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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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(MARK ONE)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 0-10454
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 IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
UNIVERSAL CORPORATE CENTER
367 SOUTH GULPH ROAD P.O. BOX 61558
KING OF PRUSSIA, PENNSYLVANIA
(ADDRESS OF PRINCIPAL EXECUTIVE 19406-0958
OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (610) 768-3300
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
CLASS B COMMON STOCK, $.01 PAR VALUE REGISTERED
NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
CLASS D COMMON STOCK, $.01 PAR VALUE
(TITLE OF EACH CLASS)
---------------------
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [_]
The number of shares of the registrant's Class A Common Stock, $.01 par value,
Class B Common Stock, $.01 par value, Class C Common Stock, $.01 par value,
and Class D Common Stock, $.01 par value, outstanding as of January 31, 1998,
was 2,059,929, 30,148,102, 207,230, and 31,925, respectively.
The aggregate market value of voting stock held by non-affiliates at January
31, 1998 was $1,400,828,682. (For purpose of this calculation, it was assumed
that Class A, Class C, and Class D Common Stock, which are not traded but are
convertible share-for-share into Class B Common Stock, have the same market
value as Class B Common Stock.)
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's definitive proxy statement for its 1998 Annual
Meeting of Stockholders, which will be filed with the Securities and Exchange
Commission within 120 days after December 31, 1997 (incorporated by reference
under Part III).
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PART I
ITEM 1. BUSINESS
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 43 hospitals, consisting of 20 acute
care hospitals, 20 behavioral health centers, and three women's centers, in
Arkansas, California, the District of Columbia, Florida, Georgia, Illinois,
Louisiana, Massachusetts, Michigan, Missouri, Nevada, Oklahoma, Pennsylvania,
Puerto Rico, South Carolina, Texas and Washington. The Company, as part of its
Ambulatory Treatment Centers Division, owns outright, or in partnership with
physicians, and operates or manages 22 surgery and radiation oncology centers
located in 13 states.
Services provided by the Company's hospitals include general surgery,
internal medicine, obstetrics, emergency room care, radiology, oncology,
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.
The Company selectively seeks opportunities to expand its base of operations
by acquiring, constructing or leasing additional hospital facilities. Such
expansion may provide the Company with access to new markets and new health
care delivery capabilities. The Company also seeks to increase the operating
revenues and profitability of owned hospitals by the introduction of new
services, improvement of existing services, physician recruitment and the
application of financial and operational controls. Pressures to contain health
care costs and technological developments allowing more procedures to be
performed on an outpatient basis have led payors to demand a shift to
ambulatory or outpatient care wherever possible. The Company is responding to
this trend by emphasizing the expansion of outpatient services. In addition,
in response to cost containment pressures, the Company intends to implement
programs designed to improve financial performance and efficiency while
continuing to provide quality care, including more efficient use of
professional and paraprofessional staff, monitoring and adjusting staffing
levels and equipment usage, improving patient management and reporting
procedures and implementing more efficient billing and collection procedures.
The Company also continues to examine its facilities and to dispose of those
facilities which it believes do not have the potential to contribute to the
Company's growth or operating strategy.
The Company is involved in continual development activities. Applications to
state health planning agencies to add new services in existing hospitals are
currently on file in states which require certificates of need (e.g.,
Washington, D.C.). Although the Company expects that some of these
applications will result in the addition of new facilities or services to the
Company's operations, no assurances can be made for ultimate success by the
Company in these efforts.
RECENT AND PROPOSED ACQUISITIONS AND DEVELOPMENT ACTIVITIES
In 1997, the Company proceeded with its development of new facilities and
consummated a number of acquisitions.
In July 1997, the Company acquired an 80% interest in a partnership with
George Washington University, which owns and operates The George Washington
University Hospital, a 501 bed acute care teaching hospital located in
Washington, D.C. The Company has agreed to construct a 400 bed acute care
replacement facility which is scheduled to be completed in 2001.
During the third and fourth quarters of 1997, the Company spent a total of
$71 million for the construction of various new facilities. In August, the 129
bed Edinburg Regional Medical Center located in Edinburg, Texas opened. A
Centralized Administrative Services Building for both Edinburg Regional
Medical Center and McAllen Medical Center in McAllen, Texas also became
operational.
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Two newly constructed specialized women's health centers, Renaissance
Women's Center of Austin located in Austin, Texas, and Lakeside Women's Center
located in Oklahoma City, Oklahoma were opened. The Company owns various
equity interests in the limited liability companies which own and operate
these facilities. A newly constructed medical complex located in Las Vegas,
Nevada, which includes the 148 bed acute care facility, Summerlin Hospital
Medical Center, was also opened.
The Company also selectively expanded its operations at certain of its
existing facilities: Valley Hospital Medical Center in Las Vegas, Nevada
opened its new 19 bed Neonatal Intensive Care Unit; a major expansion of the
ICU/CCU unit at Northwest Texas Healthcare System in Amarillo, Texas was
completed; McAllen Medical Center in McAllen, Texas opened a new outpatient
diagnostic unit; a new outpatient surgery facility was opened at Victoria
Regional Medical Center in Victoria, Texas; and the former Edinburg Hospital
building in Edinburg, Texas was renovated and opened as the 40 bed UHS
Rehabilitation Pavilion, and the 40 bed Lifecare long-term acute care
hospital.
In January 1998, the Company acquired three hospitals in Puerto Rico for an
aggregate purchase price of $186 million. The hospitals acquired are Hospital
San Pablo in Bayamon (430 beds), Hospital San Francisco in Rio Piedras (160
beds), and Hospital San Pablo del Este in Fajardo (180 beds).
Effective February 1, 1998, the Company finalized its joint venture with
Quorum Health Group, Inc., which created a regional healthcare system owned by
the Company and Quorum by combining the Company's Valley and Summerlin
hospitals with Quorum's 241 bed Desert Springs Hospital, all of which are now
managed by the Company.
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BED UTILIZATION AND OCCUPANCY RATES
The following table shows the historical bed utilization and occupancy rates
for the hospitals operated by the Company for the years indicated.
Accordingly, information related to hospitals acquired during the five year
period has been included from the respective dates of acquisition, and
information related to hospitals divested during the five year period has been
included up to the respective dates of divestiture.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Average Licensed Beds:
Acute Care Hospitals.... 3,389 3,018 2,638 2,398 2,548
Behavioral Health Cen-
ters................... 1,777 1,565 1,238 1,145 1,134
Average Available Beds(1):
Acute Care Hospitals.... 2,951 2,641 2,340 2,099 2,213
Behavioral Health Cen-
ters................... 1,762 1,540 1,223 1,142 1,132
Admissions:
Acute Care Hospitals.... 128,020 111,244 91,298 75,923 73,378
Behavioral Health Cen-
ters................... 28,350 22,295 15,329 13,033 11,627
Average Length of Stay
(Days):
Acute Care Hospitals.... 4.8 4.9 5.1 5.2 5.4
Behavioral Health Cen-
ters................... 11.9 12.4 12.8 13.8 15.8
Patient Days(2):
Acute Care Hospitals.... 618,613 546,237 462,054 394,490 396,135
Behavioral Health Cen-
ters................... 337,843 275,667 195,961 179,821 184,263
Occupancy Rate--Licensed
Beds(3):
Acute Care Hospitals.... 50% 50% 48% 45% 43%
Behavioral Health Cen-
ters................... 52% 48% 43% 43% 45%
Occupancy Rate--Available
Beds(3):
Acute Care Hospitals.... 57% 57% 54% 51% 49%
Behavioral Health Cen-
ters................... 53% 49% 44% 43% 45%
</TABLE>
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(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.
The number of patient days of a hospital is affected by a number of factors,
including the number of physicians using the hospital, changes in the number
of beds, the composition and size of the population of the community in which
the hospital is located, general and local economic conditions, variations in
local medical and surgical practices and the degree of outpatient use of the
hospital services. Current industry trends in utilization and occupancy have
been significantly affected by changes in reimbursement policies of third
party payors. A continuation of such industry trends could have a material
adverse impact upon the Company's future operating performance. The Company
has experienced growth in outpatient utilization over the past several
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years. The Company is unable to predict the rate of growth and resulting
impact on the Company's future revenues because it is dependent upon
developments in medical technologies and physician practice patterns, both of
which are outside of the Company's control. The Company is also unable to
predict the extent to which other industry trends will continue or accelerate.
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 outpatient 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.
McAllen Medical Center in McAllen, Texas contributed 13% in 1997, 15% in
1996 and 20% in 1995, of the Company's net revenues and 22% in 1997, 27% in
1996 and 37% in 1995, of the Company's operating income (net revenues less
operating expenses, salaries and wages, provision for doubtful accounts and
allocation of corporate overhead expense) ("operating income"). Valley
Hospital Medical Center in Las Vegas, Nevada contributed 12% in 1997, 13% in
1996 and 18% in 1995, of the Company's net revenues and 17% in 1997, 17% in
1996 and 25% in 1995, of the Company's operating income. Northwest Texas
Healthcare System ("Northwest Texas") in Amarillo, Texas, which was acquired
by the Company in May, 1996, contributed 12% in 1997, and 8% in 1996, of the
Company's net revenues and 12% in 1997 and 7% in 1996, of the Company's
operating income.
The following table shows approximate percentages of net patient revenue
derived by the Company's hospitals owned as of December 31, 1997 since their
respective dates of acquisition by the Company from third party sources,
including the special Medicaid reimbursements received at three of the
Company's acute care facilities located in Texas and one in South Carolina
totaling $33.4 million in 1997, $17.8 million in 1996, $12.6 million in 1995,
$12.7 million in 1994, and $13.5 million in 1993, and from all other sources
during the five years ended December 31, 1997.
<TABLE>
<CAPTION>
PERCENTAGE OF NET PATIENT REVENUES
--------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Third Party Payors:
Medicare............................ 35.6% 35.6% 35.1% 32.5% 31.8%
Medicaid............................ 14.5% 15.3% 13.7% 13.4% 12.2%
------ ------ ------ ------ ------
TOTAL............................... 50.1% 50.9% 48.8% 45.9% 44.0%
Other Sources (including patients and
private insurance carriers).......... 49.9% 49.1% 51.2% 54.1% 56.0%
------ ------ ------ ------ ------
100% 100% 100% 100% 100%
</TABLE>
4
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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.
Psychiatric hospitals, which are exempt from PPS, are cost reimbursed by the
Medicare program, but are subject to a per discharge ceiling, calculated based
on an annual allowable rate of increase over the hospital's base year amount
under the Medicare law and regulations. Capital related costs are exempt from
this limitation.
On August 30, 1991, the Health Care Financing Administration issued final
Medicare regulations establishing a PPS 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 a portion of old capital and an amount of new capital 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 hospital-specific 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. Updated amounts and factors
necessary to determine PPS rates for Medicare hospital inpatient services for
operating costs and capital related costs are published annually and were last
published on August 29, 1997. This latest update implemented changes mandated
by the Balanced Budget Act of 1997, which called for a zero percent cost of
living update factor for FY 1998.
The Company can provide no assurances that the reductions in the PPS update
will not adversely affect its operations. However, within certain limits, a
hospital can manage its costs, and, to the extent this is done effectively, a
hospital may benefit from the DRG system. However, many hospital operating
costs are incurred in order to satisfy licensing laws, standards of the Joint
Commission on the Accreditation of Healthcare Organizations and quality of
care concerns. In addition, hospital costs are affected by the level of
patient acuity, occupancy rates and local physician practice patterns,
including length of stay judgments and number and type of tests and procedures
ordered. A hospital's ability to control or influence these factors which
affect costs is, in many cases, limited.
In addition to the trends described above that continue to have an impact on
the operating results, there are a number of other more general factors
affecting the Company's business. The Balanced Budget Act of 1997, enacted on
August 5, 1997, calls for the government to trim the growth of federal
spending on Medicare by $115 billion and on Medicaid by $13 billion over the
next five years. The act also calls for reductions in the future rate of
increases to payments made to hospitals and reduces the amount of
reimbursement for outpatient services, bad debt expense and capital costs.
Both Republicans and Democrats appear to be working towards a balanced budget
by the year 2002, and it is likely that future budgets will contain certain
further reductions in the rate of increase of Medicare and Medicaid spending.
There can be no assurance that these and future reductions will not have a
material adverse effect on the Company's business.
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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. The enactment
of Medicaid managed care initiatives is designed to provide low-cost coverage.
The Company currently operates three behavioral health centers with a total of
268 beds in Massachusetts, which has mandated hospital rate-setting. The
Company also operates three hospitals containing an aggregate of 688 beds in
Florida that are subject to a mandated form of rate-setting if increases in
hospital revenues per admission exceed certain target percentages.
In 1991, the Texas legislature authorized the LoneSTAR Health Initiative
(now known as the STAR program), a pilot program in two areas of the state to
establish a health care delivery system based on managed care principles. In
1995, the Texas Health and Human Services Commission ("HHSC") was authorized
to develop a statewide system to restructure the delivery of health care
services provided under the Medicaid program to incorporate managed care
delivery systems. Texas requested a waiver of many Medicaid program
requirements from HCFA, which denied the initial request. HHSC is seeking
approval of a revised waiver request. Meanwhile, HHSC continues to implement
managed care pilot programs in various geographic areas of Texas. The Company
is unable to predict whether Texas will be granted such waivers or the effect
on the Company's business of such waivers.
Upon meeting certain conditions, and serving a disproportionately high share
of Texas' and South Carolina's low income patients, three of the Company's
facilities located in Texas and one facility located in South Carolina became
eligible and received additional reimbursement from each state's
disproportionate share hospital fund. Included in the Company's financial
results was an aggregate of $33.4 million in 1997, $17.8 million in 1996, and
$12.6 million in 1995 received pursuant to the terms of these programs. These
programs are scheduled to terminate in the third quarter of 1998, and the
Company cannot predict whether these programs will continue beyond their
scheduled termination date. The termination of these programs or further
changes in the Medicare and Medicaid programs could have a material adverse
effect on the Company.
The federal self-referral and payment prohibitions (codified in 42 U.S.C.
Section 1395nn, Section 1877 of the Social Security Act) generally forbid,
absent qualifying for one of the exceptions, a physician from making referrals
for the furnishing of any "designated health services," for which payment may
be made under the Medicare or Medicaid programs, to any entity with which the
physician (or an immediate family member) has a "financial relationship." The
legislation was effective January 1, 1992 for clinical laboratory services
("Stark I") and January 1, 1995 for ten other designated health services
("Stark II"). A "financial relationship" under Stark I and II includes any
direct or indirect "compensation arrangement" with an entity for payment of
any remuneration, and any direct or indirect "ownership or investment
interest" in the entity. The legislation contains certain exceptions
including, for example, where the referring physician has an ownership
interest in a hospital as a whole or where the physician is an employee of an
entity to which he or she refers. The Stark I and II self-referral and payment
prohibitions include specific reporting requirements providing that each
entity providing covered items or services must provide the Secretary with
certain information concerning its ownership, investment, and compensation
arrangements. In August 1995, HCFA published a final rule regarding physician
self-referrals for clinical lab services. On January 9, 1998, HCFA published a
proposed rule regarding physician self referrals for the ten other designated
health services. A final rule for Stark II remains in the planning stages.
