Registration Statement or another registration statement filed by the Company
under the Act.
5. Reimbursement of Underwriters' Expenses: On or after the
execution of an applicable Terms Agreement, if the Securities are not delivered
for any reason other than the termination of the applicable Terms Agreement
pursuant to the first paragraph of Section 8 hereof or the default by one or
more of the Underwriters in its or their respective obligations hereunder, the
Company shall reimburse the Underwriters for all of their out-of-pocket
expenses in respect of the offering contemplated by such Terms Agreement,
including the fees and disbursements of their counsel.
6. Conditions of Underwriters' Obligations: The several
obligations of the Underwriters under any Terms Agreement are subject to the
accuracy of the representations and warranties on the part of the Company on
the date thereof and at the time of purchase, the performance by the Company of
its obligations under the Terms Agreement (including those set forth herein)
and to the following conditions:
(a) The Company shall furnish to the Representatives at
the time of purchase an opinion of Fulbright & Jaworski, L.L.P., counsel for
the Company, addressed to the Underwriters and dated the time of purchase with
reproduced copies thereof for each of the other Underwriters and in form
satisfactory to Cahill Gordon & Reindel, counsel for the Underwriters, stating
that:
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with full corporate power and authority to own its
properties and conduct its business as described in the Registration
Statement and the Prospectus and to issue, sell and deliver the
Securities as contemplated in the Terms Agreement;
(ii) the Company is duly qualified in each jurisdiction in
which it conducts business and in which the failure, individually or
in the aggregate, to be so qualified could have a material adverse
effect on the operations, business or condition of the Company and its
Subsidiaries taken as a whole, and the Company is duly qualified, and
is in good standing, in each jurisdiction in which it owns
<PAGE> 14
-14-
or leases real property or maintains an office and in which such
qualification is necessary;
(iii) the applicable Terms Agreement has been duly
authorized, executed and delivered by the Company;
(iv) the Indenture has been duly authorized, executed and
delivered by the Company, and, assuming the due execution thereof by
the Trustee, is a legal, valid and binding agreement of the Company
enforceable in accordance with its terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally and
general principles of equity;
(v) the Securities have been duly authorized by the Company
and, when executed and authenticated in accordance with the terms of
the Indenture and delivered to and paid for by the Underwriters, will
be legal, valid and binding obligations of the Company enforceable in
accordance with their terms, except as the enforceability thereof may
be limited by bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally and general principles of
equity;
(vi) the Company has an authorized capital stock as set forth
in the Registration Statement and the Prospectus; the outstanding
shares of capital stock of the Company have been duly and validly
authorized and issued and are fully paid, non-assessable and free of
statutory and contractual preemptive rights;
(vii) the Securities and the Indenture conform in all
material respects to the descriptions thereof contained in the
Registration Statement and the Prospectus;
(viii) the Registration Statement and the Prospectus (except
as to the financial statements and schedules and other financial and
statistical data contained or incorporated by reference therein and
the Trustee's Statement of Eligibility on Form T-1, as to which such
counsel need not express an opinion) comply as to form in all material
respects with the requirements of the Act and the Trust Indenture Act;
(ix) the Registration Statement has become effective under
the Act and, to the best of such counsel's
<PAGE> 15
-15-
knowledge, no stop order proceedings with respect thereto are pending
or threatened under the Act;
(x) no approval, authorization, consent or order of or filing
with any national, state or local governmental or regulatory
commission, board, body, authority or agency is required in connection
with the issue or sale of the Securities by the Company as
contemplated by the applicable Terms Agreement (except such counsel
need not express an opinion as to any necessary qualification under
the state securities or blue sky laws of the various jurisdictions in
which the Securities are being offered by the Underwriters);
(xi) the execution, delivery and performance of the
applicable Terms Agreement and the Indenture and the issuance of the
Securities by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby do not and will not
conflict with, or result in any breach of, or constitute a default
under (nor constitute any event which with notice, lapse of time, or
both would constitute a breach of or default under), any provisions of
the charter or by-laws of the Company or any of its Subsidiaries or
under any provision of any license, indenture, mortgage, deed of
trust, bank loan, credit agreement nor other agreement or instrument
known to such counsel after reasonable inquiry to which the Company or
any of its Subsidiaries is a party or by which any of them or their
respective properties may be bound or affected, or under any law,
regulation or rule or any decree, judgment or order applicable to the
Company or any of its Subsidiaries;
(xii) to the best of such counsel's knowledge, the Company is
not in breach of, or in default under (nor has any event occurred
which with notice, lapse of time, or both would constitute a breach
of, or default under), any license, indenture, mortgage, deed of
trust, bank loan or credit agreement or any other agreement or
instrument to which the Company or is a party or by which it or its
properties may be bound or affected or under any law, regulation or
rule or any decree, judgment or order applicable to the Company;
(xiii) to the best of such counsel's knowledge, there are no
contracts, licenses, agreements, leases or documents of a character
which are required to be filed as
<PAGE> 16
-16-
exhibits to the Registration Statement or to be summarized or
described in the Prospectus which have not been so filed, summarized
or described;
(xiv) to the best of such counsel's knowledge, there are no
actions, suits or proceedings pending or threatened against the
Company or any of its Subsidiaries or any of their respective
properties, at law or in equity or before or by any commission, board,
body, authority or agency which are required to be described in the
Prospectus but are not so described;
(xv) the documents incorporated by reference in the
Registration Statement and Prospectus, when they were filed (or, if an
amendment with respect to any such document was filed, when such
amendment was filed), complied as to form in all material respects
with the Exchange Act (except as to the financial statements and
schedules and other financial and statistical data contained or
incorporated by reference therein as to which such counsel need not
express an opinion);
(xvi) the Indenture has been duly qualified under the Trust
Indenture Act; and
(xvii) such counsel have participated in conferences with
officers and other representatives of the Company, representatives of
the independent public accountants of the Company and representatives
of the Underwriters at which the contents of the Registration
Statement and Prospectus were discussed and, although such counsel is
not passing upon and does not assume responsibility for the accuracy,
completeness or fairness of the statements contained in the
Registration Statement or Prospectus (except as and to the extent
stated in subparagraphs (vi) and (vii) above), on the basis of the
foregoing (relying as to materiality to a large extent upon the
opinions of officers and other representatives of the Company) nothing
has come to the attention of such counsel that causes them to believe
that the Registration Statement or any amendment thereto at the date
of the applicable Terms Agreement contained an untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, or that the Prospectus or any supplement thereto at the
date of the applicable Terms Agreement, and at all times up to and
including the time of purchase, contained an
<PAGE> 17
-17-
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading (it being understood that such counsel need not express an
opinion with respect to the financial statements and schedules and
other financial and statistical data included in the Registration
Statement or Prospectus or with respect to the Trustee's Statement of
Eligibility on Form T-1).
(b) The Company shall furnish to the Representatives at
the time of purchase an opinion of Bruce R. Gilbert, Esq., General Counsel for
the Company, addressed to the Underwriters and dated the time of purchase with
reproduced copies thereof for each of the other Underwriters and in form
satisfactory to Cahill Gordon & Reindel, counsel for the Underwriters, stating
that:
(i) each of the Company and each of the Subsidiaries are duly
qualified or licensed by each jurisdiction in which they conduct their
respective businesses and in which the failure, individually or in the
aggregate, to be so licensed or qualified could have a material adverse effect
on the operations, business or condition of the Company and its Subsidiaries
taken as a whole, and the Company and its Subsidiaries are duly qualified, and
are in good standing, in each jurisdiction in which they own or lease real
property or maintain an office and in which such qualification is necessary;
(ii) each of the Subsidiaries is a corporation duly organized
and validly existing in good standing under the laws of the jurisdiction of its
organization, with full corporate or partnership power and authority to own its
respective properties and to conduct its business as described in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto); and
(iii) to the best of such counsel's knowledge, none of the
Subsidiaries is in violation of its certificate or articles of incorporation or
bylaws, or partnership agreement, or is in breach of, or in default under (nor
has any event occurred which with notice, lapse of time, or both would
constitute a breach of, or default under), any license, indenture, mortgage,
deed of trust, bank loan or credit agreement or any other agreement or
instrument to which the Company or any of its Subsidiaries is a party or by
which any of them or their
<PAGE> 18
-18-
respective properties may be bound or affected or under any law, regulation or
rule or any decree, judgment or order applicable to the Company or any of its
Subsidiaries.
(c) The Representatives shall have received from Arthur
Andersen L.L.P. and Ernst & Young, letters dated as of the time of purchase and
addressed to the Underwriters (with reproduced copies for each of the other
Underwriters) in the forms approved by the Representatives prior to the
execution of the applicable Terms Agreement.
(d) The Representatives shall have received at the time
of purchase the favorable opinion of Cahill Gordon & Reindel, counsel for the
Underwriters, dated the time of purchase as to the matters referred to in
subparagraphs (iii), (iv), (v), (vii), (viii) (ix), (xvi) of paragraph (a) of
this Section 6.
In addition, such counsel shall state that such counsel have
participated in conferences with officers and other representatives of the
Company, counsel for the Company, representatives of the independent public
accountants of the Company and representatives of the Underwriters at which the
contents of the Registration Statement and Prospectus and related matters were
discussed and, although such counsel is not passing upon and does not assume
any responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement and Prospectus (except as to the
matters referred to under subparagraph (vii) of paragraph (a) of this Section
6), on the basis of the foregoing (relying as to materiality to a large extent
upon the opinions of officers and other representatives of the Company), no
facts have come to the attention of such counsel which lead them to believe
that either the Registration Statement or any amendment thereto at the date of
the applicable Terms Agreement contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading or that the Prospectus or any
supplement thereto as of the date of the applicable Terms Agreement contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading (it being
understood that such counsel need not express any comment with respect to the
financial statements and schedules and other financial and statistical data
included in the
<PAGE> 19
-19-
Registration Statement or Prospectus or with respect to the Trustee's Statement
of Eligibility on Form T-1).
(e) No amendment or supplement to the Registration
Statement or Prospectus, including documents deemed to be incorporated by
reference therein, shall be filed or distributed to which the Representatives
object in writing.
(f) Prior to the time of purchase (i) no stop order with
respect to the effectiveness of the Registration Statement shall have been
issued under the Act or proceedings initiated under Section 8(d) or 8(e) of the
Act; (ii) the Registration Statement and all amendments thereto, or
modifications thereof, if any, shall not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and (iii) the
Prospectus and all amendments or supplements thereto, or modifications thereof,
if any, shall not contain an untrue statement of material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they are
made, not misleading.
(g) Between the time of execution of the applicable Terms
Agreement and the time of purchase, in the judgment of the Representatives, (i)
no material and unfavorable change, financial or otherwise (other than as
referred to in the Registration Statement and Prospectus on the date of the
Terms Agreement), in the properties, assets, prospects, operation, business or
condition of the Company and its Subsidiaries taken as a whole shall occur or
become known and (ii) no transaction which is material and unfavorable to the
Company shall have been entered into by the Company or any of its Subsidiaries.
(h) The Company will, at the time of purchase, deliver to
the Representatives a certificate of two of its executive officers to the
effect that the representations and warranties of the Company set forth in this
Agreement and the conditions set forth in paragraph (f) and paragraph (g) have
been met and are true and correct as of such date.
(i) The Company shall have furnished to the
Representatives such other documents and certificates as to the accuracy and
completeness of any statement in the Registration Statement and the Prospectus
as of the time of purchase as the Representatives may reasonably request.
<PAGE> 20
-20-
(j) The Company shall perform such of its obligations
under the applicable Terms Agreement as are to be performed by the terms
thereof at or before the time of purchase.
(k) Between the time of execution of the applicable Terms
Agreement and the time of purchase, there shall not have occurred any
downgrading, nor shall any notice have been given of (i) any intended or
potential downgrading or (ii) any review or possible change that does not
indicate an improvement, in the rating accorded any securities of or guaranteed
by the Company or any Subsidiary of the Company by any "nationally recognized
statistical rating organization", as that term is defined in Rule 436(g)(2)
promulgated under the Act.
7. Effective Date of Terms Agreement; Termination: Any Terms
Agreement shall become effective when the parties thereto have executed and
delivered it.
The obligations of the several Underwriters under any Terms
Agreement shall be subject to termination in the absolute discretion of the
Representatives or any group of Underwriters (which may include the
Representatives) which has agreed to purchase in the aggregate at least 50% of
the principal amount of the Securities if, at any time prior to the time of
purchase, trading in securities on the New York Stock Exchange shall have been
suspended or minimum prices shall have been established on the New York Stock
Exchange, or if a banking moratorium shall have been declared either by the
United States or New York State authorities, or if the United States shall have
declared war in accordance with its constitutional processes or there shall
have occurred any material outbreak or escalation of hostilities or other
national or international calamity or crisis of such magnitude in its effect on
the financial markets of the United States as, in the judgment of the
Representatives or in the judgment of such group of Underwriters, to make it
impracticable to market the Securities covered by the applicable Terms
Agreement.
If the Representatives or any group of Underwriters elect to
terminate any Terms Agreement as provided in this Section 7, the Company and
each other Underwriter shall be notified promptly by letter or telegram.
If the sale to the Underwriters of the Securities, as
contemplated by the applicable Terms Agreement, is not carried out by the
Underwriters for any reason permitted under such Terms Agreement or if such
sale is not carried out because the
<PAGE> 21
-21-
Company shall be unable to comply with any of the terms of such Terms
Agreement, the Company shall not be under any obligation or liability under
such Terms Agreement (except to the extent provided in Sections 4(k), 5 and 9
hereof), and the Underwriters shall be under no obligation or liability to the
Company under this Agreement (except to the extent provided in Section 9
hereof) or to one another hereunder.
8. Increase in Underwriters' Commitments: If any Underwriter
shall default in its obligation to take up and pay for the Securities to be
purchased by it under any applicable Terms Agreement and if the aggregate
principal amount of Securities which all Underwriters so defaulting shall have
agreed but failed to take up and pay for does not exceed 10% of the total
aggregate principal amount of Securities, the non-defaulting Underwriters shall
take up and pay for (in addition to the aggregate principal amount of
Securities they are obligated to purchase pursuant to the applicable Terms
Agreement) the aggregate principal amount of Securities agreed to be purchased
by all such defaulting Underwriters, as hereinafter provided. Such Securities
shall be taken up and paid for by such non-defaulting Underwriter or
Underwriters in such amount or amounts as the Representatives may designate
with the consent of each Underwriter so designated or, in the event no such
designation is made, such Securities shall be taken up and paid for by all
non-defaulting Underwriters pro rata in proportion to the aggregate principal
amount of Securities set opposite the names of such non-defaulting Underwriters
in the applicable Terms Agreement.
Without relieving any defaulting Underwriter from its
obligations hereunder, the Company agrees with the non-defaulting Underwriters
that it will not sell any Securities under the applicable Terms Agreement
unless all of the Securities are purchased by the Underwriters (or by
substituted Underwriters selected by the Representatives with the approval of
the Company or selected by the Company with the approval of the
Representatives).
If a new Underwriter or Underwriters are substituted by the
Underwriters or by the Company for a defaulting Underwriter or Underwriters in
accordance with the foregoing provision, the Company or the Representatives
shall have the right to postpone the time of purchase for a period not
exceeding three business days in order that any necessary changes in the
Registration Statement and the Prospectus and other documents may be effected.
<PAGE> 22
-22-
The term Underwriter as used in this agreement shall refer to
and include any Underwriter substituted under this Section 8 with like effect
as if such substituted Underwriter had originally been named in the applicable
Terms Agreement.
9. Indemnity by the Company and the Underwriters.
(a) The Company agrees to indemnify, defend and hold
harmless each Underwriter, any person who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, each
Underwriter's agents, employees, officers and directors and the agents,
employees, officers and directors of any such controlling person (collectively,
the "Underwriter indemnified parties") from and against any loss, expense,
liability or claim (including the reasonable cost of investigation) which,
jointly or severally, any such Underwriter indemnified party may incur under
the Act, the Exchange Act or otherwise, insofar as such loss, expense,
liability or claim arises out of or is based upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement (or in the Registration Statement as amended by any post-effective
amendment thereof by the Company) or in a Prospectus (the term Prospectus for
the purpose of this Section 9 being deemed to include any Preliminary
Prospectus, the Prospectus and the Prospectus as amended or supplemented by the
Company), or arises out of or is based upon any omission or alleged omission to
state a material fact required to be stated in either such Registration
Statement or Prospectus or necessary to make the statements made therein not
misleading, except insofar as any such loss, expense, liability or claim arises
out of or is based upon any untrue statement or alleged untrue statement of a
material fact contained in and in conformity with information furnished in
writing by any Underwriter through the Representatives to the Company expressly
for use with reference to such Underwriter in such Registration Statement or
such Prospectus or arises out of or is based upon any omission or alleged
omission to state a material fact in connection with such information required
to be stated in either such Registration Statement or Prospectus or necessary
to make such information not misleading; provided, that, with respect to any
Preliminary Prospectus, the indemnification contained in this paragraph (a)
shall not inure to the benefit of any Underwriter (or to the benefit of any
person controlling such Underwriter) on account of any such loss, expense,
liability or claim arising from the sale of Registered Securities by such
Underwriter to any person if a copy of the Prospectus shall not have been
delivered to or sent to such person within
<PAGE> 23
-23-
the time required by the Act and the regulations thereunder, and the untrue
statement or alleged untrue statement or omission or alleged omission of a
material fact contained in such Preliminary Prospectus was corrected in the
Prospectus, provided that the Company shall have delivered the Prospectus to
the Underwriters in requisite quantities on a timely basis to permit such
delivery or sending.
If any action is brought against an Underwriter indemnified
party in respect of which indemnity may be sought against the Company pursuant
to the foregoing paragraph, such Underwriter indemnified party shall promptly
notify the Company in writing of the institution of such action and the Company
shall assume the defense of such action, including the employment of counsel
and payment of expenses. Such Underwriter indemnified party shall have the
right to employ its own counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of such Underwriter indemnified party
unless the employment of such counsel shall have been authorized in writing by
the Company in connection with the defense of such action or the Company shall
not have employed counsel to have charge of the defense of such action or such
Underwriter indemnified party or parties shall have reasonably concluded that
there may be defenses available to it or them which are different from or
additional to those available to the Company (in which case the Company shall
not have the right to direct the defense of such action on behalf of the
Underwriter indemnified party or parties), in any of which events such fees and
expenses shall be borne by the Company and paid as incurred (it being
understood, however, that the Company shall not be liable for the expenses of
more than one separate counsel in any one action or series of related actions
in the same jurisdiction representing the Underwriter indemnified parties who
are parties to such action). Anything in this paragraph to the contrary
notwithstanding, the Company shall not be liable for any settlement of any such
claim or action effected without its written consent.
(b) Each Underwriter severally agrees to indemnify,
defend and hold harmless the Company, its directors and officers and any person
who controls the Company within the meaning of Section 15 of the Act or Section
20 of the Exchange Act from and against any loss, expense, liability or claim
(including the reasonable cost of investigation) which, jointly or severally,
the Company or any such person may incur under the Act or otherwise, insofar as
such loss, expense, liability or claim arises out of or is based upon any
untrue statement or alleged
<PAGE> 24
-24-
untrue statement of a material fact contained in and in conformity with
information furnished in writing by or on behalf of such Underwriter through
the Representatives to the Company expressly for use with reference to such
Underwriter in the Registration Statement or in a Prospectus, or arises out of
or is based upon any omission or alleged omission to state a material fact in
connection with such information required to be stated either in such
Registration Statement or Prospectus or necessary to make such information not
misleading.
If any action is brought against the Company or any such
person in respect of which indemnity may be sought against any Underwriter
pursuant to the foregoing paragraph, the Company or such person shall promptly
notify such Underwriter in writing of the institution of such action and such
Underwriter shall assume the defense of such action, including the employment
of counsel and payment of expenses. The Company or such person shall have the
right to employ its own counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of the Company or such person unless the
employment of such counsel shall have been authorized in writing by such
Underwriter in connection with the defense of such action or such Underwriter
shall not have employed counsel to have charge of the defense of such action or
such indemnified party or parties shall have reasonably concluded that there
may be defenses available to it or them which are different from or additional
to those available to such Underwriter (in which case such Underwriter shall
not have the right to direct the defense of such action on behalf of the
indemnified party or parties), in any of which events such fees and expenses
shall be borne by such Underwriter and paid as incurred (it being understood,
however, that such Underwriter shall not be liable for the expenses of more
than one separate counsel in any one action or series of related actions in the
same jurisdiction representing the indemnified parties who are parties to such
action). Anything in this paragraph to the contrary notwithstanding, no
Underwriter shall be liable for any settlement of any such claim or action
effected without the written consent of such Underwriter.
(c) If the indemnification provided for in this Section 9
is unavailable to an indemnified party under subsections (a) and (b) of this
Section 9 in respect of any losses, expenses, liabilities or claims referred to
therein, then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses,
<PAGE> 25
-25-
expenses, liabilities or claims (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Underwriters on the other hand from the offering of the Securities or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company on
the one hand and of the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, expenses, liabilities or
claims, as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total proceeds from
the offering (net of underwriting discounts and commissions but before
deducting expenses) received by the Company bear to the underwriting discounts
and commissions received by the Underwriters. The relative fault of the
Company on the one hand and of the Underwriters on the other shall be
determined by reference to, among other things, whether the untrue statement or
alleged untrue statement of a material fact or omission or alleged omission
relates to information supplied by the Company or by the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid or payable by a
party as a result of the losses, claims, damages and liabilities referred to
above shall be deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending any claim
or action.
(d) The Company and the Underwriters agree that it would
not be just and equitable if contribution pursuant to this Section 9 were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in subsection (c)
above. Notwithstanding the provisions of this Section 9, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The
<PAGE> 26
-26-
Underwriters' obligations to contribute pursuant to this Section 9 are several
in proportion to their respective underwriting commitments and not joint.
(e) The indemnity and contribution agreements contained
in this Section 9 and the covenants, warranties and representations of the
Company contained in the applicable Terms Agreement shall remain in full force
and effect regardless of any investigation made by or on behalf of any
Underwriter indemnified party, or by or on behalf of the Company, its directors
and officers or any person who controls the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, and shall survive any
termination of the applicable Terms Agreement or the issuance and delivery of
the Securities covered thereby. The Company and each Underwriter indemnified
party agree promptly to notify the others of the commencement of any litigation
or proceeding against it and, in the case of the Company, against any of the
Company's officers and directors, in connection with the issuance and sale of
the Securities, or in connection with the Registration Statement or Prospectus.
10. Notices: Except as otherwise herein provided, all
statements, requests, notices and agreements shall be in writing or by telegram
and, if to the Underwriters, shall be sufficient in all respects if delivered
or sent to the address set forth in the applicable Terms Agreement and, if to
the Company, shall be sufficient in all respects if delivered to the Company at
the offices of the Company at Universal Corporate Center, 367 South Gulph Road,
King of Prussia, PA 19406, Attention:
11. Construction: The Terms Agreement shall be governed by,
and construed in accordance with, the laws of the State of New York without
regard to principles of conflicts of laws. The section headings in this
agreement have been inserted as a matter of convenience of reference and are
not a part of this agreement.
12. Parties at Interest: The agreement set forth in the
Terms Agreement has been and is made solely for the benefit of the Underwriters
and the Company and the controlling persons, directors and officers referred to
in Section 9 hereof, and their respective successors, assigns, executors and
administrators. No other person, partnership, association or corporation
(including a purchaser, as such purchaser, from any of
<PAGE> 27
-27-
the Underwriters) shall acquire or have any right under or by virtue of any
Terms Agreement.
<PAGE> 28
UNIVERSAL HEALTH SERVICES, INC.
DEBT SECURITIES
TERMS AGREEMENT
, 199
Universal Health Services, Inc.
Universal Corporate Center
367 South Gulph Road
King of Prussia, PA 19406
Attention:
Referring to the Securities of Universal Health Services, Inc.
(the "Company") covered by the Registration Statement on Form S-3 (No. 33-
) (the "Registration Statement") filed by the Company, on the basis of the
representations, warranties and agreements contained in this Agreement, and
subject to the terms and conditions herein set forth, the Underwriters named on
Schedule A hereto ("Underwriters") agree to purchase, severally and not
jointly, and the Company agrees to sell to the Underwriters, $
aggregate principal amount of % Due (the
"Securities") in the respective principal amounts set forth opposite the names
of the Underwriters on Schedule A hereto.
The price at which the Securities shall be purchased from the
Company by the Underwriters shall be % of the principal amount thereof
[plus accrued interest from , 199 ]. The Securities will be
offered as set forth in the Prospectus Supplement relating thereto.
The Securities will have the following terms:
Title:
Interest Rate: % per annum
Interest Payment Dates: and
commencing , 199
Maturity:
[other Representations, Warranties, Covenants and/or Closing Conditions]
Other Provisions: as set forth in the Prospectus Supplement
relating to the Securities
<PAGE> 29
-2-
Closing: A.M. on , 199 , at
, in New York Clearing House (next day) funds.
Name[s] and Address[es] of Representative[s]:
The provisions contained in the Universal Health Services,
Inc. Standard Underwriting Agreement Provisions (dated , 1995), a copy of
which has been filed as Exhibit to the Registration Statement, are
incorporated herein by reference.
The Securities will be made available for checking and
packaging at the office of at least 24 hours prior to the
Closing Date.
We represent that we are authorized to act for the several
Underwriters named in Schedule A hereto in connection with this financing and
any action under this agreement by any of us will be binding upon all the
Underwriters.
This Terms Agreement may be executed in one or more
counterparts, all of which counterparts shall constitute one and the same
instrument.
<PAGE> 30
-3-
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us the enclosed duplicate hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
[NAMES OF REPRESENTATIVES]
On behalf of themselves and
as Representatives of the
Several Underwriters
By:
-----------------------
By:
-----------------------
Name:
Title:
The foregoing Terms Agreement
is hereby confirmed as of the
date first above written
Universal Health Services, Inc.
By:
--------------------------
Name:
Title:
<PAGE> 31
SCHEDULE A
PRINCIPAL
UNDERWRITER AMOUNT
----------- ---------
. . . . . . . . . . . . . . . . . . . . . . . $
-------
TOTAL. . . . . . . . . . . . . . . . . . . . . . $
=======
<PAGE> 1
EXHIBIT 4.1
================================================================================
UNIVERSAL HEALTH SERVICES, INC.
AND
PNC BANK, N.A. TRUSTEE
____________________________
INDENTURE
DATED AS OF _______, 1995
____________________________
DEBT SECURITIES
================================================================================
<PAGE> 2
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
INDENTURE
TIA SECTION SECTION
- ----------- -------
<S> <C> <C>
SECTION 310 (a)(1) . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5) . . . . . . . . . . . . . . . . . . . . . 7.08
(b) . . . . . . . . . . . . . . . . . . . . . . . 7.08; 7.10; 10.02
(c) . . . . . . . . . . . . . . . . . . . . . . . N.A.
SECTION 311 (a) . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . N.A.
SECTION 312 (a) . . . . . . . . . . . . . . . . . . . . . . . 2.06
(b) . . . . . . . . . . . . . . . . . . . . . . . 10.03
(c) . . . . . . . . . . . . . . . . . . . . . . . 10.03
SECTION 313 (a) . . . . . . . . . . . . . . . . . . . . . . . 7.06
(b)(1) . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2) . . . . . . . . . . . . . . . . . . . . . 7.06
(c) . . . . . . . . . . . . . . . . . . . . . . . 7.06; 10.02
(d) . . . . . . . . . . . . . . . . . . . . . . . 7.06
SECTION 314 (a) . . . . . . . . . . . . . . . . . . . . . . . 4.09: 10.02
(b) . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1) . . . . . . . . . . . . . . . . . . . . . 10.04
(c)(2) . . . . . . . . . . . . . . . . . . . . . 10.04
(c)(3) . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . 10.05
(f) . . . . . . . . . . . . . . . . . . . . . . . N.A.
SECTION 315 (a) . . . . . . . . . . . . . . . . . . . . . . . 7.01(a); 7.01(b)
(b) . . . . . . . . . . . . . . . . . . . . . . . 7.05; 10.02
(c) . . . . . . . . . . . . . . . . . . . . . . . 7.01(a)
(d) . . . . . . . . . . . . . . . . . . . . . . . 7.01(c)
(e) . . . . . . . . . . . . . . . . . . . . . . . 6.11
SECTION 316 (a)(last sentence) . . . . . . . . . . . . . . . 2.10
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . 6.05
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . 6.04
(a)(2) . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . 6.07
(c) . . . . . . . . . . . . . . . . . . . . . . . 9.04
SECTION 317 (a)(1) . . . . . . . . . . . . . . . . . . . . . 6.08
(a)(2) . . . . . . . . . . . . . . . . . . . . . 6.09
(b) . . . . . . . . . . . . . . . . . . . . . . . 2.05
SECTION 318 (a) . . . . . . . . . . . . . . . . . . . . . . . 10.01
- ------------------
</TABLE>
N.A. means Not Applicable.
NOTE: This Cross-Reference Table shall not, for any purpose,
be deemed to be a part of this Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
RECITALS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. Incorporation by Reference of Trust
Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 1.03. Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 2
THE SECURITIES
SECTION 2.01. Form of Securities . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 2.02. Title and Terms . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 2.03. Execution and Authentication . . . . . . . . . . . . . . . . . . . . 12
SECTION 2.04. Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . . . 15
SECTION 2.05. Paying Agent to Hold Money in Trust . . . . . . . . . . . . . . . . 15
SECTION 2.06. Securityholder Lists . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 2.07. Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 2.08. Replacement Securities . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.09. Outstanding Securities . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.10. Treasury Securities . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.11. Global Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.12. Temporary Securities . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.13. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.14. Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.15. Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 3A
REDEMPTION
SECTION 3A.01. Right of Redemption . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 3A.02. Applicability of Article . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 3A.03. Election to Redeem; Notice to
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 3A.04. Selection by Trustee of Securities
to Be Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 3A.05. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . 21
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SECTION 3A.06. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . 22
SECTION 3A.07. Securities Payable on Redemption Date . . . . . . . . . . . . . . . 22
SECTION 3A.08. Securities Redeemed in Part . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 3B
SINKING FUND
SECTION 3B.01. Sinking Fund Payments . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 3B.02. Satisfaction of Sinking Fund
Payments with Securities . . . . . . . . . . . . . . . . . . . . . 24
SECTION 3B.03. Redemption of Securities for
Sinking Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 4
COVENANTS
SECTION 4.01. Payment of Securities . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 4.02. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . 25
SECTION 4.03. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 4.04. Payment of Taxes and Other Claims . . . . . . . . . . . . . . . . . 26
SECTION 4.05. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 4.06. Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . 27
SECTION 4.07. Liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 4.08. Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 4.09. SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 4.10. Waiver of Stay, Extension or
Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 4.11. Restrictions on Liens . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 4.12. Restrictions on Sales and
Leasebacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE 5
SUCCESSOR CORPORATION
SECTION 5.01. When Company May Merge, etc. . . . . . . . . . . . . . . . . . . . . 32
SECTION 5.02. Successor Corporation Substituted . . . . . . . . . . . . . . . . . 33
</TABLE>
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ARTICLE 6
DEFAULT AND REMEDIES
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SECTION 6.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 6.02. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 6.03. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 6.04. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 6.05. Control by Majority . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 6.06. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 6.07. Rights of Holders to Receive Payment . . . . . . . . . . . . . . . . 39
SECTION 6.08. Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . . . 39
SECTION 6.09. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . 40
SECTION 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE 7
TRUSTEE
SECTION 7.01. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 7.02. Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 7.03. Individual Rights of Trustee . . . . . . . . . . . . . . . . . . . . 43
SECTION 7.04. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 7.05. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 7.06. Reports by Trustee to Holders . . . . . . . . . . . . . . . . . . . 44
SECTION 7.07. Compensation and Indemnity . . . . . . . . . . . . . . . . . . . . . 45
SECTION 7.08. Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 7.09. Successor Trustee by Merger, etc. . . . . . . . . . . . . . . . . . 47
SECTION 7.10. Eligibility; Disqualification . . . . . . . . . . . . . . . . . . . 47
SECTION 7.11. Preferential Collection of Claims
Against Company . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE 8
DISCHARGE OF INDENTURE
SECTION 8.01. Termination of Company's Obligations . . . . . . . . . . . . . . . . 47
SECTION 8.02. Application of Trust Money . . . . . . . . . . . . . . . . . . . . . 49
SECTION 8.03. Repayment to Company . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 8.04. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 8.05. Indemnity for U.S. Government
Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
</TABLE>
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ARTICLE 9
AMENDMENTS, SUPPLEMENTS AND WAIVERS
<S> <C> <C>
SECTION 9.01. Without Consent of Holders . . . . . . . . . . . . . . . . . . . . . 50
SECTION 9.02. With Consent of Holders . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 9.03. Compliance with Trust Indenture Act . . . . . . . . . . . . . . . . 53
SECTION 9.04. Revocation and Effect of Consents . . . . . . . . . . . . . . . . . 53
SECTION 9.05. Notation on or Exchange of Securities . . . . . . . . . . . . . . . 54
SECTION 9.06. Trustee to Sign Amendments, etc. . . . . . . . . . . . . . . . . . . 54
ARTICLE 10
MISCELLANEOUS
SECTION 10.01. Trust Indenture Act Controls . . . . . . . . . . . . . . . . . . . . 54
SECTION 10.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 10.03. Communications by Holders with
Other Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 10.04. Certificate and Opinion as to
Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 10.05. Statements Required in Certificate
or Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 10.06. Rules by Trustee, Paying Agent,
Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 10.07. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 10.08. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 10.09. No Adverse Interpretation of Other
Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 10.10. No Recourse Against Others . . . . . . . . . . . . . . . . . . . . . 57
SECTION 10.11. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 10.12. Duplicate Originals . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 10.13. Separability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 10.14. Action of Holders When Securities Are
Denominated in Different Currencies . . . . . . . . . . . . . . . 58
SECTION 10.15. Monies of Different Currencies to
Be Segregated . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 10.16. Payment to Be in Proper Currency . . . . . . . . . . . . . . . . . . 58
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
EXHIBIT A--Form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
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NOTE: This Table of Contents shall not, for any purpose,
be deemed to be a part of this Indenture.
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<PAGE> 7
INDENTURE, dated as of , 1995, between Universal
Health Services, Inc., a Delaware corporation (the "Company"), and PNC Bank,
N.A., a national banking association incorporated and existing under the laws
of the United States of America, as Trustee (the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and
delivery of this Indenture to provide for the issuance from time to time of its
unsecured notes, debentures or other evidences of indebtedness (collectively,
the "Securities"), to be issued from time to time in one or more series (a
"Series") as provided in this Indenture and as shall be provided, in respect of
any Series, in or pursuant to the Authorizing Resolution hereinafter referred
to and/or in the indenture supplemental hereto (if any) relating to such
Series.
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01 Definitions.
"Affiliate" of any specified person means any other
person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified person. For the purposes of this
definition, "control" when used with respect to any person means the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"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
<PAGE> 8
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lease (including any period for which such lease has been extended or may, at
the option of the Company, be extended).
"Authorizing Resolution" means a Board Resolution
providing for the issuance of a Series of Securities.
"Bankruptcy Law" shall have the meaning provided in
Section 6.01.
"Board of Directors" means the Board of Directors of the
Company or any duly authorized committee of the Board.
"Board Resolution" means a copy of a resolution certified
by the Secretary or an Assistant Secretary of the Company to have been duly
adopted by the Board of Directors and to be in full force and effect on the
date of such certification, and delivered to the Trustee (except as provided in
Section 2.03).
"Business Day" means a day that is not a Legal Holiday.
"Capital Stock" means, with respect to any person, any
and all shares, interests, participations or other equivalents (however
designated) of corporate stock of such person.
"Capitalized Lease Obligation" means Indebtedness
represented by obligations under a lease that is required to be capitalized for
financial reporting purposes in accordance with generally accepted accounting
principles and the amount of such Indebtedness shall be the capitalized amount
of such obligations determined in accordance with such principles.
"Company" means the party named as such in this Indenture
until a successor replaces it pursuant to this Indenture and thereafter means
the successor.
"Company Request" and "Company Order" mean, respectively,
a written request or order signed in the name of the Company by two Officers of
the Company or by an Officer and the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary, and delivered to the Trustee in respect of
the Series to which the Company Request or Company Order shall relate.
"Consolidated Net Tangible Assets" means the total assets
appearing on a consolidated balance sheet of the Company
<PAGE> 9
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and its Consolidated Subsidiaries less, without duplication: (i) current
liabilities; (ii) all intangible assets and deferred charges; and (iii)
deferred income tax assets.
"Consolidated Subsidiary" means a Subsidiary which for
financial reporting purposes is accounted for by the Company as a consolidated
subsidiary.
"Corporate Trust Office" or other similar term means the
principal office of the Trustee at which at any particular time its corporate
trust business shall be administered, which office at the date hereof is
located at ; the Trustee will notify the Company of
any change thereof.
"Custodian" shall have the meaning provided in Section
6.01.
"Default" means any event which is, or after notice or
passage of time would be, an Event of Default.
"Event of Default" shall have the meaning provided in
Section 6.01.
"Extendible Securities" means Securities of any Series
issued hereunder the final maturity of which is extendible for a stated period
of time, as shall be provided in, or pursuant to, the Authorizing Resolution
and/or supplemental indenture (if any) relating to such Series.
"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.
"Holder" or "Securityholder" means, with respect to any
Security, the person in whose name such Security is registered on the Security
Register.
"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)
<PAGE> 10
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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; (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.
"Indenture" means this Indenture as amended or
supplemented from time to time and shall include the forms and terms of
particular Series of Securities established as contemplated hereunder.
"Interest Payment Date" means, for any Series of
Securities issued and outstanding hereunder, the date or dates in each year on
which any interest on such Series is paid or made available for payment.
"Legal Holiday" shall have the meaning provided in
Section 10.07.
"Lien" means any mortgage, lien, pledge, charge, or other
security interest or encumbrance of any kind.
"Maturity" when used with respect to any Security means
the date on which the principal of such Security becomes due and payable as
therein or herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption or otherwise.
"Maturity Date" means the date specified in each Security
on which the principal thereof is due and payable in full.
"Officer" means the Principal Executive Officer,
Principal Financial Officer or Principal Accounting Officer of the Company.
"Officers' Certificate" means a certificate signed by two
Officers or by an Officer and the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the Company and delivered to the
Trustee. See Sections 10.04 and 10.05.
"Opinion of Counsel" means a written opinion from legal
counsel who is acceptable to the Trustee. The counsel
<PAGE> 11
-5-
may be an employee of or counsel to the Company. See Sections 10.04 and 10.05.
"Original Issue Date" means the date on which a Security
is issued to the original purchaser thereof, as specified in such Security.
"Original Issue Discount Securities" means Securities
which provide for an amount less than 100% of the principal amount thereof to
be due and payable upon a declaration of acceleration of the Maturity thereof
pursuant to Section 6.02.
"Paying Agent" shall have the meaning provided in Section
2.04, except that for the purposes of Article 8 and Section 4.07 the Paying
Agent shall not be the Company or any Subsidiary.
"person" means any individual, corporation, partnership,
joint venture, association, joint-stock company, trust, unincorporated
organization or government or other agency or political subdivision thereof.
"principal" of a debt security means the principal of the
security plus, when appropriate, the premium, if any, on the security.