Starting in 1991, the Inspector General of the Department of Health and
Human Services ("HHS") issued regulations which provide for "safe harbors"
from the federal anti-kickback statutes; 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 subject to
scrutiny under its particular facts and circumstances to determine whether it
violates the federal 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.
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The Company does not anticipate that either the Stark provisions or the safe
harbor regulations to the federal anti-kickback statute will have material
adverse effects on its operations.
Several states, including Florida and Nevada, have passed 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 planning agency.
Additionally, many of the states in which the Company's hospitals are located
have enacted legislation requiring certificates of need ("CON") as a condition
prior to hospital capital expenditures, construction, expansion, modernization
or initiation of major new services. Failure to obtain necessary state
approval can result in the inability to complete an acquisition or change of
ownership, the imposition of civil or, in some cases, criminal sanctions, the
inability to receive Medicare or Medicaid reimbursement or the revocation of a
facility's license. The Company has not experienced and does not expect to
experience any material adverse effects from those requirements.
Health planning statutes and regulatory mechanisms are in place in many
states in which the Company operates. These provisions govern the distribution
of healthcare services, the number of new and replacement hospital beds,
administer required state CON laws, contain healthcare costs, and meet the
priorities established therein. Significant CON reforms have been proposed in
a number of states, including increases in the capital spending thresholds and
exemptions of various services from review requirements. The Company is unable
to predict the impact of these changes upon its operations.
Federal regulations provide that admissions and utilization of facilities by
Medicare and Medicaid patients must be reviewed in order to insure efficient
utilization of facilities and services. The law and regulations require Peer
Review Organizations ("PROs") to review the appropriateness of Medicare and
Medicaid patient admissions and discharges, the quality of care provided, the
validity of DRG classifications and the appropriateness of cases of
extraordinary length of stay. PROs may deny payment for services provided,
assess fines and also have the authority to recommend to HHS that a provider
that is in substantial non-compliance with the standards of the PRO be
excluded from participating in the Medicare program. The Company has
contracted with PROs in each state where it does business as to the scope of
such functions.
The Company's healthcare operations generate medical waste that must be
disposed of in compliance with federal, state and local environmental laws,
rules and regulations. In 1988, Congress passed the Medical Waste Tracking
Act. Infectious waste generators, including hospitals, now face substantial
penalties for improper arrangements regarding disposal of medical waste,
including civil penalties of up to $25,000 per day of noncompliance, criminal
penalties of $150,000 per day, imprisonment, and remedial costs. The
comprehensive
7
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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.
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 17,800 employees at
December 31, 1997, of whom 12,694 were employed full-time.
Six Hundred Twenty-Two (622) 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 Regional Medical Center located in
Washington State, are represented by the United Staff Nurses Union, 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.
LIABILITY INSURANCE
Effective January 1, 1998, the Company is covered under commercial insurance
policies which provide for a self-insured retention limit for professional and
general liability claims for most of its subsidiaries up to $1 million per
occurrence, with an average annual aggregate for covered subsidiaries of $4
million through 2001. These subsidiaries maintain excess coverage up to $100
million with major insurance carriers. The Company's remaining facilities are
fully insured under commercial policies with excess coverage up to $100
million maintained with major insurance carriers. During 1996 and 1997, most
of the Company's subsidiaries were self-insured for professional and general
liability claims up to $5 million per occurrence, with excess coverage
maintained up to $100 million with major insurance carriers.
8
<PAGE>
RELATIONS WITH UNIVERSAL HEALTH REALTY INCOME TRUST
The Company serves as advisor to Universal Health Realty Income Trust
("UHT"), which leases to the Company the real property of 7 facilities
operated by the Company. In addition, UHT holds interests in properties owned
by unrelated companies. The Company receives a fee for its advisory services
based on the value of UHT's assets. In addition, certain of the directors and
officers of the Company serve as trustees and officers of UHT. As of January
31, 1998, the Company owned 8% 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.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, whose terms will expire at such time
as their successors are elected, are as follows:
<TABLE>
<CAPTION>
NAME AND AGE PRESENT POSITION WITH THE COMPANY
------------ ---------------------------------
<S> <C>
Alan B. Miller (60)....................... Director, Chairman of the Board,
President and Chief Executive Officer
Kirk E. Gorman (47)....................... Senior Vice President and Chief
Financial Officer
Michael G. Servais (51)................... Senior Vice President
Richard C. Wright (50).................... Vice President
Thomas J. Bender (45)..................... Vice President
Steve G. Filton (40)...................... Vice President and Controller
Sidney Miller (71)........................ Director and Secretary
</TABLE>
Mr. Alan B. Miller has been Chairman of the Board, President and Chief
Executive Officer of the Company since its inception. Prior thereto, he was
President, Chairman of the Board and Chief Executive Officer of American
Medicorp, Inc.
Mr. Gorman was elected Senior Vice President and Chief Financial Officer in
December 1992, and has served as Vice President and Treasurer of the Company
since April 1987. From 1984 until then, he served as Senior Vice President of
Mellon Bank, N.A. Prior thereto, he served as Vice President of Mellon Bank,
N.A.
Mr. Servais was elected Senior Vice President of the Company in January
1996, and has served as Vice President of the Company since January 1994,
Assistant Vice President of the Company since January 1993, and Group Director
since December 1990. Prior thereto, he served as President of Jupiter Hospital
Corporation, and Vice President of Operations of American Health Group
International.
Mr. Wright was elected Vice President of the Company in May 1986. He has
served in various capacities with the Company since 1978, including Senior
Vice President of its Acute Care Division since 1985.
Mr. Bender was elected Vice President of the Company in March 1988. He has
served in various capacities with the Company since 1982, including
responsibility for the Psychiatric Care Division since November 1985.
Mr. Filton was elected Vice President and Controller of the Company in
November 1991, and had served as Director of Accounting and Control since July
1985.
Mr. Sidney Miller has served as Secretary of the Company since 1990 and
Director of the Company since 1978. He served in various capacities with the
Company, until his retirement in 1994, including Executive Vice President,
Vice President, and Assistant to the President. Prior thereto, he was Vice
President-Financial Services and Control of American Medicorp, Inc.
9
<PAGE>
ITEM 2. PROPERTIES
EXECUTIVE OFFICES
The Company owns an office building with 68,000 square feet available for
use located on 11 acres of land in King of Prussia, Pennsylvania.
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 facilities:
ACUTE CARE HOSPITALS
<TABLE>
<CAPTION>
NUMBER OWNERSHIP
NAME OF FACILITY LOCATION OF BEDS INTEREST
- - - ---------------- -------- ------- ---------
<S> <C> <C> <C>
Aiken Regional Medical
Centers................. Aiken, South Carolina 225 Owned
Auburn Regional Medical
Center.................. Auburn, Washington 149 Owned
Chalmette Medical
Center(1)............... Chalmette, Louisiana 118 Leased
Desert Springs
Hospital(2)............. Las Vegas, Nevada 241 Owned
Doctors' Hospital of
Shreveport(3)........... Shreveport, Louisiana 136 Leased
Edinburg Regional Medical
Center.................. Edinburg, Texas 129 Owned
The George Washington
University Hospital(4).. Washington, D.C. 501 Owned
Hospital San Francisco... Rio Piedras, Puerto Rico 160 Owned
Hospital San Pablo....... Bayamon, Puerto Rico 430 Owned
Hospital San Pablo del
Este.................... Fajardo, Puerto Rico 180 Owned
Inland Valley Regional
Medical Center(1)....... Wildomar, California 80 Leased
Manatee Memorial
Hospital................ Bradenton, Florida 512 Owned
McAllen Medical
Center(1)............... McAllen, Texas 490 Leased
Northern Nevada Medical
Center(4)............... Sparks, Nevada 100 Owned
Northwest Texas
Healthcare System....... Amarillo, Texas 357 Owned
River Parishes
Hospitals(5)............ LaPlace and Chalmette, Louisiana 175 Leased/Owned
Summerlin Hospital
Medical Center(2)....... Las Vegas, Nevada 148 Owned
Valley Hospital Medical
Center(2)............... Las Vegas, Nevada 417 Owned
Victoria Regional Medical
Center.................. Victoria, Texas 147 Owned
Wellington Regional
Medical Center(1)....... West Palm Beach, Florida 120 Leased
BEHAVIORAL HEALTH CENTERS
<CAPTION>
NUMBER OWNERSHIP
NAME OF FACILITY LOCATION OF BEDS INTEREST
- - - ---------------- -------- ------- ---------
<S> <C> <C> <C>
The Arbour Hospital...... Boston, Massachusetts 118 Owned
The BridgeWay(1)......... North Little Rock, Arkansas 70 Leased
Clarion Psychiatric
Center.................. Clarion, Pennsylvania 52 Owned
Del Amo Hospital......... Torrance, California 166 Owned
Forest View Hospital..... Grand Rapids, Michigan 62 Owned
Fuller Memorial
Hospital................ South Attleboro, Massachusetts 82 Owned
Glen Oaks Hospital....... Greenville, Texas 54 Owned
The Horsham Clinic....... Ambler, Pennsylvania 146 Owned
HRI Hospital............. Brookline, Massachusetts 68 Owned
KeyStone Center(6)....... Wallingford, Pennsylvania 100 Owned
La Amistad Residential
Treatment Center........ Maitland, Florida 56 Owned
The Meadows Psychiatric
Center.................. Centre Hall, Pennsylvania 101 Owned
</TABLE>
10
<PAGE>
BEHAVIORAL HEALTH CENTERS, CONTINUED
<TABLE>
<CAPTION>
NUMBER OWNERSHIP
NAME OF FACILITY LOCATION OF BEDS INTEREST
- - - ---------------- -------- ------- ---------
<S> <C> <C> <C>
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
Roxbury(6)........................ Shippensburg, Pennsylvania 75 Owned
Timberlawn Mental Health System... Dallas, Texas 124 Owned
Turning Point Care Center(6)...... Moultrie, Georgia 59 Owned
Two Rivers Psychiatric Hospital... Kansas City, Missouri 80 Owned
</TABLE>
AMBULATORY SURGERY CENTERS
<TABLE>
<CAPTION>
NAME OF FACILITY(7) LOCATION
------------------- --------
<S> <C>
Arkansas Surgery Center of Fayetteville............ Fayetteville, Arkansas
Corona Outpatient Surgery Center................... Corona, California
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
Hope Square Surgery Center......................... Rancho Mirage, California
Surgery Center of Littleton........................ Littleton, Colorado
Surgery Center of Springfield...................... Springfield, Missouri
Surgical Center of New Albany...................... New Albany, Indiana
Surgery Center of Waltham.......................... Waltham, Massachusetts
RADIATION ONCOLOGY CENTERS
<CAPTION>
NAME OF FACILITY LOCATION
---------------- --------
<S> <C>
Auburn Regional Center for Cancer Care............. Auburn, Washington
Bluegrass Cancer Center(8)......................... Frankfort, Kentucky
Bowling Green Radiation Therapy(8)................. Bowling Green, Kentucky
Cancer Institute of Nevada......................... Las Vegas, Nevada
Carolina Cancer Center............................. Aiken, South Carolina
Columbia Radiation Oncology Center................. Washington, D.C.
Danville Radiation Therapy Center(8)............... Danville, Kentucky
Glasgow Radiation Therapy(8)....................... Glasgow, Kentucky
Louisville Radiation Oncology Center(8)............ Louisville, Kentucky
Madison Radiation Therapy(9)....................... Madison, Indiana
Southern Indiana Radiation Therapy(9).............. Jeffersonville, Indiana
SPECIALIZED WOMEN'S HEALTH CENTERS
<CAPTION>
NAME OF FACILITY LOCATION
---------------- --------
<S> <C>
Renaissance Women's Center of Edmond(10)........... Edmond, Oklahoma
Renaissance Women's Center of Austin(10)........... Austin, Texas
Lakeside Women's Center(10)........................ Oklahoma City, Oklahoma
</TABLE>
- - - --------
(1) Real property leased from UHT.
(2) Desert Springs Hospital, Summerlin Hospital Medical Center and Valley
Hospital Medical Center are owned by a limited liability company in which
the Company has a 72.5% interest and Quorum's subsidiary, NC-DSH, Inc.,
has a 27.5% interest. All hospitals are managed by the Company.
(3) Real property leased with an option to purchase.
11
<PAGE>
(4) General partnership interest in limited partnership.
(5) Includes Chalmette Hospital, a 118-bed rehabilitation facility. The
Company owns the LaPlace real property and leases the Chalmette real
property from UHT.
(6) Addictive disease facility.
(7) Each facility other than Goldring Surgical and Diagnostic Center is 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.
(8) Managed Facility. A partnership, in which the Company is the general
partner, owns the real property.
(9) A partnership, in which the Company is the general partner, owns the real
property.
(10) Membership interest in limited liability company.
Some of these facilities are subject to mortgages, and substantially all the
equipment located at these facilities is pledged as collateral to secure long-
term debt. The Company owns or leases medical office buildings adjoining
certain of its hospitals.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to claims and suits in the ordinary course of
business, including those arising from care and treatment afforded at the
Company's hospitals and is party to various other litigation. However,
management believes the ultimate resolution of these pending proceedings will
not have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable. No matter was submitted during the fourth quarter of the
fiscal year ended December 31, 1997 to a vote of security holders.
12
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
See Item 6, Selected Financial Data
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------------ ----------------- ------------------ ------------------ ----------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net revenues........... $ 1,442,677,000 $ 1,174,158,000 $ 919,193,000 $ 773,475,000 $ 753,784,000
Net income............. $ 67,276,000 $ 50,671,000 $ 35,484,000 $ 28,720,000 $ 24,011,000
Net margin............. 4.7% 4.3% 3.9% 3.7% 3.2%
Return on average
equity................ 13.5% 13.0% 12.4% 11.8% 11.2%
FINANCIAL DATA
Cash provided by
operating activities.. $ 173,499,000 $ 145,256,000 $ 91,749,000 $ 60,624,000 $ 84,640,000
Capital
expenditures(1)....... $ 132,258,000 $ 107,630,000 $ 65,695,000 $ 48,652,000 $ 52,690,000
Total assets........... $ 1,085,349,000 $ 965,795,000 $ 748,051,000 $ 521,492,000 $ 460,422,000
Long-term borrowings... $ 272,466,000 $ 275,634,000 $ 237,086,000 $ 85,125,000 $ 75,081,000
Common stockholders'
equity................ $ 526,607,000 $ 452,980,000 $ 297,700,000 $ 260,629,000 $ 224,488,000
Percentage of total
debt to total
capitalization........ 35% 38% 45% 26% 26%
OPERATING DATA
Average licensed beds.. 5,166 4,583 3,876 3,543 3,682
Average available
beds.................. 4,713 4,181 3,563 3,241 3,345
Hospital admissions.... 156,370 133,539 106,627 88,956 85,005
Average length of
patient stay.......... 6.1 6.2 6.2 6.5 6.8
Patient days........... 956,456 821,904 658,015 574,311 580,398
Occupancy rate for
licensed beds......... 51% 49% 47% 44% 43%
Occupancy rate for
available beds........ 56% 54% 51% 49% 48%
PER SHARE DATA
Net income--basic(2)... $ 2.08 $ 1.69 $ 1.28 $ 1.03 $ 0.89
Net income--
diluted(2)............ $ 2.03 $ 1.65 $ 1.26 $ 1.01 $ 0.86
OTHER INFORMATION
Weighted average number
of shares
outstanding--
basic(2).............. 32,321,000 30,054,000 27,691,000 27,972,000 27,085,000
Weighted average number
of shares and share
equivalents
outstanding--
diluted(2)............ 33,098,000 30,798,000 28,103,000 28,775,000 29,628,000
COMMON STOCK PERFORMANCE
Market price of common
stock
High--Low, by
quarter(3)
1st.................... $34 5/8 -$27 7/8 $26 7/8-$21 11/16 $13 -$11 3/8 $13 5/16-$9 5/8 $8 -$6 5/16
2nd.................... $40 1/2 -$31 5/8 $30 1/8-$24 3/8 $14 13/16-$12 7/16 $13 7/16-$11 1/4 $8 1/8 -$6 1/2
3rd.................... $47 1/16-$39 1/16 $27 1/4-$22 3/4 $17 11/16-$14 $14 3/4 -$12 15/16 $8 1/2 -$7 1/4
4th.................... $50 3/8 -$40 11/16 $29 1/4-$24 1/2 $22 3/16 -$16 1/8 $14 1/16-$10 11/16 $10 5/16-$8 5/16
</TABLE>
- - - --------
(1) Amount includes non-cash capital lease obligations.
(2) In April 1996, the Company declared a two-for-one stock split in the form
of a 100% stock dividend which was paid in May 1996. All classes of common
stock participated on a pro rata basis. The weighted average number of
common shares and equivalents and earnings per common and common
equivalent share for all years presented have been adjusted to reflect the
two-for-one stock split. The 1994 and 1993 diluted earnings per share and
diluted average number of shares outstanding 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 diluted number
of shares outstanding by 902,466.
(3) These prices are the high and low closing sales prices of the Company's
Class B Common Stock as reported by the New Yok Stock Exchange (all
periods have been adjusted to reflect the two-for-one stock split in the
form of a 100% stock dividend paid in May 1996). Class A, C and D common
stock are convertible on a share-for-share basis into Class B Common
Stock.
13
<PAGE>
NUMBER OF SHAREHOLDERS OF RECORD AS OF JANUARY 31, 1998, WERE AS FOLLOWS:
<TABLE>
- - - -------------------
<S> <C>
Class A Common 9
Class B Common 574
Class C Common 7
Class D Common 266
- - - -------------------
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
Net revenues increased 23% to $1.4 billion in 1997 as compared to 1996 and
28% to $1.2 billion in 1996 as compared to 1995. The $269 million increase in
net revenues during 1997 as compared to 1996 was due primarily to: (i) revenue
growth at acute care facilities owned during both years ($100 million); (ii)
the acquisition during the third quarter of 1997 of an 80% interest in a
partnership which owns a 501-bed acute care hospital located in Washington, DC
($59 million), and; (iii) the acquisitions of a 357-bed medical complex
located in Amarillo, Texas during the second quarter of 1996 and five
behavioral health centers located in Pennsylvania and Texas during the second
and third quarters of 1996 ($82 million). The $255 million increase in net
revenues during 1996 as compared to 1995 was due primarily to the 1996
acquisitions mentioned above ($136 million), a 225-bed and a 512-bed acute
care facility, both of which were acquired during the third quarter of 1995,
net of the effects of three acute care facilities divested during 1995 (net
increase of $86 million) and revenue growth at acute care facilities owned
during both years ($23 million).
Earnings before interest, income taxes, depreciation, amortization, lease
and rental expense and nonrecurring transactions (EBITDAR) increased to $244
million in 1997 from $215 million in 1996 and $163 million in 1995. Overall
operating margins were 16.9% in 1997, 18.3% in 1996 and 17.8% in 1995. The
decrease in the Company's overall operating margin in 1997 as compared to 1996
was due primarily to losses incurred at the 501-bed acute care facility of
which the Company acquired an 80% interest in during the third quarter of
1997, the opening of a newly constructed 129-bed acute care facility located
in Edinburg, Texas during the third quarter of 1997 and the opening of a newly
constructed 148-bed acute care facility in Summerlin, Nevada which opened
during the fourth quarter of 1997. The improvement in the Company's overall
operating margin in 1996 as compared to 1995 was due to improvement in
operating margins at acute care hospitals and behavioral health centers owned
during both years and due to the 1995 results including losses sustained at
three acute care facilities divested during 1995.
ACUTE CARE SERVICES
Net revenues from the Company's acute care hospitals, ambulatory treatment
centers and specialized women's health centers accounted for 85%, 85% and 86%
of consolidated net revenues in 1997, 1996 and 1995, respectively. Net
revenues at the Company's acute care facilities owned in both 1997 and 1996
increased 10% in 1997 as compared to 1996 due primarily to an increase in
admissions and patient days at these facilities. Each of the Company's acute
care facilities owned in both years experienced an increase in admissions in
1997 as compared to 1996 which amounted to a 5% increase in admissions for the
acute care division in 1997 as compared to 1996. Patient days at these
facilities increased 4% in 1997 as compared to 1996 while the average length
of stay at these facilities decreased to 4.8 days in 1997 compared to 4.9 days
in 1996. Net revenues at the
Company's acute care facilities owned in both 1996 and 1995 increased 4% in
1996 as compared to 1995. Admissions at the Company's acute care facilities
owned in both 1996 and 1995 increased 2% while patient days at these
facilities decreased 3% due to a decrease in the average length of stay to 4.9
days in 1996 as compared to 5.1 days in 1995.
The decrease in the average length of stay at the Company's facilities
during the past three years was due primarily to improvement in case
management of Medicare and Medicaid patients and an increasing shift of
14
<PAGE>
patients into managed care plans which generally have lower lengths of stay.
The increase in net revenues at the Company's acute care facilities was caused
primarily by an increase in inpatient admissions and an increase in outpatient
activity. Outpatient activity continues to increase as gross outpatient
revenues at the Company's acute care facilities owned in both 1997 and 1996
increased 10% in 1997 as compared to 1996 and comprised 26% of the Company's
gross patient revenues in 1997 as compared to 25% in 1996. Gross outpatient
revenues at the Company's acute care facilities owned in both 1996 and 1995
increased 12% in 1996 as compared to 1995 and comprised 25% of gross patient
revenues in 1996 as compared to 23% in 1995.
The increase in outpatient revenues is primarily the result of advances in
medical technologies and pharmaceutical improvements, which allow more
services to be provided on an outpatient basis, and increased pressure from
Medicare, Medicaid, health maintenance organizations (HMOs), preferred
provided organizations (PPOs) and insurers to reduce hospital stays and
provide services, where possible, on a less expensive outpatient basis. The
hospital industry in the United States as well as the Company's acute care
facilities continue to have significant unused capacity which has created
substantial competition for patients. Inpatient utilization continues to be
negatively affected by payor-required, pre-admission authorization and by
payor pressure to maximize outpatient and alternative healthcare delivery
services for less acutely ill patients. The Company expects the increased
competition, admission constraints and payor pressures to continue.
To accommodate the increased utilization of outpatient services, the Company
has expanded or redesigned several of its outpatient facilities and services.
Additionally, the Company has invested in the acquisition and development of
outpatient surgery centers, radiation therapy centers and specialized women's
health centers. As of December 31, 1997, the Company operated or managed
twenty-five outpatient surgery, radiation and specialized women's health
centers which generated net revenues of $38 million in 1997, $32 million in
1996 and $23 million in 1995. The Company expects the growth in outpatient
services to continue, although the rate of growth may be moderated in the
future.
The Company's acute care division generated operating margins (EBITDAR) of
21.3% in 1997, 22.8% in 1996 and 21.7% in 1995. The decrease in the Company's
acute care division's operating margin in 1997 as compared to 1996 was due
primarily to: (i) losses incurred at the 501-bed acute care facility of which
the Company acquired an 80% interest in during the third quarter of 1997; (ii)
the opening of a newly constructed 129-bed acute care facility located in
Edinburg, Texas during the third quarter of 1997, and; (iii) the opening of a
newly constructed 148-bed acute care facility in Summerlin, Nevada which
opened during the fourth quarter of 1997. The improvement in the acute care
division's operating margin in 1996 as compared to 1995 was primarily the
result of the divestiture of three low margin acute care facilities during
1995 and operating margin improvement at an acute care facility acquired
during 1994.
The Company's facilities continue to experience a shift in payor mix
resulting in an increase in revenues attributable to managed care payors and
unfavorable general industry trends which include pressures to control
healthcare costs. In response to increased pressure on revenues, the Company
continues to implement cost control programs at its facilities including more
efficient staffing standards and re-engineering of services. On a same store
basis, operating margins at the Company's acute care facilities owned in both
1997 and 1996 were 23.0% and 22.8%, respectively. Operating margins at the
Company's facilities owned in both 1996 and 1995 were 23.8% and 23.5%,
respectively. The Company has also implemented cost control measures at its
newly acquired facilities in an effort to improve operating margins at these
facilities from their pre-acquisition levels. Pressure on operating margins is
expected to continue due to the industry-wide trend away from charge based
payors which limits the Company's ability to increase its prices.
BEHAVIORAL HEALTH SERVICES
Net revenues from the Company's behavioral health facilities accounted for
14% of consolidated net revenues in 1997 and 1996 and 13% of consolidated net
revenues in 1995. Net revenues at the Company's behavioral health facilities
owned in both 1997 and 1996 increased 3% in 1997 as compared to 1996.
Admissions at these facilities increased 8% in 1997 as compared to 1996.
Patient days at the Company's behavioral health
15
<PAGE>
facilities owned during both years increased 4% in 1997 as compared to 1996
and the average length of stay decreased 4% to 11.9 days in 1997 as compared
to 12.4 days in 1996. Net revenues at the Company's behavioral health
facilities owned in both 1996 and 1995 decreased 1% in 1996 as compared to
1995. Admissions at these facilities increased 6% in 1996 as compared to 1995
while patient days decreased 1% in 1996 as compared to 1995 due to a 6%
decrease in the average length of stay to 12.0 days in 1996 compared to 12.8
days in 1995.
The reduction in the average length of stay during the last three years is a
result of changing practices in the delivery of behavioral health services and
continued cost containment pressures from payors which includes a greater
emphasis on the utilization of outpatient services. Management of the Company
has responded to these trends by continuing to develop and market 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 services facilities owned in both 1997 and 1996
increased 24% in 1997 as compared to 1996 and comprised 20% of gross patient
revenues in 1997 as compared to 18% in 1996. Gross outpatient revenues at the
Company's behavioral health services facilities owned in both 1996 and 1995
increased 20% in 1996 as compared to 1995 and comprised 18% of gross patient
revenues in 1996 as compared to 16% in 1995.
The Company's behavioral health services division generated operating
margins (EBITDAR) of 17.2% in 1997, 18.0% in 1996 and 18.1% in 1995. On a same
facility basis, operating margins at the Company's behavioral health services
facilities owned in both 1997 and 1996 were 18.9% and 19.3%, respectively. The
decline in operating margins in 1997 as compared to 1996 was caused primarily
by the continued reduction in the length of stay and pricing pressures caused
by the increasing shift toward managed care payors. Operating margins at the
Company's behavioral health facilities owned in both 1996 and 1995 were 19.4%
and 19.2%, respectively. Despite the decline in the average length of stay,
the EBITDAR margins within the Company's behavioral health services division
increased during 1996 as compared to 1995 due primarily to a slight increase
in prices and cost controls implemented in response to the managed care
environment.
OTHER OPERATING RESULTS
Depreciation and amortization expense increased $8.8 million to $80.7
million in 1997 as compared to $71.9 million in 1996. The increase was due
primarily to the opening of two newly constructed acute care facilities during
the third and fourth quarters of 1997 and the acquisitions of an acute care
facility and five behavioral health centers during the second and third
quarters of 1996. Depreciation and amortization expense increased $20.6
million to $71.9 million in 1996 as compared to $51.4 million in 1995 due
primarily to the Company's 1996 acquisitions mentioned above and the 1995
acquisitions of a 225-bed facility and a 512-bed acute care facility, both of
which were acquired during the third quarter of 1995.
Interest expense decreased $1.9 million to $19.4 million in 1997 as compared
to $21.3 million in 1996 due primarily to a slight reduction in the average
outstanding borrowings and the $1 million of interest income earned during
1997 on the $40 million investment of funds restricted for construction for a
new acute care facility in Washington, DC. Interest expense increased $10.1
million in 1996 as compared to 1995 due primarily to the increased borrowings
related to the purchase of the 357-bed medical complex acquired during the
second quarter of 1996, the five behavioral health centers acquired during the
second and third quarters of 1996 and a full year of interest expense on the
increased borrowings used to finance the acquisition of the two acute care
hospitals acquired during the third quarter of 1995. In June 1996, the Company
issued four million shares of its Class B Common Stock at a price of $26 per
share. The total net proceeds of $99.1 million generated from this
stock issuance were used to partially finance the 1996 purchase transactions
mentioned above while the excess of the purchase price over the net proceeds
($69 million) were financed with operating cash flows and borrowings under the
Company's commercial paper and revolving credit facilities.
During 1996, the Company recorded $4.1 million of nonrecurring charges which
consisted of a $2.9 million loss recorded on the anticipated divestiture of an
ambulatory treatment center and a $1.2 million charge recorded to fully
reserve 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. During 1995, the
16
<PAGE>
Company recorded $11.6 million of nonrecurring charges which consisted of: (i)
a $14.2 million pre-tax charge due to impairment of long-lived assets; (ii) a
$2.7 million loss on a disposal of two acute care facilities which were
exchanged along with $44 million of cash for a 225-bed acute care hospital,
and; (iii) a $5.3 million pre-tax gain realized on the sale of a 202-bed acute
care hospital which was divested during the fourth quarter of 1995 for cash
proceeds of $19.5 million.
During 1995, in conjunction with the development of the Company's operating
plan and 1996 budget, management assessed the competitive position of each
facility within the portfolio and estimated future cash flows expected from
each facility. As a result, the Company recorded a $14.2 million pre-tax
charge during 1995 to write-down the carrying value of certain intangible and
tangible assets at certain facilities. In measuring the impairment loss, the
Company estimated fair value by discounting expected future cash flows from
each facility using the Company's internal hurdle rate. The impairment loss
related primarily to four facilities in the Company's behavioral health
services division and three facilities in its ambulatory treatment center
division. Within the behavioral health services division, the impact of
managed care was most dramatically felt at the Company's two free standing
chemical dependency and two residential treatment centers. Due to increased
penetration of managed care payors, changes in CHAMPUS regulations and
decreases in admissions, patient days and length of stay at these four
facilities, management of the Company determined that profit margins had been
permanently impaired. Within the Company's ambulatory treatment center
division, three centers are located in highly competitive markets which have
become heavily penetrated with managed care. As a result, these ambulatory
treatment centers experienced decreases in net revenues per case and case
volumes which resulted in permanent impairment of carrying value. During the
fourth quarter of 1996, the Company recorded a $2.9 million charge to write-
down the carrying value of one of these ambulatory treatment centers which was
divested in 1997. This divestiture had no material impact on the 1997
financial statements.