"Principal Property of the Company" shall mean any
property, plant, equipment or facility of the Company or any Subsidiary of the
Company, except that any property, plant, equipment or facility of the Company
or any Subsidiary of the Company which does not equal or exceed 3% of
Consolidated Net Tangible Assets shall not constitute a Principal Property of
the Company unless the Board of Directors or management of the Company deems it
to be material to the Company and its Subsidiaries, taken as a whole; provided,
however, that individual items of property, plant, equipment or individual
facilities of the Company or any Subsidiary of the Company shall not be
combined in determining whether such property, plant, equipment or facility
constitutes a Principal Property of the Company, whether or not they are the
subject of the same transaction or series of transactions.
"Redeemable Securities" means Securities of any Series
which may be redeemed, at the option of the Company, prior to the Stated
Maturity thereof, on the terms specified in or pursuant to the Authorizing
Resolution and/or supplemental
<PAGE> 12
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indenture relating to such Series and in accordance with Article 3A herein.
"Redemption Date" when used with respect to any Security
of any Series to be redeemed means the date fixed for such redemption by or
pursuant to the provisions of such Security, this Indenture and the Authorizing
Resolution and/or supplemental indenture relating to such Security.
"Redemption Price" when used with respect to any Security
of any Series to be redeemed means the price at which it is to be redeemed
(including accrued interest, if any, to the Redemption Date) pursuant to the
provisions of such Security, this Indenture and the Authorizing Resolution
and/or supplemental indenture relating to such Security.
"Registrar" shall have the meaning provided in Section
2.04.
"Regular Record Date" means, for the interest payable on
any Interest Payment Date in respect of any Series of Securities, except as
provided in, or pursuant to, the Authorizing Resolution and/or supplemental
indenture relating thereto, the day (whether or not a Business Day) that is
fifteen days preceding the applicable Interest Payment Date.
"Required Currency" shall have the meaning provided in
Section 10.16.
"Sale and Leaseback Transaction" shall have the meaning
provided in Section 4.12.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Securities, as amended or
supplemented from time to time pursuant to the terms of this Indenture, of the
Company of any Series that are issued under this Indenture.
"Security Register" shall have the meaning provided in
Section 2.04.
"Series" means, with respect to Securities issued
hereunder, the Securities issued pursuant to any particular Authorizing
Resolution and/or supplemental indenture (if any), subject to the right of the
Board of Directors to specify in such Authorizing Resolution and/or
supplemental indenture (if
<PAGE> 13
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any) that such Securities shall constitute more than one Series.
"Short-Term Borrowing" means all Indebtedness in respect
of borrowed money maturing on demand or within one year from the date of the
creation thereof and not 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; provided, that Indebtedness in respect of borrowed money
arising under a revolving credit or similar agreement which obligates the
lender or lenders to extend credit over a period of one year or more shall
constitute Funded Debt and not Short-Term Borrowing even though the same
matures on demand or within one year from the date as of which such Short-Term
Borrowing is to be determined.
"Significant Subsidiary" shall have the meaning provided
in Section 6.01.
"Sinking Fund" means, with respect to any Sinking Fund
Securities, a sinking fund provided for in Article 3B.
"Sinking Fund Securities" means Securities of any Series
which are required to be redeemed from time to time prior to the Stated
Maturity thereof in whole or in part under a Sinking Fund, on the terms
specified in the Authorizing Resolution and/or supplemental indenture (if any)
relating to such Series and in accordance with Article 3B herein.
"Special Record Date" shall have the meaning provided in
Section 2.14.
"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 the Company, by the
Company and a Subsidiary (or Subsidiaries) of the Company or by a Subsidiary
(or Subsidiaries) of the Company or (ii) any person (other than a corporation)
in which the Company, a Subsidiary (or Subsidiaries) of the Company or the
Company and a Subsidiary (or Subsidiaries)
<PAGE> 14
-8-
of the Company, directly or indirectly, at the date of determination thereof
has at least a majority ownership interest.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
Section Section 77aaa-77bbbb) as in effect on the date of this Indenture
except as provided in Section 9.03.
"Trustee" means the party named as such in this Indenture
until a successor replaces it in accordance with the provisions of this
Indenture and thereafter means and includes the person or each person who is
then a Trustee hereunder, and if at any time there is more than one such
person, "Trustee" as used with respect to the Securities of any Series shall
mean the Trustee with respect to Securities of that Series.
"Trust Officer" means any officer or assistant officer of
the Trustee assigned by the Trustee to administer its corporate trust matters.
"UHT" means Universal Health Realty Income Trust, a real
estate investment trust organized under the laws of the State of Maryland.
"U.S. Government Obligations" shall have the meaning provided in Section 8.01.
"Yield to Maturity" means, with respect to any Series of
Securities, the yield to maturity thereof, calculated at the time of issuance
thereof, or, if applicable, at the most recent redetermination of interest
thereon, and calculated in accordance with accepted financial practice.
SECTION 1.02 Incorporation by Reference of Trust
Indenture Act.
Whenever this Indenture refers to a provision of the TIA,
the provision is incorporated by reference in and made a part of this
Indenture. The following TIA terms used in this Indenture have the following
meanings:
"Commission" means the SEC;
"indenture securities" means the Securities;
"indenture security holder" means a Securityholder;
"indenture to be qualified" means this Indenture;
<PAGE> 15
-9-
"indenture trustee" or "institutional trustee" means the
Trustee; and
"obligor" on the indenture securities means the Company
or any other obligor on the Securities.
All other TIA terms used in this Indenture that are
defined by the TIA, defined by TIA reference to another statute or defined by
SEC rule and not otherwise defined herein have the meanings assigned to them
therein.
SECTION 1.03 Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with generally accepted
accounting principles in effect on the date hereof, and any other
reference in this Indenture to "generally accepted accounting
principles" refers to generally accepted accounting principles on
the date hereof;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and
words in the plural include the singular;
(5) provisions apply to successive events and
transactions; and
(6) "herein," "hereof" and other words of similar
import refer to this Indenture as a whole and not to any
particular Article, Section or other Subdivision.
ARTICLE 2
THE SECURITIES
SECTION 2.01 Form of Securities.
The Securities of each Series and the certificate of
authentication thereon shall be in substantially the forms set forth in Exhibit
A or in such other forms as shall be specified in, or pursuant to, the
Authorizing Resolution and/or in the
<PAGE> 16
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indenture supplemental hereto (if any) relating to such Series, with such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture or the said Authorizing Resolution
and/or supplemental indenture (if any).
The definitive Securities of each Series shall be
printed, lithographed or engraved or produced by any combination of these
methods on steel engraved borders or may be produced in any other manner
permitted by the rules of any securities exchange on which the Securities may
be listed, or, if they shall not be listed on any securities exchange, in any
other manner consistent herewith, all as shall be determined by the officers
executing such Securities, as evidenced by their execution of such Securities.
The Securities may have notations, legends or endorsements required by law,
stock exchange rule or usage. The Company shall approve the form of the
Securities and any notation, legend or endorsement on them.
The terms and provisions contained in the Securities,
annexed hereto as Exhibit A or such other forms as specified in the Authorizing
Resolution and/or supplemental indenture (if any) relating thereto, shall
constitute, and are hereby expressly made, a part of this Indenture.
SECTION 2.02 Title and Terms.
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is unlimited.
The Securities may be issued in one or more Series. The
terms of each Series shall be as provided in an Authorizing Resolution and/or
supplemental indenture (if any) or shall be determined in the manner specified
therein. The terms to be specified in respect of each Series in the
Authorizing Resolution and/or supplemental indenture (if any), or by such
person and/or procedures as shall be provided therein, shall include the
following:
(1) the title of the Securities of such Series,
which shall distinguish such Series from all other Series;
(2) the aggregate principal amount of the Securities
of such Series which may be authenticated and delivered under
this Indenture (except for Securities of such Series
authenticated and delivered upon transfer of, or in
<PAGE> 17
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exchange for, or in lieu of, other Securities pursuant to Section
2.07, 2.08, 2.11, 2.12, 3A.08 or 9.05);
(3) the date or dates on which the principal (and
premium, if any) of the Securities of such Series is payable,
and, if the Series shall be Extendible Securities, the terms on
which the Company or any other person shall have the option to
extend the Maturity of such Securities and the rights, if any, of
the Holders to require payment of the Securities;
(4) the rate or rates at which the Securities of
such Series shall bear interest, if any (whether floating or
fixed), the provisions, if any, for determining such interest
rate or rates and adjustments thereto, the date or dates from
which such interest shall accrue, the Interest Payment Dates
therefor and the Regular Record Dates for the determination of
Holders of the Securities of such Series to whom interest is
payable;
(5) the place or places where the principal of and
interest on Securities of such Series shall be payable (if other
than as provided in Section 4.02);
(6) the price or prices at which, the period or
periods within which and the terms and conditions upon which the
Securities of such Series may be redeemed, in whole or in part,
at the option of the Company, pursuant to a Sinking Fund or
otherwise;
(7) the obligation, if any, of the Company to
redeem, purchase or repay Securities of such Series, in whole or
in part, pursuant to a Sinking Fund or otherwise or at the option
of a Holder thereof, and the price or prices at which, the period
or periods within which and the terms and conditions upon which
such redemption, purchase or repayment shall be made;
(8) any Events of Default with respect to the
Securities of such Series which may be different from, in lieu of
or in addition to those provided for herein, and any covenants or
obligations of the Company to the Holders of the Securities of
such Series different from, in lieu of or in addition to those
set forth herein;
(9) if less than 100% of the principal amount of the
Securities of such Series is payable on acceleration under
<PAGE> 18
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Section 6.02 or provable in bankruptcy under Section 6.09 at any
time, a schedule of or the manner of computing the amounts which
are so payable and provable from time to time;
(10) the form of the Securities of such Series (which
may be, but which need not be, consistent with the form set forth
in Exhibit A attached hereto);
(11) if other than United States dollars, the
currency(ies) in which payment of the principal of or interest,
if any, on the Securities of that Series shall be payable;
(12) if the principal of or interest, if any, on the
Securities of that Series is to be payable, at the election of
the Company or a Holder thereof, in a currency or currencies
other than that in which the Securities are stated to be payable,
the period or periods within which, and the terms and conditions
upon which, such election may be made;
(13) if the amount of payments of principal of or
interest, if any, on the Securities of the Series may be
determined with reference to an index based on a currency or
currencies other than that in which the Securities are stated to
be payable, the manner in which such amounts shall be determined;
and
(14) any other terms of the Securities of such
Series; provided, that such other terms shall not be inconsistent
with any express terms of this Indenture or in conflict with any
express terms of any other Series of Securities which shall be
issued and outstanding.
All Securities of any one Series shall be substantially
identical in form except as to denomination and except as may be otherwise
provided in and pursuant to the Authorizing Resolutions and/or supplemental
indenture (if any) relating thereto.
SECTION 2.03 Execution and Authentication.
Two Officers or an Officer and the Secretary of the
Company shall sign the Securities for the Company by manual or facsimile
signature. The Company's seal shall be reproduced on the Securities and may be
in facsimile form.
<PAGE> 19
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If an Officer or a Secretary whose signature is on a
Security no longer holds that office at the time the Trustee authenticates the
Security, the Security shall be valid nevertheless.
A Security shall not be valid until the Trustee manually
signs the certificate of authentication on the Security. The signature shall
be conclusive evidence that the Security has been authenticated under this
Indenture.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Securities of any Series
executed by the Company to the Trustee, together with a Company Order for the
authentication and delivery of such Securities. The Company Order may provide
that the Securities which are the subject thereof shall be authenticated and
delivered by the Trustee upon the telephonic, written or other order of persons
designated in the Company Order, and that such persons are authorized to
specify the terms and conditions of such Securities, to the extent permitted by
the Authorizing Resolution and/or supplemental indenture (if any) relating
thereto. The Trustee shall execute and deliver the supplemental indenture (if
any) relating to said Securities and the Trustee shall authenticate and deliver
said Securities as specified in such Company Order; provided that, prior to
authentication and delivery of the first Securities of any Series, the Trustee
shall have received:
(1) a copy of the Authorizing Resolution, with a
copy of the form of Security approved thereby attached thereto,
or a supplemental indenture in respect of the issuance of the
Series, executed on behalf of the Company;
(2) an Officers' Certificate to the effect that the
Securities of such Series comply or will comply with the
requirements of this Indenture and the said Authorizing
Resolution and/or supplemental indenture (if any);
(3) an Opinion of Counsel (a) to the effect that (i)
the Securities of such Series, the Authorizing Resolution and/or
the supplemental indenture (if any) relating thereto comply or
will comply with the requirements of this Indenture, and (ii) the
Securities of such Series, when authenticated and delivered by
the Trustee in accordance with the said Company Order, will
constitute valid and binding obligations of the Company
enforceable in accordance with their terms, subject to (A)
bankruptcy and
<PAGE> 20
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other laws affecting creditors' rights generally as in effect
from time to time, (B) limitations of generally applicable
equitable principles and (C) other exceptions acceptable to the
Trustee and its counsel; and (b) relating to such other matters
as may reasonably be requested by the Trustee or its counsel; and
(4) if the Securities to be issued are Original
Issue Discount Securities, an Officers' Certificate setting forth
the Yield to Maturity for the Securities or other information
sufficient to compute amounts due on acceleration, or specifying
the manner in which such amounts are to be determined, provided
that such Yield to Maturity and other facts are not specified in
the form of Securities.
Subject to Section 7.01 hereof, the Trustee shall be
fully protected in relying upon the document delivered to it as provided above
in connection with the issuance of any Series of Securities.
The Trustee shall have the right to decline to
authenticate and deliver any Securities under this Section 2.03 if the Trustee,
being advised by counsel, determines that such action may not lawfully be taken
or if the Trustee in good faith by a committee of its Trust Officers shall
determine that such action would expose the Trustee to liability to Holders of
previously issued and outstanding Securities.
Each Security shall be dated the date of its
authentication unless otherwise specified in the Authorizing Resolution and/or
supplemental indenture relating thereto.
The Trustee may appoint an authenticating agent
reasonably acceptable to the Company to authenticate Securities. An
authenticating agent may authenticate Securities whenever the Trustee may do
so. Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating Agent has the same rights as
an Agent to deal with the Company or an Affiliate of the Company.
The Securities of each Series shall be issuable only in
registered form without coupons and only in denominations of $1,000 and any
integral multiple thereof, or in such other currencies or denominations as may
be specified in, or pursuant to, the Authorizing Resolution and/or supplemental
indenture (if any) relating to the Series.
<PAGE> 21
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SECTION 2.04 Registrar and Paying Agent.
The Company shall cause to be kept a register (the
"Security Register") at an office or agency where Securities may be presented
for registration of transfer or for exchange ("Registrar") and an office or
agency where Securities may be presented for payment ("Paying Agent"). The
Company may have one or more co-Registrars and one or more additional paying
agents. The term "Paying Agent" includes any additional paying agent.
The Company shall enter into an appropriate agency
agreement with any Agent not a party to this Indenture. The agreement shall
implement the provisions of this Indenture that relate to such Agent. The
Company shall give prompt written notice to the Trustee of the name and address
of any such Agent and the Trustee shall have the right to inspect the Security
Register at all reasonable times and to obtain copies thereof. If the
Registrar shall not be the Trustee in respect of any Series, the Company shall
promptly notify the Registrar as to the amounts and terms of each Security of
such Series which shall be authenticated and delivered hereunder, and as to the
names in which such Securities shall be registered. If the Company fails to
maintain a Registrar or Paying Agent, the Trustee shall act as such and shall
be entitled to appropriate compensation therefor pursuant to Section 7.07.
The Company initially appoints the Trustee as Registrar
and Paying Agent.
SECTION 2.05 Paying Agent to Hold Money in Trust.
Each Paying Agent shall hold in trust for the benefit of
Securityholders or the Trustee all money held by the Paying Agent for the
payment of principal of or interest on the Securities (whether such money has
been paid to it by the Company or any other obligor on the Securities), and
shall notify the Trustee of any default by the Company (or any other obligor on
the Securities) in making any such payment. If the Company or a Subsidiary
acts as Paying Agent, it shall segregate the money and hold it as a separate
trust fund. The Company at any time may require a Paying Agent to pay all money
held by it to the Trustee and account for any funds disbursed and the Trustee
may at any time during the continuance of any payment default, upon written
request to a Paying Agent, require such Paying Agent to pay all money held by
it to the Trustee and to account for any
<PAGE> 22
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funds disbursed. Upon doing so the Paying Agent shall have no further
liability for the money.
SECTION 2.06 Securityholder Lists.
The Trustee shall preserve in as current a form as is
reasonable practicable the most recent list furnished to it of the names and
addresses of Securityholders. If the Trustee is not the Registrar, the Company
shall furnish to the Trustee ten days before each Interest Payment Date and at
such other times as the Trustee may request in writing a list in such form and
as of such date as the Trustee may reasonably require of the names and
addresses of Holders of Securities of any Series and the Company shall
otherwise comply with Section 312(a) of the TIA.
The Trustee shall be entitled to rely upon a certificate
of the Registrar, the Company or such other Paying Agent, as the case may be,
as to the names and addresses of the Holders of Securities of any Series and
the principal amounts and serial numbers of such Securities.
SECTION 2.07 Transfer and Exchange.
When Securities are presented to the Registrar or a
co-Registrar with a request to register the transfer or to exchange them for an
equal principal amount of Securities of the same Series and Stated Maturity of
other authorized denominations, the Registrar shall register the transfer or
make the exchange as requested if its requirements for such transactions are
met. To permit registrations of transfer and exchanges, the Company shall
execute and the Trustee shall authenticate Securities at the Registrar's
request. No service charge shall be made to any Holder for any registration of
transfer or exchange, but the Company or the Trustee may require payment of a
sum sufficient to cover any transfer tax or similar governmental charge payable
in connection therewith (other than any such transfer taxes or similar
governmental charge payable upon exchanges pursuant to Section 2.08, 2.11,
2.12, 3A.08 or 9.05 in which case such transfer taxes or similar governmental
charges shall be paid by the Company).
The Company shall not be required (i) to issue, register
the transfer of or exchange any Security of any Series during a period
beginning at the opening of the day which is 15 Business Days before the day of
the mailing of a notice of redemption of Securities of such Series selected for
redemption
<PAGE> 23
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under Section 3A.04 or 3B.01 and ending at the close of business on the day of
such mailing, or (ii) to register the transfer of or exchange any Security so
selected for redemption in whole or in part, except, in the case of any
Security to be redeemed in part, the portion thereof not to be redeemed.
SECTION 2.08 Replacement Securities.
If a mutilated Security is surrendered to the Trustee or
if the Holder of a Security claims that the Security has been lost, destroyed
or wrongfully taken, the Company shall issue and the Trustee shall authenticate
a replacement Security of like tenor, Series and principal amount, bearing a
number not assigned to any Security of the same Series then outstanding, if the
Trustee's requirements are met. If required by the Trustee or the Company, an
indemnity bond must be sufficient in the judgment of the Trustee to protect the
Company, the Trustee or any Agent from any loss which any of them may suffer if
a Security is replaced. The Company may charge such Holder for its expenses in
replacing a Security.
Every replacement Security is an additional obligation of
the Company.
SECTION 2.09 Outstanding Securities.
Securities, or Securities of any particular Series,
outstanding at any time are all such Securities that have been authenticated
and delivered by the Trustee except for those cancelled by it, those delivered
to it for cancellation and those described in this Section as not outstanding.
A Security does not cease to be outstanding because the Company or one of its
Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.08, it
ceases to be outstanding unless the Trustee receives proof satisfactory to it
that the replaced Security is held by a bona fide purchaser.
If the Trustee or Paying Agent (other than the Company or
a Subsidiary) holds on the Maturity Date or Redemption Date money sufficient to
pay Securities payable on such date, then on and after that date such
Securities cease to be outstanding and interest on them ceased to accrue;
provided that, if such Securities are to be redeemed, notice of such redemption
has been duly given pursuant to this Indenture or provision therefore
satisfactory to the Trustee has been made.
<PAGE> 24
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SECTION 2.10. Treasury Securities.
In determining whether the Holders of the required
principal amount of Securities of any Series have concurred in any direction,
waiver or consent (a) the principal amount of an Original Issue Discount
Security of such Series that shall be deemed to be outstanding for such
purposes shall be the amount that would be due and payable as of the date of
determination upon a declaration of acceleration thereof pursuant to Section
6.02 and (b) Securities of such Series owned by the Company or an Affiliate of
the Company shall be disregarded, except that for the purposes of determining
whether the Trustee shall be protected in relying on any such direction, waiver
or consent, only Securities of such Series which the Trustee actually knows are
so owned shall be so disregarded. Upon the request of the Trustee, the Company
shall furnish to the Trustee an Officer's Certificate identifying all
Securities of such Series, if any, known by the Company to be owned by it or
any of its Affiliates.
SECTION 2.11. Global Securities.
If the Authorizing Resolution so provides, the Company
may issue some or all of the Securities of a Series in temporary or permanent
global form. A global Security may be issued only in fully registered form. A
global Security shall represent that amount of Securities of a Series as
specified in the global Security or as endorsed thereon from time to time. At
the Company's request, the Registrar shall endorse a global Security to reflect
the amount of any increase or decrease in the Securities represented thereby.
The Company may issue a global Security only to a
depository designated by the Company. A depository may transfer a global
Security only as a whole to its nominee or to a successor depository.
The Authorizing Resolution may establish, among other
things, the manner of paying principal and interest on a global Security and
whether and upon what terms a beneficial owner of an interest in a global
Security may exchange such interest for definitive Securities.
The Company, the Trustee and any Agent shall not be
responsible for any acts or omissions of a depository, for any depository
records of beneficial ownership interests or for any transactions between the
depository and beneficial owners.
<PAGE> 25
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SECTION 2.12. Temporary Securities.
Until definitive Securities of any Series are ready for
delivery, the Company may prepare and execute and, upon compliance with the
requirements of Section 2.03, the Trustee shall authenticate temporary
Securities of such Series. Temporary Securities of any Series shall be
substantially in the form of definitive Securities of such Series but may have
variations that the Company considers appropriate for temporary Securities.
Without unreasonable delay, the Company shall prepare and the Trustee shall
authenticate definitive Securities for such Series in exchange for temporary
Securities of such Series in an exchange pursuant to Section 2.07.
SECTION 2.13. Cancellation.
The Company at any time may deliver Securities to the
Trustee for cancellation. The Registrar and the Paying Agent shall forward to
the Trustee any Securities surrendered to them for transfer, exchange or
payment. The Trustee and no one else shall cancel all Securities surrendered
for transfer, exchange, payment or cancellation or for credit against any
Sinking Fund Payment in respect of such Series pursuant to Section 3B.02. The
Company may not issue new Securities to replace Securities it has paid or
delivered to the Trustee for cancellation.
SECTION 2.14. Defaulted Interest.
If the Company defaults in a payment of interest on the
Securities of any Series, it shall pay the defaulted interest, plus any
interest payable on the defaulted interest, to the persons who are Holders of
such Securities on a subsequent special record date ("Special Record Date") and
such term, as used in this Section 2.14 with respect to the payment of any
defaulted interest, shall mean the fifteenth day next preceding the date fixed
by the Company for the payment of defaulted interest, whether or not such day
is a Business Day. At least 15 days before the Special Record Date, the
Company shall mail to each holder of such Securities a notice that states the
Special Record Date, the payment date and the amount of defaulted interest to
be paid.
SECTION 2.15. Persons Deemed Owners.
The Company, the Trustee and any Agent may treat the
person in whose name any Security is registered as the owner of such Security
for the purpose of receiving payment of principal
<PAGE> 26
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of and (subject to Section 2.14) interest on such Security and for all other
purposes whatsoever, whether or not such Security shall have matured, and
neither the Company, the Trustee nor any Agent shall be affected by any notice
to the contrary.
ARTICLE 3A
REDEMPTION
SECTION 3A.01. Right of Redemption.
Redeemable Securities may be redeemed otherwise than
through the operation of the Sinking Fund provided for in Article 3B at the
election of the Company at the times, on the conditions and at the Redemption
Prices specified therein, in (or pursuant to) the Authorizing Resolution
relating thereto or in the supplemental indenture (if any) executed in
connection with the issuance of such Securities to the extent provided therein.
SECTION 3A.02. Applicability of Article.
Redemption of Securities at the election of the Company
or otherwise, as permitted or required by any provision referred to in Section
3A.01, shall be made in accordance with the provisions of this Article.
SECTION 3A.03. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities of
any Series shall be evidenced by a Board Resolution or set forth in an
Officers' Certificate which states that such election has been duly authorized
by all requisite corporate action on the part of the Company. In case of any
redemption at the election of the Company of less than all of the Securities of
such Series the Company shall, at least 60 days prior to the Redemption Date
fixed by the Company (unless a shorter notice shall be satisfactory to the
Trustee), notify the Trustee of such Redemption Date and of the principal
amount of Securities of the Series or the several Series, as the case may be,
to be redeemed. In the case of any redemption of Securities prior to the
expiration of any restriction on such redemption provided in the Securities or
elsewhere in this Indenture, the Company shall furnish the Trustee with an
Officers' Certificate evidencing compliance with such restriction.
<PAGE> 27
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SECTION 3A.04. Selection by Trustee of Securities to Be
Redeemed.
If less than all the Securities of any Series are to be
redeemed, the particular Securities of such Series to be redeemed shall be
selected not more than 90 days prior to the Redemption Date by the Trustee,
from the outstanding Securities of such Series not previously called for
redemption, in compliance with the requirements of the principal national
securities exchange, if any, on which such Securities are listed or, if the
Securities are not listed on a national securities exchange, on a pro rata
basis or by lot. The Trustee may select for redemption portions (equal to the
minimum authorized denomination of the Series or any integral multiple thereof)
of the principal amount of such Securities of a denomination larger than such
minimum denomination. If the Company shall so specify, Securities held by the
Company or any of its Subsidiaries or Affiliates shall not be included in the
Securities selected for redemption.
The Trustee shall promptly notify the Company in writing
of the Securities selected for redemption and, in the case of any Securities
selected for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to the redemption of Securities
shall relate, in the case of any Securities redeemed or to be redeemed only in
part, to the portion of the principal amount of such Security which has been or
is to be redeemed.
SECTION 3A.05. Notice of Redemption.
Notice of redemption shall be given by first class mail,
postage prepaid, mailed not less than 30 nor more than 60 days prior to the
Redemption Date, to each Holder of Securities to be redeemed, at the Holder's
address appearing in the Security Register.
All notices of redemption shall state:
(1) the Redemption Date;
(2) the Redemption Price;
<PAGE> 28
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(3) if less than all outstanding Securities of the
Series are to be redeemed, the identification (and, in the case
of partial redemption, the principal amount) of the particular
Securities to be redeemed;
(4) that on the Redemption Date the Redemption Price
will become due and payable upon each such Security, and that
interest thereon shall cease to accrue on and after said date;
(5) that the redemption is for a Sinking Fund, if
such is the case; and
(6) the place or places where such Securities are to
be surrendered for payment of the Redemption Price.
Notice of redemption of Securities to be redeemed at the
election of the Company shall be given by the Company or, at the Company's
request, by the Trustee in the name of and at the expense of the Company.
SECTION 3A.06. Deposit of Redemption Price.
On or prior to any Redemption Date, the Company shall
deposit with the Trustee or with a Paying Agent (or, if the Company is acting
as its own Paying Agent, segregate and hold in trust as provided in Section
2.05) an amount of money sufficient to pay the Redemption Price of, including
(except if the Redemption Date shall be an Interest Payment Date) any accrued
interest on, all the Securities or portions thereof which are to be redeemed on
that date.
SECTION 3A.07. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the
Securities so to be redeemed shall, on the Redemption Date, become due and
payable at the Redemption Price thereof and from and after such date (unless
the Company shall default in the payment of the Redemption Price) such
Securities shall cease to bear interest. Upon surrender of any such Security
for redemption in accordance with said notice such Security shall be paid by
the Company at the Redemption Price, provided, however, that installments of
interest whose Stated Maturity is on or prior to the Redemption Date shall be
payable to the Holders of such Securities registered as such on the relevant
Regular or Special Record Date according to their terms and the provision of
such Security and Section 2.14.
<PAGE> 29
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If any Security called for redemption shall not be so
paid upon surrender thereof for redemption, the principal shall, until paid or
duly provided for, bear interest from the Redemption Date at the rate borne by
the Security or, in the case of Original Issue Discount Securities, at a rate
equal to the Yield to Maturity thereof.
SECTION 3A.08. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall
be surrendered at the office or agency of the Company maintained for that
purpose pursuant to Section 4.02 (with, if the Company or the Trustee so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder
thereof or his attorney duly authorized in writing), and the Company shall
execute and the Trustee shall authenticate and deliver to the Holder of such
Security, without service charge, a new Security or Securities of the same
Series, of any authorized denomination as requested by such Holder in aggregate
principal amount equal to and in exchange for the unredeemed portion of the
principal of the Security so surrendered.
ARTICLE 3B
SINKING FUND
SECTION 3B.01. Sinking Fund Payments.
As and for a Sinking Fund for the retirement of Sinking
Fund Securities, the Company will, until all such Securities are paid or
payment thereof is duly provided for, deposit in accordance with Section 3A.06,
at such times and subject to such terms and conditions as shall be specified in
the provisions of such Securities and the Authorizing Resolution and/or
supplemental indenture (if any) relating thereto, such amounts in cash as shall
be required or permitted under such provisions in order to redeem Securities on
the specified Redemption Dates at a Redemption Price equal to their principal
amounts, less in each such case the amount of any credit against such payment
received by the Company under Section 3B.02. Each such Sinking Fund payment
shall be applied to the redemption of Securities on the specified Redemption
Date as herein provided.
<PAGE> 30
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SECTION 3B.02 Satisfaction of Sinking Fund Payments
with Securities.
The Company (1) may deliver Securities of the same Series
(other than any Securities of such Series previously called for redemption
pursuant to the Sinking Fund or theretofore applied as a credit against a
Sinking Fund payment) and (2) may apply as a credit Securities of the same
Series redeemed at the election of the Company pursuant to Section 3A.01 or
through the operation of the Sinking Fund in ay period in excess of the minimum
amount required for such period under Section 3B.01 and not theretofore applied
as a credit against a Sinking Fund payment, in each case in satisfaction of all
or any part of any Sinking Fund payment required to be made pursuant to Section
3B.01. Each such Security so delivered or applied shall be credited for such
purpose by the Trustee at a Redemption Price equal to its principal amount or,
in the case of an Original Issue Discount Security, its then accreted value,
and the required amount of such Sinking Fund payment in respect of such Series
shall be reduced accordingly.
SECTION 3B.03. Redemption of Securities for Sinking
Fund.
If in any year the Company shall elect to redeem in
excess of the minimum principal amount of Securities of any Series required to
be redeemed pursuant to Section 3B.01 or to satisfy all or any part of any
Sinking Fund payment by delivering or crediting Securities of the same Series
pursuant to Section 3B.02, then at least 45 days prior to the date on which the
Sinking Fund payment in question shall be due (or such shorter period as shall
be approved by the Trustee), the Company shall deliver to the Trustee an
Officers' Certificate specifying the amount of the Sinking Fund payment and the
portions thereof which are to be satisfied by payment of cash, by delivery of
Securities of such Series or by crediting Securities of such Series, and, at
least 45 days prior to the Sinking Fund payment date (or such shorter period as
shall be approved by the Trustee), will also deliver to the Trustee the
Securities of such Series to be so delivered. Such Officers' Certificate shall
also state that the Securities forming the basis of any such credit do not
include any Securities which have been redeemed through the operation of the
Sinking Fund in the minimum amount required under Section 3B.01 or previously
credited against any Sinking Fund payment. The Trustee shall, upon receipt of
such Officers' Certificate (or, if it shall not have received such an Officers'
Certificate at least 45 days prior
<PAGE> 31
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to the Sinking Fund payment date, then following such 45th day), select the
Securities of such Series to be redeemed upon the next Sinking Fund payment
date, in the manner specified in Section 3A.04, and cause notice of the
redemption thereof to be given in the name of and at the expense of the Company
in the manner provided in Section 3A.05. Such notice having been duly given,
the redemption of such Securities shall be made upon the terms and in the
manner stated in Sections 3A.06, 3A.07 and 3A.08.
ARTICLE 4
COVENANTS
SECTION 4.01. Payment of Securities.
The Company shall pay the principal of and interest on
the Securities of each Series on the dates and in the manner provided in the
Securities and in this Indenture. An installment of principal or interest
shall be considered paid on the date due if the Trustee or Paying Agent (other
than the Company or a Subsidiary) holds on that date money designated for and
sufficient to pay the installment.
The Company shall pay interest on overdue principal at
the respective rates borne by such Securities or, in the case of Original Issue
Discount Securities, at rates equal to the respective Yields to Maturity
thereof; it shall pay interest on overdue installments of interest at the
respective rates borne by such Securities.
SECTION 4.02. Maintenance of Office or Agency.
Except as otherwise provided in the Authorizing
Resolutions and/or supplemental indenture (if any) relating to any Series, the
Company will maintain in the City of New York, an office or agency where
Securities may be surrendered for registration of transfer or exchange or for
presentation for payment and where notices and demands to or upon the Company
in respect to the Securities and this Indenture may be served. The Company
will give prompt written notice to the Trustee of the location, and any change
in the location, of such office or agency. If at any time the Company shall
fail to maintain any such required office or agency or shall fail to furnish
the Trustee with the address thereof, such presentations,
<PAGE> 32
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surrenders, notices and demands may be made or served at the Corporate Trust
Office.
The Company may also from time to time designate one or
more other offices or agencies where the Securities of any Series or a
particular Series may be presented or surrendered for any or all such purposes
and may from time to time rescind such designations; provided, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in the City of New York, for such
purposes. The Company will give prompt written notice to the Trustee of any
such designation or rescission and of any change in the location of any such
other office or agency.
The Company hereby initially designates the Trustee in
the City of New York, as an agency of the Company in accordance with Section
2.04.
SECTION 4.03. Corporate Existence.
Subject to Article 5 and Section 4.07, the Company will
do or cause to be done all things necessary to preserve and keep in full force
and effect its corporate existence and the corporate, partnership or other
existence of each Subsidiary of the Company in accordance with the respective
organizational documents of each such Subsidiary and the rights (charter and
statutory) and material franchises of the Company and its Subsidiaries;
provided, however, that the Company shall not be required to preserve any such
right or franchise, or the corporate existence of any Subsidiary, if the Board
of Directors or management of the Company or such Subsidiary shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and its Subsidiaries, taken as a whole.
SECTION 4.04 Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (1) all material taxes,
assessments and governmental charges levied or imposed upon the Company or any
Subsidiary or upon the income, profits or property of the Company or any
Subsidiary and (2) all lawful claims for labor, materials and supplies which,
if unpaid, might by law become a material Lien upon the property of the Company
or any Subsidiary; provided, however, that the Company shall not be required to
pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or
<PAGE> 33
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claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings and for which the appropriate provision has been
made.
SECTION 4.05. Notice of Defaults.
In the event that any Indebtedness of the Company or any
of its Subsidiaries is declared due and payable before its maturity because of
the occurrence of any default (or any event which, with notice or the lapse of
time, or both, shall constitute such default) under such Indebtedness, the
Company will promptly give written notice to the Trustee of such declaration.
SECTION 4.06. Maintenance of Properties.
Subject to Section 4.07, the Company will cause all
material properties owned by or leased to it or any Subsidiary of the Company
and used or useful in the conduct of its business or the business of any such
Subsidiary to be maintained and kept in normal condition, repair and working
order and supplied with all necessary equipment and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may seem necessary, so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that nothing in this Section shall
prevent the Company or any such Subsidiary from discontinuing the use,
operation or maintenance of any of such properties, or disposing of any of
them, if such discontinuance or disposal is, in the judgment of the Board of
Directors, board of trustees or managing partners of the Subsidiary concerned,
or of an officer (or other agent employed by the Company or of any of its
Subsidiaries) of the Company or such Subsidiary having managerial
responsibility for any such property, desirable in the conduct of the business
of the Company or any Subsidiary.
SECTION 4.07 Liquidation.
The Board of Directors or the stockholders of the Company
may not adopt a plan of liquidation which provides for, contemplates or the
effectuation of which is preceded by (i) the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company otherwise
than substantially as an entirety (Article 5 of this Indenture being the
Article which governs any such sale, lease, conveyance or other disposition
substantially as an entirety) and (ii) the
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distribution of all or substantially all of the proceeds of such sale, lease,
conveyance or other disposition and of the remaining assets of the Company to
the holders of Capital Stock of the Company, unless the Company shall in
connection with the adoption of such plan make provisions for, or agree that
prior to making any liquidating distributions it will make provisions for, the
satisfaction of the Company's obligations hereunder and under the Securities of
each Series as to the payment of principal and interest. The Company shall be
deemed to make provision for such payments only if (a) the Company delivers in
trust to the Trustee or Paying Agent (other than the Company or a Subsidiary)
(i) in the case of any Securities of any Series denominated in United States
dollars, an amount of cash sufficient to pay principal of and interest on such
outstanding securities at their respective Stated Maturities or U.S. Government
Obligations in an aggregate principal amount equal to the unpaid principal
amount of such Securities and having maturities and interest payment dates that
shall coincide, as nearly as may be practicable, with the dates that the
principal of and interest on such Securities are due and (ii) in the case of
any Securities of any Series denominated in any currency other than United
States dollars, an amount of the Required Currency sufficient to pay principal
of and interest on such outstanding Securities at their respective Stated
Maturities or (b) there is an express assumption of the due and punctual
payment of the Company's obligations hereunder and under the Securities of each
Series and the performance and observance of all covenants and conditions to be
performed by the Company hereunder, by the execution and delivery of a
supplemental indenture in form satisfactory to the Trustee by a person which
acquires or will acquire (otherwise than pursuant to a lease) a portion of the
assets of the Company, and which is organized and existing under the laws of
the United States, any State thereof or the District of Columbia; provided,
however, that the Company shall not make any liquidating distribution until
after the Company shall have certified to the Trustee with an Officers'
Certificate and an Opinion of Counsel at least five days prior to the making of
any liquidating distribution that it has complied with the provisions of this
Section 4.07.
SECTION 4.08. Compliance Certificate.
The Company shall deliver to the Trustee within 90 days
after the end of each fiscal quarter of the Company an Officers' Certificate
stating whether or not the signers know of any Default or Event of Default by
the Company that occurred during such fiscal quarter and whether all of the
conditions
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and covenants of the Company have been complied with regardless of any period
of grace or requirement of notice provided under the Indenture. If they do
know of such a Default or Event of Default, the certificate shall describe the
Default or Event of Default, as the case may be, and its status. The first
Officers' Certificate to be delivered pursuant to this Section 4.08 shall be
for the fiscal quarter ending immediately after the Original Issue Date.
SECTION 4.09. SEC Reports.
(a) The Company shall file with the SEC copies of
the annual reports and such other information, documents and other reports (or
copies of such portions of any of the foregoing as the SEC may by rules and
regulations prescribe) required to be filed with the SEC pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended, whether or not the
Company is then subject to such filing requirements and will file with the
Trustee, within 15 days after it files them with the SEC, copies of all such
annual reports, information, documents and other reports. The Company also
shall comply with the other provisions of TIA Section 314(a).