The effective tax rate was 36.5%, 36.7% and 33.0% in 1997, 1996 and 1995,
respectively. The effective rate was lower in 1995 as compared to 1997 and
1996 due to 1995 including the deductibility of previously non-deductible
goodwill amortization resulting from the sale of three acute care hospitals in
1995.
GENERAL TRENDS
An increased proportion of the Company's revenue is derived from fixed
payment services, including Medicare and Medicaid which accounted for 50%, 51%
and 49% of the Company's net patient revenues during 1997, 1996 and 1995,
respectively. The Medicare program reimburses the Company's hospitals
primarily based on established rates by a diagnosis related group for acute
care hospitals and by cost based formula for behavioral health facilities.
Historically, rates paid under Medicare's prospective payment system ("PPS")
for inpatient services have increased, however, these increases have been less
than cost increases. Pursuant to the terms of The Balanced Budget Act of 1997
(the "1997 Act"), there will be no increases in the rates paid to hospitals
for inpatient care through September 30, 1998. Reimbursement for bad debt
expense and capital costs as well as other items have been reduced. The
Company does not expect the changes mandated by the 1997 Act to have a
material adverse effect on the results of operations. While the Company is
unable to predict what, if any, future health reform legislation may be
enacted at the federal or state level, the Company expects continuing pressure
to limit expenditures by governmental healthcare programs. Further changes in
the Medicare or Medicaid programs and other proposals to limit healthcare
spending could have a material adverse impact upon the Company's results of
operations and the healthcare industry.
In Texas, a law has been passed which mandates that the state senate apply
for a waiver from current Medicaid regulations to allow the state 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 a waiver. Upon meeting certain
conditions, and serving a disproportionately high share of Texas' and South
Carolina's low income patients, three of the Company's facilities located in
Texas and one facility located in South Carolina became eligible and received
additional reimbursements from each state's disproportionate share hospital
fund. Included in the Company's financial results was an aggregate of $33.4
million in 1997, $17.8 million in 1996 and $12.6 million in 1995 received
pursuant to the terms of
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<PAGE>
these programs. These programs are scheduled to terminate in the third quarter
of 1998 and the Company cannot predict whether these programs will continue
beyond their scheduled termination date. In addition to the Medicare and
Medicaid programs, other payors continue to actively negotiate the amounts
they will pay for services performed. In general, the Company expects the
percentage of its business from managed care programs, including HMOs and PPOs
to grow. The consequent growth in managed care networks and the resulting
impact of these networks on the operating results of the Company's facilities
vary among the markets in which the Company operates.
Effective January 1, 1998, the Company is covered under commercial insurance
policies which provide for a self-insured retention limit for professional and
general liability claims for most of its subsidiaries up to $1 million per
occurrence, with an average annual aggregate for covered subsidiaries of $4
million through 2001. These subsidiaries maintain excess coverage up to $100
million with major insurance carriers. The Company's remaining facilities are
fully insured under commercial policies with excess coverage up to $100
million maintained with major insurance carriers. During 1996 and 1997, most
of the Company's subsidiaries were self-insured for professional and general
liability claims up to $5 million per occurrence, with excess coverage
maintained up to $100 million with major insurance carriers.
The Company recognizes the need to ensure its operations will not be
adversely impacted by year 2000 software failures. In 1997, the Company began
establishing processes for evaluating and managing the risks and costs
associated with this issue. These processes include arrangements with the
Company's major outsourcing vendor to modify its computer system programming
to allow for year 2000 processing capability. Such modifications are expected
to be completed by the end of 1998. Anticipated spending for these
modifications has been and will be expensed as incurred and is not expected to
have a significant impact on the Company's ongoing results of operations. The
Company also expects that certain medical and related equipment that cannot be
made year 2000 compliant will need to be replaced, but does not expect the
cost of such replacement to be material.
EFFECTS OF INFLATION AND CHANGING PRICES
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.
Inflation has not had a material impact on the results of operations during
the last three years. Although the Company cannot predict its ability to
continue to cover future cost increases, management believes that through the
adherence to cost containment policies, labor management and reasonable price
increases, the effects of inflation 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 is
limited due to various federal, state and local laws which have been enacted,
that, in certain cases, limit the Company's ability to increase prices. Under
the terms of the Balanced Budget Act of 1997, there will be no increases in
the rates paid to hospitals for inpatient care through September 30, 1998. In
addition, as a result of increasing regulatory and competitive pressures, the
Company's ability to maintain margins through price increases to non-Medicare
patients is limited.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $173 million in 1997, $145
million in 1996 and $92 million in 1995. The $28 million increase in 1997 as
compared to 1996 was primarily attributable to a $25 million increase in the
net income plus the addback of the non-cash charges (depreciation,
amortization, provision for
self-insurance reserves and other non-cash charges) and a $20 million increase
in other net working capital changes partially offset by a $9 million increase
in income tax payments and an $8 million increase in payments made in
settlement of self-insurance claims. The $53 million increase in 1996 as
compared to 1995 was primarily attributable to a $30 million increase in net
income plus the addback of non-cash charges (depreciation, amortization,
provision for self-insurance reserves and other non-cash charges) and a $25
million decrease in the payment of income taxes. During each of the last three
years, the net cash provided by operating activities substantially exceeded
the scheduled maturities of long-term debt.
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<PAGE>
During the first quarter of 1998, the Company completed its acquisition of
three acute care hospitals located in Puerto Rico for a combined purchase
price of $186 million. The hospitals acquired are located in Bayamon (430-
beds), Rio Piedras (160-beds) and Fajardo (180-beds). These acquisitions were
financed with funds borrowed under the Company's revolving credit facility.
Also during the first quarter of 1998, the Company contributed substantially
all of the assets, liabilities and operations of Valley Hospital Medical
Center, a 417-bed acute care facility, and its newly-constructed Summerlin
Hospital Medical Center, a 148-bed acute care facility in exchange for a 72.5%
interest in a series of newly-formed limited liability companies ("LLCs").
Quorum Health Group, Inc. ("Quorum") holds the remaining 27.5% interest in the
LLCs. Quorum obtained its interest by contributing substantially all of the
assets, liabilities and operations of Desert Springs Hospital, a 241-bed acute
care facility and $23 million of cash to the LLCs. As a result of this partial
sale transaction, the Company expects to record a pre-tax gain of
approximately $50 million to $55 million that will be recorded as a capital
contribution to the Company in accordance with the Securities and Exchange
Commission's Staff Accounting Bulletin No. 51. The Company does not expect
this merger to have a material impact on its 1998 results of operations.
During 1997 the Company acquired an 80% interest in a partnership which owns
and operates The George Washington University Hospital, a 501-bed acute care
facility located in Washington, DC. The George Washington University ("GWU")
holds a 20% interest in the partnership. In connection with this acquisition,
the Company provided an immediate commitment of $80 million, consisting of $40
million in cash (which has been invested and is restricted for construction)
and a $40 million letter of credit. The Company and GWU are planning to build
a newly constructed 400-bed acute care facility which is scheduled to be
completed in 2001. The total cost of this new facility is estimated to be
approximately $96 million, of which the Company intends to finance a total of
$83 million (including the $80 million immediate commitment mentioned above)
with the remainder being financed by GWU and the interest earnings on the $40
million of funds restricted for construction. During the third and fourth
quarters of 1997, the Company completed construction and opened the following
facilities: (i) a 129-bed acute care facility located in Edinburg, Texas; (ii)
a medical complex located in Summerlin, Nevada including a 148-bed acute care
facility, and; (iii) two newly constructed specialized women's health centers
located in Austin, Texas and Lakeside, Oklahoma of which the Company owns
interests in limited liability companies ("LLC") which own and operate the
facilities. During 1997, the LLC which operates the specialized women's health
center in Lakeside, Oklahoma sold the real and personal property of this
facility which was then leased-back pursuant to the terms of a 20-year lease.
The Company spent $71 million during the year (net of $8 million of proceeds
received for sale-leaseback of the specialized women's health center located
in Oklahoma and $4 million received for sale of a minority interest in the
specialized women's health center located in Austin, Texas) for completion of
these newly constructed facilities. Also during the year, the Company spent an
additional $11 million to acquire various behavioral healthcare related
businesses.
During 1996 the Company acquired the following facilities for total
consideration of $168 million: (i) substantially all the assets and operations
of a 357-bed medical complex located in Amarillo, Texas for $126 million in
cash; (ii) substantially all the assets and operations of four behavioral
health centers located in Pennsylvania and management contracts to seven other
behavioral health centers for $39 million in cash, and; (iii) substantially
all the assets and operations of a 164-bed behavioral health facility located
in Texas for $3 million in cash. Also during 1996, the Company spent $53
million on the construction of the new acute care facilities located in
Edinburg, Texas and Summerlin, Nevada which opened during 1997 as mentioned
above.
During 1995 the Company acquired the following facilities for two acute care
facilities and total cash consideration of $188 million and the assumption of
net liabilities of approximately $4 million: (i) a 512-bed acute care hospital
located in Bradenton, Florida for approximately $139 million in cash and the
assumption of net liabilities of $4 million; (ii) a 225-bed acute care
facility located in Aiken , South Carolina for approximately $44 million in
cash and a 104-bed acute care hospital and a 126-bed acute care hospital, and;
(iii) a 82-bed behavioral health facility located in South Attleboro,
Massachusetts and a majority interest in two separate partnerships which own
and operate two outpatient surgery centers for total cash consideration of
approximately $5 million. Also during 1995, the Company sold the operations
and substantially all the assets of a 202-bed acute
19
<PAGE>
care hospital located in Plantation, Florida for cash proceeds of
approximately $20 million. The sale resulted in a $5.3 million pre-tax gain
which has been included in nonrecurring charges in the 1995 consolidated
statement of income.
Capital expenditures, net of proceeds received from sale or disposition of
assets, were $114 million in 1997, $106 million in 1996 and $61 million in
1995. Capital expenditures in 1998 are expected to be approximately $56
million for capital equipment and renovations at existing facilities.
Additionally, capital expenditures for new projects at existing hospitals and
medical office buildings are expected to total approximately $27 million in
1998. The estimated cost to complete major construction projects in progress
at December 31, 1997 is approximately $45 million. The Company believes that
its capital expenditure program is adequate to expand, improve and equip its
existing hospitals.
Total debt as a percentage of total capitalization was 35% at December 31,
1997, 38% at December 31, 1996 and 45% at December 31, 1995. The decrease
during 1996 as compared to 1995 was due primarily to the issuance of
additional shares of the Company's Class B Common Stock used to partially
finance the 1996 purchase transactions mentioned above. During the second
quarter of 1996, the Company issued four million shares of its Class B Common
Stock at a price of $26 per share. The total net proceeds of $99.1 million
generated from this stock issuance were used to partially finance the 1996
purchase transactions mentioned above while the excess of the purchase price
over the net proceeds generated from the stock issuance ($69 million) were
financed from operating cash flows and borrowings under the Company's
commercial paper and revolving credit facilities.
During 1997, the Company entered into a new revolving credit agreement. The
agreement, which matures in July 2002, provides for up to $300 million in
borrowing capacity. During the term of this agreement, the Company has the
option to petition the banks to increase the borrowing capacity to $400
million. The agreement provides for interest at the Company's option at the
prime rate, certificate of deposit plus 3/8% to 5/8%, Euro-dollar plus 1/4% to
1/2% or a money market. A facility fee ranging from 1/8% to 3/8% is required
on the total commitment. At December 31, 1997, the Company had $224 million of
unused borrowing capacity available under the revolving credit agreement.
Also during 1997, the Company amended its commercial paper credit facility
to increase the borrowing capacity to $75 million from $50 million and to
reduce the commitment fee. A large portion of the Company's accounts
receivable are pledged as collateral to secure this commercial paper program.
The Company has sufficient patient receivables to support a larger program and
upon mutual consent of the Company and the participating lending institutions,
the commitment can be increased to $100 million. At December 31, 1997, the
Company had no available unused borrowing capacity under the commercial paper
credit facility.
During 1997, the Company entered into interest rate protection to fix the
rate of interest on a notional principal amount of $50 million for a period of
three years beginning in January, 1998. The average fixed rate obtained
through these interest rate swaps is 6.125% including the Company's current
borrowing spread of .35%. The counterparty of these interest rate swaps has
the right to terminate the swap after the second year. The Company also
entered into $75 million of forward starting interest rate swaps starting in
August, 2000 locking in a fixed rate of 7.09% through August, 2010. At
December 31, 1997 and 1996, there were no active interest rate swap
agreements.
The effective interest rate on the Company's revolving credit, demand notes
and commercial paper program, including the interest rate swap expense
incurred on now expired interest rate swaps was 6.8% in 1997, 6.9% in 1996 and
8.4% in 1995. Additional interest expense recorded as a result of the
Company's hedging activity was $0 in 1997, $47,000 in 1996 and $209,000 in
1995. The Company is exposed to credit loss in the event of non-performance by
the counterparty to the interest rate swap agreements. All of the
counterparties are major financial institutions rated AA or better by Moody's
Investor Service and the Company does not anticipate non-performance. The cost
to terminate the swap obligations at December 31, 1997 was approximately $1.8
million.
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<PAGE>
The Company expects to finance all capital expenditures and acquisitions
with internally generated funds and borrowed funds. Additional borrowed funds
may be obtained either through refinancing the existing revolving credit
agreement, the commercial paper facility or the issuance of long-term
securities.
FORWARD-LOOKING STATEMENTS
The matters discussed in this report as well as the news releases issued
from time to time by the Company include certain statements containing the
words "believes", "anticipates", "intends", "expects" and words of similar
import, which constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
that may cause the actual results, performance achievements of the Company or
industry results to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among other things, the following: that the
majority of the Company's revenues are produced by a small number of its total
facilities, possible changes in the levels and terms of reimbursement for the
Company's charges by government programs, including Medicare or Medicaid or
other third party payors, the ability to attract and retain qualified
personnel, including physicians, the ability of the Company to successfully
integrate its recent acquisitions and the Company's ability to finance growth
on favorable terms. Given these uncertainties, prospective investors are
cautioned not to place undue reliance on such forward-looking statements. The
Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Balance Sheets, Consolidated Statements of
Income, Consolidated Statements of Common Stockholders' Equity, and
Consolidated Statements of Cash Flows, together with the report of Arthur
Andersen LLP, independent public accountants, are included elsewhere herein.