(b) So long as the Securities of any Series remain
outstanding, the Company shall cause its annual report to stockholders and any
quarterly or other financial reports furnished by it to stockholders to be
mailed to the Holders of Securities outstanding at their addresses appearing in
the Security Register.
SECTION 4.10. Waiver of Stay, Extension or Usury
Laws.
The Company covenants (to the extent that it may lawfully
do so) that it will not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension law
or any usury law or other law, which would prohibit or forgive the Company from
paying all or any portion of the principal of and/or interest on the Securities
of any Series as contemplated herein, wherever enacted, now or at any time
hereafter in force, or which may affect the covenants or the performance of
this Indenture; and (to the extent that it may lawfully do so) the Company
hereby expressly waives all benefit or advantage of any such law, and covenants
that it will not hinder, delay or impede the execution of any power herein
granted to the Trustee, but will
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suffer and permit the execution of every such power as though no such law had
been enacted.
SECTION 4.11. Restrictions on Liens.
The Company will not, and will not permit any Subsidiary
of the Company to, incur, create, assume or otherwise become liable in respect
of any Indebtedness secured by a Lien, or guarantee any Indebtedness with a
guarantee which is secured by a Lien, on any Principal Property of the Company
or any Capital Stock or Indebtedness of any Consolidated Subsidiary, without
effectively providing that the Securities of each Series (together with, if the
Company shall so determine, any other Indebtedness of the Company then existing
or thereafter created ranking equally with the Securities of each Series) shall
be secured equally and ratably with (or, at the option of the Company, prior
to) such secured Indebtedness, so long as such secured Indebtedness shall be so
secured; provided, however, that this Section 4.11 shall not apply to
Indebtedness secured by:
(1) Liens existing on the date of this Indenture;
(2) Liens in favor of governmental bodies to secure
progress, advance or other payments;
(3) 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;
(4) 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 (y) of the second paragraph of
Section 4.12, does not exceed five
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percent of the Consolidated Net Tangible Assets of the Company;
and
(5) any extension, renewal or replacement (or
successive extensions, renewals or replacements), as a whole or
in part, of any Lien referred to in the foregoing clauses (1) to
(4) 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.
If at any time the Company or any Subsidiary of the
Company shall incur, create, assume or otherwise become liable in respect of
any Indebtedness secured by a Lien, or guarantee any Indebtedness with a
guarantee which is secured by a Lien, on any Principal Property of the Company
or any Capital Stock or Indebtedness of any Consolidated Subsidiary other than
as permitted under clauses (1) through (5) of this Section 4.11, the Company
shall promptly deliver to the Trustee (i) an Officers' Certificate stating that
the covenant of the Company to secure the Securities equally and ratably with
such secured Indebtedness pursuant to this Section 4.11 has been complied with,
(ii) an Opinion of Counsel that such covenant has been complied with and that
any instruments executed by the Company or any Subsidiary of the Company in
performance of such covenant comply with the requirements of such covenant and
(iii) copies of all such instruments.
SECTION 4.12. Restrictions on Sales and Leasebacks.
The Company will not, and will not permit any Subsidiary
of the Company to, sell or transfer any Principal Property of the Company, with
the Company or any such Subsidiary taking back a lease of such Principal
Property of the Company (a "Sale and Leaseback Transaction"), unless (i) such
Principal Property of the Company is sold within 360 days from the date of
acquisition of such Principal Property of the Company or the date of the
completion of construction or commencement of full operations on such Principal
Property of the Company, whichever is later, or (ii) the Company or any such
Subsidiary, within 120 days after such sale, applies or causes to be applied to
the retirement of Funded Debt of the Company or any Subsidiary (other than
Funded Debt of the Company which by its terms or the terms of the instrument
pursuant to which it was issued is subordinate in right of payment to the
Securities of each
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Series) an amount not less than the greater of (A) the net proceeds of the sale
of such Principal Property of the Company or (B) the fair value (as determined
in any manner approved by the Board of Directors) of such Principal Property of
the Company.
The provisions of this Section 4.12 shall not prevent a
Sale and Leaseback Transaction (x) if the lease entered into by the Company or
any Subsidiary of the Company in connection therewith is for a period,
including renewals, of not more than 36 months, (y) if the Company or any
Subsidiary of the Company would, at the time of entering into such Sale and
Leaseback Transaction, be entitled, without equally and ratably securing the
Securities, to create or assume a Lien on such Principal Property securing
Indebtedness in an amount at least equal to the Attributable Debt in respect of
such Sale and Leaseback Transaction pursuant to clause (4) of Section 4.11 or
(z) involving a Sale and Leaseback of a Principal Property of the Company with
UHT, the value of which does not exceed five percent of the Consolidated Net
Tangible Assets of the Company.
ARTICLE 5
SUCCESSOR CORPORATION
SECTION 5.01. When Company May Merge, etc.
The Company shall not consolidate with or merge with or
into any other corporation or transfer all or substantially all of its
properties and assets as an entirety to any person in one or a series of
related transactions, unless:
(1) either the Company shall be the continuing
person, or the person (if other than the Company) formed by such
consolidation or into which the Company is merged or to which all
or substantially all of the properties and assets of the Company
as an entirety are transferred shall be a corporation organized
and existing under the laws of the United States or any State
thereof or the District of Columbia and shall expressly assume,
by an indenture supplemental hereto, executed and delivered to
the Trustee, in form satisfactory to the Trustee, all the
obligations of the Company under the Securities of each Series
and this Indenture;
(2) immediately before and immediately after giving
effect to such transaction, no Event of Default and no Default
shall have occurred and be continuing; and
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(3) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating
that such consolidation, merger or transfer and such supplemental
indenture comply with this Article and that all conditions
precedent herein provided for relating to such transactions have
been complied with.
SECTION 5.02. Successor Corporation Substituted.
Upon any consolidation or merger, or any transfer of all
or substantially all of the properties and assets of the Company in accordance
with Section 5.01, the successor corporation formed by such consolidation or
into which the Company is merged or to which such transfer is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Indenture with the same effect as if such successor
corporation had been named as the Company herein.
ARTICLE 6
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.
An "Event of Default" occurs if, with respect to any
Series of Securities, unless it is either inapplicable to a particular Series
or it is specifically deleted, or modified in the Authorizing Resolution and/or
supplemental indenture (if any) in respect of the Series, and upon any other
events which may be specified as Events of Default in the Authorizing
Resolution and/or supplemental indenture (if any) in respect of such Series:
(1) the Company defaults in the payment of interest
on any Securities of such Series when the same becomes due and
payable and the default continues for a period of 30 days;
(2) the Company defaults in the payment of the
principal of any Securities of such Series when the same becomes
due and payable at its Maturity or otherwise or defaults in the
deposit of any Sinking Fund installment in respect of such
Series, when and as payable by the terms of Section 3B.01 hereof;
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(3) the Company fails to comply with any of its
other agreements contained in the Securities of such Series or
this Indenture (other than an agreement relating exclusively to
another Series of Securities) and the default continues for the
period and after the notice specified below;
(4) there shall be (i) a default under any bond,
debenture, note or other evidence of indebtedness for money
borrowed or under any mortgage, indenture or other instrument
under which there may be issued or by which there may be secured
or evidenced any Indebtedness by the Company or any Significant
Subsidiary or by any Subsidiaries of the Company which in the
aggregate would constitute a Significant Subsidiary or under any
guarantee of payment of Indebtedness by the Company or any
Significant Subsidiary or by any Subsidiaries of the Company
which in the aggregate would constitute a Significant Subsidiary,
whether such Indebtedness or guarantee now exists or shall
hereafter be created, and the effect of such default is to cause
such Indebtedness (or Indebtedness so guaranteed) to become due
prior to its Stated Maturity or (ii) a failure to pay at the
Stated Maturity of any such Indebtedness (or Indebtedness so
guaranteed) any amounts then due and owing thereunder; provided,
however, that no Default under this clause (4) shall exist if all
such defaults and failures to pay relate to Indebtedness
(including Indebtedness so guaranteed) with an aggregate
principal amount of not more than $5,000,000 at the time
outstanding;
(5) the Company or any Significant Subsidiary or any
Subsidiaries of the Company which in the aggregate would
constitute a Significant Subsidiary pursuant to or within the
meaning of any Bankruptcy Law:
(A) commences a voluntary case or proceeding,
(B) consents to the entry of an order for
relief against it in an involuntary case or proceeding,
(C) consents to the appointment of a
Custodian of it or for all or substantially all of its
property, or
(D) makes a general assignment for the
benefit of its creditors;
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(6) a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that:
(A) is for relief against the Company or any
Significant Subsidiary or any Subsidiaries of the Company
which in the aggregate would constitute a Significant
Subsidiary in an involuntary case or proceeding,
(B) appoints a Custodian of the Company or
any Significant Subsidiary or any Subsidiaries of the
Company which in the aggregate would constitute a
Significant Subsidiary or for all or substantially all of
its or their properties, or
(C) orders the liquidation of the Company or
any Significant Subsidiary or any Subsidiaries of the
Company which in the aggregate would constitute a
Significant Subsidiary,
and in each case the order or decree remains unstayed
and in effect for 60 days; or
(7) final judgments for the payment of money which
in the aggregate exceed $5,000,000 at the time outstanding shall
be rendered against the Company or any Significant Subsidiary or
any Subsidiaries of the Company which in the aggregate would
constitute a Significant Subsidiary by a court of competent
jurisdiction and shall remain undischarged for a period (during
which execution shall not be effectively stayed) of 60 days after
such judgmentbecomes final and nonappealable.
The term "Bankruptcy Law" means Title 11, U.S. Code or
any similar Federal or state law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or
similar official under any Bankruptcy Law.
For purposes of this Section 6.01, the term "Significant
Subsidiary" means a Subsidiary of the Company, including its Subsidiaries,
which meets any of the following conditions:
(a) the Company's and its other Subsidiaries'
investments in and advances to the Subsidiary exceed 10 percent
of the total assets of the Company and its
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Subsidiaries consolidated as of the end of any two of the three
most recently completed fiscal years; or
(b) the Company's and its other Subsidiaries'
proportionate share of the total assets of the Subsidiary exceeds
10 percent of the total assets of the Company and its
Subsidiaries consolidated as of the end of any two of the three
most recently completed fiscal years; or
(c) the Company's and its other Subsidiaries' equity
in the income from continuing operations before income taxes,
extraordinary items and cumulative effect of a change in
accounting principles of the Subsidiary exceeds 10 percent of
such income of the Company and its Subsidiaries consolidated as
of the end of any two of the three most recently completed fiscal
years.
A Default under clause (3) above is not an Event of
Default until the Trustee notifies the Company, or the Holders of at least 25%
in principal amount of the outstanding Securities of such Series notify the
Company and the Trustee, of the Default and the Company does not cure the
Default within 30 days after receipt of the notice. The notice must specify
the Default, demand that it be remedied and state that the notice is a "Notice
of Default." When a Default is cured, it ceases. Such notice shall be given
by the Trustee if so requested by the Holders of at least 25% in principal
amount of the Securities of such Series then outstanding.
Subject to the provisions of Sections 7.01 and 7.02, the
Trustee shall not be charged with knowledge of any Event of Default unless
written notice thereof shall have been given to a Trust Officer at the
corporate trust office of the Trustee by the Company, the Paying Agent, any
Holder or an agent of any Holder.
SECTION 6.02. Acceleration.
If an Event of Default (other than an Event of Default
with respect to the Company specified in Section 6.01(5) or (6)) with respect
to Securities of any Series occurs and is continuing, the Trustee may, by
notice to the Company, or the Holders of at least 25% in principal amount of
such Securities of such Series then outstanding may, by notice to the Company
and the Trustee, and the Trustee shall, upon the request of such Holders,
declare all unpaid principal (or, if such Securities are Original Issue
Discount Securities, such portion of the principal amount as may then be
payable on acceleration as provided in the terms thereof) and accrued interest
to the date of acceleration on all such Securities of such Series then
outstanding (if not then due and payable) to be due and payable and, upon any
such declaration, the same shall become and be immediately due and payable. If
an Event of Default with respect to the Company specified in Section 6.01(5) or
(6) occurs, all unpaid principal (or, if any Securities are Original Issue
Discount Securities, such
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portion of the principal amount as may then be payable on acceleration as
provided in the terms thereof) and accrued interest on all Securities of every
Series then outstanding shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Securityholder. Upon payment of such principal amount and interest, all of the
Company's obligations under such Securities of such Series and this Indenture
with respect to such Securities of such Series, other than obligations under
Section 7.07, shall terminate. The Holders of a majority in principal amount
of the Securities of such Series then outstanding by notice to the Trustee may
rescind an acceleration and its consequences if (i) all existing Events of
Default, other than the non-payment of the principal of the Securities of such
Series which has become due solely by such declaration of acceleration, have
been cured or waived, (ii) interest on overdue installments of interest and
overdue principal, which has become due otherwise than by such declaration of
acceleration, has been paid, (iii) the rescission would not conflict with any
judgment or decree of a court of competent jurisdiction and (iv) all payments
due to the Trustee and any predecessor Trustee under Section 7.07 have been
made.
SECTION 6.03. Other Remedies
If an Event of Default occurs and is continuing, the
Trustee may pursue any available remedy by proceeding at law or in equity to
collect the payment of principal of or interest on the Securities of the Series
as to which the Event of Default shall have occurred or to enforce the
performance of any provision of such Securities or the Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Securities of the Series as to which the Event of Default
shall have occurred or does not produce any of them in the proceeding. A delay
or omission by the Trustee or any Securityholder in exercising any right or
remedy occurring upon an Event of Default shall not impair the right or remedy
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or constitute a waiver of or acquiescence in the Event of Default. No remedy
is exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
SECTION 6.04. Waiver of Past Defaults.
Subject to Sections 6.07 and 9.02, the Holders of a
majority in principal amount of the outstanding Securities of a Series by
written notice to the Trustee may waive an existing Default or Event of Default
and its consequences, except a Default in the payment of principal of or
interest on any such Security as specified in clauses (1) and (2) of Section
6.01. When a Default or Event of Default is waived, it is cured and ceases.
SECTION 6.05. Control by Majority.
The Holders of a majority in principal amount of the
outstanding Securities of a Series (or, if more than one Series is affected, of
all such Series voting as a single class) may direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on it. However, the Trustee may refuse
to follow any direction that conflicts with any law or this Indenture that the
Trustee determines may be unduly prejudicial to the rights of another
Securityholder, or that may involve the Trustee in personal liability; provided
that the Trustee may take any other action deemed proper by the Trustee which
is not inconsistent with such direction.
SECTION 6.06. Limitation on Suits.
A Securityholder may not pursue any remedy with respect
to this Indenture or the Securities of the applicable Series unless:
(1) the Holder gives to the Trustee written notice
of a continuing Event of Default;
(2) the Holders of at least 25% in principal amount
of the outstanding Securities of the Series in respect of which
the Event of Default has occurred make a written request to the
Trustee to pursue a remedy;
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(3) such Holder or Holders offer to the Trustee
indemnity satisfactory to the Trustee against any loss, liability
or expense;
(4) the Trustee does not comply with the request
within 60 days after receipt of the request and the offer of
indemnity; and
(5) during such 60-day period the Holders of a
majority in principal amount of the outstanding Securities of
such Series do not give the Trustee a direction which, in the
opinion of the Trustee, is inconsistent with the request.
A Holder of Securities of any Series may not use this
Indenture to prejudice the rights of any other Holders of Securities of that
Series or to obtain a preference or priority over any other Holders of
Securities in that Series.
SECTION 6.07. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture,
the right of any Holder to receive payment of principal of and interest on the
Security, on or after the respective due dates expressed in such Security, or
to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of such
Holder.
SECTION 6.08. Collection Suit by Trustee.
If an Event of Default in payment of interest or
principal specified in Section 6.01(1) or (2) occurs and is continuing, the
Trustee may recover judgment in its own name and as trustee of an express trust
against the Company or any other obligor on the Securities of the Series in
respect of which the Event of Default has occurred for the whole amount of
principal and accrued interest remaining unpaid, together with interest overdue
on principal or, in the case of Original Issue Discount Securities, the then
accreted value, and interest on overdue installments of interest, in each case
at the rate per annum borne by such Securities or, in the case of Original
Issue Discount Securities, at a rate equal to the Yield to Maturity thereof,
and such further amount as shall be sufficient to cover the costs and expenses
of collection, including
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the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel.
SECTION 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel)
and the Securityholders allowed in any judicial proceedings relative to the
Company (or any other obligor upon the Securities), its creditors or its
property and shall be entitled and empowered to collect and receive any monies
or other property payable or deliverable on any such claims and to distribute
the same, and any Custodian in any such judicial proceedings is hereby
authorized by each Securityholder to make such payments to the Trustee and, in
the event that the Trustee shall consent to the making of such payments
directly to the Securityholders, to pay to the Trustee any amount due to it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07. Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any
Securityholder any plan or reorganization, arrangement, adjustment or
composition affecting the Securities of any Series or the rights of any Holder
thereof, or to authorize the Trustee to vote in respect of the claim of any
Securityholder in any such proceeding.
SECTION 6.10. Priorities.
If the Trustee collects any money or property pursuant to
this Article 6 with respect to Securities of a Series, it shall pay out the
money or property in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: to the Holders for amounts due and unpaid on the
Securities of such Series in respect of which monies have been
collected for principal and interest, ratably, without preference
or priority of any kind, according to the amounts due and payable
on such Securities for principal and interest, respectively; and
Third: to the Company.
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The Trustee, upon prior written notice to the Company,
may fix a record date and payment date for any payment to Securityholders
pursuant to this Section 6.10.
SECTION 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy
under this Indenture or in any suit against the Trustee for any action taken or
omitted by it as Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by
a Holder pursuant to Section 6.07, or a suit by any Holder or a group of
Holders of more than 10% in principal amount of the outstanding Securities of
all Series (or, if the matter in issue does not relate to all Series of
Securities, then the Holders of 10% in principal amount of the outstanding
Securities of all Series to which such issue relates) (treated as a single
class).
ARTICLE 7
TRUSTEE
SECTION 7.01. Duties of Trustee.
(a) The Trustee, except during the continuance of an
Event of Default known to it pursuant to Section 6.01, undertakes to perform
such duties and only such duties as are specifically set forth in this
Indenture. In an Event of Default known to the Trustee pursuant to Section
6.01 has occurred and is continuing, the Trustee shall exercise such of the
rights and powers vested in it by this Indenture and use the same degree of
care and skill in their exercise as a prudent person would exercise or use
under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of
Default known to the Trustee pursuant to Section 6.01:
(1) the Trustee need perform only those duties as
are specifically set forth in this Indenture and no others
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and no implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the statements
and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming
to the requirements of this Indenture; however, the Trustee shall
examine the certificates and opinions to determine whether or not
they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability
for its own negligent action, its own negligent failure to act, or its own
willful misconduct, except that:
(1) this paragraph does not limit the effect of
paragraphs (a) and (b) of this Section 7.01;
(2) the Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it is
proved that the Trustee was negligent in ascertaining the
pertinent facts; and
(3) the Trustee shall not be liable with respect to
any action it takes or omits to take in good faith in accordance
with a direction received by it pursuant to Section 6.05.
(d) No provisions of this Indenture shall require
the Trustee to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder or in the exercise
of any of its rights or powers if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it.
(e) Every provision of this Indenture that in any
way relates to the Trustee is subject to paragraphs (a), (b), (c) and (d) of
this Section 7.01.
(f) The Trustee shall not be liable for interest on
any money received by it except as the Trustee may agree with the Company in
writing. Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by law.
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SECTION 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) the Trustee may rely on any document believed by
it to be genuine and to have been signed or presented by the
proper person; the Trustee need not investigate any fact or
matter stated in the document;
(b) before the Trustee acts or refrains from acting,
it may require an Officers' Certificate or an Opinion of Counsel,
which shall conform to Section 10.05; the Trustee shall not be
liable for any action it takes or omits to take in good faith in
reliance on such certificate or opinion;
(c) the Trustee may act through its attorneys and
agents and shall not be responsible for the misconduct or
negligence of any agent appointed with due care;
(d) the Trustee shall not be liable for any action
it takes or omits to take in good faith which it reasonable
believes to be authorized or within its rights or powers;
(e) the Trustee may consult with counsel and the
advice or opinion of such counsel as to matters of law shall be
full and complete authorization and protection in respect of any
action taken, omitted or suffered by it hereunder in good faith
and in accordance with the advice or opinion of such counsel; and
(f) the Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this
Indenture at the request or direction of the Holders, including,
without limitation, the duties, rights and powers specified in
Section 6.02 hereof, unless such Holders have offered to the
Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by the Trustee
in compliance with such request or action.
SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may
become the owner or pledgee of Securities and may otherwise deal with the
Company or its Affiliates with the same rights it
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would have if it were not Trustee. Any Agent may do the same with like rights.
However, the Trustee is subject to Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or
adequacy of this Indenture or the Securities of any Series, it shall not be
accountable for the recitals contained in this Indenture or for the Company's
use of the proceeds from the Securities of any Series, and it shall not be
responsible for any statement in the Securities of any Series, or in any
prospectus used to sell the Securities of any Series, other than its
certificate of authentication.
SECTION 7.05. Notice of Defaults.
If a Default or an Event of Default occurs and is
continuing with respect of any Series of Securities, and if it is actually
known to the Trustee pursuant to Section 6.01 hereof, the Trustee shall mail to
each Holder of the Securities of such Series notice of the Default or Event of
Default within 60 days after it occurs. Except in the case of a Default or an
Event of Default in payment of principal of or interest on any Security or in
the payment of any Sinking Fund installment, the Trustee may withhold such
notice if and so long as a committee of its Trust Officers in good faith
determines that withholding the notice is in the interest of Securityholders.
SECTION 7.06. Reports by Trustee to Holders.
The Trustee shall transmit to the Holder such reports
concerning, among other things, the Trustee and its action under this Indenture
as may be required pursuant to the TIA at the time and in compliance with TIA
Section 313(a). The Trustee also shall comply with TIA Section 313(b)(2) and
313(c).
A copy of each such report at the time of its mailing to
Securityholders shall be filed with the SEC and each stock exchange, if any, on
which the Securities of any Series are listed.
The Company shall notify the Trustee if the Securities of
any Series become listed on any stock exchange.
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SECTION 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time
such compensation as shall be agreed upon in writing by the Company and the
Trustee. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Company shall reimburse the
Trustee upon request for all reasonable disbursements, expenses and advances
incurred or made by it. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee for, and hold it
harmless against, any loss or liability incurred by it in connection with the
administration of this trust and its duties hereunder, including the reasonable
expenses of defending itself against any claim or liability arising hereunder.
The Trustee shall notify the Company promptly of any claim asserted against the
Trustee for which it may seek indemnity. The Company need not pay for any
settlement made without its written consent, which consent shall not be
unreasonably withheld. The Company need not reimburse any expense or indemnify
against any loss or liability incurred by the Trustee through negligence or bad
faith.
To secure the Company's payment obligations in this
Section 7.07, the Trustee shall have a lien prior to the Securities of each
Series on all money or property held or collected by the Trustee, in its
capacity as Trustee, except money or property held in trust to pay principal of
or interest on particular Securities.
When the Trustee incurs expenses or renders services
after an Event of Default specified in Section 6.01(5) or (6) occurs, the
expenses and the compensation for the services are intended to constitute
expenses of administration under any Bankruptcy Law.
SECTION 7.08. Replacement of Trustee.
The Trustee may resign by so notifying the Company in
writing. The Holders of a majority in principal amount of the outstanding
Securities of all Series (voting as a single class) may remove the Trustee by
so notifying the Trustee in writing and may appoint a successor Trustee with
the Company's consent. The Company may remove the Trustee if:
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(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an
insolvent;
(3) a receiver or other public officer takes charge
of the Trustee or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy
exists in the office of Trustee for any reason, the Company shall promptly
appoint a successor Trustee. Within one year after the successor Trustee takes
office, the Holders of a majority in principal amount of the Securities of all
Series (voting as a single class) may appoint a successor Trustee to replace
the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of
its appointment to the retiring Trustee and to the Company. Immediately after
that, the retiring Trustee shall transfer, after payment of all sums then owing
to the Trustee pursuant to Section 7.07, all property held by it as Trustee to
the successor Trustee, subject to the lien provided in Section 7.07, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. A successor Trustee shall mail notice of its succession
to each Securityholder.
If a successor Trustee does not take office within 60
days after the retiring Trustee resigns or is removed, the retiring Trustee,
the Company or the Holders of at least 10% in principal amount of the
outstanding Securities of all Series (voting as a single class) may petition
any court of competent jurisdiction for the appointment of a successor Trustee.
If a Trustee fails to comply with Section 7.10, any
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee. Any successor
Trustee shall comply with TIA Section 310(a)(5).
Notwithstanding replacement of the Trustee pursuant to
this Section 7.08, the Company's obligation under Section 7.07 shall continue
for the benefit of the retiring Trustee.
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SECTION 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates with, merges or converts
into, or transfers all or substantially all of its corporate trust business to,
another corporation, the resulting, surviving or transferee corporation without
any further act shall be the successor Trustee.
SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies
the requirements of TIA Section 310(a)(1). The Trustee shall have a combined
capital and surplus of at least $50,000,000 as set forth in its most recent
published annual report of condition. The Trustee shall comply with TIA
Section 310(b).
SECTION 7.11. Preferential Collection of Claims
Against Company.
The Trustee shall comply with TIA Section 311(a),
excluding from the operation of Section 311(a) any creditor relationship
listed in TIA Section 311(b). A Trustee who has resigned or been removed
shall be subject to TIA Section 311(a) to the extent indicated.
ARTICLE 8
DISCHARGE OF INDENTURE
SECTION 8.01. Termination of Company's Obligations.
The Company may terminate its obligations under the
Securities of any Series and this Indenture with respect to such Series, except
those obligations referred to in the immediately succeeding paragraph, (a) if
all Securities of such Series previously authenticated and delivered (other
than destroyed, lost or stolen Securities of such Series which have been
replaced or paid or Securities of such Series for whose payment money or
securities have theretofore been held in trust and thereafter repaid to the
Company, as provided in Section 8.03) have been delivered to the Trustee for
cancellation and the Company has paid all sums payable by it hereunder, or (b)
if, following the date on which the Company shall have given notice to the
Trustee of its intention to defease all of the Securities of such Series, the
Company has irrevocably deposited or caused to be deposited with the Trustee or
a Paying Agent (other than the Company or a Subsidiary), under the
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terms of an irrevocable trust agreement in form and substance satisfactory to
the Trustee and any such Paying Agent, as trust funds in trust solely for the
benefit of the Holders for that purpose, (i) in the case of any Securities of
any Series denominated in United States dollars, an amount of cash sufficient
to pay principal of and interest on such outstanding Securities at their
respective Stated Maturities, or direct non-callable obligations of, or
non-callable obligations guaranteed by, the United States of America for the
payment of which guarantee or obligation the full faith and credit of the
United States is pledged, including but not limited to depository receipts
issued by a bank as custodian with respect to any such security held by the
custodian for the benefit of the holder of such depository receipt ("U.S.
Government Obligations"), maturing as to principal and interest in such amounts
and at such times as are sufficient without consideration of any reinvestment
of such interest, to pay principal of and interest on such outstanding
Securities at their respective Stated Maturities and (ii) in the case of any
Securities of any Series denominated in any currency other than United States
dollars, an amount of the Required Currency sufficient to pay principal of and
interest on such outstanding Securities at their respective Stated Maturities;
provided that the Trustee or such Paying Agent shall have been irrevocably
instructed to apply such cash, the proceeds of such U.S. Government Obligations
or the Required Currency, as the case may be, to the payment of said principal
and interest with respect to the Securities of such Series; and provided
further, that if such irrevocable deposit in trust with the Trustee of cash,
U.S. Government Obligations or the Required Currency, as the case may be, is
made on or prior to one year from the Stated Maturity for payment of principal
of the Securities of the applicable Series, the Company shall have delivered to
the Trustee either an Opinion of Counsel with no material qualifications in
form and substance satisfactory to the Trustee to the effect that Holders of
such 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 times as would have been
the case if such deposit and defeasance had not occurred, or an applicable
favorable ruling to that effect received from or published by the Internal
Revenue Service.
Notwithstanding the foregoing paragraph, the Company's
obligations in Sections 2.04, 2.05, 2.06, 2.07, 2.08, 4.01, 4.02, 7.07, 7.08,
8.03 and 8.04, and except as otherwise
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provided in the Authorizing Resolution and/or the supplemental indenture (if
any) in respect of any Series, shall survive until the Securities are no longer
outstanding. Thereafter, the Company's obligations in Sections 7.07, 8.03 an
8.04 shall survive.
After any such irrevocable deposit the Trustee upon
request shall acknowledge in writing the discharge of the Company's obligations
under the Securities of the applicable Series and this Indenture with respect
to such Series except for those surviving obligations specified above.
SECTION 8.02. Application of Trust Money.
The Trustee or Paying Agent shall hold in trust cash,
U.S. Government Obligations or the Required Currency, as the case my be,
deposited with it pursuant to Section 8.01, and shall apply the deposited cash,
the money from U.S. Government Obligations or the Required Currency, as the
case may be, in accordance with this Indenture to the payment of principal of
and interest on the Securities.
SECTION 8.03. Repayment to Company.
Subject to Section 8.01, the Trustee and the Paying Agent
shall promptly pay to the Company upon request any excess money held by them at
any time. Subject to the provisions of applicable law, the Trustee and the
Paying Agent shall pay to the Company upon request any money held by them for
the payment of principal or interest that remains unclaimed for two years;
provided, however, the Trustee or such Paying Agent before being required to
make any payment may at the expense of the Company cause to be published once
in a newspaper or general circulation in The City of New York or mail to each
Holder entitled to such money notice that such money remains unclaimed and
that, after a date specified therein which shall be at least 30 days from the
date of such publication or mailing, any unclaimed balance of such money then
remaining will be repaid to the Company. After payment to the Company, the
Trustee shall be released from all further liability with respect to such money
and Securityholders entitled to money must look to the Company for payment as
general creditors unless a applicable abandoned property law designates another
person.
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SECTION 8.04. Reinstatement.
If the Trustee or Paying Agent is unable to apply any
cash, U.S. Government Obligations or the Required Currency, as the case may be,
in accordance with Section 8.01 by reason of any legal proceeding or by reason
of any order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, the Company's
obligations under this Indenture (with respect to the applicable Series) and
the Securities of the applicable Series shall be revived and reinstated as
though no deposit had occurred pursuant to Section 8.01 until such time as the
Trustee or Paying Agent is permitted to apply all such cash, U.S. Government
Obligations and Required Currency, as the case may be, in accordance with
Sections 8.01; provided, however, that if the Company has made any payment of
interest on or principal of any Securities of any Series because of the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Securities to receive such payment from the cash, U.S.
Governmental Obligations or the Required Currency, as the case may be, held by
the Trustee or Paying Agent.
SECTION 8.05. Indemnity for U.S. Government
Obligations.
The Company shall pay, and shall indemnify the Trustee
against, any tax, fee or other charge imposed on or assessed against U.S.
Government Obligations deposited pursuant to Section 8.01 or the principal and
interest received on such U.S. Government Obligations.
ARTICLE 9
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders.
The Company, when authorized by a Board Resolution, and
the Trustee may amend or supplement this Indenture or the Securities of any
Series without notice to or consent of any Securityholder:
(1) to cure any ambiguity, defect or inconsistency;
(2) to comply with Article 5;
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(3) to provide for uncertificated Securities in
addition to certificated Securities;
(4) to secure the Securities in connection with
Section 4.11;
(5) to make any change that does not adversely
affect the rights of any Securityholder of such Series;
(6) to provide for the issuance and the terms of any
particular Series of Securities, the rights and obligations of
the Company and the Holders of the Securities of such Series, the
form or forms of the Securities of such Series and such other
matters in connection therewith as the Board of Directors of the
Company shall consider appropriate in accordance with Section 2.2
hereof, including, without limitation, provisions for (a)
additional or different covenants, restrictions or conditions
applicable to such Series, (b) additional or different Events of
Default in respect of such Series, (c) a longer or shorter period
of grace and/or notice in respect of any provision applicable to
such Series than is provided in Section 6.01, (d) immediate
enforcement of any Event of Default in respect of such Series or
(e) limitations upon the remedies available in respect of any
Events of Default in respect of such Series or upon the rights of
the holders of Securities of such Series to waive any such Event
of Default; provided, that this paragraph (6) shall not be deemed
to require the execution of a supplemental indenture to provide
for the issuance of any Series of Securities unless the same
shall be provided for in the Authorizing Resolution relating
thereto; or
(7) to provide for a separate Trustee for one or
more Series.
SECTION 9.02. With Consent of Holders.
Subject to Section 6.07, with the written consent of the
Holders of at least a majority in principal amount of the outstanding
Securities of all Series affected thereby (voting as a single class), the
Company, when authorized by a Board Resolution, and the Trustee may amend or
supplement this Indenture or such Securities without notice to any
Securityholder. Subject to Section 6.07, the Holders of a majority in
principal amount of the outstanding Securities of all Series affected thereby
(voting as a single class) may waive compliance by the
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Company with any provision of this Indenture or such Securities without notice
to any Securityholder; provided, that, only the holders of a majority in
principal amount of Securities of a particular Series may waive compliance with
a provision of this Indenture or the Securities of such Series having
applicability solely to such Series. However, without the consent of each
Securityholder affected, an amendment, supplement or waiver, including a waiver
pursuant to Section 6.04, may not:
(1) reduce the amount of Securities of such Series
or all Series (voting as a single class), as the case may be,
whose Holders must consent to an amendment, supplement or waiver;
(2) reduce the rate or change the Stated Maturity
for payment of interest on any Security;
(3) reduce the principal or any premium payable upon
the redemption of or change the Stated Maturity of any Security;
(4) waive a Default in the payment of the principal
of or interest on any Security;
(5) make any changes in Section 6.04, 6.07 or the
third sentence of this Section 9.02; or
(6) make any Security payable in money other than
that stated in the Security.
A supplemental indenture which changes or eliminates any covenant or other
provision of this Indenture which has expressly been included solely for the
benefit of one or more particular Series of Securities, or which modifies the
rights of the Holders of Securities of such Series with respect to such
covenant or other provision, shall be deemed not to affect the rights under the
Indenture of the Holders of Securities of any other Series.
It shall not be necessary for the consent of the Holders
under this Section to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this
Section becomes effective, the Company shall mail to the Holders affected
thereby a notice briefly describing the amendment,
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supplement or waiver. Any failure of the Company to mail such notice, or any
defect therein, shall not, however, in any way impair or affect the validity of
any such supplemental indenture.
SECTION 9.03. Compliance with Trust Indenture Act.
Every amendment to or supplement of this Indenture or the
Securities shall comply with the TIA as then in effect.
SECTION 9.04. Revocation and Effect of Consents.
Until an amendment or waiver becomes effective, a consent
to it by a Holder is a continuing consent by the Holder and every subsequent
Holder of such Security or portion of such Security that evidences the same
debt as the consenting Holder's Security, even if notation of the consent is
not made on any Security. However, any such Holder or subsequent Holder may
revoke in writing the consent as to his Security or portion of a Security.
Such revocation shall be effective only if the Trustee receives the written
notice of revocation before the date the amendment, supplement or waiver
becomes effective.
The Company may, but shall not be obligated to, fix a
record date for the purpose of determining the Holders entitled to consent to
any amendment, supplement or waiver which shall be at least 30 days prior to
the first solicitation of such consent. If a record date is fixed, then
notwithstanding the last two sentences of the immediately preceding paragraph,
those persons who were Holders at such record date (or their duly designated
proxies), and only those persons, shall be entitled to consent to such
amendment, supplement or waiver or to revoke any consent previously given,
whether or not such persons continue to be Holders after such record date. No
such consent shall be valid or effective for more than 90 days after such
record date.
After an amendment, supplement or waiver becomes
effective, it shall bind every Holder of a Security of such Series, unless it
makes a change described in any clauses (1) through (6) of Section 9.02. In
that case the amendment, supplement or waiver shall bind each Holder of a
Security who has consented to it and every subsequent Holder of a Security or
portion of a Security of the same Series that evidences the same debt as the
consent Holder's Security.
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SECTION 9.05. Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms
of a Security, the Trustee may require the Holder of the Security to deliver it
to the Trustee. The Trustee may place an appropriate notation on the Security
about the changed terms and return it to the Holder. Alternatively, if the
Company or the Trustee so determines, the Company in exchange for the Security
shall issue and the Trustee shall authenticate a new Security of the same
Series that reflects the changed terms.
SECTION 9.06. Trustee to Sign Amendments, etc.
The Trustee shall be entitled to receive, and shall be
fully protected in relying upon, an Officers' Certificate and an Opinion of
Counsel stating that the execution of any amendment, supplement or waiver
authorized pursuant to this Article 9 is authorized or permitted by this
Indenture. The Trustee may, but shall not be obligated to, execute any such
amendment, supplement or waiver which affects the Trustee's own rights, duties
or immunities under this Indenture or otherwise.
ARTICLE 10
MISCELLANEOUS
SECTION 10.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies, or
conflicts with another provision which is required to be included in this
Indenture by the TIA, the required provision shall control.
SECTION 10.02. Notices.
Any notice or communication shall be sufficiently given
if in writing and delivered in person or mailed by first-class addressed as
follows:
if to the Company:
Universal Health Services, Inc.
Universal Corporate Center
367 South Gulph Road
King of Prussia, Pennsylvania 19406
Attention:
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If to the Trustee:
Attention:
The Company or the Trustee by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
Any notice of communication mailed to a Securityholder
shall be mailed to him at his address as it appears on the Security Register
and shall be sufficiently given to him of so mailed within the time prescribed.
Failure to mail a notice of communication to a
Securityholder or any defect in it shall not affect its sufficiency with
respect to other Securityholders. Except for a notice to the Trustee, which is
deemed given only when received, if a notice or communication is mailed in the
manner provided above, it is duly given, whether or not the addressee receives
it.
SECTION 10.03. Communications by Holders with Other
Holders.
Securityholders may communicate pursuant to TIA Section
312(b) with other Securityholders with respect to their rights under this
Indenture or the Securities of an applicable Series. The Company, the Trustee,
the Registrar and any other person shall have the protection of TIA Section
312(c).
SECTION 10.04. Certificate and Opinion as to
Conditions Precedent.
Upon any request or application by the Company to the
Trustee to take any action under this Indenture, the Company shall furnish to
the Trustee:
(1) an Officers' Certificate stating that, in the
opinion of the signers, all conditions precedent, if any,
provided for in this Indenture relating to the proposed action
have been complied with; and
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(2) an Opinion of Counsel stating that, in the
opinion of such counsel, all such conditions precedent have been
complied with.
SECTION 10.05 Statements Required in Certificate
or Opinion.
Each certificate or opinion with respect to compliance
with a condition or covenant provided for in this Indenture, other than the
Officer's Certificate required by Section 4.08, shall include:
(1) a statement that the person making such
certificate or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of
the examination or investigation upon which the statements or
opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such person,
he has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion
of such person, such condition or covenant has been complied
with, provided, however, that with respect to matters of fact an
Opinion of Counsel may rely on an Officers' Certificate or
certificates of public officials.