Reference is made to the "Index to Financial Statements and Financial
Statement Schedule."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is hereby incorporated by reference the information to appear under
the caption "Election of Directors" in the Company's Proxy Statement, to be
filed with the Securities and Exchange Commission within 120 days after
December 31, 1997. See also "Executive Officers of the Registrant" appearing
in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information to appear under
the caption "Executive Compensation" in the Company's Proxy Statement to be
filed with the Securities and Exchange Commission within 120 days after
December 31, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is hereby incorporated by reference the information to appear under
the caption "Security Ownership of Certain Beneficial Owners and Management"
in the Company's Proxy Statement, to be filed with the Securities and Exchange
Commission within 120 days after December 31, 1997.
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<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information to appear under
the caption "Certain Relationships and Related Transactions" in the Company's
Proxy Statement, to be filed with the Securities and Exchange Commission
within 120 days after December 31, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. AND 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE.
See Index to Financial Statements and Financial Statement Schedule on page
27.
(B) REPORTS ON FORM 8-K
None.
(C) EXHIBITS
3.1 Company's Restated Certificate of Incorporation, and Amendments thereto,
previously filed as Exhibit 3.1 to Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997, are incorporated herein by reference.
3.2 Bylaws of Registrant as amended, previously filed as Exhibit 3.2 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1987,
is incorporated herein by reference.
4.1 Authorizing Resolution adopted by the Pricing Committee of Universal
Health Services, Inc. on August 1, 1995, related to $135 million principal
amount of 8 3/4% Senior Notes due 2005, previously filed as Exhibit 10.1 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
1995, is incorporated herein by reference.
4.2 Indenture dated as of July 15, 1995, between Universal Health Services,
Inc. and PNC Bank, National Association, Trustee, previously filed as Exhibit
10.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1995, is incorporated herein by reference.
10.1 Restated Employment Agreement, dated as of July 14, 1992, by and
between Registrant and Alan B. Miller, previously filed as Exhibit 10.3 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1993,
is incorporated herein by reference.
10.2 Form of Employee Stock Purchase Agreement for Restricted Stock Grants,
previously filed as Exhibit 10.12 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1985, is incorporated herein by reference.
10.3 Advisory Agreement, dated as of December 24, 1986, between Universal
Health Realty Income Trust and UHS of Delaware, Inc., previously filed as
Exhibit 10.2 to Registrant's Current Report on Form 8-K dated December 24,
1986, is incorporated herein by reference.
10.4 Agreement, effective January 1, 1998, to renew Advisory Agreement,
dated as of December 24, 1986, between Universal Health Realty Income Trust
and UHS of Delaware, Inc.
10.5 Form of Leases, including Form of Master Lease Document for Leases,
between certain subsidiaries of the Registrant and Universal Health Realty
Income Trust, filed as Exhibit 10.3 to Amendment No. 3 of the Registration
Statement on Form S-11 and Form S-2 of Registrant and Universal Health Realty
Income Trust (Registration No. 33-7872), is incorporated herein by reference.
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<PAGE>
10.6 Share Option Agreement, dated as of December 24, 1986, between
Universal Health Realty Income Trust and Registrant, previously filed as
Exhibit 10.4 to Registrant's Current Report on Form 8-K dated December 24,
1986, is incorporated herein by reference.
10.7 Corporate Guaranty of Obligations of Subsidiaries Pursuant to Leases
and Contract of Acquisition, dated December 24, 1986, issued by Registrant in
favor of Universal Health Realty Income Trust, previously filed as Exhibit
10.5 to Registrant's Current Report on Form 8-K dated December 24, 1986, is
incorporated herein by reference.
10.8 1990 Employees' Restricted Stock Purchase Plan, previously filed as
Exhibit 10.24 to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990, is incorporated herein by reference.
10.9 1992 Corporate Ownership Program, previously filed as Exhibit 10.24 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1991,
is incorporated herein by reference.
10.10 1992 Stock Bonus Plan, previously filed as Exhibit 10.25 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1991,
is incorporated herein by reference.
10.11 Sale and Servicing Agreement dated as of November 16, 1993 between
Certain Hospitals and UHS Receivables Corp., previously filed as Exhibit 10.16
to Registrant's Annual Report on Form 10-K for the year ended December 31,
1993, is incorporated herein by reference.
10.12 Servicing Agreement dated as of November 16, 1993, among UHS
Receivables Corp., UHS of Delaware, Inc. and Continental Bank, National
Association, previously filed as Exhibit 10.17 to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993, is incorporated herein by
reference.
10.13 Pooling Agreement dated as of November 16, 1993, among UHS Receivables
Corp., Sheffield Receivables Corporation and Continental Bank, National
Association, previously filed as Exhibit 10.18 to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993, is incorporated herein by
reference.
10.14 Amendment No. 1 to the Pooling Agreement dated as of September 30,
1994, among UHS Receivables Corp., Sheffield Receivables Corporation and Bank
of America Illinois (as successor to Continental Bank N.A.) as Trustee,
previously filed as Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1994, is incorporated herein by reference.
10.15 Amendment No. 2, dated as of April 17, 1997 to Pooling Agreement dated
as of November 16, 1993, among UHS Receivables Corp., a Delaware corporation,
Sheffield Receivables Corporation, a Delaware corporation, and First Bank
National Association, a national banking association, as trustee, previously
filed as Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 30, 1997, is incorporated herein by reference.
10.16 Guarantee dated as of November 16, 1993, by Universal Health Services,
Inc. in favor of UHS Receivables Corp., previously filed as Exhibit 10.19 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1993,
is incorporated herein by reference.
10.17 Amendment No. 1 to the 1992 Stock Bonus Plan, previously filed as
Exhibit 10.21 to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993, is incorporated herein by reference.
10.18 1994 Executive Incentive Plan, previously filed as Exhibit 10.22 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1993,
is incorporated herein by reference.
10.19 Credit Agreement, dated as of July 8, 1997 among Universal Health
Services, Inc., various banks and Morgan Guaranty Trust Company of New York,
as agent, previously filed as Exhibit 10.1 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997, is incorporated herein by
reference.
23
<PAGE>
10.20 Amended and Restated 1989 Non-Employee Director Stock Option Plan,
previously filed as Exhibit 10.24 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994, is incorporated herein by reference.
10.21 Asset Purchase Agreement dated as of February 6, 1996, among Amarillo
Hospital District, UHS of Amarillo, Inc. and Universal Health Services, Inc.,
previously filed as Exhibit 10.28 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995, is incorporated herein by reference.
10.22 1992 Stock Option Plan, as Amended, previously filed as Exhibit 10.26
to Registrant's Annual Report on Form 10-K for the year ended December 31,
1995, is incorporated herein by reference.
10.23 Stock Purchase Plan, previously filed as Exhibit 10.27 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995, is
incorporated herein by reference.
10.24 Asset Purchase Agreement dated as of April 19, 1996 by and among UHS
of PENNSYLVANIA, INC., a Pennsylvania corporation, and subsidiary of UNIVERSAL
HEALTH SERVICES, INC., a Delaware corporation, UHS, UHS OF DELAWARE, INC., a
Delaware corporation and subsidiary of UHS, WELLINGTON REGIONAL MEDICAL
CENTER, INC., a Florida corporation and subsidiary of UHS, FIRST HOSPITAL
CORPORATION, a Virginia corporation, FHC MANAGEMENT SERVICES, INC., a Virginia
corporation, HEALTH SERVICES MANAGEMENT, INC., a Pennsylvania corporation,
HORSHAM CLINIC, INC., d/b/a THE HORSHAM CLINIC, a Pennsylvania corporation,
CENTRE VALLEY MANAGEMENT, INC. d/b/a THE MEADOWS PSYCHIATRIC CENTER, a
Pennsylvania corporation, CLARION FHC, INC. d/b/a CLARION PSYCHIATRIC CENTER,
a Pennsylvania corporation, WESTCARE, INC., d/b/a ROXBURY, a Virginia
corporation and FIRST HOSPITAL CORPORATION OF FLORIDA, a Florida corporation,
previously filed as Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996, is incorporated herein by reference.
10.25 $36.5 million Term Note dated May 3, 1996 between Universal Health
Services, Inc., a Delaware corporation, and First Hospital Corporation,
Horsham Clinic, Inc. d/b/a Horsham Clinic, Centre Valley Management, Inc.
d/b/a The Meadows Psychiatric Center, Clarion FHC, d/b/a/ Clarion Psychiatric
Center, Westcare, Inc. d/b/a Roxbury, FHC Management Services, Inc., Health
Services Management, Inc., First Hospital Corporation of Florida, previously
filed as Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, is incorporated herein by reference.
10.26 Agreement of Limited Partnership of District Hospital Partners, L.P.
(a District of Columbia limited partnership) by and among UHS of D.C., Inc.
and The George Washington University, previously filed as Exhibit 10.1 to
Registrant's Quarterly Report on Form 10-Q for the quarters ended March 30,
1997, and June 30, 1997, is incorporated herein by reference.
10.27 Contribution Agreement between The George Washington University (a
congressionally chartered institution in the District of Columbia) and
District Hospital Partners, L.P. (a District of Columbia limited partnership),
previously filed as Exhibit 10.3 to Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997, is incorporated herein by reference.
10.28 Deferred Compensation Plan for Universal Health Services Board of
Directors, previously filed as Exhibit 10.1 to Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1997, is incorporated herein
by reference.
10.29 Stock Purchase Agreement dated as of December 15, 1997, by and among
the Stockholders of Hospital San Pablo, Inc. and Universal Health Services,
Inc., and UHS of Puerto Rico, Inc.
10.30 Valley/Desert Contribution Agreement dated January 30, 1998, by and
among Valley Hospital Medical Center, Inc. and NC-DSH, Inc.
24
<PAGE>
10.31 Summerlin Contribution Agreement dated January 30, 1998, by and among
Summerlin Hospital Medical Center, L.P. and NC-DSH, Inc.
10.32 1992 Stock Option Plan, As Amended.
22. Subsidiaries of Registrant.
24. Consent of Independent Public Accountants.
27. Financial Data Schedule.
Exhibits, other than those incorporated by reference, have been included in
copies of this Report filed with the Securities and Exchange Commission.
Stockholders of the Company will be provided with copies of those exhibits
upon written request to the Company.
25
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Universal Health Services, Inc.
/s/ Alan B. Miller
By: _________________________________
ALAN B. MILLER
PRESIDENT
March 5, 1998
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE
/s/ Alan B. Miller Chairman of the March 5, 1998
- - - ------------------------------------- Board, President
ALAN B. MILLER and Director
(Principal
Executive Officer)
/s/ Sidney Miller Secretary and March 9, 1998
- - - ------------------------------------- Director
SIDNEY MILLER
/s/ Anthony Pantaleoni Director March 9, 1998
- - - -------------------------------------
ANTHONY PANTALEONI
/s/ Martin Meyerson Director March 9, 1998
- - - -------------------------------------
MARTIN MEYERSON
/s/ Robert H. Hotz Director March 9, 1998
- - - -------------------------------------
ROBERT H. HOTZ
/s/ John H. Herrell Director March 9, 1998
- - - -------------------------------------
JOHN H. HERRELL
/s/ Paul R. Verkuil Director March 9, 1998
- - - -------------------------------------
PAUL R. VERKUIL
/s/ Leatrice Ducat Director March 9, 1998
- - - -------------------------------------
LEATRICE DUCAT
/s/ Kirk E. Gorman Senior Vice March 5, 1998
- - - ------------------------------------- President and Chief
KIRK E. GORMAN Financial Officer
/s/ Steve Filton Vice President, March 5, 1998
- - - ------------------------------------- Controller and
STEVE FILTON Principal
Accounting Officer
26
<PAGE>
UNIVERSAL HEALTH SERVICES, INC.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
(ITEM 14(a))
<TABLE>
<S> <C>
Consolidated Financial Statements:
Report of Independent Public Accountants on Consolidated Financial State-
ments and Schedule...................................................... 28
Consolidated Statements of Income for the three years ended December 31,
1997.................................................................... 29
Consolidated Balance Sheets as of December 31, 1997 and 1996............. 30
Consolidated Statements of Cash Flows for the three years ended December
31, 1997................................................................ 31
Consolidated Statements of Common Stockholders' Equity for the three
years ended December 31, 1997........................................... 32
Notes to Consolidated Financial Statements............................... 33
Supplemental Financial Statement Schedule II: Valuation and Qualifying
Accounts................................................................ 47
</TABLE>
27
<PAGE>
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. (Delaware corporation) and subsidiaries as of December
31, 1997 and 1996, 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, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Universal
Health Services, Inc. and subsidiaries as of December 31, 1997 and 1996, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the Index to
Financial Statements and Financial Statement Schedule is presented for the
purpose of complying with the Securities and Exchange Commission's rules and
is not a required part of the basic financial statements. This schedule has
been subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to
the basic financial statements taken as a whole.
Arthur Andersen LLP
Philadelphia, Pennsylvania
February 12, 1998
28
<PAGE>
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------
1997 1996 1995
-------------- -------------- ------------
<S> <C> <C> <C>
Net revenues....................... $1,442,677,000 $1,174,158,000 $919,193,000
Operating charges
Operating expenses............... 575,088,000 458,063,000 361,049,000
Salaries and wages............... 514,407,000 420,525,000 329,939,000
Provision for doubtful accounts.. 108,790,000 80,820,000 64,972,000
Depreciation & amortization...... 80,686,000 71,941,000 51,371,000
Lease and rental expense......... 38,401,000 37,484,000 36,068,000
Interest expense, net............ 19,382,000 21,258,000 11,195,000
Nonrecurring charges............. -- 4,063,000 11,610,000
-------------- -------------- ------------
Total operating charges........ 1,336,754,000 1,094,154,000 866,204,000
-------------- -------------- ------------
Income before income taxes......... 105,923,000 80,004,000 52,989,000
Provision for income taxes......... 38,647,000 29,333,000 17,505,000
-------------- -------------- ------------
Net income......................... $ 67,276,000 $ 50,671,000 $ 35,484,000
============== ============== ============
Earnings per common share--basic... $ 2.08 $ 1.69 $ 1.28
============== ============== ============
Earnings per common & common share
equivalents--diluted.............. $ 2.03 $ 1.65 $ 1.26
============== ============== ============
Weighted average number of common
shares--basic..................... 32,321,000 30,054,000 27,691,000
Weighted average number of common
share equivalents................. 777,000 744,000 412,000
-------------- -------------- ------------
Weighted average number of common
shares and equivalents--diluted... 33,098,000 30,798,000 28,103,000
============== ============== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
29
<PAGE>
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1997 1996
-------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.......................... $ 332,000 $ 288,000
Accounts receivable, net........................... 180,252,000 145,364,000
Supplies........................................... 28,214,000 22,019,000
Deferred income taxes.............................. 11,105,000 12,313,000
Other current assets............................... 10,119,000 13,969,000
-------------- ------------
Total current assets.............................. 230,022,000 193,953,000
PROPERTY AND EQUIPMENT
Land............................................... 66,406,000 63,503,000
Buildings and improvements......................... 538,326,000 465,781,000
Equipment.......................................... 308,695,000 257,170,000
Property under capital lease....................... 27,712,000 27,243,000
-------------- ------------
941,139,000 813,697,000
Less accumulated depreciation...................... 328,881,000 271,936,000
-------------- ------------
612,258,000 541,761,000
Funds restricted for construction.................. 41,031,000 --
Construction-in-progress........................... 9,822,000 25,867,000
-------------- ------------
663,111,000 567,628,000
OTHER ASSETS
Excess of cost over fair value of net assets
acquired.......................................... 149,814,000 150,336,000
Deferred income taxes.............................. -- 9,993,000
Deferred charges................................... 10,852,000 11,237,000
Other.............................................. 31,550,000 32,648,000
-------------- ------------
192,216,000 204,214,000
-------------- ------------
$1,085,349,000 $965,795,000
============== ============
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt............... $ 5,655,000 $ 6,866,000
Accounts payable................................... 70,807,000 57,117,000
Accrued liabilities
Compensation and related benefits................. 35,498,000 27,278,000
Interest.......................................... 4,682,000 4,899,000
Other............................................. 42,107,000 43,147,000
Federal and state taxes........................... 1,707,000 772,000
-------------- ------------
Total current liabilities......................... 160,456,000 140,079,000
OTHER NONCURRENT LIABILITIES....................... 125,286,000 97,102,000
LONG-TERM DEBT..................................... 272,466,000 275,634,000
DEFERRED INCOME TAXES.............................. 534,000 --
COMMITMENTS AND CONTINGENCIES
COMMON STOCKHOLDERS' EQUITY
Class A Common Stock, voting, $.01 par value;
authorized 12,000,000 shares; issued and
outstanding 2,059,929 shares in 1997 and 2,060,929
in 1996........................................... 21,000 21,000
Class B Common Stock, limited voting, $.01 par
value; authorized 75,000,000 shares; issued and
outstanding 30,122,479 shares in 1997 and
29,816,153 in 1996................................ 301,000 298,000
Class C Common Stock, voting, $.01 par value;
authorized 1,200,000 shares; issued and
outstanding 207,230 shares in 1997 and 207,230 in
1996.............................................. 2,000 2,000
Class D Common Stock, limited voting, $.01 par
value; authorized 5,000,000 shares; issued and
outstanding 32,063 shares in 1997 and 36,805 in
1996.............................................. -- --
Capital in excess of par value, net of deferred
compensation of $295,000 in 1997 and
$377,000 in 1996.................................. 200,656,000 194,308,000
Retained earnings.................................. 325,627,000 258,351,000
-------------- ------------
526,607,000 452,980,000
-------------- ------------
$1,085,349,000 $965,795,000
============== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
30
<PAGE>
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income....................... $ 67,276,000 $ 50,671,000 $ 35,484,000
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization.. 80,686,000 71,941,000 51,371,000
Provision for self-insurance
reserves...................... 20,003,000 15,874,000 14,291,000
Other non-cash charges......... -- 4,063,000 11,610,000
Changes in assets and
liabilities, net of effects from
acquisitions and dispositions:
Accounts receivable............ (14,434,000) (93,000) (5,125,000)
Accrued interest............... (217,000) (614,000) 3,071,000
Accrued and deferred income
taxes......................... 16,241,000 15,699,000 (20,826,000)
Other working capital
accounts...................... 13,315,000 3,434,000 10,944,000
Other assets and deferred
charges....................... 334,000 (5,125,000) (3,982,000)
Other.......................... 6,527,000 (2,722,000) 3,390,000
Payments made in settlement of
self-insurance claims......... (16,232,000) (7,872,000) (8,479,000)
------------- ------------- -------------
Net cash provided by operating
activities...................... 173,499,000 145,256,000 91,749,000
------------- ------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Property and equipment
additions....................... (129,199,000) (105,728,000) (60,734,000)
Funds restricted for construction
related to acquisition of
business........................ (41,031,000) -- --
Acquisition of businesses........ (10,525,000) (168,429,000) (187,865,000)
Proceeds received from sale or
dispostion of assets............ 15,230,000 1,765,000 2,321,000
Note receivable related to
acquisition..................... -- (7,000,000) --
Acquisition of assets held for
lease........................... -- -- (3,561,000)
Disposition of businesses........ -- -- 19,495,000
------------- ------------- -------------
Net cash used in investing
activities...................... (165,525,000) (279,392,000) (230,344,000)
------------- ------------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Additional borrowings, net of
financing costs................. 25,000,000 41,800,000 149,323,000
Reduction of long-term debt...... (34,510,000) (7,699,000) (12,009,000)
Issuance of common stock......... 1,580,000 100,289,000 535,000
------------- ------------- -------------
Net cash (used in) provided by
financing activities............ (7,930,000) 134,390,000 137,849,000
------------- ------------- -------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................ 44,000 254,000 (746,000)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD............. 288,000 34,000 780,000
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF
PERIOD.......................... $ 332,000 $ 288,000 $ 34,000
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Interest paid.................... $ 19,599,000 $ 21,872,000 $ 8,124,000
Income taxes paid, net of
refunds......................... $ 22,265,000 $ 13,634,000 $ 38,331,000
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
See Notes 2 and 6
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
31
<PAGE>
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<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,
1995................... $11,000 $126,000 $1,000 -- $88,295,000 $172,196,000 $260,629,000
Common Stock
Issued................ -- 1,000 -- -- 1,117,000 -- 1,118,000
Amortization of deferred
compensation........... -- -- -- -- 469,000 -- 469,000
Net income.............. -- -- -- -- -- 35,484,000 35,484,000
------- -------- ------ --- ------------ ------------ ------------
Balance January 1,
1996................... 11,000 127,000 1,000 -- 89,881,000 207,680,000 297,700,000
Common Stock
Issued................ -- 42,000 -- -- 103,871,000 -- 103,913,000
Converted............. (1,000) 1,000 -- -- -- -- --
Stock dividend........ 11,000 128,000 1,000 -- (140,000) -- --
Amortization of deferred
compensation........... -- -- -- -- 696,000 -- 696,000
Net income.............. -- -- -- -- -- 50,671,000 50,671,000
------- -------- ------ --- ------------ ------------ ------------
Balance January 1,
1997................... 21,000 298,000 2,000 -- 194,308,000 258,351,000 452,980,000
Common Stock
Issued................ -- 3,000 -- -- 6,141,000 -- 6,144,000
Amortization of deferred
compensation........... -- -- -- -- 286,000 -- 286,000
Cancellation of stock
grant.................. -- -- -- -- (79,000) -- (79,000)
Net income.............. -- -- -- -- -- 67,276,000 67,276,000
------- -------- ------ --- ------------ ------------ ------------
Balance,
December 31, 1997...... $21,000 $301,000 $2,000 -- $200,656,000 $325,627,000 $526,607,000
======= ======== ====== === ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Universal
Health Services, Inc. (the "Company"), 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:
NATURE OF OPERATIONS: The principal business of the Company is owning and
operating acute care hospitals, behavioral health centers, ambulatory surgery
centers, radiation oncology centers and specialized women's health centers. At
December 31, 1997, the Company operated 40 hospitals, consisting of 17 acute
care hospitals, 20 behavioral health centers and 3 specialized women's health
centers, in 15 states and the District of Columbia. The Company, as part of its
Ambulatory Treatment Centers Division owns outright, or in partnership with
physicians, and operates or manages 22 surgery and radiation oncology centers
located in 12 states and the District of Columbia.
Services provided by the Company's hospitals include general surgery,
internal medicine, obstetrics, emergency room care, radiology, diagnostic care,
coronary care, pediatric services and behavioral health 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.
Net revenues from the Company's acute care hospitals, ambulatory and
outpatient treatment centers and specialized women's health center accounted
for 85%, 85% and 86% of consolidated net revenues in 1997, 1996 and 1995,
respectively.
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 net revenues
represented 50%, 51% and 49% of net patient revenues for the years 1997, 1996
and 1995, respectively.
CONCENTRATION OF REVENUES: Valley Hospital Medical Center, McAllen Medical
Center and Northwest Texas Healthcare System contributed 12%, 13% and 12%,
respectively, of the Company's 1997 consolidated net revenues.
ACCOUNTS RECEIVABLE: Accounts receivable are recorded at the estimated net
realizable amounts from patients, third-party payors and others for services
rendered, net of contractual allowances and net of allowance for doubtful
accounts of $46,615,000 and $30,398,000 in 1997 and 1996, respectively.
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. The Company capitalized $1.1 million, $800,000 and $300,000 of
interest costs related to construction in progress in 1997, 1996 and 1995,
respectively.
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 $53,546,000 in 1997
and $38,620,000 in 1996, is amortized using the straight-line method over
periods ranging from five to forty years.
33
<PAGE>
During 1994, the Company established an employee life insurance program
covering approximately 2,200 employees. At December 31, 1997 and 1996, the
cash surrender value of the policies ($103 million in both years) were
recorded net of related loans ($102 million in both years) 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.
Measurement of the impairment loss is based on fair value of the asset.
Generally, fair value will be determined using valuation techniques such as
the present value of expected future cash flows.
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, pension liability and minority interests in majority
owned subsidiaries and partnerships.
EARNINGS PER SHARE: In February 1997, the Financial Accounting Standards
Board issued Statement No. 128, "Earnings per Share" (SFAS 128). SFAS 128
establishes standards for computing and presenting earnings per share (EPS).
Basic earnings per share are based on the weighted average number of common
shares outstanding during the year. Diluted 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. All per share amounts for
all periods presented have been restated to conform to SFAS 128.
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 $1,282,000,
$173,000 and $567,000 in 1997, 1996 and 1995, respectively.
INTEREST RATE SWAP AGREEMENTS: In managing interest rate exposure, the
Company at times enters into interest rate swap agreements. When interest
rates change, the differential to be paid or received is accrued as interest
expense and is recognized over the life of the agreements. Gains and losses on
terminated interest rate swap agreements are amortized into income over the
remaining life of the underlying debt obligation or the remaining life of the
original swap, if shorter.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The fair values of the Company's
registered debt, interest rate swap agreements and investments are based on
quoted market prices. The carrying amounts reported in the balance sheet for
cash, accrued liabilities, and short-term borrowings approximates their fair
values due to the short-term nature of these instruments. Accordingly, these
items have been excluded from the fair value disclosures included elsewhere in
these notes to consolidated financial statements.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS: Prior to 1997, the Company included charity care services
as a component of its provision for doubtful accounts. Effective January 1,
1997, in accordance with healthcare industry practice, the Company began
excluding charity care from net revenues, and has reclassified prior year
amounts to conform with this presentation. The change in presentation has no
effect on reported net income.
34
<PAGE>
2) ACQUISITIONS AND DIVESTITURES
1998 -- Subsequent to year-end, the Company acquired three hospitals located
in Puerto Rico for an aggregate purchase price of $186 million. The hospitals
acquired are located in Bayamon (430-beds), Rio Piedras (160-beds) and Fajardo
(180-beds).
In addition, the Company contributed substantially all of the assets,
liabilities and operations of Valley Hospital Medical Center, a 417-bed acute
care facility, and its newly-constructed Summerlin Hospital Medical Center, a
148-bed acute care facility for a 72.5% interest in a series of newly-formed
limited liability companies ("LLCs"). Quorum Health Group, Inc. ("Quorum")
holds the remaining interest in the LLCs. Quorum obtained its 27.5% interest
by contributing substantially all of the assets, liabilities and operations of
Desert Springs Hospital, a 241-bed acute care facility, and $23 million in
cash to the LLCs. As a result of this partial sale transaction, the Company
expects to record a pre-tax gain of approximately $50 million to $55 million
that will be recorded as a capital contribution to the Company in accordance
with the Securities and Exchange Commission's Staff Accounting Bulletin No.
51. The Company does not expect this merger to have a material impact on its
1998 results of operations.
1997 -- During the third quarter of 1997 the Company acquired an 80%
interest in a partnership which owns and operates The George Washington
University Hospital, a 501-bed acute care facility located in Washington, DC.
The George Washington University ("GWU") holds a 20% interest in the
partnership. In connection with this acquisition, the Company provided an
immediate commitment of $80 million, consisting of $40 million in cash (which
has been invested and is restricted for construction) and a $40 million letter
of credit. The Company and GWU are planning to build a newly constructed 400-
bed acute care facility which is scheduled to be completed in 2001. The total
cost of this new facility is estimated to be approximately $96 million, of
which the Company intends to finance a total of $83 million (including the $80
million immediate commitment mentioned above) with the remainder being
financed by GWU and the interest earnings on the $40 million of funds
restricted for construction.
In addition, during the third and fourth quarters the Company completed
construction and opened the following facilities: (i) a 129-bed acute care
facility located in Edinburg, Texas; (ii) a medical complex located in
Summerlin, Nevada including a 148-bed acute care facility, and; (iii) two
newly constructed specialized women's health centers located in Austin, Texas
and Lakeside, Oklahoma of which the Company owns interests in limited
liability companies ("LLC") which own and operate the facilities. The Company
spent a total of $71 million during 1997 for completion of these newly
constructed facilities. Also during 1997, the Company spent an additional $11
million to acquire various behavioral healthcare related businesses.
Assuming the 1997 acquisition of GWUH had been completed as of January 1,
1997, the unaudited pro forma net revenues would have been $1.5 billion and
the effect on net income and basic and diluted earnings per share would have
been immaterial.
1996 -- During the second quarter, the Company completed the acquisition of
Northwest Texas Healthcare System, a 357-bed medical complex located in
Amarillo, Texas for $126 million in cash. The assets acquired include the real
and personal property, working capital and tangible assets. The Company also
will be required to pay additional consideration to the seller equal to 15% of
any amount of the hospital's earnings before depreciation, interest and taxes
in excess of $24 million in each year of the seven-year period ending March
31, 2003. The additional consideration paid in 1997 was not material. In
addition, under the terms of the agreement, the seller will pay the Company $8
million per year for the first four years and $6 million per year (subject to
certain adjustments for inflation) for up to an additional 36 years to help
support the cost of medical services to indigent patients.
During the second quarter, the Company acquired four behavioral health
centers located in Pennsylvania, management contracts for seven other
behavioral health centers and 33 acres of land adjacent to the Company's
Wellington Regional Medical Center, for $39 million. In 1997, the Company paid
additional consideration of $8 million, based upon the facilities' combined
earnings, as defined, for the 12-month period ending April 30, 1997. This
additional consideration was recorded as additional goodwill in the 1997
financial statements.
35
<PAGE>
During the third quarter of 1996, the Company acquired a 164-bed behavioral
health center located in Texas for $3 million. Also during the fourth quarter
of 1996, as a result of divestiture negotiations with a third party regarding
one of the Company's ambulatory treatment centers, the Company recorded a $2.9
million charge to write-down the carrying value of the center to its net
realizable value. The divestiture of this facility, which had no material
effect on the 1997 financial statements, was completed during the first
quarter of 1997.