SECTION 10.06 Rules by Trustee, Paying Agent,
Registrar.
The Trustee may make reasonable rules for action by or at
a meeting of Securityholders. The Paying Agent or Registrar may make
reasonable rules for its functions.
SECTION 10.07. Legal Holidays.
A "Legal Holiday" is a Saturday, a Sunday or a day on
which banking institutions in New York, New York are not required to be open.
If a payment date is a Legal Holiday at a place of payment, payment may be made
at that place on the next succeeding day that is not a Legal Holiday, and no
interest shall accrue for the intervening period.
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SECTION 10.08. Governing Law.
THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THIS
INDENTURE AND THE SECURITIES WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
SECTION 10.09. No Adverse Interpretation of Other
Agreements.
This Indenture may not be used to interpret another
indenture, loan or debt agreement of the Company or any of its Subsidiaries.
Any such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 10.10 No Recourse Against Others.
A director, officer, employee or stockholder, as such, of
the Company shall not have any liability for any obligations of the Company
under the Securities or the Indenture or for any claim based on, in respect of
or by reason of such obligations or their creation. Each Securityholder by
accepting a Security waives and releases all such liability.
SECTION 10.11 Successors.
All agreements of the Company in this Indenture and the
Securities shall bind its successor. All agreements of the Trustee in this
Indenture shall bind its successor.
SECTION 10.12 Duplicate Originals.
The parties may sign any number of copies of this
Indenture. Each signed copy shall be an original, but all of them together
represent the same agreement.
SECTION 10.13. Separability.
In case any provision in this Indenture or in the
Securities shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby, and a Holder shall have no claim therefor against any
party hereto.
<PAGE> 64
-58-
SECTION 10.14. Action of Holders When Securities Are
Denominated in Different
Currencies.
Whenever any action is to be taken hereunder by the
Holders of two or more Series of Securities denominated in different
currencies, then, for the purposes of determining the principal amount of
Securities held by such Holders, the aggregate principal amount of the
Securities denominated in a currency other than United States dollars shall be
deemed to be that amount of United States dollars that could be obtained for
such principal amount on the basis of the spot rate of exchange for such
currency as determined by the Company or by an authorized exchange rate agent
and evidenced to the Trustee by an Officers' Certificate as of the date the
taking of such action by the Holders of the requisite percentage in principal
amount of the Securities is evidenced to the Trustee. An exchange rate agent
may be authorized in advance or from time to time by the Company, and may be
the Trustee or its Affiliate. Any such determination by the Company or by any
such exchange rate agent shall be conclusive and binding on all Holders and the
Trustee, and neither the Company nor such exchange rate agent shall be liable
therefor in the absence of bad faith.
SECTION 10.15. Monies of Different Currencies to Be
Segregated.
The Trustee shall segregate monies, funds, and accounts
held by the Trustee hereunder in one currency from any monies, funds or
accounts in any other currencies, notwithstanding any provision herein which
would otherwise permit the Trustee to commingle such amounts.
SECTION 10.16. Payment to Be in Proper Currency.
Each reference in any Security, or in the Authorizing
Resolution and/or supplemental indenture, if any, relating thereto, to any
currency shall be of the essence. In the case of any Security denominated in
any currency (the "Required Currency") other than United States dollars, except
as otherwise provided therein or in the related Authorizing Resolution and/or
supplemental indenture, if any, the obligation of the Company to make any
payment of principal of or interest thereon shall not be discharged or
satisfied by any tender by the Company, or recovery by the Trustee, in any
currency other than the Required Currency, except to the extent that such
tender or recovery shall result in the Trustee timely holding the full amount
of the Required Currency. The costs and risks of any
<PAGE> 65
-59-
such exchange, including without limitations, the risks of delay and exchange
rate fluctuation, shall be borne by the Company; the Company shall remain fully
liable for any shortfall or delinquency in the full amount of Required Currency
then due and payable, and in no circumstances shall the Trustee be liable
therefor. The Company hereby waives any defense of payment based upon any such
tender or recovery which is not in the Required Currency, or which, when
exchanged for the Required Currency by the Trustee, is less than the full
amount of Required Currency then due and payable.
<PAGE> 66
-60-
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the date first written above.
<TABLE>
<S> <C> <C>
UNIVERSAL HEALTH SERVICES, INC.
[SEAL]
By:
-----------------------------------
Name:
Title:
Attest:
----------------------
Name:
Title:
PNC BANK, N.A.
[SEAL]
By:
-----------------------------------
Name:
Title:
Attest:
----------------------
Name:
Title:
</TABLE>
<PAGE> 67
EXHIBIT A
[FORM OF FACE OF SECURITY]
[The following is to be included if the Security is an Original
Issue Discount Security:]
[FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE UNITED
STATES INTERNAL REVENUE CODE OF 1986, AS AMENDED: (I) THE ISSUE DATE OF THIS
SECURITY IS ; (II) THE YIELD TO MATURITY IS ___%; (III) THE ORIGINAL
ISSUE DISCOUNT PER $ FACE AMOUNT AT WHICH THE SECURITY IS ISSUED IS $
; AND (IV) THE [EXACT] [APPROXIMATE] METHOD HAS BEEN USED TO DETERMINE YIELD
FOR THE ACCRUAL PERIOD BEGINNING AND ENDING AND THE AMOUNT OF
THE ORIGINAL ISSUE DISCOUNT PER $ FACE AMOUNT ALLOCABLE TO THE ACCRUAL
PERIOD BEGINNING AND ENDING IS $ ]
CUSIP NO.:
------
UNIVERSAL HEALTH SERVICES, INC.
[TITLE OF SECURITY]
Rate of Interest Maturity Date Original Issue Date
- ---------------- ------------- -------------------
No.
Universal Health Services, Inc., a corporation duly
organized and existing under the laws of the State of Delaware (herein called
the "Company"), for value received, hereby promises to pay to or
registered assigns, the principal sum of on the Maturity Date shown
above, and to pay interest thereon, at the annual rate of interest shown above,
from the Original Issue Date shown above or from the most recent Interest
Payment Date (as hereinafter defined) to which interest has been paid or duly
provided for, payable semi-annually on and of each year and at
maturity (an "Interest Payment Date"), commencing on the first such date after
the Original Issue Date, except that if the Original Issue Date is on or after
a Regular Record Date but before the next Interest Payment Date, interest
payments will commence on
<PAGE> 68
A-2
the second Interest Payment Date following the Original Issue Date.
[reference to currency[ies] of payment and currency exchange
arrangements, if applicable.]
The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in the Indenture,
be paid to the person in whose name this [name of Security] is registered at
the close of business on the Regular Record Date for any such Interest Payment
Date, which shall be the fifteenth calendar day (whether or not a Business Day)
preceding the applicable Interest Payment Date. Any such interest not so
punctually paid or duly provided for, and any interest payable on such
defaulted interest (to the extent lawful), will forthwith cease to be payable
to the Holder on such Regular Record Date and shall be paid to the person in
whose name this [name of Security] is registered at the close of business on a
special record date for the payment of such defaulted interest to be fixed by
the Company, notice of which shall be given to Holders of [name of Series] not
less than 15 days prior to such special record date. Payment of the principal
of and interest on this [name of Security] will be made at the agency of the
Company maintained for that purpose in [New York, New York or other place of
payment] and at any other office or agency maintained by the Company for such
purpose, in [reference to United States dollars or other currency of payment];
provided, however, that at the option of the Company payment of interest, other
than interest due on the Maturity Date, may be made by check mailed to the
address of the person entitled thereto as such address shall appear in the
Security register. [Include the following, if applicable:] Payments on the
Maturity Date will be made in immediately available funds against presentment
of this [name of Security].
Reference is hereby made to the further provisions of
this [name of Security] set forth on the reverse hereof, which further
provisions shall for all purposes have the same effect as if set forth at this
place.
Unless the certificate of authentication hereon has been
executed by the Trustee referred to on the reverse hereof by manual signature,
this [name of Security] shall not be entitled to any benefit under the
Indenture or be valid or obligatory for any purpose.
<PAGE> 69
A-3
IN WITNESS WHEREOF, UNIVERSAL HEALTH SERVICES, INC. has
caused this instrument to be executed in its corporate name by the facsimile
signature of its duly authorized officers and has caused a facsimile of its
corporate seal to be affixed hereunto or imprinted hereof.
<TABLE>
<S> <C>
UNIVERSAL HEALTH SERVICES, INC.
By:
----------------------
[Title of Officer]
ATTEST:
- ---------------------
[Assistant Secretary]
</TABLE>
<PAGE> 70
A-4
DATED:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the [name of Series] referred to in the
within-mentioned Indenture.
PNC BANK, N.A.,
as Trustee
By:
------------------------
Authorized Signatory
[REVERSE SIDE]
UNIVERSAL HEALTH SERVICES, INC.
[NAME OF SECURITY]
The [name of Security] is one of a duly authorized issue
of [name of Securities] of the Company (which term includes any successor
corporation under the Indenture hereinafter referred to) designated as its
[title of Series] (the "[name of Series]"), issued or to be issued
pursuant to an Indenture, dated as of ________, 1995 (the "Indenture"), between
the Company and PNC BANK, N.A., as Trustee (the "Trustee," which term includes
any successor trustee under the Indenture); and under [reference to Authorizing
Resolution and/or supplemental indenture (if any) relating to the Series]. The
terms of this [name of Security] include those stated in the Indenture and
[reference to Authorizing Resolution and/or supplemental indenture (if any)
relating to the Series] and those made part of the Indenture by reference to
the Trust Indenture Act of 1939, as in effect on the date of the Indenture.
Reference is hereby made to the Indenture and all [further] supplemental
indentures thereto for a statement of the respective rights, limitation of
rights, duties and immunities thereunder of the Company, the Trustee and the
Holders and of the terms upon which the [name of Security], are, and are to be,
authenticated and delivered.
<PAGE> 71
A-5
This [name of Series] is a Series of Securities issued or
to be issued by the Company under the Indenture, and this Series is limited in
aggregate principal amount to $ . The Indenture provides that the
Securities of the Company referred to therein ("Securities"), including the
[name of Series], may be issued in one or more Series, which different Series
may be issued in such aggregate principal amounts and on such terms (including,
but not limited to, terms relating to interest rate or rates provisions for
determining such interest rate or rates and adjustments thereto, maturity,
redemption (optional and mandatory), sinking fund, covenants and Events of
Default) as may be provided in or pursuant to the Authorizing Resolutions
and/or supplemental indenture (if any) relating to the several Series.
[The following to be included if the Securities are not
redeemable prior to maturity.]
This [name of Security] may not be redeemed prior to its
Maturity Date.
[The following paragraph, or other appropriate redemption
provisions, to be included if the Securities are Redeemable Securities:]
The [name of Series] are subject to redemption upon not
less than 30 nor more than 60 days' notice by mail, [the following clause to be
included if there is a Sinking Fund:] [(1) on [annual Sinking Fund Redemption
Date] in each year commencing with the year [year of first Sinking Fund
payment] through operation of the Sinking Fund at a Redemption Price equal to
their principal amount and (2) [at any time or from time to time] in whole or
in part, at the election of the Company at a Redemption Price equal to the
percentage set forth below of the principal amount to be redeemed for the
respective twelve-months periods beginning [ ] of the years
indicated:
[Schedule of Redemption Prices]
and thereafter at 100% of the principal amount thereof, together in each case
with accrued interest to the Redemption Date.
<PAGE> 72
A-6
[The following paragraph, or other appropriate Sinking
Fund provision, to be included if there is a Sinking Fund for the Series:]
The Sinking Fund provides for the redemption on [first
Sinking Fund Redemption Date] and on [annual Sinking Fund redemption Date] in
each year thereafter through [year of final Sinking Fund date] of not less than
[minimum required Sinking Fund redemption amount] principal amount nor more
than [maximum permitted Sinking Fund redemption amount] principal amount of
[name of Series]. [name of Series] purchased, acquired or redeemed by the
Company otherwise than by redemption through the Sinking Fund may be credited
against Sinking Fund requirements to the extent not previously so credited.
[The following paragraph to be included if the Securities
are Redeemable Securities or Sinking Fund Securities:]
If an event of redemption of this [name of Security] in
part only, a new [name of Security] or [name of Series] for the unredeemed
portion hereof shall be issued in the name of the Holder hereof upon the
surrender hereof.
[The following paragraph to be included if the Securities
are not Original Issue Discount Securities:]
If an Event of Default, as defined in the Indenture and
in the Authorizing Resolution and/or supplemental indenture (if any) relating
to the [name of Series] (if there shall be any additional Events of Default
specified in respect of the [name of Series]), shall occur and be continuing,
the principal of all the [name of Series] may be declared due and payable in
the manner and with the effect provided in the Indenture.
[If the Securities are Original Issue Discount
Securities, insert schedule as to amounts which are payable on acceleration
under Section 6.02 and provable in bankruptcy under Section 6.09 from time to
time.]
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders of the [name of
Series] under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in aggregate principal amount of the
Securities affected thereby, voting as a single class (which may include the
[name of Series]), at the time outstanding. The Indenture
<PAGE> 73
A-7
also contains provisions permitting the Holders of specified percentages in
aggregate principal amount of the Securities at the time outstanding to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder of this [name of Security] shall be conclusive and binding
upon such Holder and upon all future Holders of this [name of Security] and of
any [name of Security] issued upon the registration of transfer hereof or in
exchange herefor in lieu hereof, whether or not notation of such consent or
waiver is made upon this [name of Security].
The Indenture provides that no Holder may pursue any
remedy under the Indenture unless the Trustee shall have failed to act after
notice of an Event of Default and written request by Holders of at least 25% in
principal amount of the [name of Securities] of the applicable Series and the
offer to the Trustee of indemnity satisfactory to it; however, such provision
does not affect the right to sue for enforcement of any overdue payment on any
Security.
No reference herein to the Indenture and no provision of
this [name of Security] or of the Indenture shall alter or impair the
obligation of the company, which is absolute and unconditional, to pay the
principal of and interest on this [name of Security] at the times, places and
rates, and in the coin or currency, herein prescribed.
[Insert the following paragraph if not a Global Security; if a Global Security,
reference transfer mechanism.]
As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this [name of Security] is
registrable in the Security Register upon surrender of this [name of Security]
for registration of transfer at the agency of the Company provided for that
purpose duly endorsed by, or accompanied by a written instrument of transfer in
substantially the form accompanying this [name of Security] duly executed by,
the Holder hereof or his attorney duly authorized in writing, and thereupon one
or more new [name of Series], of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.
The [name of Series] are issuable only in registered form
without coupons in denominations of [currency and minimum denomination] and any
integral multiple thereof. As provided
<PAGE> 74
A-8
in the Indenture and subject to certain limitations therein set forth, the
[name of Series] are exchangeable for a like aggregate principal amount of
[name of Series] of a different authorized denomination, as requested by the
Holder surrendering the same.
No service charge shall be made for any such registration
of transfer or exchange, but the Company may require payment of a sum
sufficient to cover any transfer tax or similar governmental charge payable in
connection therewith (other than any such transfer taxes or similar
governmental charge payable upon exchanges pursuant to section 2.11, 3A.08 or
9.05 in which case such transfer taxes or similar governmental charges shall be
paid by the Company).
Prior to due presentment of this [name of Security] for
registration of transfer, the Company, the Trustee and any agent of the Company
or the Trustee may treat the person in whose name this [name of Security] is
registered as the owner hereof for all purposes, whether or not this [name of
Security] be overdue, and neither the Company, the Trustee nor any such agent
shall be affected by notice to the contrary.
[Reference to Foreign Currencies]
All terms used in this [name of Security] which are
defined in the Indenture shall have the meanings assigned to them in the
Indenture.
Customary abbreviations may be used in the name of a
[name of Security] holder or any assignee, such as: TEN COM (= tenants in
common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with
right of survivorship and not as tenants in common), CUST (= Custodian) and
U/G/M/A/ (= Uniform Gifts to Minors Act).
The Company will furnish to any [name of Security] holder
of record, upon written request, without charge, a copy of the Indenture.
Requests may be made to: Universal Health Services, Inc., Universal Corporate
Center, 367 Gulph Road, King of Prussia, Pennsylvania 19406, Attention:
.
<PAGE> 75
A-9
ASSIGNMENT FORM
If you the holder want to assign this [name of Security],
fill in the form below and have your signature guaranteed:
I or we assign and transfer this [name of Security] to:
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
(Print or type name, address and zip code and social security
or tax ID number of assignees)
and irrevocably appoint, ______________________________________ agent to
transfer this [name of Security] on the books of the Company. The agent may
substitute another to act for him.
Dated: Signed:
-------------------- ----------------------------------
----------------------------------
(Sign exactly as name appears on
the other side of this [name of
Security])
Signature Guarantee:
---------------------------------------------------------
NOTICE: Signature(s) must be guaranteed by a member firm
of the New York Stock Exchange or a commercial bank or trust company.
<PAGE> 1
EXHIBIT 5
[FULBRIGHT & JAWORSKI L.L.P. LETTERHEAD]
June 14, 1995
Universal Corporate Center
367 South Gulph Road
King of Prussia, PA 19406
Ladies and Gentlemen:
In connection with the Registration Statement on Form S-3 (the
"Registration Statement") to be filed by Universal Health Services, Inc., a
Delaware corporation (the "Company"), under the Securities Act of 1933, as
amended (the "Act"), relating to the public offering of up to $150,000,000
principal amount of Debt Securities (the "Debt Securities") which may be issued
under and pursuant to a proposed Indenture between the Company and PNC Bank,
NA, as trustee (the "Indenture"), we, as counsel for the Company, have examined
such corporate records, other documents and questions of law as we have
considered necessary or appropriate for the purposes of this opinion. Our
opinion set forth below is limited to the General Corporation Law of the State
of Delaware.
We assume that appropriate action will be taken, prior to the
offer and sale of the Debt Securities, to register and qualify such Debt
Securities for sale under all applicable state securities or "blue sky" laws.
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures and the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us as certified or photostatic copies, and the authenticity of the
originals of such latter documents.
Based on the foregoing, we advise you that in our opinion the Debt
Securities which may be issued and sold by the Company have been duly and
validly authorized for issuance by the Company, and, when duly executed and
authenticated in accordance with the terms of the Indenture and delivered and
paid for as contemplated in the Prospectus (including the supplement thereto)
forming part of the Registration Statement, the Debt Securities will be legal,
valid and binding obligations of the Company (subject to bankruptcy, insolvency
and other laws which affect the rights of creditors generally, including the
laws of the State of Delaware relating to compromises, arrangements and
reorganizations).
<PAGE> 2
Universal Corporate Center
June 14, 1995
Page 2
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and the reference to this firm under the caption
"Legal Matters" in the Prospectus contained therein. This consent is not to be
construed as an admission that we are a party whose consent is required to be
filed with the Registration Statement under the provisions of the Act or the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder.
The opinion expressed herein is solely for your benefit, and may
be relied upon only by you.
Very truly yours,
Fulbright & Jaworski L.L.P.
<PAGE> 1
EXHIBIT 12
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
--------------------------------------------------------------- -----------------------
1990 1991 1992 1993 1994 1994 1995
--------------------------------------------------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS:
Net income $11,607,000 $20,319,000 $20,020,000 $24,011,000 $28,720,000 $10,287,000 $11,841,000
Income taxes 7,060,000 10,239,000 20,933,000 11,085,000 18,209,000 6,507,000 7,503,000
Interest expense 22,589,000 8,150,000 11,414,000 8,645,000 6,275,000 1,822,000 1,614,000
Interest portion of lease\rental expense 12,946,000 13,117,000 12,075,000 11,714,000 11,012,000 2,742,000 2,750,000
Amortization of debt issuance costs 499,000 408,000 313,000 190,000 693,000 78,000 47,000
--------------------------------------------------------------- -----------------------
$54,701,000 $52,233,000 $64,755,000 $55,645,000 $64,909,000 $21,436,000 $23,755,000
=============================================================== =======================
FIXED CHARGES:
Interest expense $22,589,000 $8,150,000 $11,414,000 $8,645,000 $6,275,000 $1,822,000 $1,614,000
Interest portion of lease\rental expense 12,946,000 13,117,000 12,075,000 11,714,000 11,012,000 2,742,000 2,750,000
Amortization of debt issuance costs 499,000 408,000 313,000 190,000 693,000 78,000 47,000
--------------------------------------------------------------- -----------------------
$36,034,000 $21,675,000 $23,802,000 $20,549,000 $17,980,000 $4,642,000 $4,411,000
=============================================================== =======================
Fixed charge coverage ratio 1.5 2.4 2.7 2.7 3.6 4.6 5.4
=============================================================== =======================
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our report dated February 16, 1995
on the consolidated financial statements and schedule of Universal Health
Services, Inc. and Subsidiaries (the Company) included in the Company's Form
10-K for the year ended December 31, 1994, and to the use of our reports on the
financial statements of the Company and Aiken Regional Medical Centers and to
all references to our Firm included in this Registration Statement.
Philadelphia, Pennsylvania
June 15, 1995
ARTHUR ANDERSEN L.L.P.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption
"Experts" and to the use of our report dated October 24, 1994, with respect to
the combined financial statements of Manatee Hospitals and Health Systems, Inc.
included in the Registration Statement (Form S-3) and related Prospectus of
Universal Health Services, Inc. for the registration of $150,000,000 of debt
securities.
ERNST & YOUNG LLP
Tampa, Florida
June 12, 1995
<PAGE> 1
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT
OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) / /
PNC BANK, NATIONAL ASSOCIATION
(Exact Name of Trustee as Specified in its Charter)
NOT APPLICABLE
(Jurisdiction of incorporation or
organization if not a U.S. national bank)
25-1197336
(I.R.S. Employer Identification No.)
Pittsburgh National Building
Fifth Avenue and Wood Street, Pittsburgh, Pennsylvania 15222
(Address of principal executive offices - Zip code)
F. J. Deramo, Vice President, PNC Bank, National Association
23rd Floor, One Oliver Plaza, Pittsburgh, Pennsylvania 15222
(412) 762-3666
(Name, address and telephone number of agent for service)
UNIVERSAL HEALTH SERVICES, INC.
(Exact name of obligor as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
23-2077891
(I.R.S. Employer Identification No.)
367 South Gulph Road
King of Prussia, Pennsylvania 19406
(Address of principal executive offices - Zip code)
DEBT SECURITIES
(Title of the indenture securities)
================================================================================
<PAGE> 2
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising
authority to which it is subject.
Comptroller of the Currency Washington, D.C.
Federal Reserve Bank of Cleveland Cleveland, Ohio
Federal Deposit Insurance Corporation Washington, D.C.
(b) Whether it is authorized to exercise corporate trust
powers.
Yes. (See Exhibit T-1-3)
ITEM 2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS.
If the obligor or any underwriter for the obligor is an affiliate of
the trustee, describe each such affiliation.
Neither the obligor nor any underwriter for the obligor is an
affiliate of the trustee.
ITEM 3 THROUGH ITEM 14.
The issuer currently is not in default under any of its outstanding
securities for which PNC Bank is trustee. Accordingly, responses to
Items 3 through 14 of Form T-1 are not required pursuant to Form T-1
General Instructions B.
ITEM 15. FOREIGN TRUSTEE.
Identify the order or rule pursuant to which the foreign trustee is
authorized to act as sole trustee under the indentures qualified or to
be qualified under the Act.
Not applicable (trustee is not a foreign trustee).
ITEM 16. LIST OF EXHIBITS.
List below all exhibits filed as part of this statement of eligibility.
Exhibit T-1-1 - Articles of Association of the
trustee, with all amendments thereto,
as presently in effect, filed as
Exhibit 1 to Trustee's Statement of
Eligibility and Qualification,
Registration No. 33-58107 and
incorporated herein by reference.
Exhibit T-1-2 - Copy of Certificate of the Authority
of the Trustee to Commence Business,
filed as Exhibit 2 to Trustee's
Statement of Eligibility and
Qualification, Registration No.
2-58789 and incorporated herein by
reference.
-2-
<PAGE> 3
Exhibit T-1-3 - Copy of Certificate as to Authority
of the Trustee to Exercise Trust
Powers, filed as Exhibit 3 to
Trustee's Statement of Eligibility
and Qualification, Registration No.
2- 58789, and incorporated herein by
reference.
Exhibit T-1-4 - The By-Laws of the trustee, as
presently in effect, filed as Exhibit
4 to Trustee's Statement of
Eligibility and Qualification,
Registration No. 33-58107 and
incorporated herein by reference.
Exhibit T-1-5 - The consent of the trustee required
by Section 321(b) of the Act.
Exhibit T-1-6 - The copy of the Balance Sheet taken
from the latest Report of Condition
of the trustee published in response
to call made by Comptroller of the
Currency under Section 5211 U.S.
Revised Statutes.
NOTE
The answers to this statement, insofar as such answers relate to (a) what
persons have been underwriters for any securities of the obligor within three
years prior to the date of filing this statement, or are owners of 10% or more
of the voting securities of the obligor, or are affiliates or directors or
executive officers of the obligor, and (b) the voting securities of the trustee
owned beneficially by the obligor and each director and executive officer of the
obligor, are based upon information furnished to the trustee by the obligor and
also, in the case of (b) above, upon an examination of the trustee's records.
While the trustee has no reason to doubt the accuracy of any such information
furnished by the obligor, it cannot accept any responsibility therefor.
------------------------------------
Signature appears on next page
-3-
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the trustee,
PNC Bank, National Association, a corporation organized and existing under the
laws of the United States of America, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Pittsburgh, and Commonwealth of Pennsylvania on
the 14th day of June, 1995.
PNC BANK, NATIONAL ASSOCIATION
(Trustee)
By /s/ F. J. Deramo
------------------------------
F. J. Deramo
Vice President
-4-
<PAGE> 5
EXHIBIT T-1-5
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended by the Trust Indenture Reform Act of 1990, in connection
with the proposed issuance by Universal Health Services, Inc. (a Delaware
Corporation) of Debt Securities, we hereby consent that reports of examination
by Federal, State, Territorial, or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon request therefor.
PNC BANK, NATIONAL ASSOCIATION
(Trustee)
By /s/ F. J. Deramo
-----------------------------
F. J. Deramo
Vice President
Dated: June 14, 1995
-5-
<PAGE> 6
EXHIBIT T-1-6
SCHEDULE RC - BALANCE SHEET
FROM
REPORT OF CONDITION
Consolidating domestic and foreign subsidiaries of
PNC BANK, NATIONAL ASSOCIATION
of PITTSBURGH in the state of PENNSYLVANIA
at the close of business on
March 31, 1995
filed in response to call made by
Comptroller of the Currency,
under title 12, United States Code, Section 161
Charter Number 540
Comptroller of the Currency Northeastern District
BALANCE SHEET
<TABLE>
<CAPTION>
Thousands
of Dollars
-----------
ASSETS
<S> <C>
Cash and balances due from depository institutions
Noninterest-bearing balances and currency and coin . . . . . . . . . . . . . . $ 1,980,063
Interest-Bearing Balances . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,173
Securities
Held-to-maturity securities . . . . . . . . . . . . . . . . . . . . . . . . . . 12,699,638
Available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . 2,363,184
Federal funds sold and securities purchased under
agreements to resell in domestic offices of the
bank and of its Edge and Agreement subsidiaries,
and in IBFs:
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276,350
Securities purchased under agreements to resell . . . . . . . . . . . . . . . . 0
Loans and lease financing receivables:
Loans and leases, net of unearned income $25,094,120
LESS: Allowance for loan and lease losses 646,947
-----------
Loans and leases, net of unearned income,
allowance and reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,447,173
Assets held in trading accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
Premises and fixed assets (including capitalized leases) . . . . . . . . . . . . . . . . . 483,870
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,761
Investments in unconsolidated subsidiaries and
associated companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,589
Customers' liability to this bank on acceptances
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,021
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 717,701
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 699,623
------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,817,284
============
</TABLE>
-6-
<PAGE> 7
<TABLE>
<CAPTION>
LIABILITIES
<S> <C>
Deposits:
In domestic offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,366,354
Noninterest-bearing $ 4,976,904
Interest-bearing 16,389,450
In foreign offices, Edge and Agreement subsidiaries,
and IBFs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,425,937
Noninterest-bearing $ 10,040
Interest-bearing 1,415,897
Federal funds purchased and securities sold under agreements to
repurchase in domestic offices of the bank and of its Edge
and Agreement subsidiaries, and in IBFs:
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . 2,023,500
Securities sold under agreements to repurchase . . . . . . . . . . . . . . . 5,791,230
Demand notes issued to U.S. Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . 714,674
Trading Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Other borrowed money
With original maturity of one year or less . . . . . . . . . . . . . . . . . . 6,416,198
With original maturity of more than one year . . . . . . . . . . . . . . . . . 1,862,966
Mortgage indebtedness and obligations under
capitalized leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,273
Bank's liability on acceptances executed and outstanding . . . . . . . . . . . . . . . . . 52,021
Subordinated notes and debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155,000
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 605,070
------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,418,285
EQUITY CAPITAL
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,850
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,343,808
Undivided profits and capital reserves . . . . . . . . . . . . . . . . . . . . . . . . . . 2,082,568
Net unrealized holding gains (losses) on
available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . (58,227)
Total equity capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,398,999
------------
Total liabilities and equity capital . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,817,284
============
</TABLE>
-7-
<PAGE> 1
EXHIBIT 99.1
ASSET EXCHANGE AGREEMENT
AMONG
C/HCA DEVELOPMENT, INC.
AND
UNIVERSAL HEALTH SERVICES, INC.
AND
AIKEN REGIONAL MEDICAL CENTERS, INC.
AND
DALLAS FAMILY HOSPITAL, INC.
AND
WESTLAKE MEDICAL CENTER, INC.
AND
UHS OF DELAWARE, INC.
DATED AS OF MARCH 16, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
1. Exchange of Assets, Excluded Assets and Assumed Liabilities. . . . . . . . . . . . . . . . . . . . . . 2
1.1 Exchange of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 UHS Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3 UHS Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.4 C/HCA Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.5 C/HCA Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.6 Assumed Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.7 Excluded Liabilities Relating to the UHS Affiliates. . . . . . . . . . . . . . . . . . . . . . 9
1.8 Excluded Liabilities Relating to C/HCA. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2. Hospital Closing, Additional Consideration and Instruments of Transfer
and Conveyance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.1 Hospital Closing Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.2 Additional Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.3 Instruments of Conveyance and Transfer of Books and Records . . . . . . . . . . . . . . . . . 17
2.4 Disclaimer of Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3. Representations and Warranties of C/HCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.1 Organization, Capitalization, Authorization, Etc . . . . . . . . . . . . . . . . . . . . . . . 21
3.2 Ownership of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.3 Authority and No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.4 Financial Statements, Books and Records, and Change in
Condition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.5 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.6 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.7 Property to Operate C/HCA Hospitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.8 Trade Names, Trademarks, Copyrights, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.10 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.11 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
3.12 Employee and Labor Matters and Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
3.13 Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3.14 Medicare, Medicaid and Other Health Care Programs . . . . . . . . . . . . . . . . . . . . . . 43
3.15 Facility Surveys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3.16 Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3.17 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
3.18 Tax Returns Through Hospital Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . 46
3.19 FIRPTA Affidavits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
3.20 No Illegal or Improper Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
3.21 No Misleading Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
3.22 Special Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
3.23 Medical Staff Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
3.24 No Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
4. Representations and Warranties of UHS, UHS Sub, the UHS Affiliates
and UHS of Delaware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
4.1 Organization, Capitalization, Authorization, Etc. . . . . . . . . . . . . . . . . . . . . . . 48
4.2 Ownership of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
4.3 Authority and No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
4.4 Financial Statements, Books and Records, and Change in
Condition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
4.5 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
4.6 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
4.7 Property to Operate UHS Hospitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
4.8 Trade Names, Trademarks, Copyrights, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 59
4.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
4.10 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
4.11 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
4.12 Employee and Labor Matters and Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
4.13 Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
4.14 Medicare, Medicaid and Other Health Care Programs . . . . . . . . . . . . . . . . . . . . . . 71
4.15 Facility Surveys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
4.16 Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
4.17 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
4.18 Tax Returns Through Hospital Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . 74
4.19 FIRPTA Affidavits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
4.20 No Illegal or Improper Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
4.21 No Misleading Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
4.22 Special Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
4.23 Medical Staff Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
4.24 No Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
4.25 No Augusta-Aiken Hospitals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
4.26 Conveyance by UHS of Delaware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
5. Obligations Before and After Hospital Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
5.1 Access to Premises and Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
5.2 Conduct of Business in Ordinary Course . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
5.3 C/HCA Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
5.4 UHS Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
5.5 Representations and Warranties True at Closing . . . . . . . . . . . . . . . . . . . . . . . . 80
5.6 Further Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
5.7 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
5.8 No Shopping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
5.9 Covenants of C/HCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
5.10 Covenants of UHS, UHS Sub, the UHS Affiliates and
UHS of Delaware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
5.11 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
5.12 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
5.13 Confidentiality Obligations of the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . 86
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
5.14 Bulk Sales Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
5.15 C/HCA Terminating Cost Reports and Accounts Receivable . . . . . . . . . . . . . . . . . . . . 86
5.16 UHS Terminating Cost Reports and Accounts Receivables . . . . . . . . . . . . . . . . . . . . 87
5.17 C/HCA's Tax Treatment of the Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
5.18 Employment of Mickey Smith . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
5.19 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
5.20 C/HCA Hospitals Operational Transition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
5.21 UHS Hospitals Operational Transition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
6. Conditions Precedent to the Performance of the UHS Group,
the UHS Affiliates and UHS of Delaware. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
6.1 Accuracy of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . 94
6.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
6.3 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
6.4 Certification by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
6.5 Opinion of C/HCA's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
6.6 Absence of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
6.7 Legal Prohibition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
6.8 Consents, Approvals, Permits, Licenses, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 97
6.9 Closing Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
6.10 Supplemental Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
6.11 Salick Healthcare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
6.12 Realty Trust Conveyance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
6.13 C/HCA Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
6.14 Wage and Salaries; Termination of Pension Plans . . . . . . . . . . . . . . . . . . . . . . . 101
6.15 Environmental Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
6.16 Data Processing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
6.17 Hyperbaric Chamber . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
6.18 Underground Storage Tank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
6.19 Condominium Unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
7. Conditions Precedent to the Performance of C/HCA. . . . . . . . . . . . . . . . . . . . . . . . . . . 103
7.1 Accuracy of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . 103
7.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
7.3 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
7.4 Certification by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
7.5 Opinion of UHS Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
7.6 Absence of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
7.7 Legal Prohibition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
7.8 Consents, Approvals, Permits, Licenses, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 106
7.9 Closing Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
7.10 Supplemental Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
7.11 Salick Healthcare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
7.12 Realty Trust Conveyance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
7.13 UHS Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
</TABLE>
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<TABLE>
<CAPTION>
Section Page
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<S> <C> <C>
7.14 Wages and Salaries; Termination of Pension Plans . . . . . . . . . . . . . . . . . . . . . . . 110
7.15 Environmental Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
7.16 DSWOP Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
7.17 DSWOP Lease and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
7.18 Conveyance by UHS of Delaware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
7.19 Data Processing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
7.20 Hyperbaric Chamber . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
7.21 Underground Storage Tank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
8. Joint Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
8.1 Access to Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
8.2 Allocation of Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
9. Certain Actions After the Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
9.1 UHS to Act as Agent for C/HCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
9.2 C/HCA to Act as Agent for the UHS Affiliates and
UHS of Delaware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
10. Survival of Representations; Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
10.1 Survival of Representations, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
10.2 Indemnification by C/HCA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
10.3 Indemnification by the UHS Group, the UHS Affiliates and
UHS of Delaware. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
10.4 Procedure for Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
10.5 Limitations on Indemnification Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
11. Entire Agreement; Modification, Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
12. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
13. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
14. Successors and Assigns; Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
15. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
16. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
</TABLE>
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<PAGE> 6
EXHIBITS
A - Confidentiality Obligations
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<PAGE> 7
SCHEDULES
<TABLE>
<S> <C>
1.1(a) C/HCA Permitted Encumbrances
1.1(b) UHS Permitted Encumbrances
1.2 UHS Assets
1.2(a) Contractual Rights
1.2(b) Licenses and Permits
1.2(d) Leases
1.2(f) Names
1.2(h) Intellectual Property
1.3 UHS Excluded Assets
1.4 C/HCA Assets
1.4(a) Contractual Rights
1.4(b) Licenses and Permits
1.4(d) Leases
1.4(f) Names
1.4(h) Intellectual Property
1.5 C/HCA Excluded Assets
1.6 Assumed Liabilities
2.2 Adjustments to Cash Deposit
3.2 Ownership of Assets
3.3 No Conflict
3.4.1 C/HCA Financial Statements
</TABLE>
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<TABLE>
<S> <C>
3.4.3 Balance Sheet Changes
3.6 Real Property
3.8 Tradenames
3.9 Litigation
3.10 Compliance
3.11 Contracts
3.12 Employee Matters
3.13 Insurance Policies
3.14 Professional Staff
3.16 Licenses
3.17 Taxes
3.23 Medical Staff
4.2 Ownership of Assets
4.3 No Conflict
4.4.1 UHS Financial Statements
4.4.3 Balance Sheet Changes
4.6 Real Property
4.8 Tradenames
4.9 Litigation
4.11 Contract
4.12 Employee Matters
4.13 Insurance Policies
4.14 Professional Staff
</TABLE>
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<PAGE> 9
<TABLE>
<S> <C>
4.16 Licenses
4.17 Taxes
4.23 Medical Staff
7.16 DSWOP Covenants
</TABLE>
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<PAGE> 10
ASSET EXCHANGE AGREEMENT
ASSET EXCHANGE AGREEMENT, made as of the 16th day of March 1995, by and
among C/HCA DEVELOPMENT, INC., a South Carolina corporation, formerly known as
AIKEN COMMUNITY HOSPITAL, INC. ("C/HCA"), UNIVERSAL HEALTH SERVICES, INC., a
Delaware corporation ("UHS"), AIKEN REGIONAL MEDICAL CENTERS, INC., a South
Carolina corporation ("UHS Sub"), Dallas Family Hospital Inc., a Texas
corporation, Westlake Medical Center, Inc., a California corporation, and UHS
of Delaware, Inc., a Delaware corporation ("UHS of Delaware"). Dallas Family
Hospital Inc., Westlake Medical Center, Inc., UHS Sub and UHS of Delaware are
wholly-owned subsidiaries of UHS; Dallas Family Hospital, Inc. and Westlake
Medical Center, Inc. are sometimes collectively referred to herein as (the "UHS
Affiliates"). UHS and UHS Sub are sometimes collectively referred to herein as
(the "UHS Group").
W I T N E S S E T H :
WHEREAS, C/HCA, through the Aiken Regional Medical Center, the Aurora
Pavilion and the Carolina Cancer Center (collectively, the "C/HCA Hospitals")
provides health care related services in the State of South Carolina; and
WHEREAS, Dallas Family Hospital, Inc., through the Dallas Family Hospital,
provides health care related services in the State of Texas (the "Dallas
Hospital") and Westlake Medical Center, Inc., through the Westlake Hospital,
provides health care related services in the State of California (the
"California Hospital") (the Dallas
<PAGE> 11
Hospital and the California Hospital are collectively referred to herein as the
"UHS Hospitals"); and
WHEREAS, immediately prior to the consummation of the transactions
contemplated hereby, UHS of Delaware intends to acquire the UHS Assets from the
UHS Affiliates; and
WHEREAS, C/HCA desires to exchange substantially all of the assets used by
C/HCA in the operation of the C/HCA Hospitals for substantially all of the
assets used by the UHS Affiliates in the operation of the UHS Hospitals and
UHS, the UHS Affiliates and UHS Sub desire to effect such exchange; and
WHEREAS, C/HCA intends and desires to effectuate its portion of the
above-referenced exchange in a transaction qualifying as an exchange of "like
kind" property pursuant to Section 1031 of the Internal Revenue Code of 1986,
as amended (the "Code") and the UHS Affiliates and UHS of Delaware desire to
sell the UHS Hospitals and UHS Sub desires to acquire the C/HCA Assets.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties hereto agree as follows:
1. Exchange of Assets, Excluded Assets and Assumed Liabilities.
1.1 Exchange of Assets. Subject to the terms and upon
satisfaction of the conditions contained herein, on the Hospital Closing Date
(as defined herein), UHS, UHS of Delaware and the UHS Affiliates shall
transfer, convey or assign to C/HCA, their right, title and interest in and to
the UHS Assets (as defined herein), free and clear of all liens, charges and
encumbrances of any nature whatsoever (collectively "Liens") except for
Permitted Encumbrances (as defined herein), along with the additional
consideration specified in Section 2.2 hereof, and C/HCA shall transfer,
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convey or assign to UHS Sub all of C/HCA's right, title and interest in and to
the C/HCA Assets (as defined herein), free and clear of all Liens except for
Permitted Encumbrances. The exchange of the foregoing assets is sometimes
referred to herein as (the "Exchange"). "Permitted Encumbrances" shall mean
(a) the lien of current taxes not yet due and payable, (b) easements, rights of
way, servitudes, restrictions and other matters which, in the aggregate, and in
the sole discretion of the transferee of the UHS Assets or the C/HCA Assets, as
the case may be, do not materially adversely affect the use or value of the UHS
Assets or the C/HCA Assets, as the case may be, and (c) the Assumed Liabilities
(as defined herein). Set forth on Schedule 1.1(a) hereto are those
restrictions described in subclause (b) above which UHS has determined, in its
sole discretion, are the only Permitted Encumbrances with respect to the C/HCA
Assets. Set forth on Schedule 1.1(b) hereto are those restrictions described
in subclause (b) above which C/HCA has determined, in its sole discretion, are
Permitted Encumbrances with respect to the UHS Assets.
1.2 UHS Assets. The "UHS Assets" shall mean all personal,
tangible and intangible properties, and the real property and improvements,
owned or leased, of the UHS Affiliates and UHS of Delaware used in connection
with the operation of the UHS Hospitals as set forth below other than the UHS
Excluded Assets (as defined below), including, without limitation, those more
particularly described in the Schedules to this Section 1.2, including the
going concern value of the UHS Hospitals, if any.
(a) Contractual Rights: all rights and benefits of the
UHS Affiliates and UHS of Delaware under those contracts relating to the
operation of the UHS Hospitals as listed on Schedule 1.2(a) hereto (which also
recites those contracts,
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the assignment of which by their terms requires third party consent) (the
"C/HCA Assumed Contracts");
(b) Licenses and Permits: to the extent permitted by
applicable law and regulation, all licenses and permits held or used by the UHS
Affiliates and UHS of Delaware in connection with the ownership and operation
of the UHS Assets and the conduct of the operation of the UHS Hospitals as
listed on Schedule 1.2(b) hereto;
(c) Equipment: all equipment, computers, computer
hardware and software, tools, supplies, furniture, vehicles, and other tangible
personal property and assets of the UHS Affiliates and UHS of Delaware related
to the UHS Hospitals;
(d) Leases: all the interest of and the rights and
benefits accruing to the UHS Affiliates and UHS of Delaware as lessee under (i)
the leases relating to the UHS Leased Properties (as defined herein) and all
leasehold improvements and fixtures relating thereto as defined and described
in Schedule 4.6 hereto and (ii) the leases or rental agreements covering
equipment, all such leases as described in Schedule 1.2(d) hereto;
(e) Current Assets: all notes receivable (including
without limitation, any claims, remedies and other rights related thereto),
usable inventories of supplies relating to the UHS Hospitals and prepaid
expenses relating to the UHS Hospitals on the Hospital Closing Date arising in
connection with the UHS Affiliates' conduct of the operations of the UHS
Hospitals ("UHS Current Assets");
(f) Names, etc.: all right, title and interest the UHS
Affiliates and UHS of Delaware have to use the names set forth on Schedule
1.2(f) hereto and
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any variation thereof, and the trade names, trademarks, service marks,
copyrights, patents and the like set forth on Schedule 1.2(f) hereto;
(g) Records: all operating data and records of the UHS
Affiliates and UHS of Delaware relating to the UHS Assets, including without
limitation, client lists and records, patient records, employee 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 operating guides and manuals which are proprietary to UHS;
(h) Intellectual Property: all of the intangible and
intellectual property of the UHS Affiliates and UHS of Delaware used in the
operation of the UHS Hospitals, products, research data, marketing plans and
strategies, forecasts, trademarks, servicemarks, tradenames, licenses (if
transferable), copyrights, operating rights, permits and other similar
intangible property and rights relating to the UHS Hospitals as such property
and rights are listed in Schedule 1.2(h); and
(i) Real Property: all of the land described in Schedule
4.6 and the improvements, fixtures and other property located thereon that is
classified under Texas and California law as real property.
1.3 UHS Excluded Assets. Anything to the contrary in Section
1.2 notwithstanding, the UHS Assets shall exclude and C/HCA shall not acquire
the following (collectively, the "UHS Excluded Assets"):
(a) cash and cash equivalents;
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<PAGE> 15
(b) any and all accounts receivable respecting an
intercompany transaction among the UHS Affiliates and any other affiliate of
UHS or UHS, 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) restricted funds;
(d) any and all accounts receivable of any nature
whatsoever (but not including notes receivable) including, without limitation,
any trade accounts receivable, any cost report receivables, claims receivables,
or other open, unsettled, unpaid or unprocessed receivables, net of any
corresponding payables (whether or not a positive or negative number) with
respect to the Medicare, Medicaid or CHAMPUS Programs (collectively, "Accounts
Receivable");
(e) those other items which C/HCA in its sole discretion
determines not to acquire, as specifically set forth in Schedule 1.3 hereto;
(f) operating guides and manuals which are proprietary
to UHS; and
(g) receivables of the California Hospital sold to UHS
Receivables Corp.
1.4 C/HCA Assets. The "C/HCA Assets" shall mean all those
personal, tangible, and intangible properties, and the real property and
improvements of C/HCA used in connection with the operation of the C/HCA
Hospitals as set forth below other than those C/HCA Excluded Assets (as defined
below), including, without limitation, those more particularly described in the
Schedules to this Section 1.4, including the going concern value of the C/HCA
Hospitals, if any.
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(a) Contractual Rights: all rights and benefits of C/HCA
under those contracts relating to the operation of the C/HCA Hospitals as
listed on Schedule 1.4(a) hereto (which also recites those contracts, the
assignment of which by their terms requires third party consent) (the "UHS
Assumed Contracts");
(b) Licenses and Permits: to the extent permitted by
applicable law and regulation, all licenses and permits held or used by C/HCA
in connection with the ownership and operation of the C/HCA Assets and the
conduct of the operation of the C/HCA Hospitals as listed on Schedule 1.4(b)
hereto;
(c) Equipment: all equipment, computers, computer
hardware and software, tools, supplies, furniture, vehicles, and other tangible
personal property and assets of C/HCA related to the C/HCA Hospitals;
(d) Leases: all the interest of and the rights and
benefits accruing to C/HCA as lessee under (i) the leases relating to the C/HCA
Leased Properties (as defined herein) 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, all such leases as
described in Schedule 1.4(d) hereto;
(e) Current Assets: all notes receivable (including
without limitation, any claims, remedies and other rights related thereto),
usable inventories of supplies relating to the C/HCA Hospitals and prepaid
expenses relating to the C/HCA Hospitals on the Hospital Closing Date arising
in connection with the C/HCA's conduct of the operations of the C/HCA Hospitals
("C/HCA Current Assets");
(f) Names, etc.: all right, title and interest C/HCA has
to use the names set forth on Schedule 1.4(f) hereto and any variation thereof,
and the trade
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<PAGE> 17
names, trademarks, service marks, copyrights, patents and the like set forth on
Schedule 1.4(f) hereto;
(g) Records: all operating data and records of C/HCA
relating to the C/HCA Assets, including without limitation, client lists and
records, patient records, employee 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
operating guides and manuals which are proprietary to C/HCA;
(h) Intellectual Property: all of the intangible and
intellectual property of C/HCA owned by C/HCA and used in the operation of the
C/HCA Hospitals, products, research data, marketing plans and strategies,
forecasts, trademarks, servicemarks, tradenames, licenses (if transferable),
copyrights, operating rights, permits and other similar intangible property and
rights relating to the C/HCA Hospitals as such property and rights are listed
in Schedule 1.4(h); and
(i) Real Property: all of the land described in Schedule
3.6 and the improvements, fixtures and other property located thereon that is
classified under South Carolina law as real property.
1.5 C/HCA Excluded Assets. Anything to the contrary in Section
1.4 notwithstanding, the C/HCA Assets shall exclude and the UHS Group shall not
acquire the following (collectively, the "C/HCA Excluded Assets"):
(a) cash and cash equivalents;
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<PAGE> 18
(b) any and all accounts receivable respecting an
intercompany transaction among the C/HCA Hospitals and any other affiliate of
C/HCA, 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) restricted funds;
(d) Accounts Receivable;
(e) those other items which the UHS Group in their sole
discretion determine not to acquire, as specifically set forth in Schedule 1.5
hereto; and
(f) operating guides and manuals which are proprietary
to C/HCA.
1.6 Assumed Liabilities. Other than (i) current liabilities
included in the Net Working Capital of the UHS Hospitals or the C/HCA
Hospitals, as the case may be, as of the Hospital Closing Date, (ii) capital
lease obligations as of September 30, 1994, (iii) long term indebtedness that
is expressly assumed by C/HCA or UHS Sub, as the case may be, and as described
on Schedule 1.6 and (iv) liabilities related to the UHS Assumed Contracts and
the C/HCA Assumed Contracts, as the case may be (collectively, (i) through (iv)
hereinafter "Assumed Liabilities"), no party hereto shall incur any liabilities
or obligations of any other party hereto.
1.7 Excluded Liabilities Relating to the UHS Affiliates.
Notwith-standing anything to the contrary contained herein, C/HCA shall not
assume any debts, obligations or liabilities of the UHS Affiliates or of UHS of
Delaware not expressly assumed pursuant to Section 1.6 hereof and, with respect
to the assumed current liabilities included in Net Working Capital of the UHS
Hospitals as of the Hospital Closing Date, C/HCA shall not assume any debts,
obligations or liabilities in excess of
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those amounts of the current liabilities assumed ("UHS Excluded Liabilities");
and the UHS Affiliates and UHS of Delaware shall continue to be obligated to
pay, perform and authorize such debts, obligations and liabilities and hold
C/HCA Indemnified Persons (as defined herein) harmless from any such
liabilities, including without limitation:
(a) any and all obligations for the payment of any long
term indebtedness (including the current portion thereof) relating to the UHS
Hospitals whether or not set forth on the UHS September Balance Sheet (as
defined herein), other than those included as part of the Assumed Liabilities;
(b) any and all accrued interest associated with the
above through the Hospital Closing Date;
(c) any and all liabilities respecting an intercompany
transaction among the UHS Affiliates and UHS or any other affiliate of UHS,
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) any and all actual or contingent liabilities or
obligations of or demands upon the UHS Affiliates or UHS of Delaware arising
from acts or omissions (actual or alleged) prior to the Hospital Closing Date
including liabilities or obligations arising from breach by the UHS Affiliates
of any C/HCA 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 UHS
Affiliates or UHS of Delaware, their employees, agents and independent
contractors prior to the Hospital Closing Date including, without limitation,
any malpractice claims or liabilities;
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(e) any and all liabilities and costs associated with the
termination of the joint venture with Comprehensive Cancer Centers - West
Valley, Inc.
(f) all liabilities relating to the pension or employee
benefit plans of the UHS Affiliates or UHS of Delaware or other employee
compensation matters, including without limitation any liabilities with respect
to accrued vacation and sick pay (except to the extent such amounts for
vacation and sick pay are included in the Net Working Capital relating to the
UHS Hospitals as of the Hospital Closing Date and then, only to the extent that
the accrued amounts stated in the Net Working Capital relating to the UHS
Hospitals as of such date are accurate as of such date);
(g) all Taxes (as defined herein) payable with respect to
any activities of the UHS Affiliates or UHS of Delaware through the Hospital
Closing Date and payable with respect to the transfer of the UHS Assets or the
transactions contemplated hereby (except to the extent such amounts are accrued
and included in the Net Working Capital relating to the UHS Hospitals as of the
Hospital Closing Date and then, only to the extent of the accrued amounts
stated in the Net Working Capital relating to the UHS Hospitals as of such
date);
(h) any liability or obligation to any broker, finder,
investment banker or other intermediary engaged by the UHS Sub, the UHS
Affiliates, UHS or UHS of Delaware in connection with the sale of the UHS
Assets (including, without limitation, the transactions contemplated by this
Agreement;
(i) liabilities under the Medicare, Medicaid or other
third party payor programs (including, without limitation, cost report
payables, claims payables or other open, unsettled, unpaid, or unprocessed
payables and recapture liabilities relating to such third party payor
programs); and
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(j) UHS Sub's, the UHS Affiliates', UHS' and UHS of
Delaware's obligations and liabilities arising under this Agreement.
1.8 Excluded Liabilities Relating to C/HCA. Notwithstanding
anything to the contrary contained herein, UHS and the UHS Sub shall not assume
any debts, obligations or liabilities of C/HCA not expressly assumed pursuant
to Section 1.6 hereof and, with respect to the assumed liabilities included in
Net Working Capital of the C/HCA Hospitals as of the Hospital Closing Date, UHS
and UHS Sub shall not assume any debts, obligations or liabilities in excess of
those amounts of the current liabilities assumed ("C/HCA Excluded
Liabilities"); and C/HCA shall continue to be obligated to pay, perform and
discharge such debts, obligations and liabilities and hold UHS Indemnified
Persons (as defined herein) harmless from any such liabilities, including
without limitation:
(a) any and all obligations for the payment of any long
term indebtedness (including the current portion thereof) relating to the C/HCA
Hospitals whether or not set forth on the C/HCA September Balance Sheet (as
defined herein), other than those included as part of the Assumed Liabilities;
(b) any and all accrued interest associated with the
above through the Hospital Closing Date;
(c) any and all liabilities respecting an intercompany
transaction among C/HCA or any affiliate of C/HCA, 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) any and all actual or contingent liabilities or
obligations of or demands upon C/HCA arising from acts or omissions (actual or
alleged) prior to the
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Hospital Closing Date including liabilities or obligations arising from breach
by C/HCA of any UHS Assumed Contract, or any liabilities now existing or which
may hereafter exist by reason of any alleged violation or law or governmental
regulation or any other claims arising out of any act or omission of C/HCA,
their employees, agents and independent contractors prior to the Hospital
Closing Date including, without limitation, any malpractice claims or
liabilities;
(e) all liabilities relating to the pension or employee
benefit plans of C/HCA or other employee compensation matters, including
without limitation any liabilities with respect to accrued paid time off
("PTO") (except to the extent such amounts for PTO are included in the Net
Working Capital relating to the C/HCA Hospitals as of the Hospital Closing Date
and then, only to the extent that the accrued amounts stated in the Net Working
Capital relating to the C/HCA Hospitals as of such date are accurate as of such
date);
(f) all Taxes (as defined herein) payable with respect to
any activities of the C/HCA Hospitals through the Hospital Closing Date and
payable with respect to the transfer of the C/HCA Assets or the transactions
contemplated hereby (except to the extent such amounts are accrued and included
in the Net Working Capital relating to the C/HCA Hospitals as of the Hospital
Closing Date and then, only to the extent of the accrued amounts stated in the
Net Working Capital relating to the C/HCA Hospitals as of such date);
(g) any liability or obligation to any broker, finder,
investment banker or other intermediary engaged by C/HCA in connection with the
sale of the C/HCA Assets (including, without limitation, the transactions
contemplated by this Agreement);
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(h) liabilities under the Medicare, Medicaid or other
third party payor programs (including, without limitation, cost report
payables, claims payables or other open, unsettled, unpaid, or unprocessed
payables and recapture liabilities relating to such third party payor
programs); and
(i) C/HCA's obligations and liabilities arising under
this Agreement.
2. Hospital Closing, Additional Consideration and Instruments of
Transfer and Conveyance.
2.1 Hospital Closing Date. The Hospital Closing shall take
place on the date which is five days after all of the conditions precedent to
the Hospital Closing have been satisfied or waived at the offices of
Columbia/HCA Healthcare Corporation, One Park Plaza, Nashville, Tennessee
37203, or at such other time and place as the parties hereto may agree;
provided that such date shall be no later than April 30, 1995. The date of the
Hospital Closing is referred to herein as (the "Hospital Closing Date"). The
Hospital Closing shall be effective as of 12:01 a.m. on May 1, 1995 (the
"Effective Time").
2.2 Additional Consideration.
(a) Contemporaneously with the Hospital Closing, on the
Hospital Closing Date, UHS or the UHS Sub shall deposit the sum of $45,231,155,
subject to adjustment as provided herein (the "Cash Deposit"), with a qualified
intermediary designated by C/HCA for the purpose of allowing C/HCA to treat the
Exchange as a like-kind exchange of assets for tax purposes.
(b) The Cash Deposit shall be subject to the following
adjustments at the Hospital Closing:
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(i) if Net Working Capital (as defined below) of
the C/HCA Hospitals less the Net Working Capital of the UHS Hospitals is less
than $482,225, the Cash Deposit shall be reduced by such amount as such
difference is less than $482,225, on a dollar-for-dollar basis. If Net Working
Capital of the C/HCA Hospitals less the Net Working Capital of the UHS
Hospitals is greater than $482,225, the Cash Deposit shall be increased by such
amount as such difference is greater than $482,225 on a
dollar-for-dollar-basis. As used herein, "Net Working Capital" means the sum
of usable inventories, prepaid expenses, sums due from TCOM, medical office
building rent receivables and other current assets less accounts payable (other
than liabilities included within the C/HCA Excluded Liabilities or the UHS
Excluded Liabilities), accrued payroll and benefits, accrued vacation and paid
time off, accrued property taxes and accrued miscellaneous expenses of the UHS
Hospitals or C/HCA, as the case may be, all items calculated as of the Hospital
Closing Date in accordance with Schedule 2.2 hereof provided that the parties
agree that physician loans and assets associated with physician loans are not
included in "Net Working Capital" although physician loans and assets
associated with physician loans shall constitute a C/HCA Asset or a UHS Asset,
as the case may be, to be transferred unless such physician loans and/or assets
associated therewith have been designated as part of the C/HCA Excluded Assets
or the UHS Excluded Assets;
(ii) to the extent that C/HCA assumes capital lease
obligations of the UHS Affiliates, other than in existence on September 30,
1994, and then only with respect to up to $400,000 of such obligations in the
aggregate, and any other long-term indebtedness which is not included in the
calculation of Net Working Capital, the Cash Deposit shall be increased on a
dollar-for-dollar basis of such amount;
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(iii) to the extent that UHS assumes capital lease
obligations of C/HCA, other than in existence on September 30, 1994, and then
only with respect to up to $400,000 of such obligations in the aggregate, and
any other long-term indebtedness which is not included in the calculation of
Net Working Capital, the Cash Deposit shall be reduced on a dollar-for dollar
basis of such amount; and
(c) The Net Working Capital specified in subsection (b)
hereof shall be estimated in good faith at the Hospital Closing to the extent
reasonably possible based on the latest available unaudited balance sheets of
C/HCA and UHS Affiliates prior to the Hospital Closing and shall be set forth
in a preliminary closing statement (the "Preliminary Closing Statement"). No
later than sixty (60) days after the Hospital Closing ("Hospital Closing
Statement Date"), the parties shall prepare the final closing statement (the
"Final Closing Statement") reflecting the Net Working Capital determined in
accordance with the terms of this Agreement and the example provided by
Schedule 2.2. Adjustments made after the Hospital Closing based on the Final
Closing Statement shall be payable in cash, on or before the tenth day
following the day the Final Closing Statement is agreed upon. If the parties
are unable to agree on the Final Closing Statement within thirty (30) days
after the Hospital Closing Statement Date, the calculations, and all supporting
documentation, shall be submitted for determination to the Charleston, South
Carolina office of Peat Marwick, a firm of independent certified public
accountants of recognized national standing (the "Accountant") as expert and
not as arbitrator. The foregoing provisions for review by Accountant shall be
specifically enforceable by the parties; the decision of such Accountant shall
be final and binding on the parties; there shall be no right of appeal from
such decision; and such Accountant's fees and expenses for such disputed
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determination shall be borne by the party whose determination has been modified
by the Accountant's report or by both parties in proportion to the relative
amount each party's determination has been modified. The parties shall pay
each other pursuant to such determination the appropriate adjustment amounts
within ten (10) business days of the earlier of (i) delivery of the
Accountant's calculation, or (ii) the parties' agreement respecting the amount
due.
(d) As used herein "usable inventory" shall mean that
inventory which is not obsolete. In determining what portion of the inventory
constituting the inventory which is part of the UHS Assets or the C/HCA Assets,
as the case may be, and which is valued in the calculation of Net Working
Capital as provided herein, each party shall conduct a physical count of the
inventory on hand as of the Hospital Closing Date and shall allow a
representative of the other party to monitor the same (the "Monitoring Party").
Should the Monitoring Party determine that any of the inventory is obsolete
(the "Obsolete Inventory") and not of use in the business being acquired, then
such Obsolete Inventory shall not be included in the valuation of the usable
inventory which makes up a part of the UHS Assets or C/HCA Assets, as the case
may be. Any disputes with respect to whether or not particular inventory is
Obsolete Inventory shall be subject to the same dispute resolution as applies
to disputes in the Net Working Capital calculation as set forth in paragraph
(c) of this Section.
2.3 Instruments of Conveyance and Transfer of Books and Records.
(a) At the Hospital Closing, C/HCA and the UHS Affiliates
and UHS of Delaware shall deliver to each other such deeds, bills of sale,
endorsements, assignments, assumptions and other instruments of sale,
conveyance, transfer, assignment, and assumption, satisfactory in form and
substance to each party and its
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counsel, as may be reasonably requested by the such party, in order to convey
to C/HCA or the UHS Group, as the case may be, good and marketable title to the
UHS Assets or the C/HCA Assets, respectively, free and clear of all Liens
except Permitted Encumbrances. C/HCA and the UHS Affiliates shall pay all
sales, transfer or stamp taxes, or similar charges, payable by reason of the
Exchange with respect to their property being exchanged.
(b) At the Hospital Closing, C/HCA and the UHS Affiliates
and UHS of Delaware shall deliver to the other party all written consents which
are required under any UHS Assumed Contract or C/HCA Assumed Contract,
respectively, being assigned hereunder; provided, however, that as to any such
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
Hospital Closing Date, C/HCA or the UHS Affiliates or UHS of Delaware shall
deliver to the other party written documentation setting forth arrangements for
the transfer of the economic benefit of such Assumed Contracts to the other
party as of the Hospital Closing Date under terms and conditions acceptable to
all the parties hereto, in accordance with the terms of Sections 9.1 and 9.2
hereof.
(c) At the Hospital Closing, C/HCA and the UHS Affiliates
and UHS of Delaware shall deliver special warranty deeds to the C/HCA Owned
Property and the UHS Owned Property, respectively, in form acceptable to the
other party and its counsel with good and marketable fee simple title, free and
clear of all Liens, except for Permitted Encumbrances. C/HCA and the UHS
Affiliates and UHS of Delaware shall deliver evidence of good, marketable and
insurable title to the C/HCA Owned Property and the UHS Owned Property in the
form of an ALTA Owner's or (in the
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case of UHS Leased Property) Lessee's Policy of Title Insurance (Form B, 1970)
in an aggregate amount acceptable to the other party (the "Title Policy"). The
Title Policy will be issued by a title insurance company satisfactory to the
other party (such company hereinafter called the "Title Company"), and shall
insure UHS Sub's fee simple title to the C/HCA Owned Property and C/HCA's fee
simple or leasehold (as the case may be) title to the UHS Real Property, and
the appurtenant rights, privileges and easements, subject only to Permitted
Encumbrances and such other exceptions as the other party shall approve in
writing. Such policy shall provide full coverage against mechanics' or
materialmen's liens arising out of any work, labor, materials or services
furnished or claimed to have been furnished to the C/HCA Real Property or the
UHS Real Property, as the case may be, or any part thereof prior to the
Hospital Closing, and shall contain endorsements insuring over all other
printed or standard general exceptions, a 3.1 zoning endorsement, a contiguity
endorsement, an access endorsement and such other endorsements as specified
herein or as the other party may reasonably require. C/HCA and the UHS
Affiliates and UHS of Delaware shall also furnish to the other party, as soon
as possible, but no later than the Hospital Closing Date, an "as built"
survey(s) with respect to the C/HCA Real Property and the UHS Real Property, as
the case may be. Such survey(s) shall be prepared by a surveyor licensed in
the state where the C/HCA Real Property or the UHS Real Property, as the case
may be, is located who is satisfactory to the other party and shall be in
accordance with ALTA-ACSM standards for Class A urban-commercial surveys, shall
be dated subsequent to the date of this Agreement, shall be certified in favor
of both parties and the Title Company, shall depict the subject land and the
improvements, show all manholes, structures and utility lines, in, over, under
or upon such land and the locations of all
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easements upon such land or appurtenant thereto (which shall be identified by a
recording office instrument number), locate and number the parking spaces on
such land, locate all set back lines and similar restrictions covering the
C/HCA Real Property and the UHS Real Property, as the case may be, and any
violation of such restrictions, and all other matters which are ascertainable
by a careful inspection and survey of the C/HCA Real Property and the UHS Real
Property, as the case may be. The survey(s) shall also show that there are no
encroachments of any improvements or easements, public rights-of-way or other
adjacent properties, or encroachments of other improvements located on
adjoining properties onto any of the C/HCA Real Property and the UHS Real
Property, as the case may be. C/HCA and the UHS Affiliates shall equally share
the costs of all premiums and other expenses relating to all such survey and
title insurance policy commitments required to be delivered herein and
recording fees payable by reason of the delivery or recording of the special
warranty deeds to the C/HCA Real Property or the UHS Real Property, subject to
Section 12 hereof.
(d) Any transfer of the UHS Assets by the UHS Affilliates
to UHS of Delaware for further transfer to C/HCA shall occur and be effective
no earlier than immediately prior to the Hospital Closing on the Hospital
Closing Date.
2.4 Disclaimer of Warranties. Except as expressly set forth
herein, the C/HCA Assets and the UHS Assets, respectively, are to be
transferred in their condition on the Hospital Closing Date, " AS IS," WITH NO
WARRANTY OF HABITABILITY OR FITNESS FOR HABITATION, WITH RESPECT TO LAND,
BUILDINGS AND IMPROVEMENTS, AND WITH NO WARRANTIES, INCLUDING, WITHOUT
LIMITATION, THE WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, with respect to the equipment, inventory, and supplies, any and
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all of which warranties (both express and implied) C/HCA and the UHS Affiliates
and UHS of Delaware, respectively, hereby disclaim. All of the C/HCA Assets
and the UHS Assets shall be further subject to normal wear and tear on the
land, buildings, improvements and equipment and normal and customary use of the
inventory and supplies up to the Hospital Closing.
3. Representations and Warranties of C/HCA.
In order to induce UHS, UHS Sub, the UHS Affiliates and UHS of
Delaware to enter into and perform this Agreement, C/HCA represents, warrants
and agrees as follows:
3.1 Organization, Capitalization, Authorization, Etc.
3.1.1 Organization. C/HCA is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation, with all the requisite power and authority to execute, deliver
and perform this Agreement and to hold the properties, rights and assets and to
carry on the business now conducted by it. C/HCA 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.
3.1.2 Governing Documents. Copies of the Articles of
Incorporation and By-Laws of C/HCA have heretofore been delivered to the UHS
Group and are true, complete and correct.
3.2 Ownership of Assets. Except as set forth in Schedule 3.2
hereto, C/HCA is the legal and beneficial owner of the C/HCA Assets described
in Section 1.4 hereof, free and clear of any Liens other than Permitted
Encumbrances, and C/HCA has full right, power and authority to sell, transfer,
assign, convey and deliver all of the
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C/HCA Assets to be transferred by it hereunder and delivery thereof will convey
to the UHS Group good and marketable title to said C/HCA Assets, free and clear
of any Liens other than Liens created by the UHS Group and Permitted
Encumbrances. Except as set forth on Schedule 3.2 hereof, no equipment (as
specified in Section 1.4(c) hereof) has been removed from the C/HCA Hospitals
since November 1, 1994.
3.3 Authority and No Conflict. (a) C/HCA 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 C/HCA. Except as set forth on Schedule 3.3, the execution and delivery of
this Agreement by C/HCA does not, and 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 Articles of
Incorporation or By-laws of C/HCA; (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
C/HCA is a party or to which any of C/HCA's 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 C/HCA is a
party or to which any of C/HCA's properties is subject, 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 properties of C/HCA; or (d)
result in any suspension, revocation, impairment, forfeiture or nonrenewal of
(i) any License
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(as defined herein) relating to the ownership and operation of health care
facilities which is material to the operation of the C/HCA Assets or (ii) any
other material License. All corporate action prerequisite to the execution of
this Agreement and the consummation of the transactions contemplated by this
Agreement has been taken by C/HCA. This is a valid and binding agreement of
C/HCA enforceable in accordance with its terms except as enforceability may be
restricted, limited or delayed by applicable bankruptcy or other laws affecting
creditors' rights generally and except as enforceability may be subject to
general principles of equity.
(b) The execution, delivery and performance by C/HCA 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 C/HCA Assets, except for compliance with the HSR Act (as defined
herein) and the FTC Consent Order (as defined herein) and except for such
governmental authorizations, consents, approvals, certifications, licenses and
orders that customarily accompany the transfer of health care facilities such
as the C/HCA Hospitals.
3.4 Financial Statements, Books and Records, and Change in
Condition.
3.4.1 Financial Statements Provided. C/HCA has delivered
to the UHS Group true, correct and complete copies of the unaudited balance
sheet of C/HCA as of September 30, 1994 (the "C/HCA September Balance Sheet")
and the related statements of operations, and statements of retained earnings
and cash flows for the 9 months then ended, (the "C/HCA September Financial
Statements"). The C/HCA September Financial Statements have been prepared from
the books and records of
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C/HCA and have been prepared in accordance with generally accepted accounting
principles consistently followed throughout the period covered thereby (except
as set forth on Schedule 3.4.1), and the balance sheet included therein
presents fairly as of its date the financial condition of C/HCA. The
statements of operations, and statements of retained earnings and cash flows
included in the C/HCA September Financial Statements present fairly the results
of operations, retained earnings and cash flows of C/HCA for the periods
indicated.
3.4.2 Inventories. All inventories of C/HCA set forth on
the C/HCA September Balance Sheet, and all inventories acquired subsequent to
September 30, 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 C/HCA Assets
consist, and at the Hospital 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 will be written
down at the Hospital Closing to realizable market value. The present
quantities of inventory of C/HCA are, and at the Hospital Closing will be,
reasonable and warranted in the present and then circumstances of the C/HCA
Hospitals.
3.4.3 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 prospects, of C/HCA, whether as a result of any
legislative or regulatory change, 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
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otherwise, and, to the best knowledge of C/HCA, no fact or condition exists or
is contemplated or threatened which could reasonably be anticipated to cause
such a change in the future.
Except as set forth on Schedule 3.4.3 and except for seasonality
changes, since the Balance Sheet Date, C/HCA has not (a) borrowed any amount or
incurred or become subject to any liability (absolute, accrued or contingent),
except 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 C/HCA September 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 C/HCA; (d) mortgaged, pledged or subjected to Lien any of its
assets, tangible or intangible (including the C/HCA Assets), other than Liens
of current real property taxes not yet due and payable; (e) sold, assigned or
transferred any of its tangible assets except in the ordinary course of
business, or canceled any debt or claim; (f) sold, assigned, transferred or
granted any license with respect to any trademark, trade name, service mark,
copyright, trade secret or other intangible asset; (g) suffered any 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 loss or threatened loss of, any of its material
suppliers, managed care contracts, physician relationships or Medicare or
Medicaid contracts; (i)(1) entered into any employment, deferred compensation
or other similar agreement (or any amendment to any such
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existing agreement) or arrangement with any of its directors, officers or
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, other than in the ordinary course of business and consistent with past
practice, employees; (j) made any material change in the manner of its business
or operations, including without limitation any change in the manner in which
it 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; (l) written off as uncollectible any accounts
or notes receivable in excess of reserves; (m) been the subject of any labor
dispute or threat thereof; (n) entered into any 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. C/HCA does not have 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 C/HCA September 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, and (c) any debt, liability or obligation otherwise disclosed in
this Agreement or the Schedules hereto.
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3.6 Real Property.
(a) Schedule 3.6 hereto identifies all interests in real
property including land and improvements held by C/HCA as of the date hereof,
together with the nature of such interest. To the extent that any such
interest is shared, Schedule 3.6 also sets forth the nature and proportion of
the sharing arrangement. Each of the properties on Schedule 3.6 is identified
either as a property in which C/HCA holds all or a portion of the fee title
(individually, an "C/HCA Owned Property" and collectively, the "C/HCA Owned
Properties"), or all or a portion of a leasehold estate in the property
(individually, a "C/HCA Leased Property" and collectively, the "C/HCA Leased
Properties"). The C/HCA Owned Properties and the C/HCA Leased Properties are
collectively referred to herein as "C/HCA Real Property."
(b) Except as set forth on Schedule 3.6, C/HCA has good,
valid and marketable title to each C/HCA Owned Property free and clear of all
Liens whatsoever except for Permitted Encumbrances. C/HCA's occupation,
possession and use of the C/HCA Leased Properties has not been disturbed and no
claim has been asserted or, to the best knowledge of C/HCA, threatened, adverse
to the respective rights of C/HCA to the continued occupation, possession and
use of the C/HCA Leased Properties, as currently utilized and as presently
contemplated to be utilized.
(c) No portion of the C/HCA Real Property has suffered
any material damage by fire or other casualty which heretofore has not been
completely repaired and restored to its original condition. No person other
than C/HCA owns any C/HCA Improvements (as defined below) necessary to the
operation of the business of C/HCA, except for leased C/HCA Improvements
disclosed on Schedule 3.6.
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(d) The use and operation of the C/HCA Real Property and
all buildings, structures, improvements, fixtures, facilities, equipment, all
components of all buildings, structures and other improvements included within
the C/HCA Real 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 "C/HCA
Improvements") by C/HCA is lawful and in full compliance with all 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 every person, including, without limitation, any
foreign or domestic court, administrative agency or commission or other
governmental authority or instrumentality (a "Government Entity") having
jurisdiction over any such C/HCA Real Property and C/HCA Improvements. The
construction and use of the C/HCA Improvements on each parcel of C/HCA Real
Property is lawful and in full compliance with all 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 C/HCA 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 C/HCA Real Property and C/HCA Improvements. Effective as of the
Hospital Closing, the UHS Group shall have the right under all Real Property
Laws to continue the use and operation of the C/HCA Real Property and C/HCA
Improvements for their current uses in the operation of the business of C/HCA
as presently operated. To the best of C/HCA's knowledge for the past six
years, C/HCA has not received any notice
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of any violation of or investigation regarding any Real Property Laws. None of
the C/HCA Real Property or the C/HCA Improvements, the appurtenances thereto or
the equipment therein or the operation or maintenance thereof violates any
restrictive covenant or, except as shown on the survey, encroaches on any
property owned by others or any easement, right of way or other encumbrance or
restriction affecting the C/HCA Real Property and/or C/HCA Improvements in any
manner which would, individually or in the aggregate, interfere in any material
respect with the use, occupancy or operation thereof as currently used,
occupied and operated. To the best knowledge of C/HCA and except as shown on
the survey, no building or structure of any third party encroaches upon the
C/HCA Real Property or any easement or right of way benefitting the C/HCA Real
Property. The C/HCA Real Property and its continued use, occupancy and
operation as currently used, occupied and operated does not constitute a
nonconforming use under any Real Property Law. C/HCA has provided the UHS
Group with copies of the most recent title reports in their possession relating
to the C/HCA Real Property and all title insurance policies currently in effect
with respect to such C/HCA Real Property.
(e) C/HCA has not received notice of, nor does it
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 C/HCA Real Property and/or C/HCA Improvements
for their respective intended purposes or the value of any material portion of
the C/HCA Real Property or C/HCA Improvements, nor has C/HCA received notice of
any special improvements, liens, assessments or assessment proceedings
affecting any of the C/HCA Real Property or C/HCA
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Improvements, nor has C/HCA received any written notice of violation or claimed
violation of any Real Property Law.
(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 operation of the C/HCA Real Property and C/HCA
Improvements are installed to the property lines of the C/HCA Real Property,
are connected pursuant to valid permits to municipal or public utility services
or proper drainage facilities, are fully operable and are adequate to service
the C/HCA Real Property and C/HCA Improvements as currently used in the
operation of the business of the C/HCA Hospitals and to permit full compliance
with the requirements of all Real Property Laws. C/HCA has no knowledge or
notice of any fact or condition which could result in the termination or
reduction of the current access from the C/HCA Real Property to existing roads
or to sewer or other utility services presently serving the C/HCA Real
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 C/HCA Real Property for the use and operation of the
C/HCA Real Property and C/HCA Improvements as currently used in the operation
of the business of C/HCA and to ensure vehicular and pedestrian ingress to and
egress from the C/HCA Real 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 C/HCA
Real Property by C/HCA or the UHS Group. Except as set forth on Schedule 3.6,
the transactions contemplated hereby will not require the issuance of any new
or amended license, permit or certificate.
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(h) None of the C/HCA Real Property is located in an area
identified as a "flood hazard area" by the United States Department of Housing
and Urban Development except as shown in the survey obtained as part of
Schedule 3.6 hereto which, to C/HCA's knowledge, is accurate and complete in
all respects. C/HCA has not granted any easements or entered into an
arrangement or agreement since the date of the survey which would cause any
change to be made in such survey if such survey was performed as of the date
hereof.
3.7 Property to Operate C/HCA Hospitals. The C/HCA Assets
constitute, in the aggregate, all the assets and property necessary for the
conduct of the C/HCA Hospitals as currently conducted.
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 C/HCA in the
operation of its business and of the C/HCA Hospitals or in which they have any
rights (including licenses), together with a brief description of each. To the
best of C/HCA's knowledge, C/HCA has not infringed, and is not now infringing,
any trade name, trademark, service mark, copyright, patent or trade secret
belonging to a third party and C/HCA has not received any 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 C/HCA 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 C/HCA's business as now being
conducted, the loss of which could materially
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and adversely affect the prospects, operations or condition, financial or
otherwise, of the C/HCA. No director, officer, stockholder, or, to the best
knowledge of C/HCA, employee, of C/HCA or the C/HCA Hospitals 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 best knowledge of C/HCA, threatened against C/HCA or affecting the C/HCA
Assets by or before any Governmental Entity, or any basis in fact therefor
known to C/HCA, against C/HCA or involving the C/HCA Assets, whether at law or
in equity.