The acquisitions mentioned above have been accounted for using the purchase
method of accounting. The excess of cost over fair value of net tangible
assets relating to these acquisitions is being amortized over a 15-year
period. Operating results of the acquired facilities have been included in the
financial statements from the date of acquisition. The aggregate purchase
price of $168 million, excluding the additional contingent consideration
recorded in 1997, was allocated to assets and liabilities based on their
estimated fair values as follows:
<TABLE>
<CAPTION>
AMOUNT
(000S)
--------
<S> <C>
Working capital, net............................................. $ 25,000
Land............................................................. 9,000
Buildings & equipment............................................ 110,000
Goodwill......................................................... 24,000
--------
Total Purchase Price............................................. $168,000
========
</TABLE>
Assuming the 1996 acquisitions had been completed as of January 1, 1996, the
unaudited pro forma net revenues and net income for the year ended December
31, 1996 would have been approximately $1.3 billion and $53.4 million,
respectively. In addition, the unaudited pro forma basic and diluted earnings
per share would have been $1.78 and $1.73, respectively. Assuming the 1996
acquisitions and the 1995 acquisitions of Aiken Regional Medical Centers and
Manatee Memorial Hospital had been completed as of January 1, 1995, the
unaudited pro forma net revenues and net income for the year ended December
31, 1995 would have been approximately $1.2 billion and $46.5 million,
respectively. In addition, the unaudited pro forma basic and diluted earnings
per share would have been $1.47 and $1.44, respectively.
1995 -- During the second quarter, the Company acquired an 82-bed behavioral
health facility located in South Attleboro, Massachusetts for approximately $3
million. The Company also purchased for approximately $2 million, a majority
interest in two separate partnerships that own and operate outpatient surgery
centers located in Fayetteville, Arkansas and Somersworth, New Hampshire.
During the third quarter, the Company completed the acquisition of Aiken
Regional Medical Centers, ("Aiken") a 225-bed acute care facility located in
Aiken, South Carolina for approximately $44 million in cash, a 104-bed acute
care hospital and a 126-bed acute care hospital. The majority of the real
estate assets of the 126-bed facility were being leased from Universal Health
Realty Income Trust (the "Trust") pursuant to the terms of an operating lease,
which was scheduled to expire in 2000. In exchange for the real estate assets
of the 126-bed acute care hospital, the Company exchanged substitute
properties consisting of additional real estate assets owned by the Company
but related to three acute care facilities owned by the Trust and operated by
the Company. As a result of the divestiture of the two acute care hospitals in
connection with the acquisition of Aiken Regional Medical Centers, the Company
recorded a $2.7 million and a $4.3 million pre-tax charge in the 1995 and 1994
consolidated statements of income, respectively.
During the third quarter, the Company completed the acquisition of Manatee
Memorial Hospital, ("Manatee") a 512-bed acute care hospital located in
Bradenton, Florida for approximately $139 million in cash and assumption of
net liabilities of approximately $4 million.
During the fourth quarter, the Company sold the operations and substantially
all the assets of Universal Medical Center, a 202-bed acute care hospital
located in Plantation, Florida for cash proceeds of approximately $20 million.
The sale resulted in a pre-tax gain of approximately $5 million, which has
been included in nonrecurring charges in the 1995 consolidated statement of
income.
36
<PAGE>
Assuming the Aiken and Manatee acquisitions had been completed as of January
1, 1995 the unaudited pro forma net revenues and net income would have been
approximately $1 billion and $37.9 million, respectively. In addition, the
unaudited pro forma basic and diluted earnings per share would have been $1.37
and $1.35, respectively. The excess of cost over fair value of net tangible
assets acquired in the 1995 purchase transactions is amortized using the
straight-line method over fifteen years.
Operating results from all of the businesses acquired have been included in
the financial statements from their respective dates of acquisition. The
unaudited pro forma financial information presented above may not be
indicative of results that would have been reported if the acquisitions had
occurred at the beginning of the earliest period presented and may not be
indicative of future operating results.
3) LONG-TERM DEBT
A summary of long-term debt follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1997 1996
------------ ------------
<S> <C> <C>
Long-term debt:
Notes payable (including obligations under
capitalized leases of $8,020,000 in 1997 and
$10,542,000 in 1996) with varying maturities
through 2001; weighted average interest at 6.6% in
1997 and 6.8% in 1996 (see Note 6 regarding
capitalized leases)............................... $13,574,000 $17,887,000
Mortgages payable, interest at 6.0% to 9.0% with
varying maturities through 2000................... 1,190,000 1,618,000
Revolving credit and demand notes.................. 36,000,000 60,750,000
Commercial paper................................... 75,000,000 50,000,000
Revenue bonds:
Interest at floating rates ranging from 3.65% to
3.85% at December 31, 1997 with varying maturities
through 2015...................................... 18,200,000 18,200,000
8.75% Senior Notes due 2005, net of the unamortized
discount of $843,000 in 1997 and $955,000 in
1996.............................................. 134,157,000 134,045,000
------------ ------------
278,121,000 282,500,000
Less-Amounts due within one year................... 5,655,000 6,866,000
------------ ------------
$272,466,000 $275,634,000
============ ============
</TABLE>
The Company has $135 million of Senior Notes (the "Notes") which have an
8.75% coupon rate and which mature on August 15, 2005. The Notes can be
redeemed in whole or in part, at any time on or after August 15, 2000,
initially at a price of 102%, declining ratably to par on or after August 15,
2002. The interest on the bonds is paid semiannually in arrears on February 15
and August 15 of each year. In anticipation of the Note issuance, the Company
entered into interest rate swap agreements having a total notional principal
amount of $100 million to hedge the interest rate on the Notes. These interest
rate swaps were terminated simultaneously with the issuance of the Notes at
which time the Company paid a net termination fee of $5.4 million which is
being amortized ratably over the ten year term of the Notes. The effective
rate on the Notes including the amortization of swap termination fees and bond
discount is 9.2%.
The Company entered into a new unsecured non-amortizing revolving credit
agreement on July 8, 1997. The agreement, which expires on July 8, 2002,
provides for $300 million of borrowing capacity including a $50 million
sublimit for letters of credit. During the term of this agreement, the Company
has the option to request an increase in the borrowing capacity to $400
million. The agreement provides for interest, at the Company's option at the
prime rate, certificate of deposit rate plus 3/8% to 5/8%, Euro-dollar plus
1/4% to 1/2% or a money market rate. A facility fee ranging from 1/8% to 3/8%
is required on the total commitment. The margins over the certificate of
deposit, the Euro-dollar rates and the facility fee are based upon the
Company's leverage ratio. At December 31, 1997 the applicable margins over the
certificate of deposit and the Euro-dollar rate were .475%
37
<PAGE>
and .35%, respectively, and the commitment fee was .15 %. There are no
compensating balance requirements. At December 31, 1997, the Company had $224
million of unused borrowing capacity available under the revolving credit
agreement.
The average amounts outstanding during 1997, 1996 and 1995 under the
revolving credit and demand notes and commercial paper program were
$100,250,000, $108,125,000 and $46,984,000, respectively, with corresponding
effective interest rates of 6.8%, 6.9% and 8.0% including commitment and
facility fees. The maximum amounts outstanding at any month-end were,
$124,200,000, $220,700,000 and $79,450,000 during 1997, 1996 and 1995,
respectively.
A large portion of the Company's accounts receivable are pledged as
collateral to secure its $75 million, daily valued commercial paper program.
The Company has sufficient patient receivables to support a larger program,
and upon the mutual consent of the Company and the participating lending
institution, the commitment can be increased to $100 million. A commitment fee
of .65% is required on the used portion and .40% on the unused portion of the
commitment. This annually renewable program is scheduled to expire on October
30, 1998. Outstanding amounts of commercial paper that can be refinanced
through available borrowings under the Company's revolving credit agreement
are classified as long-term.
During 1997, the Company entered into two interest rate swap agreements to
fix the rate of interest on a notional principal amount of $50 million for a
period of three years beginning January 1, 1998. The average fixed rate
obtained through these interest rate swaps is 6.125% including the Company's
current borrowing spread of .35%. The counterparty of these interest rate
swaps has the right to terminate the swaps after the second year. The Company
also entered into three forward starting interest rate swaps to hedge a total
notional principal amount of $75 million. The starting date on the interest
rate swaps is August 2000 and they mature in August 2010. The average fixed
rate including the Company's current borrowing spread of .35% is 7.09%. At
December 31, 1997 and December 31, 1996 there were no active interest rate
swap agreements. As of December 31, 1995 the Company had one interest rate
swap agreement outstanding which fixed interest on $10 million notional
principal at 9.02%. The effective interest rate on the Company's revolving
credit, demand notes and commercial paper program including the interest rate
swap expense incurred on now expired interest rate swaps was 6.8%, 6.9% and
8.4% during 1997, 1996 and 1995, respectively. Additional interest expense
recorded as a result of the Company's hedging activity was $0, $47,000 and
$209,000 in 1997, 1996 and 1995, respectively. The Company is exposed to
credit loss in the event of non-performance by the counterparty to the
interest rate swap agreements. All of the counterparties are major financial
institutions rated AA or better by Moody's Investor Service and the Company
does not anticipate non-performance. The cost to terminate the swap
obligations at December 31, 1997 was approximately $1.8 million.
Covenants relating to long-term debt require maintenance of a minimum net
worth, specified debt to total capital and fixed charge coverage ratios. The
Company is in compliance with all required covenants as of December 31, 1997.
The fair value of the Company's long-term debt at December 31, 1997 and 1996
was approximately $285.9 million and $282.5 million, respectively.
Aggregate maturities follow:
<TABLE>
<CAPTION>
---------------
<S> <C>
1998 $ 5,655,000
1999 4,138,000
2000 4,613,000
2001 170,000
2002 111,014,000
Later 152,531,000
---------------
Total $278,121,000
---------------
</TABLE>
38
<PAGE>
4) COMMON STOCK
In April 1996 the Company declared a two-for-one stock split in the form of
a 100% stock dividend which was paid on May 17, 1996 to shareholders of record
as of May 6, 1996. All classes of common stock participated on a pro rata
basis. All references to share quantities and share prices shown below have
been adjusted to reflect the two-for-one stock split. In June 1996, the
Company issued four million shares of its Class B Common Stock at a price of
$26 per share. The total net proceeds of approximately $99.1 million generated
from this offering were used to partially finance the purchase transactions
mentioned in Note 2.
At December 31, 1997, 5,768,692 shares of Class B Common Stock were reserved
for issuance upon conversion of shares of Class A, C and D Common Stock
outstanding, for issuance upon exercise of options to purchase Class B Common
Stock, and for issuance of stock under other incentive plans. Class A, C and D
Common Stock are convertible on a share for share basis into Class B Common
Stock.
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). SFAS 123
encourages a fair value based method of accounting for employee stock options
and similar equity instruments, which generally would result in the recording
of additional compensation expense in an entity's financial statements. The
Statement also allows an entity to continue to account for stock-based
employee compensation using the intrinsic value for equity instruments using
APB Opinion No. 25. The Company has adopted the disclosure-only provisions of
SFAS 123. Accordingly, no compensation cost has been recognized for the stock
option plans. Had compensation expense for the various stock option plans been
determined consistent with the provisions of SFAS 123, the Company's net
earnings and earnings per share would have been the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net Income:
As Reported............................... $67,276,000 $50,671,000 $35,484,000
Pro Forma................................. $66,672,000 $50,217,000 $35,382,000
Earnings Per Share:
As Reported:
Basic.................................... $ 2.08 $ 1.69 $ 1.28
Diluted.................................. $ 2.03 $ 1.65 $ 1.26
Pro Forma:
Basic.................................... $ 2.06 $ 1.67 $ 1.28
Diluted.................................. $ 2.01 $ 1.63 $ 1.26
</TABLE>
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option-pricing model with the following range of assumptions
used for the twelve option grants that occurred during 1997, 1996 and 1995:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Volatility........................................ 21% - 23% 26% - 30% 22% - 25%
Interest rate..................................... 6% - 7% 6% - 7% 5% - 7%
Expected life (years)............................. 4.2 4.1 4.1
Forfeiture rate................................... 2% 3% 3%
</TABLE>
Stock-based compensation costs on a pro forma basis would have reduced pre-
tax income by $978,000 ($604,000 after tax) in 1997, $735,000 ($454,000 after
tax) in 1996 and $165,000 ($102,000 after tax) in 1995. Because the SFAS 123
method of accounting has not been applied to options granted prior to January
1, 1995, the resulting pro forma disclosures may not be representative of that
to be expected in future years.
Stock options to purchase Class B Common Stock have been granted to
officers, key employees and directors of the Company under various plans.
39
<PAGE>
Information with respect to these options is summarized as follows:
<TABLE>
<CAPTION>
AVERAGE
NUMBER OPTION RANGE
OUTSTANDING OPTIONS OF SHARES PRICE (HIGH-LOW)
- - - ------------------- --------- ------- --------------
<S> <C> <C> <C>
Balance, January 1, 1995...................... 1,407,198 $10.06 $12.75--$ 3.63
Granted..................................... 621,000 $16.48 $17.00--$13.06
Exercised................................... (48,926) $ 8.05 $11.13--$ 3.63
Cancelled................................... (9,750) $ 9.24 $11.13--$ 6.94
--------- ------ --------------
Balance, January 1, 1996...................... 1,969,522 $12.14 $17.00--$ 5.56
Granted..................................... 54,100 $24.40 $25.13--$22.94
Exercised................................... (467,974) $ 9.43 $16.56--$ 5.56
Cancelled................................... (21,600) $ 9.76 $11.13--$ 6.94
--------- ------ --------------
Balance, January 1, 1997...................... 1,534,048 $13.43 $25.13--$ 5.69
Granted..................................... 243,250 $41.22 $44.56--$37.88
Exercised................................... (319,225) $11.30 $25.13--$ 5.69
Cancelled................................... (42,500) $12.54 $25.13--$ 9.81
--------- ------ --------------
Balance, December 31, 1997.................... 1,415,573 $18.71 $44.56--$ 7.44
========= ====== ==============
</TABLE>
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. The outstanding stock options
at December 31, 1997 have an average remaining contractual life of 2.8 years.
At December 31, 1997, options for 761,199 shares were available for grant. At
December 31, 1997, options for 575,375 shares of Class B Common Stock with an
aggregate purchase price of $7,688,353 (average of $13.36 per share) were
exercisable. In connection with the stock option plan, the Company provides
the optionee with a loan to cover the tax liability incurred upon exercise of
the options. The Company recorded compensation expense of $5.1 million in
1997, $3.9 million in 1996 and $118,000 in 1995 in connection with this loan
program.
In addition to the stock option plan the Company has the following stock
incentive and purchase plans: (i) a Stock Compensation Plan which expires in
November, 2004 under which Class B Common Shares may be granted to key
employees, consultants and independent contractors (officers and directors are
ineligible); (ii) a Stock Bonus Plan pursuant to the terms of which eligible
employees may elect to receive all or part of their annual bonus in shares of
restricted stock and whereby the Company will provide a 20% match on the
portion of the bonus received in shares of restricted stock; (iii) a Stock
Ownership Plan whereby eligible employees may purchase shares of Class B
Common Stock directly from the Company at current market value and the Company
provides a loan to each eligible employee for 90% of the purchase price for
the shares, subject to certain limitations, (loans are partially recourse to
the employees); (iv) a Restricted Stock Purchase Plan which allows eligible
participants to purchase shares of Class B Common Stock at par value, subject
to certain restrictions, and; (v) a Stock Purchase Plan which allows eligible
employees to purchase shares of Class B Common Stock at a ten percent
discount. The Company has reserved 2 million shares of Class B Common Stock
for issuance under these various plans and has issued 735,755 shares pursuant
to the terms of these plans as of December 31, 1997, of which 41,196, 74,871
and 93,348 became fully vested during 1997, 1996 and 1995, respectively.