3.10 Compliance with Laws.
(a) To the best of C/HCA's knowledge, C/HCA 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, collective bargaining,
equal opportunity and improper payments) (collectively, "Laws"), except for
violations that individually or in the aggregate would not and, insofar as may
reasonably be foreseen, in the future will not, have a material adverse effect
on the business or operations of C/HCA. C/HCA, nor, to the best knowledge of
C/HCA, any director, officer, consultant or employee of C/HCA, is in default
with respect to any order, writ, injunction or decree, known to, or served
upon, C/HCA, of any Governmental Entity. To the best knowledge of C/HCA, there
is no existing Law, other than Laws of general applicability to healthcare
providers, which would prohibit or materially restrict C/HCA from, or otherwise
materially adversely affect C/HCA in,
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conducting its business in any jurisdiction in which it is now conducting
business or in which it currently proposes to conduct business.
(b) C/HCA has not 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
C/HCA or its business to rework or redesign the C/HCA Hospitals, medical staff
or professional services, procedures or practices in any material respect or to
provide additional furniture, fixtures, equipment or inventory so as to make
the C/HCA Hospitals conform to or comply with applicable law.
(c) To the best of C/HCA's knowledge, C/HCA and its
respective officers and directors, and those physicians who are under contract
or have otherwise entered into a written agreement with C/HCA (and then, only
with respect to activities of such physicians under and with respect to such
contracts or agreements), 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.
3.11 Contracts.
(a) C/HCA has no existing contract, obligation or
commitment (written or oral) 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;
(ii) Loan or other agreements, notes, indentures, or
instruments relating to or evidencing indebtedness for borrowed
money or mortgaging,
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pledging or granting or creating a lien or security interest or
other encumbrance on any of the assets of C/HCA or any agreement or
instrument evidencing any guaranty by C/HCA 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 C/HCA
is a party or by which it is bound;
(vi) Agreements which would, after the Hospital Closing
Date, limit the freedom of the UHS Group 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 C/HCA;
(viii) Any lease under which C/HCA is either lessor or
lessee;
(ix) Any contract, commitment or arrangement not made in
the ordinary course of business of C/HCA, including without
limitation, any powers-of-attorney giving any person authority to
act on behalf of C/HCA;
(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;
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(xi) Any contract or series of contracts, commitments or
arrangement relating to the provision of goods or services for
C/HCA by any person who is related to, or an affiliate of, C/HCA or
any officer, director or stockholder of C/HCA, and any contract or
series of contracts, commitments or arrangement relating to the
provision of goods or services for C/HCA by any person the terms of
which were not determined on an arms' length basis;
(xii) Any patient care or pharmacy vending contract not
entered into in the ordinary course of business;
(xiii) Agreements with any Governmental Entity, including
without limitation Medicare and Medicaid provider agreements and
indigent care contracts; or
(xiv) Any contract with any managed care, preferred
provider or other similar entity.
True and correct copies of all contracts, agreements, arrangements and similar
instruments set forth on Schedule 3.11 have been provided to the UHS Group.
Each contract, agreement, arrangement, plan, lease (including lease agreements
with respect to the C/HCA Leased Properties under which C/HCA is either lessor
or lessee) or similar instrument to which C/HCA is a party, whether or not
listed on Schedule 3.11 (collectively, the "C/HCA Contracts"), is a valid and
binding obligation of C/HCA and, to the best knowledge of C/HCA, 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
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is in full force and effect (except for any C/HCA Contracts which by their
terms expire after the date hereof or are terminated after the date hereof in
accordance with the terms thereof), and neither C/HCA nor, to the best of
knowledge of C/HCA, any other party thereto has breached any material provision
of, nor is in default in any material respect under the terms of (and, to the
best knowledge of C/HCA, 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 C/HCA Contracts.
(b) (1) No purchase contracts or commitments of C/HCA
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 C/HCA Contract requires C/HCA to
provide services at a fixed price; (iii) C/HCA does not have outstanding any
bid, contract, commitment or proposal either (x) continuing for a period of
more than 12 months or (y) quoting prices which will not result in profits
consistent with past experience; and (2) none of such C/HCA Contracts obligates
C/HCA to perform services which C/HCA knows or has reason to believe are at a
price which would result in a 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.
3.12 Employee and Labor Matters and Plans.
(a) Schedule 3.12 lists each of the following plans,
contracts, policies and arrangements which is or, within six years prior to the
date hereof, was sponsored, maintained or contributed to, by, or otherwise
binding upon, C/HCA, for the benefit of any current or former employee,
director or other personnel (including any
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such plan, contract, policy or arrangement approved or adopted before, but
effective on or after, the date of this Agreement): (i) any "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 subject to the provisions
of ERISA, (ii) any personnel policy 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, C/HCA has
delivered to the UHS Group 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 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
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any application therefor which is currently pending and (5) the last PBGC-1
filed with the United States Pension Benefit Guaranty Corporation (the "PBGC").
(c) Each Employee Plan has been maintained and
administered in accordance with its terms and in substantial compliance with
the 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. Except as set forth on Schedule 3.12, with
respect to each Employee Plan, (i) no application, proceeding or other matter
is pending before the IRS, the Department of Labor, the PBGC or any other
Governmental Entity; (ii) no action, suit, proceeding or claim (other than
routine claims for benefits) is pending or threatened; and (iii) to the best
knowledge of C/HCA, 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 C/HCA or the plan assets.
(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 best
knowledge of C/HCA 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
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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) other than
as set forth on Schedule 3.12, 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 best knowledge of C/HCA 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) there
has been no termination or partial termination within the meaning of Section
411(d)(3) of the Code, (iv) 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 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 (v)
with respect to each such Employee Plan which is covered by Title IV of ERISA,
(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, (3) no liability
has been incurred under Title IV of ERISA to the PBGC or otherwise (except for
the payment of PBGC premiums) and (4) in the case of a defined benefit pension
plan, the value of the plan assets exceeds the total present value of the
plan's benefit liabilities on a plan termination basis based upon actuarial
assumptions and asset valuation principles applied by the PBGC. C/HCA has not
ceased operations at a
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facility so as to become subject to the provisions of Section 4068(a) 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 except as set forth on Schedule 3.12, and neither the trust nor any
related plan has been amended or, to the best knowledge of C/HCA, 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.
(h) C/HCA has 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. C/HCA does not maintain, contribute 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 unless
as required by the Consolidated Omnibus Reconciliation Act (COBRA). To the
best knowledge of C/HCA, C/HCA has reserved the right to unilaterally terminate
and/or amend each Employee Plan at any time.
(i) The consummation of the transactions contemplated by
this Agreement will not (either alone or in conjunction with another event,
such as a
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termination of employment or other services) entitle any employee or other
person to receive severance or other compensation which would not otherwise be
payable absent the consummation of the transactions contemplated by this
Agreement or cause the acceleration of the time of payment or vesting of any
award or entitlement under any Employee Plan.
(j) 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 portions thereof attributable to salary and bonuses,
respectively), fringe benefits, and the amount of accrued bonuses, PTO,
maternity leave and other leave of the current chief executive officers and
chief financial officers of C/HCA and of all employees of or consultants to
C/HCA 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. Except as set forth on Schedule 3.12, none
of such personnel is a party or subject to any oral or written employment,
bonus, pension, profit-sharing, deferred compensation, 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. C/HCA is not in default with respect to any of the foregoing
obligations. C/HCA is not in default with respect to any withholding or other
employment taxes or payments with respect to accrued PTO or severance pay on
behalf of any employee for which it is obligated on the date hereof and will
maintain and continue to make all such necessary payments or adjustments
arising through the Hospital Closing Date. To the best knowledge of C/HCA, no
officer or employee listed on Schedule 3.12 has any plans to terminate their
employment.
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C/HCA has not instituted a "freeze" of, or delayed or deferred the grant of,
any cost-of-living or other salary adjustments for any of its employees.
(k) Schedule 3.12 comprises a complete and correct list
of (i) the names, titles, length of employment or service and current annual
salary rates and all other compensation and fringe benefits of each of the
employees, or consultants of C/HCA who are engaged in the conduct of the C/HCA
Hospitals and who are not included on Schedule 3.12 as a result of disclosures
required by (j) herein; and (ii) the amount of accrued bonuses, PTO, maternity
leave and other leave for such personnel. There have been no audits of the
equal employment opportunity practices of C/HCA and, to the best knowledge of
C/HCA, no basis for such claim exists. There is no strike, dispute, slowdown
or stoppage pending or threatened against or involving C/HCA and none has
occurred since January 1, 1988. C/HCA has not received notice from any union
or employees setting forth demands for representation, elections or for present
or future changes in wages, terms of employment or working conditions.
(l) 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 C/HCA 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 C/HCA (reflecting policy
numbers, identity of insurer, amounts and coverage) covering C/HCA and its
employees, agents and assets. Each such policy is now, and will be up to the
Effective Time in full force and effect on an occurrence basis with no premium
arrearage. All such policies are in full force and effect with responsible
insurance carriers and, to the best knowledge of C/HCA, provide
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adequate coverage to insure fully against risks to which C/HCA and its
employees, businesses, properties and other assets may be exposed in the
operation of its business. All retroactive premium adjustments under any
worker's compensation policy of C/HCA have been recorded in C/HCA's financial
statements in accordance with generally accepted accounting principles and are
reflected in the C/HCA Financial Statements. No notice of cancellation or
termination has been received with respect to any such policy. To the best
knowledge of C/HCA, C/HCA has not failed to give any notice or present any
claim thereunder in due and timely fashion. There are no pending claims
against such insurance by C/HCA as to which the insurers have denied coverage
or otherwise reserved rights. C/HCA has not 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 since the date it commenced operations.
3.14 Medicare, Medicaid and Other Health Care Programs.
(a) The medical staff of the C/HCA Hospitals consist
substantially of the persons whose names and status are set forth on Schedule
3.14 hereto.
(b) C/HCA is certified for participation in the Medicare
and Medicaid programs, and has a current and valid provider contract with such
programs.
(c) C/HCA has 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 it with respect to the purchase of services
by third-party purchasers, including but not limited to Medicare and Medicaid
programs and other insurance carriers and, subject to normal adjustments (that
shall not be material and
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adverse) to such reports upon audit or review by such third parties, all such
reports are complete and accurate in all material respects. C/HCA has paid or
caused to be paid all refunds, discounts or adjustments which have become due
pursuant to said reports and there is no further liability now due (whether or
not disclosed in any report heretofore or hereafter made) for any such refund,
discount or adjustment, and no interest or penalties accruing with respect
thereto, except as may be disclosed in the C/HCA Financial Statements. C/HCA
has delivered to the UHS Group true and correct copies of all of its Medicare
and Medicaid Cost Reports submitted by C/HCA for the two most recent fiscal
years.
3.15 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 the C/HCA Hospitals for which surveys are
conducted by the appropriate state or Federal agencies and JCAHO having
jurisdiction thereof have been furnished to the UHS Group, along with true and
complete copies of any and all plans of correction which the agencies in
question required to be submitted in response to said survey reports and all
deficiencies reflected have been corrected at the expense of C/HCA.
3.16 Licenses. C/HCA and its officers, directors, partners and
employees possess all governmental registrations, certificates of need,
consents, qualifications, accreditations, licenses, permits, authorizations and
approvals that are material to the ownership or operation of the health care
facilities owned and operated by C/HCA except where the failure to possess the
same would not have a material adverse effect on the ownership or operation of
the C/HCA Assets, and the use of its properties as
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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").
Schedule 3.16 contains 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 3.17). All of the Licenses are in full force and effect and
no action or claim is pending nor, to the best knowledge of C/HCA, is
threatened to revoke or terminate any License or declare any License invalid in
any material respect. Neither C/HCA nor any of its officers or directors or,
to the best knowledge of C/HCA, employees is in default in any material respect
under any of such Licenses and, to the best knowledge of C/HCA, other than as
set forth on the C/HCA Hospitals survey reports, copies of which have been
provided to the UHS Group, 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 C/HCA.
3.17 Taxes.
(a) Except as specifically set forth in Schedule 3.17,
C/HCA has 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 C/HCA Assets or the C/HCA Hospitals 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
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to be filed, and all such returns and reports are true, correct and complete in
all material respects.
(b) All Taxes relating to the C/HCA Assets or the C/HCA
Hospitals that C/HCA is or was 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 C/HCA Hospitals.
(c) C/HCA has no intangible asset on its books in the
nature of good will or going concern for which they have a tax basis.
3.18 Tax Returns Through Hospital Closing Date. C/HCA shall
prepare and file on a timely basis all reports and returns of Taxes relating to
the C/HCA Assets or the C/HCA Hospitals with respect to all periods through and
including the Hospital Closing Date and shall pay or cause to be paid when due
all Taxes relating to the C/HCA Assets or the C/HCA Hospitals 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 UHS Group pursuant to this Agreement. C/HCA shall be entitled to receive
any tax refund of Taxes attributable to the C/HCA Assets or conduct of the
C/HCA Hospitals in respect of any period prior to and through the Hospital
Closing Date to the effect paid by C/HCA.
3.19 FIRPTA Affidavits. At the Hospital Closing, C/HCA shall
execute and deliver to the UHS Group affidavits complying in all respects with
Section 1445(b)(2) of the Code and the UHS Group 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 UHS Group, no
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deduction shall be made or claimed against the Cash Deposit by reason of the
requirements of Section 1445 of the Code.
3.20 No Illegal or Improper Transactions. C/HCA has not, nor
have any of its directors, officers, affiliates, employees, directly or
indirectly used funds or other assets of C/HCA, 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 C/HCA.
3.21 No Misleading Statements. This Agreement, the information
and schedules referred to herein and the information that has been furnished to
the UHS Group and the UHS Affiliates 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.
3.22 Special Funds. None of the C/HCA Assets are subject to, and
C/HCA shall indemnify and hold the UHS Group harmless from and against, any
liability in respect of amounts received by C/HCA or others for the purchase or
improvement of the C/HCA Assets or any part thereof under restricted or
conditioned grants or donations, including, without limitation, monies received
under the Public Health Service Act, 42 U.S.C. Section 291 et seq. or the
provisions of the Higher Education Facilities Act of 1965, 20 U.S.C. Section
1132(a), et seq. or under any comparable state laws.
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3.23 Medical Staff Matters. C/HCA has delivered to the UHS Group
true, correct, and complete copies of the bylaws and rules and regulations of
the medical staffs of the C/HCA Hospitals. With regard to the medical staffs
of the C/HCA Hospitals and except as set forth on Schedule 3.23 hereto, there
are no pending or, to the best of C/HCA's knowledge, threatened disputes with
applicants, staff members or health professional affiliates and all appeal
periods in respect of any medical staff member or applicant against whom an
adverse action has been taken have expired.
3.24 No Broker. C/HCA represents and warrants that it has not
dealt with any broker or finder in connection with any of the transactions
contemplated by this Agreement.
4. Representations and Warranties of UHS, UHS Sub, the UHS Affiliates
and UHS of Delaware. In order to induce C/HCA to enter into and perform this
Agreement, UHS, the UHS Sub, the UHS Affiliates and UHS of Delaware, jointly
and severally, represent, warrant and agree as follows:
4.1 Organization, Capitalization, Authorization, Etc.
4.1.1 Organization. Each of UHS, the UHS Sub, the UHS
Affiliates and UHS of Delaware is a corporation duly organized, validly
existing and in good standing under the laws of its respective state of
incorporation, with all the requisite power 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 UHS, the UHS Sub, the UHS
Affiliates and UHS of Delaware 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.
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4.1.2 Governing Documents. Copies of the Articles of
Incorporation and By-Laws of UHS, the UHS Sub, the UHS Affiliates and UHS of
Delaware have heretofore been delivered to C/HCA and are true, complete and
correct.
4.2 Ownership of Assets. Except as set forth in Schedule 4.2
hereto, the UHS Affiliates are and at the Hospital Closing, UHS of Delaware
will be the legal and beneficial owner of the UHS Assets described in Section
1.2 hereof, free and clear of any Liens other than Permitted Encumbrances, and
the UHS Affiliates and UHS of Delaware have full right, power and authority to
sell, transfer, assign, convey and deliver all of the UHS Assets to be
transferred by each of them, hereunder and delivery thereof will convey to
C/HCA good and marketable title to said UHS Assets, free and clear of any Liens
other than Liens created by C/HCA and Permitted Encumbrances. No removal of
equipment (as specified in Section 1.2(c) hereof) from the UHS Hospitals has
occurred since November 1, 1994.
4.3 Authority and No Conflict. (a) UHS, UHS Sub, the UHS
Affiliates and UHS of Delaware have 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 UHS, UHS
Sub, the UHS Affiliates and UHS of Delaware. Except as described on Schedule
4.3 the execution and delivery of this Agreement by UHS, UHS Sub, the UHS
Affiliates and UHS of Delaware does not and 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 Articles of
Incorporation or By-laws of UHS, UHS Sub, UHS Affiliates or UHS of Delaware;
(b) conflict with, or result in any violation of or default or loss of any
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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, UHS Sub, the UHS Affiliates or UHS of
Delaware 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,
UHS Sub, the UHS Affiliates or UHS of Delaware is a party or to which any of
their respective properties is subject, 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 properties of UHS, UHS Sub, the UHS
Affiliates or UHS of Delaware; or (d) result in any suspension, revocation,
impairment, forfeiture or nonrenewal of (i) any License relating to the
ownership and operation of health care facilities which is material to the
operation of the UHS Assets or (ii) any other material License. All corporate
action prerequisite to the execution of this Agreement and the consummation of
the transactions contemplated by this Agreement has been taken by UHS, UHS Sub,
the UHS Affiliates and UHS of Delaware. This is a valid and binding agreement
of UHS, UHS Sub, the UHS Affiliates and UHS of Delaware enforceable in
accordance with its terms except as enforceability may be restricted, limited
or delayed by applicable bankruptcy or other laws affecting creditors' rights
generally and except as enforceability may be subject to general principles of
equity.
(b) The execution, delivery and performance by UHS, UHS
Sub, the UHS Affiliates and UHS of Delaware of this Agreement, and the
performance of the transactions contemplated by this Agreement, do not require
the authorization, consent,
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approval, certification, license or order of, or any filing with, except as set
forth on Schedule 4.3 hereof, any court or governmental agency of such a nature
that the failure to obtain the same would have a material adverse effect on the
UHS Assets, except for compliance with the HSR Act (as hereinafter defined) the
FTC Consent Order, and except for such governmental authorizations, consents,
approvals, certifications, licenses and orders that customarily accompany the
transfer of health care facilities such as the UHS Hospitals.
4.4 Financial Statements, Books and Records, and Change in
Condition.
4.4.1 Financial Statements Provided. The UHS Affiliates
have delivered to C/HCA true, correct and complete copies of the unaudited
balance sheets of the UHS Affiliates as of September 30, 1994 (collectively,
the "UHS September Balance Sheet") and the related statements of operations,
and statements of retained earnings and cash flows for the 9 months then ended
(collectively, the "UHS September Financial Statements"). The UHS September
Financial Statements have been prepared from the books and records of the UHS
Affiliates and have been prepared in accordance with generally accepted
accounting principles consistently followed throughout the period covered
thereby (except as set forth on Schedule 4.4.1), and the balance sheet included
therein presents fairly as of its date the financial condition of the UHS
Affiliates. The statements of operations, and statements of retained earnings
and cash flows included in the UHS September Financial Statements present
fairly the results of operations, retained earnings and cash flows of the UHS
Affiliates for the periods indicated.
4.4.2 Inventories. All inventories of the UHS Affiliates
set forth on the UHS September Balance Sheet, and all inventories acquired
subsequent to September 30, 1994 (the "Balance Sheet Date") are valued at the
lower of cost (applied
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on a first-in-first-out basis) or market in accordance with generally accepted
accounting principles. All inventories included in the UHS Assets, consist,
and at the Hospital 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 will be written down at
the Hospital Closing to realizable market value. The present quantities of
inventory of the UHS Hospitals are, and at the Hospital Closing will be,
reasonable and warranted in the present and then circumstances of the UHS
Hospitals.
4.4.3 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 prospects, of the UHS Affiliates, whether as a
result of any legislative or regulatory change, 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 best knowledge of the UHS Affiliates, no fact or condition exists or is
contemplated or threatened which could reasonably be anticipated to cause such
a change in the future.
Except as set forth on Schedule 4.4.3, except for seasonality
changes, since the Balance Sheet Date, and except with respect to the accounts
receivable financing program of UHS (no receivables of which are included in
the UHS Assets), no UHS Affiliate has (a) borrowed any amount or incurred or
become subject to any liability (absolute, accrued or contingent), except
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,
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accrued or contingent) other than current liabilities shown on the most recent
balance sheet included in the UHS September 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 UHS Affiliates; (d) mortgaged, pledged or subjected to
Lien any of its assets, tangible or intangible (including the UHS Assets),
other than Liens of current real property taxes not yet due and payable; (e)
sold, assigned or transferred any of its tangible assets except in the ordinary
course of business, or canceled any debt or claim; (f) sold, assigned,
transferred or granted any license with respect to any trademark, trade name,
service mark, copyright, trade secret or other intangible asset; (g) suffered
any 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 loss or threatened loss of, any of its material
suppliers, managed care contracts, physician relationships or Medicare or
Medicaid contracts; (i)(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 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, other than in the
ordinary course of business and consistent with past practice, employees; (j)
made any material change in the manner of its business or operations, including
without limitation any change in the manner in which the UHS Affiliates extend
credit to patients or otherwise deals with patients; (k) made any material
change in any method of accounting or accounting
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practice, except for any such changes required by reason of a concurrent change
in generally accepted accounting principles; (l) written off as uncollectible
any accounts or notes receivable in excess of reserves; (m) been the subject of
any labor dispute or threat thereof; (n) entered into any 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.
4.5 Absence of Undisclosed Liabilities. No UHS 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 UHS September Financial Statements
except for (a) those which are not required by generally accepted accounting
principles to be so reflected, and (b) those which were incurred in the
ordinary course of business and are usual and normal in amount both
individually and in the aggregate, and (c) any debt, liability or obligation
otherwise disclosed in this Agreement or the Schedules hereto.
4.6 Real Property.
(a) Schedule 4.6 hereto identifies all interests in real
property including land and improvements held by the UHS Affiliates as of the
date hereof, together with the nature of such interest. To the extent that any
such interest is shared, Schedule 4.6 also sets forth the nature and proportion
of the sharing arrangement. Each of the properties on Schedule 4.6 is
identified either as a property in which the UHS Affiliate holds all or a
portion of the fee title (individually, an "UHS Owned Property" and
collectively, the "UHS Owned Properties"), or all or a portion of a leasehold
estate in the property (individually, an "UHS Leased Property" and
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collectively, the "UHS Leased Properties"). The UHS Owned Properties and the
UHS Leased Properties are collectively referred to herein as "UHS Real
Property."
(b) Except as set forth on Schedule 4.6, immediately
prior to the transfer to UHS of Delaware, the UHS Affiliates will have, and at
the Hospital Closing, UHS of Delaware will have good, valid and marketable
title to each UHS Real Property free and clear of all Liens whatsoever except
for Permitted Encumbrances. The UHS Affiliates' occupation, possession and use
of the UHS Leased Properties has not been disturbed and no claim has been
asserted or, to the best knowledge of the UHS Affiliates, threatened, adverse
to the respective rights of the UHS Affiliates to the continued occupation,
possession and use of the UHS Leased Properties, as currently utilized and as
presently contemplated to be utilized.
(c) No portion of the UHS Real Property has suffered any
material damage by fire or other casualty which heretofore has not been
completely repaired and restored to its original condition. No person other
than the UHS Affiliates owns any UHS Improvements (as defined below) necessary
to the operation of the business of the UHS Affiliates, except for the
contemplated transfer of the UHS Assets to UHS of Delaware immediately prior to
the Hospital Closing and except for leased UHS Improvements both of which are
disclosed on Schedule 4.6.
(d) The use and operation of the UHS Real Property and
all buildings, structures, improvements, fixtures, facilities, equipment, all
components of all buildings, structures and other improvements included within
the UHS Real 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
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therein (collectively, the "UHS Improvements") by the relevant UHS Affiliate is
lawful and in full compliance with all Use Laws of every Governmental Entity
having jurisdiction over any such UHS Real Property and UHS Improvements. The
construction and use of the UHS Improvements on each parcel of UHS Real
Property is lawful and in full compliance with all use statutes, rules,
regulations, ordinances, orders, writs, injunctions, judgments, decrees, awards
and restrictions, including without limitation, all Construction Laws
(collectively with the Use Laws, "Real Property Laws") of every Governmental
Entity having jurisdiction over any such UHS Real Property and UHS
Improvements. Effective as of the Hospital Closing, C/HCA shall have the right
under all Real Property Laws to continue the use and operation of the UHS Real
Property and UHS Improvements for their current uses in the operation of the
business of the UHS Affiliates as presently operated. To the best of the UHS
Affiliates' knowledge for the past six years, no UHS Affiliate has received any
notice of any violation of or investigation regarding any Real Property Laws.
None of the UHS Real Property or the UHS Improvements, the appurtenances
thereto or the equipment therein or the operation or maintenance thereof
violates any restrictive covenant or, except as shown on the survey, encroaches
on any property owned by others or any easement, right of way or other
encumbrance or restriction affecting the UHS Real Property and/or UHS
Improvements in any manner which would, individually or in the aggregate,
interfere in any material respect with the use, occupancy or operation thereof
as currently used, occupied and operated. To the best knowledge of the UHS
Affiliates and except as shown on the survey, no building or structure of any
third party encroaches upon the UHS Real Property or any easement or right of
way benefitting the UHS Real Property. The UHS Real Property and its continued
use, occupancy and
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operation as currently used, occupied and operated does not constitute a
nonconforming use under any Real Property Law. The UHS Affiliates have
provided C/HCA with copies of the most recent title reports in their possession
relating to the UHS Real Property and all title insurance policies currently in
effect with respect to such UHS Real Property.
(e) No UHS Affiliate has received 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 UHS Real Property and/or UHS Improvements for
their respective intended purposes or the value of any material portion of the
UHS Real Property or UHS Improvements, nor has any UHS Affiliate received
notice of any special improvements, liens, assessments or assessment
proceedings affecting any of the UHS Real Property or UHS Improvements, nor has
any UHS Affiliate received any written notice of violation or claimed violation
of any Real Property Law.
(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 operation of the UHS Real Property and UHS Improvements
are installed to the property lines of the UHS Real Property, are connected
pursuant to valid permits to municipal or public utility services or proper
drainage facilities, are fully operable and are adequate to service the UHS
Real Property and UHS Improvements as currently used in the operation of the
business of the UHS Hospitals and to permit full compliance with the
requirements of all Real Property Laws. The UHS Affiliates have no knowledge
or notice of any fact or condition which could result in the termination or
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reduction of the current access from the UHS Real Property to existing roads or
to sewer or other utility services presently serving the UHS Real 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 UHS Real Property for the use and operation of the UHS
Real Property and UHS Improvements as currently used in the operation of the
business of the UHS Hospitals and to ensure vehicular and pedestrian ingress to
and egress from the UHS Real 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 UHS
Real Property by the UHS Affiliates or C/HCA. The transactions contemplated
hereby will not require the issuance of any new or amended license, permit or
certificate.
(h) None of the UHS Real Property is located in an area
identified as a "flood hazard area" by the United States Department of Housing
and Urban Development except as shown in the survey attached as part of
Schedule 4.6 hereto which, to the best knowledge of the UHS Affiliates is
accurate and complete in all respects. The UHS Affiliates have not 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) The transfer of the UHS Real Property to UHS of
Delaware immediately prior to the Hospital Closing will not result in the
creation of any Lien, encumbrance or other defect in title with respect to such
UHS Real Property or in any
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way interfere with the right of C/HCA to own, possess, occupy and use the UHS
Real Property following the Hospital Closing.
4.7 Property to Operate UHS Hospitals. The UHS Assets
constitute, in the aggregate, all the assets and property necessary for the
conduct of the UHS Hospitals as currently conducted.
4.8 Trade Names, Trademarks, Copyrights, Etc. Schedule 4.8
contains a schedule of all trade names, trademarks, service marks, copyrights,
patents or applications for patents, and trade secrets used by the UHS
Affiliates in the operation of its business and of the UHS Hospitals or in
which they have any rights (including licenses), together with a brief
description of each. To the best of the UHS Affiliates' knowledge, no UHS
Affiliate has infringed, or is now infringing, any trade name, trademark,
service mark, copyright, patent or trade secret belonging to a third party and
no UHS Affiliate has received any notice of infringement upon or conflict with
the asserted rights of others. Except as set forth on Schedule 4.8 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 UHS Affiliates there are no trade names,
trademarks, service marks, copyrights, patents or applications for patents and
trade secrets other than those listed on Schedule 4.8 which are necessary for
the conduct of the business of the UHS Affiliates as now being conducted, the
loss of which could materially and adversely affect the prospects, operations
or condition, financial or otherwise, of the UHS Affiliates. No director,
officer, stockholder, or, to the best knowledge of the UHS Affiliates,
employee, of any UHS Affiliate or the UHS Hospitals or any predecessor has any
interest in any of the foregoing rights.
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4.9 Litigation. Except as set forth on Schedule 4.9 hereto,
there is no action, suit, arbitration, proceeding or investigation pending or,
to the best knowledge of the UHS Affiliates, threatened against either of the
UHS Affiliates or affecting the UHS Assets by or before any Governmental
Entity, or any basis in fact therefor known to any UHS Affiliate, against
either of the UHS Affiliates or involving the UHS Assets, whether at law or in
equity.
4.10 Compliance with Laws.
(a) To the best of UHS' and the UHS Affiliates'
knowledge, each UHS Affiliate is in compliance with all Laws, except for
violations that individually or in the aggregate would not and, insofar as may
reasonably be foreseen, in the future will not, have a material adverse effect
on the business or operations of the UHS Hospitals. No UHS Affiliate nor, to
the best knowledge of the UHS Affiliates, any director, officer, consultant or
employee of any UHS Affiliate, is in default with respect to any order, writ,
injunction or decree, known to, or served upon, any UHS Affiliate, of any
Governmental Entity. To the best knowledge of the UHS Affiliates, there is no
existing Law, other than Laws of general applicability to healthcare providers,
which would prohibit or materially restrict any UHS Affiliate from, or
otherwise materially adversely affect any UHS Affiliate 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 UHS Affiliate 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 UHS Affiliates or
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their business to rework or redesign the UHS Hospitals, medical staff or
professional services, procedures or practices in any material respect or to
provide additional furniture, fixtures, equipment or inventory so as to make
such UHS Hospitals conform to or comply with applicable law.
(c) To the best of UHS' and the UHS Affiliates'
knowledge, the UHS Affiliates and their respective officers and directors, and
those physicians who are under contract or have otherwise entered into a
written agreement with UHS or the UHS Affiliates (and then, only with respect
to activities of such physicians under and with respect to such contracts or
agreements), 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.
4.11 Contracts.
(a) The UHS Affiliates have no existing contract,
obligation or commitment (written or oral) of any nature, including without
limitation the following, except as set forth on Schedule 4.11:
(i) Employment, bonus, severance or consulting
agreements, retirement, stock bonus, stock option, or similar
plans;
(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
UHS Affiliate or any agreement or instrument evidencing any
guaranty by any UHS Affiliate of payment or performance by any
other person;
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(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 UHS Affiliate is a party or by which any of them is bound;
(vi) Agreements which would, after the Hospital
Closing Date, limit the freedom of C/HCA 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 the UHS Affiliates;
(viii) Any lease under which the UHS Affiliates are
either lessor or lessee;
(ix) Any contract, commitment or arrangement not
made in the ordinary course of business of any UHS Affiliate,
including without limitation, any powers-of-attorney giving any
person authority to act on behalf of any UHS 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;
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(xi) Any contract or series of contracts,
commitments or arrangement relating to the provision of goods or
services for any UHS Affiliate by any person who is related to, or
an affiliate of, any UHS Affiliate or any officer, director or
stockholder of any UHS Affiliate, and any contract or series of
contracts, commitments or arrangement relating to the provision of
goods or services for any UHS Affiliate by any person the terms of
which were not determined on an arms' length basis;
(xii) Any patient care or pharmacy vending contract
not entered into in the ordinary course of business;
(xiii) Agreements with any Governmental Entity,
including without limitation Medicare and Medicaid provider
agreements and indigent care contracts; or
(xiv) Any contract with any managed care, preferred
provider or other similar entity.
True and correct copies of all contracts, agreements, arrangements and similar
instruments set forth on Schedule 4.11 have been provided to C/HCA. Each
contract, agreement, arrangement, plan, lease (including lease agreements with
respect to the UHS Leased Properties under which any UHS Affiliate is either
lessor or lessee) or similar instrument to which any UHS Affiliate is a party,
whether or not listed on Schedule 4.11 (collectively, the "UHS Contracts"), is
a valid and binding obligation of the UHS Affiliate party thereto and, to the
best knowledge of the UHS 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
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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 UHS Contracts which by their
terms expire after the date hereof or are terminated after the date hereof in
accordance with the terms thereof), and neither any UHS Affiliate nor, to the
best of knowledge of the UHS Affiliates, any other party thereto has breached
any material provision of, nor is in default in any material respect under the
terms of (and, to the best knowledge of the UHS 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 UHS Contracts.
(b) (1) No purchase contracts or commitments of any
UHS 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 UHS Contract requires any UHS
Affiliate to provide services at a fixed price; (iii) no UHS Affiliate has
outstanding any bid, contract, commitment or proposal either (x) continuing for
a period of more than 12 months or (y) quoting prices which will not result in
profits consistent with past experience; and (2) none of such UHS Contracts
obligates any UHS Affiliate to perform services which any UHS Affiliate knows
or has reason to believe are at a price which would result in a 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.
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4.12 Employee and Labor Matters and Plans.
(a) Schedule 4.12 lists each of the following plans,
contracts, policies and arrangements which is or, within six years prior to the
date hereof, was sponsored, maintained or contributed to by, or otherwise
binding upon, any UHS 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) any "employee benefit plan," as such term is
defined in Section 3(3) of ERISA, whether or not subject to the provisions of
ERISA, (ii) any personnel policy and (iii) any Employee Plan.
(b) With respect to each Employee Plan, the UHS
Affiliates have delivered to C/HCA 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 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 PBGC.
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(c) Each Employee Plan has been maintained and
administered in accordance with its terms and in substantial compliance with
the 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. Except as set forth on Schedule 4.12, with
respect to each Employee Plan, (i) no application, proceeding or other matter
is pending before the IRS, the Department of Labor, the PBGC or any other
Governmental Entity; (ii) no action, suit, proceeding or claim (other than
routine claims for benefits) is pending or threatened; and (iii) to the best
knowledge of the UHS Affiliates, 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 UHS Affiliate or the plan assets.
(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 best
knowledge of the UHS Affiliates 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 4.12 identifies each funded Employee Plan
which is an employee pension plan within the meaning of Section 3(2) of ERISA
(other than
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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 best
knowledge of the UHS Affiliates 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) there has been no termination or partial
termination within the meaning of Section 411(d)(3) of the Code, (iv) 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 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 (v) with respect to each such Employee Plan
which is covered by Title IV of ERISA, (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, (3) no liability has been incurred under Title IV
of ERISA to the PBGC or otherwise (except for the payment of PBGC premiums) and
(4) in the case of a defined benefit pension plan, the value of the plan assets
exceeds the total present value of the plan's benefit liabilities on a plan
termination basis based upon actuarial assumptions and asset valuation
principles applied by the PBGC. No
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UHS Affiliate has ceased operations at a facility so as to become subject to
the provisions of Section 4068(a) 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 4.12, and each such trust satisfies the
requirements of that Section and is covered by a favorable IRS determination
letter except as set forth on Schedule 4.12, and neither the trust nor any
related plan has been amended or, to the best knowledge of the UHS Affiliates,
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 4.12 is a
multiemployer plan within the meaning of Section 3(37) of ERISA.
(h) The UHS 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 UHS 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 unless as required by COBRA. To the best knowledge of the
UHS Affiliates, the UHS Affiliates have reserved the right to unilaterally
terminate and/or amend each Employee Plan at any time.
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(i) The consummation of the transactions contemplated by
this Agreement will not (either alone or in conjunction with another event,
such as a termination of employment or other services) entitle any employee or
other person to receive severance or other compensation which would not
otherwise be payable absent the consummation of the transactions contemplated
by this Agreement or cause the acceleration of the time of payment or vesting
of any award or entitlement under any Employee Plan.
(j) Schedule 4.12 sets forth a complete and accurate list
showing the names, titles, length of employment or service, the rate of
compensation (and the portions thereof attributable to salary and bonuses,
respectively), fringe benefits, and the amount of accrued bonuses, vacation,
sick leave, maternity leave and other leave of the chief executive officers and
chief financial officers of each UHS Affiliate and of all employees of or
consultants to each UHS 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. Except as set
forth on Schedule 4.12, none of such personnel is a party or subject to any
oral or written employment, bonus, pension, profit-sharing, deferred
compensation, 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. The UHS Affiliates are not in
default with respect to any of the foregoing obligations. No UHS Affiliate is
in default with respect to any withholding or other employment taxes or
payments with respect to accrued vacation, sick pay or severance pay on behalf
of
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any employee for which it is obligated on the date hereof and will maintain and
continue to make all such necessary payments or adjustments arising through the
Hospital Closing Date. To the best knowledge of the UHS Affiliates, no officer
or employee listed on Schedule 4.12 has any plans to terminate their
employment. Neither UHS Affiliate has instituted a "freeze" of, or delayed or
deferred the grant of, any cost-of-living or other salary adjustments for any
of its employees.
(k) Schedule 4.12 comprises a complete and correct list
of (i) the names, titles, length of employment or service and current annual
salary rates and all other compensation and fringe benefits of each of the
employees, officers, directors or consultants of the UHS Affiliates who is
engaged in the conduct of the UHS Hospitals and who are not included on
Schedule 4.12 as a result of disclosures required by (j) herein; and (ii) the
amount of accrued bonuses, vacation, sick leave, maternity leave and other
leave for such personnel. There have been no audits of the equal employment
opportunity practices of the UHS Affiliates and, to the best knowledge of the
UHS Affiliates, no basis for such claim exists. There is no strike, dispute,
slowdown or stoppage pending or threatened against or involving any UHS
Affiliate and none has occurred since January 1, 1988. No UHS Affiliate has
received notice from any union or employees setting forth demands for
representation, elections or for present or future changes in wages, terms of
employment or working conditions.
(l) Schedule 4.12 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 UHS Affiliate to any of
its officers, directors, employees, stockholders or consultants.
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4.13 Insurance Policies. Schedule 4.13 contains a correct and
complete description of all insurance policies of the UHS Affiliates reflecting
policy numbers, identity of insurer, amounts and coverage covering the UHS
Affiliates and their respective employees, agents and assets. Each such policy
is now and will be up to the Effective Time on a claims made basis with no
premium arrearage. All such policies are in full force and effect with
responsible insurance carriers and, to the best knowledge of the UHS
Affiliates, provide adequate coverage to insure fully against risks to which
the UHS Affiliates and their employees, businesses, properties and other assets
may be exposed in the operation of their respective business. All retroactive
premium adjustments under any worker's compensation policy of the UHS
Affiliates have been recorded in the UHS Affiliates' respective financial
statements in accordance with generally accepted accounting principles and are
reflected in the UHS Financial Statements. No notice of cancellation or
termination has been received with respect to any such policy. To the best
knowledge of the UHS Affiliates, no UHS Affiliate has failed to give any notice
or present any claim thereunder in due and timely fashion. There are no
pending claims against such insurance by any UHS Affiliate as to which the
insurers have denied coverage or otherwise reserved rights. No UHS 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 since the date it
commenced operations.
4.14 Medicare, Medicaid and Other Health Care Programs.
(a) The medical staff of the UHS Hospitals consists
substantially of the persons whose names and status are set forth on Schedule
4.14 hereto.
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(b) Each UHS Affiliate is certified for participation in
the Medicare and Medicaid programs, and has a current and valid provider
contract with such programs.
(c) The UHS 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 and, subject to
normal adjustments (that shall not be material and adverse) to such reports
upon audit or review by such third parties, all such reports are complete and
accurate in all material respects. The UHS Affiliates have paid or caused to
be paid all refunds, discounts or adjustments which have become due pursuant to
said reports and there is no further liability now due (whether or not
disclosed in any report heretofore or hereafter made) for any such refund,
discount or adjustment, and no interest or penalties accruing with respect
thereto, except as may be disclosed in the UHS Financial Statements. The UHS
Affiliates have delivered to C/HCA true and correct copies of all of their
Medicare and Medicaid Cost Reports submitted by the UHS Affiliates for the two
most recent fiscal years.
4.15 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 the UHS Hospitals for which surveys are
conducted by the appropriate state or Federal agencies and JCAHO having
jurisdiction thereof have been furnished to C/HCA, along with true and complete
copies of any and all plans of correction which
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the agencies in question required to be submitted in response to said survey
reports and all deficiencies reflected have been corrected at the expense of
the UHS Affiliates.
4.16 Licenses. Each UHS Affiliate and its respective officers,
directors, partners and employees possess all governmental registrations,
certificates of need, consents, qualifications, accreditations, licenses,
permits, authorizations and approvals that are material to the ownership or
operation of the health care facilities owned and operated by the UHS
Affiliates except where the failure to possess the same would not have a
material adverse effect on the ownership or operation of the UHS Assets, and
the use of its properties as presently conducted or used including, without
limitation, all Licenses. Schedule 4.16 contains a true and complete list of
the Licenses, exclusive of any Licenses with respect to state or local sales,
use or other Taxes. All of the Licenses are in full force and effect and no
action or claim is pending nor, to the best knowledge of the UHS Affiliates, is
threatened to revoke or terminate any License or declare any License invalid in
any material respect. No UHS Affiliate or any of its officers or directors or,
to the best knowledge of the UHS Affiliates, employees is in default in any
material respect under any of such Licenses and, to the best knowledge of the
UHS Affiliates, other than as set forth on the UHS Hospitals survey reports,
copies of which have been provided to C/HCA, 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
UHS Affiliate.
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4.17 Taxes.
(a) Except as specifically set forth in Schedule 4.17,
(i) the UHS Affiliates have filed on a timely basis (taking into account any
extensions received from the relevant taxing authorities) all returns and
reports of Taxes relating to the UHS Assets or the UHS Hospitals 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.
(b) All Taxes relating to the UHS Assets or the UHS
Hospitals that the UHS 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 UHS Hospitals.
4.18 Tax Returns Through Hospital Closing Date. The UHS
Affiliates shall prepare and file on a timely basis all reports and returns of
Taxes relating to the UHS Assets or the UHS Hospitals with respect to all
periods through and including the Hospital Closing Date and shall pay or cause
to be paid when due all Taxes relating to the UHS Assets or the UHS Hospitals
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 C/HCA pursuant to this Agreement. The UHS Affiliates
shall be entitled to receive any tax refund of Taxes attributable to the UHS
Assets or conduct of the UHS Hospitals in respect of any period prior to and
through the Hospital Closing Date to the effect paid by the UHS Affiliates.
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4.19 FIRPTA Affidavits. At the Hospital Closing, the UHS
Affiliates and UHS of Delaware shall execute and deliver to C/HCA affidavits
complying in all respects with Section 1445(b)(2) of the Code.
4.20 No Illegal or Improper Transactions. No UHS Affiliate has,
nor have any of their respective directors, officers, affiliates, employees,
directly or indirectly used funds or other assets of any UHS 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 UHS Affiliate.
4.21 No Misleading Statements. This Agreement, the information
and schedules referred to herein and the information that has been furnished to
C/HCA 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.
4.22 Special Funds. None of the UHS Assets are subject to, and
the UHS Group, the UHS Affiliates and UHS of Delaware shall indemnify and hold
C/HCA harmless from and against, any liability in respect of amounts received
by the UHS Affiliates or others for the purchase or improvement of the UHS
Assets or any part
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thereof under restricted or conditioned grants or donations, including, without
limitation, monies received under the Public Health Service Act, 42 U.S.C.
Section 291 et seq. or the provisions of the Higher Education Facilities Act of
1965, 20 U.S.C. Section 1132(a), et seq., or under any comparable state laws.
4.23 Medical Staff Matters. The UHS Affiliates have delivered to
C/HCA true, correct, and complete copies of the bylaws and rules and
regulations of the medical staffs of UHS Hospitals. With regard to the medical
staffs of the UHS Hospitals and except as set forth on Schedule 4.23 hereto,
there are no pending or, to the best of the UHS Affiliates' knowledge,
threatened disputes with applicants, staff members or health professional
affiliates and all appeal periods in respect of any medical staff member or
applicant against whom an adverse action has been taken have expired.
4.24 No Broker. UHS, the UHS Affiliates and UHS of Delaware
represent and warrant that they have not dealt with any broker or finder in
connection with any of the transactions contemplated by this Agreement.
4.25 No Augusta-Aiken Hospitals. The UHS Affiliates, UHS of
Delaware and the UHS Group do not now and will not at the Hospital Closing own
or operate, directly or indirectly, through subsidiaries, partnerships, or
otherwise, any "acute care hospital" (as such term is defined in the FTC
Consent Order) in the counties of Richmond and Columbia in Georgia and Aiken
County in South Carolina.
4.26 Conveyance by UHS of Delaware. The UHS Group, the UHS
Affiliates and UHS of Delaware do not know of any facts or circumstances which
indicate that the transfer of the UHS Assets through UHS of Delaware to C/HCA
is
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likely to result in any Losses which would not have been incurred but for the
involvement of UHS of Delaware in the transaction.
5. Obligations Before and After Hospital Closing.
From and after the date hereof until the Hospital Closing Date and
thereafter, to the extent applicable, C/HCA, on the one hand, and UHS and the
UHS Affiliates agree, on the other, that:
5.1 Access to Premises and Information. Each party and their
counsel, accountants, and other representatives will have reasonable access
during normal business hours to each other party's properties, books, accounts
and records, contracts and documents of or relating to the business of the
C/HCA Hospitals or the UHS Hospitals, as the case may be, provided that such
access shall not interfere with the operation of such facility. Each party
will furnish or cause to be furnished to the other party and its
representatives all data and information concerning the business, finances, and
properties of the C/HCA Hospitals or the UHS Hospitals, as the case may be,
that may reasonably be requested.
5.2 Conduct of Business in Ordinary Course. C/HCA and the UHS
Affiliates will carry on their respective businesses diligently, in the
ordinary course and in substantially the same manner as such business has
previously been carried out, and will not 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.
5.3 C/HCA Negative Covenants. From the date hereof to the
Hospital Closing Date, C/HCA will not, without the prior written consent of the
UHS Affiliates:
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(a) amend or terminate any of the C/HCA Contracts, enter
into any contract or commitment, or incur or agree to incur any liability,
except in the ordinary course of business and in no event greater than Five
Thousand Dollars ($5,000) per item or which is not terminable without cause or
penalty within thirty (30) days following the Hospital Closing;
(b) make offers of employment to any employees of the
C/HCA Hospitals for employment with C/HCA or any affiliate of C/HCA for periods
subsequent to the Hospital Closing, other than those employees who do not
accept offers of post-closing employment from the UHS Group;
(c) increase compensation payable or to become payable or
make a bonus payment to or otherwise enter into one or more bonus agreements
with any employee or agent, except in the ordinary course of business in
accordance with existing personnel policies;
(d) create, assume or permit to exist any new mortgage,
pledge or other lien or encumbrance upon any of the C/HCA Assets, whether now
owned or hereafter acquired;
(e) sell, assign or otherwise transfer or dispose of any
property, plant or equipment (other than supplies), except in the normal course
of business with comparable replacement thereof; or
(f) take any action outside the ordinary course of
business.
5.4 UHS Negative Covenants. From the date hereof to the
Hospital Closing Date, the UHS Affiliates will not, without prior written
consent of C/HCA and except as permitted hereunder:
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(a) amend or terminate any of the UHS Contracts, enter
into any contract or commitment, or incur or agree to incur any liability,
except in the ordinary course of business and in no event greater than Five
Thousand Dollars ($5,000) per item or which is not terminable without cause or
penalty within thirty (30) days following the Hospital Closing;
(b) make offers of employment to any employees of the UHS
Hospitals for employment with the UHS Group or any affiliate thereof for
periods subsequent to the Hospital Closing, other than those employees who do
not accept offers of post-closing employment from C/HCA;
(c) increase compensation payable or to become payable or
make a bonus payment to or otherwise enter into one or more bonus agreements
with any employee or agent, except in the ordinary course of business in
accordance with existing personnel policies;
(d) create, assume or permit to exist any new mortgage,
pledge or other lien or encumbrance upon any of the UHS Assets, whether now
owned or hereafter acquired;
(e) sell, assign or otherwise transfer or dispose of any
property, plant or equipment (other than supplies), except in the normal course
of business with comparable replacement thereof; or
(f) take any action outside the ordinary course of
business. Notwithstanding the foregoing, it is understood and agreed by the
parties hereto that immediately prior to the consummation of the transactions
contemplated hereby, the UHS Affiliates intend to transfer the UHS Assets to
UHS of Delaware which, in turn,
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will transfer the UHS Assets to C/HCA. Prior to the transfer, UHS of Delaware
will own no assets nor have any liabilities which will affect the UHS Assets in
any manner whatsoever. The transfer involving UHS of Delaware will not change
the character, quality, nature, or title to the UHS Assets and C/HCA will
receive and take title to the UHS Assets as if they were conveyed directly by
Dallas Family Hospital, Inc. and Westlake Medical Center, Inc. and Universal
Health Realty Income Trust. Further, the transfer shall not affect the
assignment of contracts or the licensure or certification status of the Dallas
Hospital or the California Hospital. Any costs and expenses incurred by C/HCA
shall be reimbursed by the UHS Group and the failure of the UHS Affiliates to
conform the transfer of the UHS Assets to effectuate the intent of this Section
shall be subject to indemnification as provided in Section 10.3(c).
5.5 Representations and Warranties True at Closing. All
representations and warranties of the parties set forth in this Agreement will
also be true and correct as of the Hospital Closing Date as if made on that
date. The parties undertake to revise all Schedules hereto as may be necessary
from the date hereof until the Hospital Closing Date. No such revisions made
pursuant to this Section shall be deemed to cure any breach of any
representation or warranty made in this Agreement unless the non-breaching
parties specifically agree thereto in writing, nor shall any such revision be
considered to constitute or give rise to a waiver by the non-breaching party of
any condition set forth in this Agreement.
5.6 Further Authorization. The parties hereto 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.
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5.7 Employee Matters. Each of C/HCA and the UHS Affiliates
shall undertake the following on or before the Hospital Closing Date:
(a) C/HCA and the UHS Affiliates shall be permitted to
interview all employees of each other employed at the C/HCA Hospitals or the
UHS Hospitals, as the case may be, and discuss with, and offer employment to,
any of such employees. It is understood and agreed, however, that any party
shall not be obligated to offer employment to any of the other party's
employees. C/HCA, with respect to the UHS Assets, and the UHS Group with
respect to the C/HCA Assets, shall be responsible for complying with the Worker
Adjustment and Retraining Act, 29 U.S.C. Sections 2101-2109 (the "WARN Act")
and shall be responsible for any liabilities, costs or expenses associated with
a violation of the WARN Act caused by the decision of either of C/HCA or the
UHS Group, as the case may be, not to offer employment to any of the other
party's employees.
(b) Health benefit plans of each of C/HCA and UHS
Affiliates with respect to the employees of the C/HCA Hospitals and the UHS
Hospitals shall cease as of the Effective Time and each of the parties shall
remain liable for all claims for participants who are hospitalized as of the
Hospital Closing Date, but such liability shall cease as of the date of
discharge. After the Effective Time, each party shall be responsible for all
employee health claims, whether or not resulting in hospitalization, incurred
by the employees hired by it. Each of C/HCA and the UHS Affiliates shall have
continuation liability for their respective COBRA continuees who became
eligible prior to the Hospital Closing Date. Each of C/HCA and the UHS Group
agrees that it will arrange that, from and after the Hospital Closing Date,
through the end of the
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health benefit plan's fiscal year end, each employee hired by it need not pay
any deductible amount in respect of his health insurance coverage more than
that amount which would have been payable had such employee remained in the
employ of the other party through the end of the health benefits plan's fiscal
year end.
(c) Former employees of either of C/HCA or the UHS
Affiliates who accept employment with the other party after the Hospital
Closing Date shall be given credit for all years of service at the C/HCA
Hospitals or the UHS Hospitals, as the case may be, for all employee benefit
purposes, including without limitation, the determination of the amount of
vesting of retirement plan benefits and other similar purposes; provided that
this provision shall not require either of C/HCA or the UHS Group to assume
obligations or liabilities otherwise excluded in other sections of this
Agreement.
(d) The obligations of either of C/HCA or the UHS Group
under this section are enforceable only by the other party and no employee
shall have any rights under this section as a third party beneficiary. After
the Hospital Closing Date, each party expressly reserves the right to hire,
review, demote and terminate individual employees as it deems appropriate.
5.8 No Shopping. From the date of this Agreement until the
termination hereof, no party hereto 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
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transaction involving the C/HCA Hospitals or the UHS Hospitals until the
earlier of (i) termination of this Agreement by the parties hereto and (ii)
March 31, 1995.
5.9 Covenants of C/HCA. C/HCA agrees that neither it nor any of
its affiliates will, for a period of four (4) years from the Hospital 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 twenty (20) miles of the Aiken
Hospitals except that this restriction shall not apply with respect to such
activities in Georgia nor with respect to current activities of a C/HCA
affiliate with respect to occupational medical services, (ii) solicit for
employment any employee of the UHS Group, the UHS Affiliates or UHS of Delaware
or any of their affiliates who work at the Aiken Hospitals after the Hospital
Closing, or (iii) interfere with, disrupt or attempt to disrupt the
relationship between the UHS Sub and any of its lessors, lessees, licensors,
licensees, customers or suppliers. If any court determines that any of the
restrictive covenants set forth in this Section 5.9, 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.
5.10 Covenants of UHS, UHS Sub, the UHS Affiliates and UHS of
Delaware. UHS, UHS Sub, the UHS Affiliates and UHS of Delaware agree that none
of them nor any of their affiliates will, for a period of four (4) years from
the Hospital Closing Date directly or indirectly (i) own, build, invest in,
assist in the development
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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 fifteen (15) miles of the UHS Hospitals, (ii)
solicit for employment any employee of C/HCA or any of their affiliates who
work at the UHS Hospitals after the Hospital Closing, or (iii) interfere with,
disrupt or attempt to disrupt the relationship between C/HCA and any of its
lessors, lessees, licensors, licensees, customers or suppliers. If any court
determines that any of the restrictive covenants set forth in this Section
5.10, 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. Notwithstanding the
foregoing, nothing herein shall be construed as prohibiting the acquisition and
the operation of Timberlawn Mental Health System, located in Dallas, Texas, by
UHS.
5.11 Consents. The parties hereto, 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") and any filings required
by the Decision and Order of the Federal Trade Commission issued July 5, 1994
(the "FTC Consent Order"); (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
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transactions; and (iii) will use its best 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 parties hereto 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 and shall comply promptly with requests by the FTC or the Justice
Department for additional information so that any waiting periods under the HSR
Act or the FTC Consent Order will expire as soon as reasonably possible after
the execution and delivery of this Agreement. Each party hereto shall use its
reasonable efforts to assist each other party in obtaining all consents
required under the UHS Assumed Contracts or the C/HCA Assumed Contracts, as the
case may be, as a result of this Agreement and the transactions contemplated
hereby.
5.12 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 make any such public statement without the agreement of the
other party; provided, however, no press releases or public statements with
respect to this Agreement and the transactions contemplated hereby shall be
made prior to the Hospital Closing. In the event that either party is required
to issue a press release or make a public statement by law, it will notify the
other party of the contents thereof in advance of the issuance or making
thereof.
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5.13 Confidentiality Obligations of the Parties. The
confidentiality obligations of the parties from the time of the execution of
this Agreement are contained in Exhibit A.
5.14 Bulk Sales Law. Each party hereby waives compliance by each
other party with all applicable bulk sales laws; provided, however, that this
waiver shall not relieve a party of its indemnification obligations to another
party pursuant to Section 10 hereof as a result of non-compliance with any
applicable bulk sales or similar laws.
5.15 C/HCA Terminating Cost Reports and Accounts Receivable.
C/HCA will prepare and timely file all cost reports relating to the C/HCA
Hospitals for periods ending on or prior to the Hospital Closing Date or
required as a result of the consummation of the transactions described herein,
including, without limitation, those relating to the Medicare and Medicaid
programs (the "C/HCA Cost Reports"). The UHS Group will use the UHS Group's
reasonable best efforts to forward to C/HCA any and all correspondence relating
to the Accounts Receivable and, with respect to receivables relating to the
Medicare and Medicaid Programs, any corresponding payables relating to the
C/HCA Hospitals for periods prior to the Hospital Closing Date ("C/HCA
Receivables") and the C/HCA Cost Reports within five (5) business days after
receipt by the UHS Group. The UHS Group will not reply to any such
correspondence without C/HCA's written approval, which approval shall not be
unreasonably withheld or delayed and which approval shall be deemed given if
C/HCA has not responded to the UHS Group within ten (10) business days after
any request. The UHS Group will remit any receipts relating to the C/HCA
Receivables or the C/HCA Cost Reports within
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five (5) business days after receipt by the UHS Group and will use the UHS
Group's reasonable best efforts to forward any demand for payments within five
(5) business days after receipt by the UHS Group. C/HCA shall retain all
rights to the C/HCA Receivables and the C/HCA Cost Reports including any
payables resulting from such reports. Such rights shall include, without
limitation, the right to appeal any Medicare determinations relating to the
C/HCA Receivables and the C/HCA Cost Reports. C/HCA shall retain the originals
of the C/HCA Cost Reports, correspondence, work papers and other documents
relating to the C/HCA Cost Reports and the C/HCA Receivables. C/HCA will
furnish copies of such documents to the UHS Group upon request and allow the
UHS Group reasonable access to such documents.
The UHS Group, upon reasonable notice, during normal business
hours, will cooperate with C/HCA in regard to the preparation, filing,
handling, and appeals of the C/HCA Cost Reports and C/HCA's collection of the
C/HCA Receivables. Such cooperation shall include the providing of accounts
payable invoices reasonably as received, statistics and obtaining files at the
C/HCA Hospitals and the coordination with C/HCA pursuant to adequate notice of
Medicare and Medicaid exit conferences or meetings, as well as reasonable
cooperation with respect to space and records to collect the C/HCA Receivables.
The UHS Group will, upon reasonable notice, during normal business hours and
subject to applicable law regarding confidentiality of patient records, provide
reasonable access by C/HCA to all records of the C/HCA Hospitals and will allow
C/HCA to copy any documents relating to the C/HCA Cost Reports and appeals
thereof and the C/HCA Receivables.
5.16 UHS Terminating Cost Reports and Accounts Receivables. The
UHS Affiliates will prepare and timely file all cost reports relating to the
UHS Hospitals for
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period ending on or prior to the Hospital Closing Date or required as a result
of the consummation of the transactions described herein, including, without
limitation, those relating to the Medicare and Medicaid programs (the "UHS Cost
Reports"). C/HCA will use its reasonable best efforts to forward to the UHS
Affiliates any and all correspondence relating to the Accounts Receivable and,
with respect to receivables relating to the Medicare and Medicaid programs, any
corresponding payables relating to the UHS Hospitals for periods prior to the
Hospital Closing Date ("UHS Receivables") and the UHS Cost Reports within five
(5) business days after receipt by C/HCA. C/HCA will not reply to any such
correspondence without the UHS Affiliates's written approval, which approval
shall not be unreasonably withheld or delayed and which approval shall be
deemed given if the UHS Affiliates have not responded to C/HCA within ten (10)
business days after any request. C/HCA will remit any receipts relating to the
UHS Receivables or the UHS Cost Reports within five (5) business days after
receipt by C/HCA and will use C/HCA's reasonable best efforts to forward any
demand for payments within five (5) business days after receipt by C/HCA. The
UHS Affiliates shall retain all rights to the UHS Receivables and the UHS Cost
Reports including any payables resulting from such reports. Such rights shall
include, without limitation, the right to appeal any Medicare determinations
relating to the UHS Receivables and the UHS Cost Reports. The UHS Affiliates
shall retain the originals of the UHS Cost Reports, correspondence, work papers
and other documents relating to the UHS Cost Reports and the UHS Receivables.
The UHS Affiliates will furnish copies of such documents to C/HCA upon request
and allow C/HCA reasonable access to such documents.
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C/HCA, upon reasonable notice, during normal business hours, will
cooperate with the UHS Affiliates in regard to the preparation, filing,
handling, and appeals of the UHS Cost Reports and its collection of the UHS
Receivables. Such cooperation shall include the providing of accounts payable
invoices reasonably as received, statistics and obtaining files at the UHS
Hospitals and the coordination with the UHS Affiliates pursuant to adequate
notice of Medicare and Medicaid exit conferences or meetings as well as
reasonable cooperation with respect to space and records to collect the UHS
Receivables. C/HCA will, upon reasonable notice, during normal business hours
and subject to applicable law regarding confidentiality of patient records,
provide reasonable access by the UHS Affiliates to all records of the UHS
Hospitals and will allow the UHS Affiliates to copy any documents relating to
the UHS Cost Reports and appeals thereof and the UHS Medicare Receivables.
5.17 C/HCA's Tax Treatment of the Transaction. Each of the
parties hereto agrees to cooperate in allowing C/HCA, with respect to the
transactions contemplated hereby to effectuate a like-kind exchange for tax
purposes under Section 1031 of the Code and related regulatory provisions.
Accordingly, the UHS Group, the UHS Affiliates and UHS of Delaware shall
execute such documents, instruments and agreements which are required to be
executed and delivered by them in order to accomplish the desired result.
5.18 Employment of Mickey Smith. Mickey Smith is presently an
employee of a C/HCA affiliate in Augusta, Georgia. The UHS Group shall be
prohibited from offering Mr. Smith employment for a period of three (3) years
following the Hospital Closing Date.
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5.19 Financial Statements. On or prior to the Hospital Closing,
the UHS Group may, at its sole cost and expense, and provided that such
auditing activities do not disrupt the C/HCA Hospitals, audit the financial
statements of C/HCA and file such audited financial statements with the
Securities and Exchange Commission, if required, provided, however, that C/HCA
consents to the presentation of the financial statements, which consent shall
not unreasonably be withheld.
5.20 C/HCA Hospitals Operational Transition. To compensate C/HCA
for services rendered and medicine, drugs, and supplies provided prior to the
Hospital Closing Date (the "C/HCA Transition Services") with respect to
patients admitted to the C/HCA Hospitals on or before the Hospital Closing Date
but who are not discharged until after the Hospital Closing Date (such patients
for the purposes of this Section 5.20 being referred to herein as the
"Transition Patients"), the parties shall take the following actions:
(a) Medicare, Medicaid, CHAMPUS and Other DRG Transition
Patients. As soon as practicable after the Hospital Closing Date, C/HCA shall
deliver to the UHS Group a statement itemizing the C/HCA Transition Services
provided by C/HCA prior to the Hospital Closing Date to DRG Transition
Patients. The UHS Group shall pay to C/HCA an amount equal to (x) the total
amounts paid or payable with respect to such DRG Transition Patient (including
DRG, outlier and capital cost payments), multiplied by a fraction, the
numerator of which shall be the total charges for the C/HCA Transition Services
provided to such DRG Transition Patient by C/HCA, and the denominator of which
shall be the sum of the total charges for the C/HCA Transition Services
provided to such DRG Transition Patient by C/HCA plus the total charges charged
by the UHS Group to such DRG Transition Patient after the Hospital
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Closing Date minus (y) any deposits or co-payments made by such DRG Transition
Patient to C/HCA. Such payment shall be made to C/HCA within thirty (30) days
after receipt of such payments by the UHS Group, accompanied by copies of
remittances and other supporting documentation as reasonably required by C/HCA.
In the event that the UHS Group and C/HCA are unable to agree on the amount to
be paid to C/HCA under this section, then such amount shall be determined by
the accounting firm designated in Section 2.2 at their joint expense.
(b) Medicare, Medicaid, CHAMPUS and Other Cost-Based
Transition Patients. With respect to cost-based Transition Patients (the
"Medicare Straddle Patients"), the UHS Group shall pay to C/HCA an amount equal
to (x) the total payments received for a Medicare Straddle Patient multiplied
by a fraction, the numerator of which shall be the total number of days prior
to the Hospital Closing for which C/HCA has provided C/HCA Transition Services
to such Medicare Straddle Patient, and the denominator of which shall be the
total number of days with respect to such patient's stay at the C/HCA
Hospitals, minus (y) any deposits or copayments made by such Medicare Straddle
Patient to C/HCA. Such payment shall be made to C/HCA within thirty (30) days
after receipt of payments by the UHS Group with respect to such Medicare
Straddle Patient, accompanied by documentation reasonably required by C/HCA.
(c) Other Patients. As of the close of business on the
Hospital Closing Date, C/HCA shall prepare cut-off billings for all patients
not covered by the preceding paragraphs in this section (the "Straddle
Patients"). If the UHS Group receives any amount with respect to such
Straddle Patients which relate to services
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rendered by C/HCA, the UHS Group shall immediately remit said full amount to
C/HCA.
5.21 UHS Hospitals Operational Transition. To compensate the UHS
Affiliates for services rendered and medicine, drugs, and supplies provided
prior to the Hospital Closing Date (the "UHS Transition Services") with respect
to patients admitted to the UHS Hospitals on or before the Hospital Closing
Date but who are not discharged until after the Hospital Closing Date (such
patients for the purposes of this Section 5.21 being referred to herein as the
"Transition Patients"), the parties shall take the following actions:
(a) Medicare, Medicaid, CHAMPUS and Other DRG Transition
Patients. As soon as practicable after the Hospital Closing Date, the UHS
Affiliates shall deliver to C/HCA a statement itemizing the UHS Transition
Services provided by the UHS Affiliates prior to the Hospital Closing Date to
DRG Transition Patients. C/HCA shall pay to the UHS Affiliates an amount equal
to (x) the total amounts paid or payble with respect to such DRG Transition
Patient (including DRG, outlier and capital cost payments), multiplied by a
fraction, the numerator of which shall be the total charges for the UHS
Transition Services provided to such DRG Transition Patient by UHS, and the
denominator of which shall be the sum of the total charges for the UHS
Transition Services provided to such DRG Transition Patient by UHS plus the
total charges charged by C/HCA to such DRG Transition Patient after the
Hospital Closing Date minus (y) any deposits or co-payments made by such DRG
Transition Patient to the UHS Affiliates. Such payment shall be made to the
UHS Affiliates within thirty (30) days after receipt of such payments by C/HCA,
accompanied by copies of remittances and other supporting documentation as
reasonably required by the UHS
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Affiliates. In the event that the UHS Affiliates and C/HCA are unable to agree
on the amount to be paid to the UHS Affiliates under this section, then such
amount shall be determined by the accounting firm designated in Section 2.2 at
their joint expense.
(b) Medicare, Medicaid, CHAMPUS and Other Cost-Based
Transition Patients. With respect to cost-based Transition Patients (the
"Medicare Straddle Patients"), C/HCA shall pay to the UHS Affiliates an amount
equal to (x) the total payments received for a Medicare Straddle Patient
multiplied by a fraction, the numerator of which shall be the total number of
days prior to the Hospital Closing for which the UHS Affiliates has provided
UHS Transition Services to such Medicare Straddle Patient, and the denominator
of which shall be the total number of days with respect to such patient's stay
at the UHS Hospitals, minus (y) any deposits or copayments made by such
Medicare Straddle Patient to UHS. Such payment shall be made to the UHS
Affiliates within thirty (30) days after receipt of payments by C/HCA with
respect to such Medicare Straddle Patient, accompanied by documentation
reasonably required by the UHS Affiliates.
(c) Other Patients. As of the close of business on the
Hospital Closing Date, the UHS Affiliates shall prepare cut-off billings for
all patients not covered by the preceding paragraphs in this section (the
"Straddle Patients"). If C/HCA receives any amount with respect to such
Straddle Patients which relate to services rendered by the UHS Affiliates,
C/HCA shall immediately remit said full amount to the UHS Affiliates.
6. Conditions Precedent to the Performance of the UHS Group, the UHS
Affiliates and UHS of Delaware. The obligations of the UHS Group, the UHS
Affiliates and UHS of Delaware under this Agreement are subject to the
satisfaction,
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at or before the Hospital Closing, of all the conditions set out below. The
UHS Group, the UHS Affiliates and UHS of Delaware 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 the UHS Group, the UHS
Affiliates or UHS of Delaware of any of their other rights or remedies, at law
or in equity, if C/HCA 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.
6.1 Accuracy of Representations and Warranties. All
representations and warranties by C/HCA in this Agreement or in any agreement
or in any written statement that is delivered to the UHS Group, the UHS
Affiliates or UHS of Delaware pursuant to this Agreement will be true and
correct on and as of the Hospital Closing Date as though made on that date.
6.2 Performance. C/HCA will have performed, satisfied, and
complied with all covenants, agreements, and conditions required by this
Agreement to be performed or complied with by them on or before the Hospital
Closing Date.
6.3 No Material Adverse Change. There shall have been no change
in the C/HCA Assets, tangible property, condition, financial or otherwise,
results of operations or prospects of C/HCA and the C/HCA Hospitals from
September 30, 1994 which in the aggregate are materially adverse to the
condition, financial or otherwise, of C/HCA or the C/HCA Hospitals.
6.4 Certification by the Company. The UHS Group, the UHS
Affiliates and UHS of Delaware will have received a certificate, dated the
Hospital Closing Date, signed by a Vice President of C/HCA certifying, that the
conditions specified in Sections 6.1, 6.2 and 6.3 hereof have been fulfilled,
including, but not limited to, certified copies
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of all resolutions of C/HCA pertaining to corporate authorization of the
execution, delivery and performance of this Agreement.
6.5 Opinion of C/HCA's Counsel. The UHS Group shall have
received an opinion from the assistant general counsel to C/HCA's parent
corporation, Columbia/HCA Healthcare Corporation dated as of the Hospital
Closing Date and addressed to the UHS Group, in form and substance satisfactory
to the UHS Group to the effect that: (i) C/HCA is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation; (ii) C/HCA is qualified to carry on its business in the
places and in the manner as now conducted; (iii) C/HCA has taken all steps
necessary to obtain all material licenses and permits that are required by
hospital or health care regulatory bodies or hospital or health care
administrative agencies for the conduct of the business in which the C/HCA
Hospitals are engaged in each jurisdiction or place where the conduct of such
business requires such licenses or permits, except where any failure to possess
any such item would not have a material adverse effect of the business of the
C/HCA Hospitals; (iv) C/HCA has full corporate power and authority to make,
execute, deliver and perform this Agreement, and all corporate and other
proceedings required to be taken by C/HCA to authorize the execution, delivery
and performance of this Agreement, and to sell, convey, assign, transfer and
deliver the C/HCA Assets as herein contemplated have all been duly and properly
taken; (v) this Agreement and all deeds, assignments and other instruments of
conveyance and transfer delivered hereunder constitute the valid and binding
obligations of C/HCA, enforceable in accordance with their respective terms,
except as enforceability against them may be restricted, limited or delayed by
applicable bankruptcy or other laws affecting creditors' rights and debtors'
relief generally; (vi)
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neither the execution and delivery of this Agreement, nor the consummation of
the transactions herein contemplated, nor the compliance and fulfillment of the
terms and conditions hereof will conflict with, or result in a breach of the
terms, conditions or provisions of, or constitute a default under the Articles
of Incorporation or Bylaws of C/HCA; and (vii) to the best of such counsel's
knowledge, no ungiven notice to, or unobtained consent, authorization, approval
or order of any court or governmental agency or body required to be obtained by
C/HCA is required for the consummation of the transactions described herein by
C/HCA. Such opinion shall include any other matters incident to the matters
herein contemplated as the UHS Group's counsel may reasonably request. In
rendering such opinion, such counsel may rely upon certificates of governmental
officials and may place reasonable reliance upon certificates of officers of
C/HCA.
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 on or before the Hospital Closing Date.
6.7 Legal Prohibition. On the Hospital 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 could materially adversely
affect C/HCA or the C/HCA Hospitals. No federal, state or local statute, rule
or regulation shall have been enacted the effect of
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which would be to prohibit, restrict, impair or delay the consummation of the
transactions contemplated hereby or restrict or impair the ability of the UHS
Group to own or conduct the business of C/HCA.
6.8 Consents, Approvals, Permits, Licenses, etc. The waiting
period under the HSR Act shall have expired or been terminated, all waiting
periods, approvals and publication requirements of the FTC Consent Order shall
have expired or been fulfilled 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 to own and operate the
C/HCA Hospitals in South Carolina for the UHS Group to conduct the business of
C/HCA as currently conducted, approvals of the U.S. Department of Justice, the
Federal Trade Commission and the South Carolina agencies responsible for
hospital licensing) or third party (including without limitation all parties to
each of the UHS Assumed Contracts) in connection with the execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby shall have been duly obtained and shall be reasonably
satisfactory to the UHS Group and the UHS Affiliates and their counsel, and
copies thereof shall be delivered to the UHS Group and the UHS Affiliates no
later than five (5) days prior to the Hospital Closing. No such consent or
approval (a) shall be conditioned on the modification, cancellation or
termination of any UHS Assumed Contract, or (b) shall impose on the UHS Group
or the UHS Affiliates any material condition or provision or requirement with
respect to the C/HCA Hospitals or its operation that is more restrictive than
or different from the conditions imposed upon such operation prior to
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the Hospital Closing, unless the UHS Group and the UHS Affiliates give their
prior written approval.
6.9 Closing Matters. All proceedings to be taken by C/HCA 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 satisfactory in form and
substance to the UHS Group and the UHS Affiliates and their counsel.
6.10 Supplemental Disclosure. If C/HCA shall have supplemented
or amended any Schedule pursuant to its obligations set forth in Section 5.5
hereof and the supplemented or amended Schedule reflects information that,
pursuant to reasonable and good faith calculations, has a material adverse
effect on the value of the C/HCA Assets, the UHS Group, the UHS Affiliates and
UHS of Delaware shall not have given notice to C/HCA that, as a result of
information provided to the UHS Group, the UHS Affiliates and UHS of Delaware
in connection with any or all of such amendments or supplements, the UHS Group,
the UHS Affiliates and UHS of Delaware have determined not to proceed with the
consummation of the transactions contemplated hereby.
6.11 Salick Healthcare. Westlake Medical Center, Inc.
("Westlake") and UHS shall take all necessary action to terminate the joint
venture agreement between the California Hospital and Comprehensive Cancer
Centers - West Valley, Inc.("CCC"). In connection therewith, C/HCA shall
assume no obligations of Westlake or of the UHS Group or the UHS Affiliates or
UHS of Delaware, except CCC's right to continue as a tenant of the California
Hospital on terms acceptable to C/HCA.
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6.12 Realty Trust Conveyance. Universal Health Realty Income
Trust shall have conveyed all of its interest in the California Hospital to the
UHS Group, the UHS Affiliates or UHS of Delaware prior to the Hospital Closing.
6.13 C/HCA Risk of Loss. The risk of loss or damage to any of
the tangible property, transfer of which is contemplated to be made by C/HCA
hereby, shall remain with C/HCA until the Hospital Closing and C/HCA shall
maintain its insurance policies covering the assets and the C/HCA Real Property
through the Hospital Closing. With respect to the C/HCA Real Property:
(a) If prior to the Hospital Closing, all or any part of
the C/HCA Real Property is destroyed or damaged by fire or the elements or by
any other cause, C/HCA shall within ten (10) days provide written notice
thereof to the UHS Group and shall also provide the UHS Group, together with
such notice, copies of all insurance then in force relating to such C/HCA Real
Property, whereupon the UHS Group may, by written notice to C/HCA within twenty
(20) days after receipt of notice of the occurrence, elect in writing not to
purchase the C/HCA Assets if such damage exceeds $1,000,000 and if C/HCA does
not agree to repair, restore and replace such C/HCA Real Property to the UHS
Group's reasonable satisfaction and in compliance with all state licensing
requirements and Laws within 60 days of the notice of the casualty delivered to
the UHS Group. The UHS Group's election to so terminate may be exercised,
however, if after C/HCA agrees to so repair, restore and replace, C/HCA fails
to effect such repair, restoration and replacement within such 60 day period.
Upon such election, this Agreement shall wholly cease and terminate. If all or
any part of the C/HCA Real Property is so destroyed but this Agreement is not
so terminated by the UHS Group, this Agreement shall not be affected, but the
UHS Group shall retain all
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of C/HCA's right, title and interest in and to the policies of insurance
insuring against the loss and C/HCA's interest in sums payable thereunder and
C/HCA shall pay to the UHS Group the amount of any deductibles under such
insurance policies and any payments theretofore made on account of the
destruction or damage.
(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 C/HCA Real Property, which the UHS Group, in its
sole discretion deems relevant or which would materially alter the grade, or
access to any street or would, in the reasonable judgment of the UHS Group,
otherwise injure, damage, or decrease the value of the C/HCA Real Property, the
UHS Group shall have the right and option to elect to cancel and terminate this
Agreement by giving C/HCA 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. C/HCA shall within ten (10) days furnish the
UHS Group with written notice of any such occurrence and all available data
related thereto. Should the UHS Group so terminate this Agreement, this
Agreement shall cease and terminate. If the UHS Group does not so terminate
this Agreement, the UHS Group shall accept the C/HCA Real Property subject to
such proceeding or without the portion of the C/HCA Real Property taken, and
the UHS Group shall retain all of the right, title and interest of C/HCA, as
owner of the C/HCA Real Property, in and to such proceeding and the proceeds of
the award to be made in such proceeding, and C/HCA shall turn over to the UHS
Group the proceeds of any award (or payment made pending the making of the
award) already received by C/HCA to the extent not retained by C/HCA.
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All insurance proceeds attributable to the damage,
destruction, or casualty loss of any of the assets other than the C/HCA Real
Property prior to the Hospital Closing Date not retained by C/HCA shall be
assigned to the UHS Group at the Hospital Closing, and the Cash Deposit shall
be reduced by an amount equal to the deductible amount under the applicable
insurance policy.
6.14 Wage and Salaries; Termination of Pension Plans. To the
extent not assumed by the UHS Group (as accrued and as part of the current
liabilities assumed by the UHS Group), C/HCA shall have paid or made
arrangements satisfactory to the UHS Group for the payment of all wages,
salaries, pay and associated taxes, accrued to all of the C/HCA Hospitals'
employees in respect of the C/HCA Assets as of the Hospital Closing. C/HCA
shall have made arrangements according to the provisions of the C/HCA pension
and retirement plans and in accordance with ERISA for the payment of all
amounts under such plans required to be distributed to the C/HCA Hospitals'
employees in respect of pension and retirement plans and shall have delivered
to the UHS Group a form of the letter which C/HCA shall distribute to the C/HCA
Hospitals' employees notifying such employees of their rights in respect of
such pension and retirement plans.
6.15 Environmental Report. An engineering firm selected by the
UHS Group to perform a Phase I environmental assessment on the C/HCA Hospitals
(at the sole cost and expense of UHS) shall have delivered a Phase I
Environmental Site Assessment Report to the UHS Group with respect to the C/HCA
Assets, including the C/HCA Real Property, and the scope, findings and
conclusions of such report shall have been reasonably satisfactory to the UHS
Group.
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6.16 Data Processing Agreement. UHS shall have agreed with C/HCA
as to the provision by C/HCA of laboratory services, data processing services
and computers, computer hardware and software equipment after the Hospital
Closing Date at the C/HCA Hospitals.
6.17 Hyperbaric Chamber. UHS shall have agreed with C/HCA as to
the assumption of or otherwise have mutually agreed with C/HCA as to the manner
in which UHS will perform its obligations under the Hyperbaric Chamber
Agreement dated August 8, 1994, between the California Hospital and HCSTM, Inc.
(the "Contract").
6.18 Underground Storage Tank. UHS shall be reasonably satisfied
with the condition and compliance with applicable laws of the underground
storage tank ("UST") located at the Aiken Hospitals. In connection therewith,
UHS shall be permitted (at its sole cost and expense) to complete prior to the
Hospital Closing further investigation with respect to said UST and surrounding
soils.
6.19 Condominium Unit. The sale of Unit II-100 by the UHS
Affiliates to C/HCA shall have been consented to, or so long as the UHS
Affiliates have diligently pursued obtaining such consent and such consent has
not been obtained, the UHS Affiliates have otherwise provided C/HCA with the
economic benefit and substantially similar use, possession and occupancy of
Unit II-100 as the UHS Affiliates currently have pursuant to terms that are
satisfactory to C/HCA, in compliance with all Laws and any rules and
regulations of any condominium association, governing board or other group who
has control over the operation and ownership issues associated with the medical
office building.
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7. Conditions Precedent to the Performance of C/HCA. The obligations
of C/HCA under this Agreement are subject to the satisfaction, at or before the
Hospital Closing, of all the conditions set out below. C/HCA 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 C/HCA
of any of its other rights or remedies, at law or in equity, if the UHS Group,
the UHS Affiliates and UHS of Delaware 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.
7.1 Accuracy of Representations and Warranties. All
representations and warranties by the UHS Group, the UHS Affiliates and UHS of
Delaware in this Agreement or in any agreement or in any written statement that
is delivered to C/HCA pursuant to this Agreement will be true and correct on
and as of the Hospital Closing Date as though made on that date subject to the
provision contained in Section 5.4B hereof.
7.2 Performance. The UHS Group, the UHS Affiliates and UHS of
Delaware will have performed, satisfied, and complied with all covenants,
agreements, and conditions required by this Agreement to be performed or
complied with by them on or before the Hospital Closing Date.
7.3 No Material Adverse Change. There shall have been no change
in the UHS Assets, tangible property, condition, financial or otherwise,
results of operations or prospects of the UHS Affiliates and the UHS Hospitals
from September 30, 1994 which in the aggregate are materially adverse to the
condition, financial or otherwise of UHS Affiliates or the UHS Hospitals.
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7.4 Certification by the Company. C/HCA will have received
certificates, dated the Hospital Closing Date, signed by the President and
Chief Financial Officer of each of the UHS Group, the UHS Affiliates and UHS of
Delaware, respectively, certifying, in such detail as C/HCA and their counsel
may reasonably request, that the conditions specified in Sections 7.1, 7.2 and
7.3 hereof have been fulfilled, including, but not limited to, certified copies
of all resolutions of the UHS Group, the UHS Affiliates and UHS of Delaware
pertaining to corporate authorization of the execution, delivery and
performance of this Agreement.
7.5 Opinion of UHS Counsel. C/HCA shall have received an
opinion from the general counsel to the UHS Group and the UHS Affiliates dated
as of the Hospital Closing Date and addressed to C/HCA, in form and substance
satisfactory to C/HCA to the effect that: (i) the UHS Group, the UHS
Affiliates and UHS of Delaware are corporations duly organized, validly
existing and in good standing under the laws of the states of their
incorporation; (ii) the UHS Group, the UHS Affiliates and UHS of Delaware are
qualified to carry on its business in the places and in the manner as now
conducted; (iii) the UHS Group, the UHS Affiliates and UHS of Delaware have
taken all steps necessary to obtain all material licenses and permits that are
required by hospital or health care regulatory bodies or hospital or health
care administrative agencies for the conduct of the business in which the UHS
Hospitals are engaged in each jurisdiction or place where the conduct of such
business requires such licenses or permits, except where any failure to possess
any such item would not have a material adverse effect on the business of the
UHS Hospitals; (iv) the UHS Group, the UHS Affiliates and UHS of Delaware have
full corporate power and authority to make, execute, deliver and perform this
Agreement, and all corporate and other proceedings
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required to be taken by the UHS Group, the UHS Affiliates and UHS of Delaware
to authorize the execution, delivery and performance of this Agreement, and to
sell, convey, assign, transfer and deliver the UHS Assets as herein
contemplated have all been duly and properly taken; (v) this Agreement and all
deeds, assignments and other instruments of conveyance and transfer delivered
hereunder constitute the valid and binding obligations of the UHS Group, the
UHS Affiliates and UHS of Delaware, enforceable in accordance with their
respective terms, except as enforceability against them may be restricted,
limited or delayed by applicable bankruptcy or other laws affecting creditors'
rights and debtors' relief generally; (vi) neither the execution and delivery
of this Agreement, nor the consummation of the transactions herein
contemplated, nor the compliance and fulfillment of the terms and conditions
hereof will conflict with, or result in a breach of the terms, conditions or
provisions of, or constitute a default under the Articles of Incorporation or
Bylaws of the UHS Group, the UHS Affiliates or UHS of Delaware; (vii) to the
best of such counsel's knowledge, no ungiven notice to, or unobtained consent,
authorization, approval or order of any court or governmental agency or body
required to be obtained by the UHS Group, the UHS Affiliates or UHS of Delaware
is required for the consummation of the transactions described herein by the
UHS Group, the UHS Affiliates or UHS of Delaware and (viii) the conveyance of
the UHS Assets to UHS of Delaware immediately prior to the Hospital Closing
Date will not adversely affect C/HCA's rights under the Agreement. Such
opinion shall include any other matters incident to the matters herein
contemplated as C/HCA's counsel may reasonably request. In rendering such
opinion, such counsel may rely upon certificates of governmental officials and
may place reasonable
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reliance upon certificates of officers of the UHS Group, the UHS Affiliates and
UHS of Delaware.
7.6 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 on or before the Hospital Closing Date.
7.7 Legal Prohibition. On the Hospital 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 could materially adversely
affect the UHS Affiliates and the UHS Hospitals. No federal, state or local
statute, rule or regulation shall have been enacted the effect of which would
be to prohibit, restrict, impair or delay the consummation of the transactions
contemplated hereby or restrict or impair the ability of C/HCA to own or
conduct the business of the UHS Affiliates.
7.8 Consents, Approvals, Permits, Licenses, etc. The waiting
period under the HSR Act shall have expired or been terminated, all waiting
periods, approvals and publication requirements of the FTC Consent Order shall
have expired or been fulfilled 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 to own and operate the
UHS Hospitals in Texas and California for C/HCA to conduct
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the business of the UHS Affiliates as currently conducted, approvals of the
U.S. Department of Justice, the Federal Trade Commission and the Texas and
California agencies responsible for hospital licensing) or third party
(including without limitation all parties to each of the C/HCA Assumed
Contracts) in connection with the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby shall
have been duly obtained and shall be reasonably satisfactory to C/HCA and its
counsel, and copies thereof shall be delivered to C/HCA no later than five (5)
days prior to the Hospital Closing. No such consent or approval (a) shall be
conditioned on the modification, cancellation or termination of any C/HCA
Assumed Contract, or (b) shall impose on C/HCA any material condition or
provision or requirement with respect to the UHS Hospitals or its operation
that is more restrictive than or different from the conditions imposed upon
such operation prior to the Hospital Closing, unless C/HCA gives its prior
written approval.
7.9 Closing Matters. All proceedings to be taken by the UHS
Affiliates and UHS of Delaware 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 satisfactory in form and substance to C/HCA and its counsel.
7.10 Supplemental Disclosure. If the UHS Group, the UHS
Affiliates or UHS of Delaware shall have supplemented or amended any Schedule
pursuant to their obligations set forth in Section 5.5 hereof and the
supplemental or amended Schedule reflects information that, pursuant to
reasonable and good faith calculations has a material adverse effect on the
value of the UHS Assets, C/HCA shall not have given notice to the UHS Group,
the UHS Affiliates and UHS of Delaware that, as a result of
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information provided to C/HCA in connection with any or all of such amendments
or supplements, C/HCA has determined not to proceed with the consummation of
the transactions contemplated hereby.
7.11 Salick Healthcare. Westlake shall take all necessary action
to terminate the joint venture agreement between the California Hospital and
CCC. In connection therewith, C/HCA shall assume no obligations of Westlake or
of the UHS Group or the UHS Affiliates, except CCC's right to continue as a
tenant of the California Hospital on terms acceptable to C/HCA.
7.12 Realty Trust Conveyance. Universal Health Realty Income
Trust shall have conveyed all of its interest in the California Hospital to the
UHS Group, the UHS Affiliates or UHS of Delaware prior to the Hospital Closing.
7.13 UHS Risk of Loss. The risk of loss or damage to any of the
tangible property, transfer of which is contemplated to be made by the UHS
Affiliates or UHS of Delaware hereby, shall remain with the UHS Affiliates and
UHS of Delaware until the Hospital Closing and the UHS Affiliates and UHS of
Delaware shall maintain its insurance policies covering the assets and the UHS
Real Property through the Hospital Closing. With respect to the UHS Real
Property:
(a) If prior to the Hospital Closing, all or any part of
the UHS Real Property is destroyed or damaged by fire or the elements or by any
other cause, the UHS Affiliates and UHS of Delaware shall within ten (10) days
provide written notice thereof to C/HCA and shall also provide C/HCA, together
with such notice, copies of all insurance then in force relating to such UHS
Real Property, whereupon C/HCA may, by written notice to the UHS Affiliates and
UHS of Delaware within twenty (20) days after receipt of notice of the
occurrence, elect in writing not to purchase the UHS
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Assets if such damage exceeds $1,000,000 and if the UHS Affiliates and UHS of
Delaware do not agree to repair, restore and replace such UHS Real Property to
C/HCA's reasonable satisfaction and in compliance with all state licensing
requirements and Laws within 60 days of the notice of the casualty delivered to
C/HCA. C/HCA's election to so terminate may be exercised, however, if after
the UHS Affiliates and UHS of Delaware agree to so repair, restore and replace,
the UHS Affiliates and UHS of Delaware fail to effect such repair, restoration
and replacement within such 60 day period. Upon such election, this Agreement
shall wholly cease and terminate. If all or any part of the UHS Real Property
is so destroyed but this Agreement is not so terminated by C/HCA, this
Agreement shall not be affected, but C/HCA shall retain all of the UHS
Affiliates' and UHS of Delaware's right, title and interest in and to the
policies of insurance insuring against the loss and the UHS Affiliates' and UHS
of Delaware's interest in sums payable thereunder and the UHS Affiliates and
UHS of Delaware shall pay to C/HCA the amount of any deductibles under such
insurance policies and any payments theretofore made on account of the
destruction or damage.
(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 UHS Real Property, which C/HCA, in its sole
discretion deems relevant or which would materially alter the grade, or access
to any street or would, in the reasonable judgment of C/HCA, otherwise injure,
damage, or decrease the value of the UHS Real Property, C/HCA shall have the
right and option to elect to cancel and terminate this Agreement by giving the
UHS Affiliates 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 UHS Affiliates shall within ten
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(10) days furnish C/HCA with written notice of any such occurrence and all
available data related thereto. Should C/HCA so terminate this Agreement, this
Agreement shall cease and terminate. If C/HCA does not so terminate this
Agreement, C/HCA shall accept the UHS Real Property subject to such proceeding
or without the portion of the UHS Real Property taken, and the C/HCA shall
retain all of the right, title and interest of the UHS Affiliates, as owner of
the UHS Real Property, in and to such proceeding and the proceeds of the award
to be made in such proceeding, and the UHS Affiliates shall turn over to C/HCA
the proceeds of any award (or payment made pending the making of the award)
already received by the UHS Affiliates to the extent not retained by the UHS
Affiliates.
All insurance proceeds attributable to the damage,
destruction, or casualty loss of any of the assets other than the UHS Real
Property prior to the Hospital Closing Date not retained by the UHS Affiliates
and UHS of Delaware shall be assigned to C/HCA at the Hospital Closing, and the
Cash Deposit shall be increased by an amount equal to the deductible amount
under the applicable insurance policy.
7.14 Wages and Salaries; Termination of Pension Plans. To the
extent not assumed by C/HCA (as accrued and as part of the current liabilities
assumed by C/HCA), the UHS Affiliates shall have paid or made arrangements
satisfactory to C/HCA for the payment of all wages, salaries, pay and
associated taxes, accrued to all of the UHS Hospitals' employees in respect of
the UHS Assets as of the Hospital Closing. The UHS Affiliates shall have made
arrangements according to the provisions of the UHS pension and retirement
plans and in accordance with ERISA for the payment of all amounts under such
plans required to be distributed to the UHS Hospitals' employees in respect of
pension and retirement plans and shall have
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delivered to C/HCA a form of the letter which the UHS Affiliates shall
distribute to the UHS Hospitals' employees notifying such employees of their
rights in respect of such pension and retirement plans.
7.15 Environmental Report. An engineering firm selected by C/HCA
to perform a Phase I environmental assessment on the UHS Hospitals (at the sole
cost and expense of C/HCA) shall have delivered a Phase I Environmental Site
Assessment Report to C/HCA with respect to the UHS Assets, including the UHS
Real Property, and the scope, findings and conclusions of such report shall
have been reasonably satisfactory to C/HCA.
7.16 DSWOP Covenants. All restrictive covenants imposed upon the
UHS Leased Property by Dallas Southwest Osteopathic Physicians ("DSWOP") which
exist of record (or otherwise) shall have been modified in accordance with
Schedule 7.16 or released to the satisfaction of C/HCA. Additionally, the
executed amendments to existing agreements between DSWOP and Dallas Family
Hospital, Inc. (as described on Schedule 7.16) (the "Amendments") shall not
have been modified, amended or rescinded in any manner whatsoever (unless
approved by C/HCA) and evidence of all appropriate legal authorization or
ratification of the execution of such Amendments (and the continuing
effectiveness thereof) shall have been delivered to C/HCA's satisfaction.
7.17 DSWOP Lease and Consents. The real property lease with
DSWOP relating to the UHS Leased Property, as modified (as attached to Schedule
7.16), shall have been assigned to C/HCA without further modification and DSWOP
shall execute an estoppel certificate in connection therewith. The sale of
Unit II-100 by the UHS Affiliates to C/HCA shall have been consented to, or so
long as the UHS Affiliates have diligently pursued obtaining such consent and
such consent has not been obtained, the
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UHS Affiliates have otherwise provided C/HCA with the economic benefit and
substantially similar use, possession and occupancy of Unit II-100 as the UHS
Affiliates currently have pursuant to terms that are satisfactory to C/HCA, in
compliance with all Laws and any rules and regulations of any condominium
association, governing board or other group who has control over the operation
and ownership issues associated with the medical office building.
7.18 Conveyance by UHS of Delaware. No facts or circumstances
shall be known to exist and no notices shall have been received by C/HCA, the
UHS Group or the UHS Affiliates or UHS of Delaware to the effect that indicate
that the transfer of the UHS Assets through UHS of Delaware to C/HCA is likely
to result in any Losses (defined herein) which would not have been incurred but
for the involvement of UHS of Delaware in the transaction.
7.19 Data Processing Agreement. C/HCA shall have agreed with UHS
as to the provision by UHS of laboratory services, data processing services and
computers, computer hardware and software after the Hospital Closing Date at
the UHS Hospitals.
7.20 Hyperbaric Chamber. C/HCA shall have agreed with UHS as to
the assumption of or otherwise have mutually agreed with UHS as to the manner
in which UHS will perform its obligations under the Contract.
7.21 Underground Storage Tank. C/HCA shall be reasonably
satisfied with the condition and compliance with applicable laws of the USTs
located at the UHS Hospitals. In connection therewith, C/HCA shall be
permitted (at its sole cost and expense) to complete prior to the Hospital
Closing such further investigations with respect to said USTs and surrounding
soils.
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8. Joint Covenants.
8.1 Access to Books and Records. Following the Hospital
Closing, each party hereto shall permit each other party, its affiliates and
representatives and taxing 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 such other party,
which related to events occurring prior to the Hospital Closing or events
required in order to audit reports or maintain or defend positions in
connection with any investigation, liquidation or proceeding ("Material
Records"). For a period of two years after the Hospital Closing Date, each
party agrees to maintain the Material Records in accordance with applicable law
and requirements of relevant insurance carriers, all in a manner consistent
with the maintenance of patient records.
8.2 Allocation of Consideration. The consideration for the UHS
Assets and the C/HCA Assets shall be allocated in its entirety by mutual
agreement of the parties and as required by Section 1060 of the Code and
Treasury Regulations promulgated thereunder. The parties shall file all
information and tax returns (and any amendments thereto) in a manner consistent
with such allocation.
9. Certain Actions After the Closing.
9.1 UHS to Act as Agent for C/HCA. (a) This Agreement shall
not constitute an agreement to assign any contract right included among the
C/HCA Assets if any attempted assignment of the same without the consent of
the other party thereto would constitute a breach thereof or in any way
adversely affect the rights of C/HCA thereunder. If such consent is not
obtained or if any attempted assignment would be ineffective or would
adversely affect C/HCA's rights thereunder so that UHS Sub would
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not in fact receive all such rights, then C/HCA shall cooperate with UHS Sub in
any reasonable arrangement in order to obtain for UHS Sub the benefits
thereunder, including the enforcement of any and all rights of C/HCA arising
out of any breach or cancellation by any other party thereto. If after the
Hospital Closing Date, any previously unobtained consent shall be obtained, UHS
Sub shall assume such contract and C/HCA shall be deemed to have assigned it to
UHS Sub as of the Hospital Closing Date. Notwithstanding any of the foregoing
provisions, all expenses and liabilities arising after the Hospital Closing
Date pursuant to any contract as to which a necessary consent shall have not
been obtained but the benefits of which are accepted by UHS Sub shall be for
the account of UHS Sub, and C/HCA shall be promptly reimbursed by UHS Sub for
any expenses or liabilities which C/HCA may be required to pay with respect
thereto. Anything in this Section to the contrary, UHS Sub may elect not to
proceed with the transactions contemplated hereby if any contract is not
assigned to it with the requisite consent.
(b) Delivery of Property Received by C/HCA, the UHS Group
or the UHS Affiliates After the Hospital Closing. From and after the Hospital
Closing, the UHS Group shall have the right and authority to collect, for the
account of the UHS Group, all assets which shall be transferred or are intended
to be transferred to the UHS Group as part of the C/HCA Assets as provided in
this Agreement. C/HCA agrees that it will transfer or deliver to the UHS
Group, promptly after the receipt thereof, any cash or other property which
C/HCA receives after the Hospital Closing Date in respect of any assets
transferred or intended to be transferred to the UHS Group as part of the C/HCA
Assets under this Agreement and shall cooperate in endorsing to the UHS Group
any checks or drafts received by the UHS Group which
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relate to the C/HCA Assets. In addition, the UHS Group and the UHS Affiliates
agree that they will transfer or deliver to C/HCA, promptly after receipt
thereof, any cash or other property which the UHS Group or the UHS Affiliates
receive after the Hospital Closing Date in respect of any assets not
transferred or intended to be transferred to the UHS Group as part of the C/HCA
Assets under this Agreement.
(c) Payment of Liabilities. Following the Hospital
Closing Date C/HCA agrees to discharge in accordance with their terms the C/HCA
Assumed Liabilities and the C/HCA Excluded Liabilities, respectively. As used
herein, "C/HCA Assumed Liabilities" means those liabilities of the UHS
Affiliates that are included within the definition of Assumed Liabilities
herein and have been assumed by C/HCA according to the terms of this Agreement.
9.2 C/HCA to Act as Agent for the UHS Affiliates and UHS of
Delaware.
(a) This Agreement shall not constitute an agreement to
assign any contract right included among the Assets if any attempted assignment
of the same without the consent of the other party thereto would constitute a
breach thereof or in any way adversely affect the rights of the UHS Affiliates
or UHS of Delaware thereunder. If such consent is not obtained or if any
attempted assignment would be ineffective or would adversely affect the UHS
Affiliates' rights thereunder so that C/HCA would not in fact receive all such
rights, then the UHS Affiliates shall cooperate with C/HCA in any reasonable
arrangement in order to obtain for C/HCA the benefits thereunder, including the
enforcement of any and all rights of the UHS Affiliates arising out of any
breach or cancellation by any other party thereto. If after the Hospital
Closing Date, any previously unobtained consent shall be obtained, C/HCA shall
assume such contract and the UHS Affiliates shall be deemed to have assigned it
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to C/HCA as of the Hospital Closing Date. Notwithstanding any of the foregoing
provisions, all expenses and liabilities arising after the Hospital Closing
Date pursuant to any contract as to which a necessary consent shall have not
been obtained but the benefits of which are accepted by C/HCA shall be for the
account of C/HCA, and the UHS Affiliates shall be promptly reimbursed by C/HCA
for any expenses or liabilities which the UHS Affiliates may be required to pay
with respect thereto. Anything in this Section to the contrary, C/HCA may
elect not to proceed with the transactions contemplated hereby, if any contract
is not assigned to it with the requisite consent.
(b) Delivery of Property Received by the UHS Affiliates,
UHS or C/HCA After the Hospital Closing. From and after the Hospital Closing,
C/HCA shall have the right and authority to collect, for the account of C/HCA,
all assets which shall be transferred or are intended to be transferred to
C/HCA as part of the UHS Assets as provided in this Agreement. The UHS
Affiliates and UHS of Delaware agree that they will transfer or deliver to
C/HCA, promptly after the receipt thereof, any cash or other property which the
UHS Affiliates and UHS of Delaware receive after the Hospital Closing Date in
respect of any assets transferred or intended to be transferred to C/HCA as
part of the UHS Assets under this Agreement and shall cooperate in endorsing to
C/HCA any checks or drafts received by C/HCA which relate to the UHS Assets.
In addition, C/HCA agrees that it will transfer or deliver to the UHS
Affiliates, promptly after receipt thereof, any cash or other property which
C/HCA receives after the Hospital Closing Date in respect of any assets not
transferred or intended to be transferred to C/HCA as part of the UHS Assets
under this Agreement.
(c) Payment of Liabilities. Following the Hospital
Closing Date the UHS Affiliates agree to discharge in accordance with their
terms the UHS Assumed
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Liabilities and the UHS Excluded Liabilities, respectively. As used herein,
"UHS Assumed Liabilities" means those liabilities of C/HCA that are included
within the definition of Assumed Liabilities herein and have been assumed by
UHS Sub according to the terms of the Agreement.
(d) Conveyance Restriction. The UHS Group, the UHS
Affiliates and UHS of Delaware agree that for a period of ten years from the
Hospital Closing Date, without the prior consent of the Federal Trade
Commission, the UHS Group, the UHS Affiliates and UHS of Delaware will not
reconvey the C/HCA Assets to anyone, other than an affiliate of UHS, who
operates an acute care hospital in Richmond and Columbia Counties, Georgia or
Aiken County, South Carolina.
10. Survival of Representations; Indemnification.
10.1 Survival of Representations, Etc. All representations and
warranties contained in this Agreement shall survive the Hospital Closing and
shall remain in full force and effect until the expiration of three years from
the Hospital Closing Date, and, thereafter, in any case, to the extent a claim
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 C/HCA
contained in Sections 3.14, 3.17, 3.18, 3.19, 3.20 and 3.24 of this Agreement
and the representations and warranties of the UHS Group, the UHS Affiliates and
UHS of Delaware contained in Sections 4.14, 4.17, 4.18, 4.19, 4.20 and 4.24
shall remain in full force and effect until the expiration of the applicable
statute of limitations and (ii) the representations and warranties of C/HCA
contained in Sections 3.2 and 3.6(b) of this Agreement and the representations
and warranties of the UHS Group, the UHS
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Affiliates and UHS of Delaware contained in Sections 4.2 and 4.6(b) shall
survive indefinitely.
10.2 Indemnification by C/HCA. C/HCA shall defend and indemnify
UHS, UHS Sub, the UHS Affiliates and UHS of Delaware and hold UHS, UHS Sub, the
UHS Affiliates and UHS of Delaware, their respective officers, directors,
employees and agents, successors and assigns (collectively all such parties the
"UHS Indemnified Persons"), wholly harmless from and against any and all
losses, liabilities, damages, costs (including, without limitation, court costs
and costs of appeal) and expenses (including, without limitation, reasonable
attorneys' fees) (collectively, "Losses") that the UHS Indemnified Persons
incur as a result of, or with respect to:
(a) any material inaccuracy in or material breach of any
representation or warranty, or any failure to substantially fulfill the
obligations of any covenant or agreement of C/HCA contained in this Agreement
to the extent the UHS Indemnified Persons suffer damage by reason of such
breach;
(b) except as expressly assumed by the UHS Group under
this Agreement and except for claims, causes of action, liabilities or
obligations relating to the condition of the C/HCA Assets or relating to
environmental matters, any claim or cause of action against or liability or
obligation (actual or alleged), of any nature whatsoever of C/HCA arising out
of or relating to the use or operation of the C/HCA Hospitals or any other
business of C/HCA prior to the Hospital Closing Date, or any act or omission of
C/HCA, or any of their agents, employees, or officers, occurring prior to the
Hospital Closing Date, including, without limitation, any claim or cause of
action arising out of or relating to any act of malpractice occurring prior to
or on the Hospital Closing Date.
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10.3 Indemnification by the UHS Group, the UHS Affiliates and UHS
of Delaware. UHS, UHS Sub, the UHS Affiliates and UHS of Delaware, jointly and
severally, shall defend and indemnify C/HCA and hold C/HCA, its officers,
directors, employers and agents, successors and assigns (collectively, all such
parties the "C/HCA Indemnified Persons") wholly harmless from and against any
and all Losses that the C/HCA Indemnified Persons incur as a result of, or with
respect to:
(a) any material inaccuracy in or material breach of any
representation or warranty, or any failure to substantially fulfill the
obligations of any covenant or agreement of UHS, UHS Sub, the UHS Affiliates or
UHS of Delaware contained in this Agreement to the extent the C/HCA Indemnified
Persons suffer damage by reason of such breach;
(b) except as expressly assumed by C/HCA under this
Agreement and except for claims, causes of action, liabilities or obligations
relating to the condition of the UHS Assets or relating to environmental
matters, any claim or cause of action against or liability or obligation
(actual or alleged), of any nature whatsoever of UHS, UHS Sub, the UHS
Affiliates or UHS of Delaware arising out of or relating to the use, operation
or ownership of the UHS Hospitals or any other business of the UHS Affiliates
or UHS of Delaware prior to the Hospital Closing Date, or any act or omission
of the UHS Affiliates, or any of their agents, employees, or officers,
occurring prior to the Hospital Closing Date, including, without limitation,
any claim or cause of action arising out of or relating to any act of
malpractice occurring prior to or on the Hospital Closing Date.
(c) any Loss solely caused by the transfer of the UHS
Assets to UHS of Delaware by the UHS Affiliates prior to the transfer of the
UHS Assets by UHS
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of Delaware to C/HCA which would not have been incurred but for the involvement
of UHS of Delaware in the transaction.
(d) any Losses arising out of the ongoing sales tax audit
at the California Hospital for periods prior to the Hospital Closing Date.
10.4 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 (the "Indemnitor") promptly after the
Claimant learns of the claim or proceeding (with respect to
breaches of representations and warranties only) but not later than
the period after the Hospital Closing Date (if any) specified in
Section 10.1 hereof; 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 also employ
counsel, of its own choosing, at its sole expense. The parties
will
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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 elect to participate in the
defense of any such third party claim, and may, at its sole
expense, retain separate counsel in connection therewith. Subject
to the foregoing the Claimant shall not settle or compromise any
such third party claim without the prior consent of the Indemnitor,
which consent shall not be unreasonably withheld.
10.5 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). No claim for indemnification for breach of any representation or
warranty (but not claims under Section 10.2(b), 10.3(b) or 10.3(c) by Claimant
under this Agreement) may be made more than three years after the Hospital
Closing Date, except that any claim or breach of the representations or
covenants contained in Sections 3.14, 3.17, 3.18, 3.19, 3.20, 3.24, 4.14, 4.17,
4.18, 4.19, 4.20, and 4.24 may be made within six months of expiration of
statute of limitations.
11. Entire Agreement; Modification, Waiver.
This Agreement and its Schedules and Exhibits constitutes 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. 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
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provisions of this Agreement will be deemed, or will constitute, a waiver of
any other 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.
12. 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.
13. 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.
14. Successors and Assigns; Assignment.
This Agreement will be binding on, and inure to the benefit of, the
parties hereto and their respective heirs, legal representatives, successors
and assigns.
15. 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 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 C/HCA at:
Columbia/HCA Healthcare Corporation
One Park Plaza
Nashville, Tennessee 37202
Attention: Senior Vice President Development
Facsimile Number: 615/320-2137
with a copy to:
Legal Department
Columbia/HCA Healthcare Corporation
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<PAGE> 132
One Park Plaza
Nashville, Tennessee 37203
Attention: General Counsel
Facsimile Number: 615/320-2598
(b) To UHS, UHS Sub, UHS Affiliates or UHS of Delaware at:
Universal Health Services, Inc.
Universal Corporate Center
367 South Gulph Road
King of Prussia, Pennsylvania 19406
Attention: President
Facsimile Number: 610/768-3318
with a copy to:
Universal Health Services, Inc.
Universal Corporate Center
367 South Gulph Road
King of Prussia, Pennsylvania 19406
Attention: General Counsel
Facsimile Number:
16. Governing Law.
This Agreement will be construed in accordance with, and governed
by, the laws of the State of South Carolina.
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<PAGE> 133
IN WITNESS WHEREOF, the parties have executed this Agreement as of
March 16, 1995.
UNIVERSAL HEALTH SERVICES, INC.
By: Steve Filton
--------------------------
Steve Filton
AIKEN REGIONAL MEDICAL CENTERS, INC.
By: Steve Filton
--------------------------
Steve Filton
DALLAS FAMILY HOSPITAL, INC.
By: Steve Filton
--------------------------
Steve Filton
WESTLAKE FAMILY HOSPITAL, INC.
By: Steve Filton
--------------------------
Steve Filton
UHS OF DELAWARE, INC.
By: Steve Filton
--------------------------
Steve Filton
C/HCA DEVELOPMENT, INC.
By: Joseph D. Moore
--------------------------
Joseph D. Moore
Senior Vice President
<PAGE> 134
GUARANTEE
Universal Health Services, Inc., a Delaware corporation, hereby
unconditionally guarantees all obligations of Dallas Family Hospital, Inc.,
Westlake Medical Center, Inc., Aiken Regional Medical Centers, Inc. and UHS of
Delaware, Inc. hereunder. In case of any breach by Dallas Family Hospital,
Inc., Westlake Medical Center, Inc., Aiken Regional Medical Centers, Inc. and
UHS of Delaware, Inc. of their obligations hereunder, C/HCA may proceed without
notice against UHS immediately without first proceeding against Dallas Family
Hospital, Inc., Westlake Medical Center, Inc., Aiken Regional Medical Centers,
Inc. and UHS of Delaware, Inc.
UNIVERSAL HEALTH SERVICES, INC.
By: Steve Filton
-------------------------
Steve Filton
March 16, 1995
<PAGE> 135
GUARANTEE
HCA - Hospital Corporation of America, a Delaware corporation, hereby
unconditionally guarantees all obligations of C/HCA Development, Inc. hereunder
to the same extent if HCA - Hospital Corporation of America is a party hereto.
In case of any breach by C/HCA Development, Inc. of its obligations hereunder,
UHS, the UHS Affiliates and UHS of Delaware may proceed without notice against
HCA-Hospital Corporation of America immediately without first proceeding
against C/HCA Development, Inc.
HCA - HOSPITAL CORPORATION OF AMERICA
By: Joseph D. Moore
-------------------------
Joseph D. Moore
Senior Vice President
March 16, 1995
<PAGE> 136
EXHIBIT A
CONFIDENTIALITY OBLIGATIONS
Until the Hospital 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> 137
[LETTERHEAD OF COLUMBIA/HCA]
April 28, 1995
Universal Health Services, Inc.
Attention: President
Universal Corporate Center
367 South Gulph Road
King of Prussia, Pennsylvania 19406
RE: Amendment to Asset Exchange Agreement
Gentlemen:
This letter amends the Asset Exchange Agreement by and 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. dated March 16, 1995, as follows:
1. The "Hospital Closing Date" as such term is defined in the
Agreement shall be May 31, 1995 and the "Effective Time" as such term is
defined in the Agreement shall be 12:01 a.m. on June 1, 1995.
2. The "Cash Deposit" as such term is defined in the Agreement shall
mean $45,029,155.
3. At the Hospital Closing, Schedule 1.3 shall be amended to delete
therefrom "Hyperbaric chamber units".
4. At the Hospital Closing, Schedule 1.2 shall be amended to add
thereto "Hyperbaric chamber units relating to the California Hospital."
5. At the Hospital Closing, Schedule 4.11 shall be amended to add to
the list of contracts which will be assumed the lease agreement dated as of
August 22, 1994 between Westoaks Orthopaedic Medical Group, Inc. and Westlake
Medical Center.
All terms left undefined herein shall have the meaning set forth in the
Agreement. Other than as set forth herein the terms of the Agreement shall
remain unmodified and in full force and effect.
<PAGE> 138
If you are in agreement with the above amendments to the Asset Exchange
Agreement, please execute this letter where indicated below.
Very truly yours,
C/HCA DEVELOPMENT, INC.
By: Joseph D. Moore
----------------------------
Joseph D. Moore
Senior Vice President -
Development
UNIVERSAL HEALTH SERVICES, INC.
By: Kirk Gorman
------------------------------------------
Title: CFO/Sr. V.P./Treasurer
---------------------------------------
AIKEN REGIONAL MEDICAL CENTERS, INC.
By: Kirk Gorman
------------------------------------------
Title: Treasurer
---------------------------------------
DALLAS FAMILY HOSPITAL, INC.
By: Kirk Gorman
------------------------------------------
Title: Treasurer
---------------------------------------
WESTLAKE MEDICAL CENTER, INC.
By: Kirk Gorman
------------------------------------------
Title: Treasurer
---------------------------------------
UHS OF DELAWARE, INC.
By: Kirk Gorman
------------------------------------------
Title: Treasurer
---------------------------------------
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<PAGE> 139
[LETTERHEAD OF COLUMBIA/HCA]
May 25, 1995
Universal Health Services, Inc.
Attention: President
Universal Corporate Center
367 South Gulph Road
King of Prussia, Pennsylvania 19406
RE: Amendment to Asset Exchange Agreement
Gentlemen:
This letter amends the Asset Exchange Agreement by and 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. dated March 16, 1995, such that the time period stated in
Section 5.9 and Section 5.10 of such agreement shall be "two (2) years from the
Hospital Closing Date" in lieu of "four (4) years from the Hospital Closing
Date."
All terms left undefined herein shall have the meaning set forth in
the Agreement. Other than as set forth herein the terms of the Agreement shall
remain unmodified and in full force and effect.
If you are in agreement with the above amendments to the Asset
Exchange Agreement, please execute this letter where indicated below.
Very truly yours,
C/HCA DEVELOPMENT, INC.
By:Joseph D. Moore
---------------------------
Joseph D. Moore
Senior Vice President -
Development
<PAGE> 140
UNIVERSAL HEALTH SERVICES, INC.
By: Bruce Gilbert
--------------------------------------
Title: General Counsel and Secretary
-----------------------------------
AIKEN REGIONAL MEDICAL CENTERS, INC.
By: Bruce Gilbert
--------------------------------------
Title: Secretary
-----------------------------------
DALLAS FAMILY HOSPITAL, INC.
By: Bruce Gilbert
--------------------------------------
Title: Secretary
-----------------------------------
WESTLAKE MEDICAL CENTER, INC.
By: Bruce Gilbert
--------------------------------------
Title: Secretary
-----------------------------------
UHS OF DELAWARE, INC.
By: Bruce Gilbert
--------------------------------------
Title: Secretary
-----------------------------------
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<PAGE> 141
June 9, 1995
Universal Health Services, Inc.
Attention: President
Universal Corporate Center
367 South Gulph Road
King of Prussia, Pennsylvania 19406
RE: Amendment to Asset Exchange Agreement
Gentlemen:
This letter amends the Asset Exchange Agreement by and 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. dated March 16, 1995 (the "Agreement"), the "Hospital
Closing Date" as such term is defined in the Agreement shall be July 31, 1995
and the "Effective Time" as such term is defined in the Agreement shall be
12:01 a.m. on August 1, 1995.
All terms left undefined herein shall have the meaning set forth in
the Agreement. Other than as set forth herein the terms of the Agreement shall
remain unmodified and in full force and effect.
If you are in agreement with the above amendments to the Asset
Exchange Agreement, please execute this letter where indicated below.
Very truly yours,
C/HCA DEVELOPMENT, INC.
By: Joseph D.Moore
--------------------------------------
Joseph D. Moore
Senior Vice President-Development
UNIVERSAL HEALTH SERVICES, INC.
By: Bruce Gilbert
--------------------------------------
Bruce Gilbert
General Counsel and Secretary
<PAGE> 142
Universal Health Services, Inc.
June 9, 1995
Page 2
AIKEN REGIONAL MEDICAL CENTERS, INC.
By: Bruce Gilbert
--------------------------------
Bruce Gilbert
Secretary
DALLAS FAMILY HOSPITAL, INC.
By: Bruce Gilbert
-------------------------------
Bruce Gilbert
Secretary
WESTLAKE MEDICAL CENTER, INC.
By: Bruce Gilbert
------------------------------
Bruce Gilbert
Secretary
UHS OF DELAWARE, INC.
By: Bruce Gilbert
------------------------------
Bruce Gilbert
Secretary