Compensation expense of $5.2 million in 1997, $2.8 million in 1996 and
$415,000 in 1995 was recognized in connection with these plans.
40
<PAGE>
5) INCOME TAXES
Components of income tax expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Currently payable
Federal.................................. $23,923,000 $13,888,000 $33,659,000
State.................................... 2,989,000 1,479,000 4,434,000
----------- ----------- -----------
26,912,000 15,367,000 38,093,000
----------- ----------- -----------
Deferred
Federal.................................. 10,201,000 12,140,000 (17,912,000)
State.................................... 1,534,000 1,826,000 (2,676,000)
----------- ----------- -----------
11,735,000 13,966,000 (20,588,000)
----------- ----------- -----------
Total...................................... $38,647,000 $29,333,000 $17,505,000
=========== =========== ===========
</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. 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
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Self-insurance reserves............................. $ 36,079,000 $ 34,479,000
Doubtful accounts and other reserves................ (694,000) 2,611,000
State income taxes.................................. (800,000) (733,000)
Other deferred tax assets........................... 4,654,000 2,681,000
Depreciable and amortizable assets.................. (28,668,000) (16,732,000)
------------ ------------
Total deferred taxes.............................. $ 10,571,000 $ 22,306,000
============ ============
</TABLE>
A reconciliation between the federal statutory rate and the effective tax
rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Federal statutory rate.............................. 35.0% 35.0% 35.0%
Deductible depreciation, amortization and other..... (1.3) (1.0) (4.1)
State taxes, net of federal income tax benefit...... 2.8 2.7 2.1
------- ------- -------
Effective tax rate................................ 36.5% 36.7% 33.0%
======= ======= =======
</TABLE>
41
<PAGE>
In 1997 and 1996, the Company reviewed its deferred state tax balances and
as a result reduced its tax provision by $390,000 in each year. The net
deferred tax assets and liabilities are comprised as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1997 1996
- - - ---------------------- ------------ ------------
<S> <C> <C>
Current deferred taxes
Assets............................................ $ 11,799,000 $ 12,474,000
Liabilities....................................... (694,000) (161,000)
------------ ------------
Total deferred taxes-current.................... 11,105,000 12,313,000
------------ ------------
Noncurrent deferred taxes
Assets............................................ 28,934,000 27,297,000
Liabilities....................................... (29,468,000) (17,304,000)
------------ ------------
Total deferred taxes-noncurrent................. (534,000) 9,993,000
------------ ------------
Total deferred taxes $ 10,571,000 $ 22,306,000
============ ============
</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. 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. Realization is
dependent on generating sufficient future taxable income. Although realization
is not assured, management believes it is more likely than not that all the
deferred tax assets will be realized. Accordingly, the Company has not
provided a valuation allowance. The amount of the deferred tax asset
considered realizable, however, could be reduced if estimates of future
taxable income during the carryforward period are reduced.
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 2017
(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 1997 1996
- - - ----------- ----------- -----------
<S> <C> <C>
Land, buildings and equipment........................... $27,712,000 $27,243,000
Less: accumulated amortization.......................... 20,592,000 17,371,000
----------- -----------
$7,120,000 $9,872,000
=========== ===========
</TABLE>
Future minimum rental payments under lease commitments with a term of more
than one year as of December 31, 1997, are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR LEASES LEASES
- - - ---- ---------- -----------
<S> <C> <C>
1998.................................................... $4,399,000 $21,458,000
1999.................................................... 2,807,000 20,090,000
2000.................................................... 1,309,000 16,512,000
2001.................................................... 133,000 14,754,000
2002.................................................... -- 4,674,000
Later Years............................................. -- 18,781,000
---------- -----------
Total minimum rental.................................. $8,648,000 $96,269,000
===========
Less: Amount representing interest...................... 628,000
----------
Present value of minimum rental commitments............. 8,020,000
Less: Current portion of capital lease obligations...... 3,998,000
----------
Long-term portion of capital lease obligations.......... $4,022,000
==========
</TABLE>
42
<PAGE>
Capital lease obligations of $3,059,000, $1,902,000 and $4,961,000 in 1997,
1996 and 1995, respectively, were incurred when the Company entered into
capital leases for new equipment.
7) COMMITMENTS AND CONTINGENCIES
Effective January 1, 1998, the Company is covered under commercial insurance
policies which provide for a self-insured retention limit for professional and
general liability claims for most of its subsidiaries up to $1 million per
occurrence, with an average annual aggregate for covered subsidiaries of $4
million through 2001. These subsidiaries maintain excess coverage up to $100
million with major insurance carriers. The Company's remaining facilities are
fully insured under commercial policies with excess coverage up to $100
million maintained with major insurance carriers. During 1996 and 1997, most
of the Company's subsidiaries were self-insured for professional and general
liability claims up to $5 million per occurrence, with excess coverage
maintained up to $100 million with major insurance carriers. From 1986 to
1995, these subsidiaries were self-insured for professional and general
liability claims up to $25 million and $5 million per occurrence,
respectively. Since 1993, certain of the Company's subsidiaries, including one
of its larger acute care facilities, have purchased general and professional
liability occurrence policies with commercial insurers. These policies include
coverage up to $25 million per occurrence for general and professional
liability risks.
As of December 1997 and 1996 the reserve for professional and general
liability claims was $74.2 million and $72.6 million, respectively, of which
$12.0 million and $13.0 million in 1997 and 1996, respectively, is included in
current liabilities. Self-insurance reserves are based upon actuarially
determined estimates. These estimates are based on historical information
along with certain assumptions about future events. Changes in assumptions for
such things as medical costs as well as changes in actual experience could
cause these estimates to change in the near term.
The Company has outstanding letters of credit totaling $53.1 million
consisting of: (i) a $40.0 million letter of credit related to the Company's
1997 acquisition of an 80% interest in The George Washington University
Hospital (see note 2); (ii) $6.6 million related to the Company's self
insurance programs; (iii) $5.8 million as support for a loan guarantee for an
unaffiliated party, and; (iv) $700,000 as support for various debt
instruments.
The Company has entered into a long-term contract with a third party to
provide certain data processing services for its acute care and behavioral
health facilities. This contract expires in 2002.
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, 1997, 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 from the Trust was
$1,090,000, $1,107,000 and $1,052,000 in 1997, 1996 and 1995, respectively,
and is included in net revenues in the accompanying consolidated statements of
income. The carrying value of this investment at December 31, 1997 and 1996
was $8,290,000 and $8,391,000, respectively, and is included in other assets
in the accompanying consolidated balance sheets. The market value of this
investment at December 31, 1997 and 1996 was $15,284,000 and $14,323,000,
respectively.
As of December 31, 1997, the Company leased seven 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. Total rent expense under these operating leases
was $16.3 million in 1997, $16.2 million in 1996 and $16.0 million in 1995.
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
43
<PAGE>
original purchase price paid by the Trust. During 1995, in exchange for the
real estate assets of a 126-bed acute care hospital divested by the Company
during the year, the Company exchanged with the Trust substitute properties
consisting of additional real estate assets owned by the Company but related
to three acute care facilities owned by the Trust and operated by the Company
(See Note 2). The Company received an advisory fee of $1,100,000 in 1997,
$1,044,000 in 1996 and $953,000 in 1995, from the Trust for investment and
administrative services provided under a contractual agreement which is
included in net revenues in the accompanying consolidated statement of income.
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. Another member of the
Company's Board of Directors is a managing director of one of the underwriters
who performed investment banking services related to the Common Stock and
Senior Notes issued during 1996 and 1995, respectively.
9) OTHER NONRECURRING CHARGES
During the fourth quarter of 1996, as a result of divestiture negotiations
with a third party regarding one of the Company's ambulatory treatment
centers, the Company recorded a $2.9 million charge to write-down the carrying
value of the center to its net realizable value. This divestiture, which had
no material effect on the 1997 financial statements, was completed during
1997.
Also during the fourth quarter of 1996, the Company recorded a $1.2 million
charge to fully reserve the carrying value of a behavioral health center
property which is leased to an unaffiliated third party. The lessee is
currently in default under the terms of the lease agreement. The Company has
concluded that there has been a permanent impairment in the carrying value of
this facility based on estimated future cash flows.
During 1995, the Company recorded $11.6 million of nonrecurring charges
which consisted of: (i) a $14.2 million pre-tax charge due to impairment of
long-lived assets; (ii) a $2.7 million loss on disposal of two acute care
facilities which were exchanged along with $44 million of cash for a 225-bed
acute care hospital, and; (iii) a $5.3 million pre-tax gain realized on the
sale of a 202-bed acute care hospital which was divested during the fourth
quarter of 1995 for cash proceeds of $19.5 million.
During 1995, the Company reviewed the impact that changes in third party
payment methods, advances in medical technologies, legislative and regulatory
initiatives at the federal and state levels along with increased competition
from other providers have had on operating margins at the Company's facilities
in recent years. These industry conditions have adversely impacted certain of
the Company's specialized facilities and certain of the Company's smaller
facilities in more competitive markets.
The increased penetration of managed care into the chemical dependency
segment of the behavioral health services market, increased competition from
acute care providers seeking to expand their service lines and the continuing
shift to partial hospitalization and outpatient treatment programs have
resulted in significant reduction in admissions and patient days at the
Company's two chemical dependency facilities. Changes in CHAMPUS regulations
and the increasing influence of managed care have led to shorter lengths of
stay for patients at the Company's two residential treatment centers. These
factors have led management to conclude that there has been a permanent
impairment in the carrying value of these four facilities in the behavioral
health services division.
Increased competition and penetration of managed care in the geographic
market where the Company ambulatory treatment centers are located have led the
management to conclude that there has been a permanent impairment in the
carrying value of these facilities. In conjunction with the development of the
Company's operating plan and 1996 budget, management assessed the current
competitive position of these facilities and estimated future cash flows
expected from these facilities. As a result, the Company recorded a $14.2
million pre-tax nonrecurring charge in the 1995 consolidated statement of
income related primarily to the write-down of the carrying value of certain
intangible and tangible assets at these facilities. In measuring the
impairment loss, the Company estimated fair value by discounting expected
future cash flows from each facility using the Company's internal hurdle rate.
44
<PAGE>
10) PENSION PLAN
The Company maintains a contributory and non-contributory retirement plan
for eligible employees. The Company's contributions to the contributory plan
amounted to $3.6 million, $2.0 million, and $1.7 million in 1997, 1996 and
1995, respectively. The non-contributory plan is a defined benefit pension
plan which covers employees of one of the Company's subsidiaries. The benefits
are based on years of service and the employee's highest compensation for any
five years of employment.
The Company's funding policy is to contribute annually at least the minimum
amount that should be funded in accordance with the provisions of ERISA. The
plan's funded status and amounts recognized in the Company's balance sheet as
of December 31, 1997, 1996 and 1995 are as follows:
Actuarial present value of benefit obligations:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Accumulated benefit obligation,
including vested benefits of
$37,364,000, $32,264,000 and
$29,890,000 in 1997, 1996 and
1995, respectively............... $ 40,031,000 $ 34,811,000 $ 32,197,000
============= ============= =============
Projected benefit obligation for
service rendered to date......... $(43,573,000) $(37,709,000) $(37,211,000)
Plan assets at fair value,
primarily listed stock and U.S.
obligations...................... 33,974,000 26,220,000 20,008,000
------------- ------------- -------------
Projected benefit obligation in
excess of plan assets............ (9,599,000) (11,489,000) (17,203,000)
Unrecognized net (gain) loss from
past experience different from
that assumed and effects of
changes in assumptions........... (2,157,000) (1,473,000) 2,480,000
------------- ------------- -------------
Accrued pension cost.............. $ (11,756,000) $ (12,962,000) $ (14,723,000)
============= ============= =============
</TABLE>
Significant actuarial assumptions used in measuring benefit obligations and
the expected return on plan assets at December 31, 1997, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Weighted-average discount rate............................. 7.00% 7.50% 7.00%
Weighted-average rate of compensation increase............. 4.00% 4.00% 4.00%
Expected rate of return on assets.......................... 9.00% 9.00% 9.00%
</TABLE>
Pension expense related to this plan of $1,191,000, and $1,766,000 was
recorded in 1997 and 1996, respectively.
11) QUARTERLY RESULTS (UNAUDITED)
The following tables summarize the Company's quarterly financial data for
the two years ended December 31, 1997.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1997 QUARTER QUARTER QUARTER QUARTER
- - - ---- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues.............. $340,170,000 $343,826,000 $362,377,000 $396,304,000
Income before income
taxes.................... $ 33,981,000 $ 26,467,000 $ 21,879,000 $ 23,596,000
Net income................ $ 21,530,000 $ 16,907,000 $ 13,819,000 $ 15,020,000
Earnings per share--
basic.................... $ 0.67 $ 0.52 $ 0.43 $ 0.46
Earnings per share--
diluted.................. $ 0.65 $ 0.51 $ 0.42 $ 0.45
</TABLE>
Net revenues in 1997 include $33.4 million of additional revenues received
from special Medicaid reimbursement programs. Of this amount, $8.2 million was
recorded in the first quarter, $8.3 million in each of
45
<PAGE>
the second and third quarters and $8.6 million in the fourth quarter. These
programs are scheduled to terminate in 1998 and the Company can not predict
whether these programs will continue beyond their scheduled termination date.
These amounts were recorded in the periods that the Company met all of the
requirements to be entitled to these reimbursements.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1996 QUARTER QUARTER QUARTER QUARTER
- - - ---- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues.............. $266,523,000 $282,072,000 $299,994,000 $325,569,000
Income before income
taxes.................... $ 24,178,000 $ 19,151,000 $ 17,499,000 $ 19,176,000
Net income................ $ 15,501,000 $ 12,216,000 $ 11,285,000 $ 11,669,000
Earnings per share--
basic.................... $ 0.56 $ 0.43 $ 0.35 $ 0.36
Earnings per share--
diluted.................. $ 0.54 $ 0.42 $ 0.34 $ 0.36
</TABLE>
Net revenues in 1996 include $17.8 million of additional revenues received
from special Medicaid reimbursement programs. Of this amount, $1.8 million was
recorded in the first quarter, $3.6 million in the second quarter, $4.7
million in the third quarter and $7.7 million 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 fourth quarter
results include a $1.2 million write-down recorded against the book value of
the real property of a behavioral health facility owned by the Company and
leased to an unaffiliated third party, which is currently in default under the
terms of the lease and a $2.9 million charge related to an ambulatory
treatment center which was divested in the second quarter of 1997.
46
<PAGE>
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
--------------------------
BALANCE AT CHARGED TO WRITE-OFF OF BALANCE
BEGINNING COSTS AND ACQUISITIONS UNCOLLECTIBLE AT END
DESCRIPTION OF PERIOD EXPENSES OF BUSINESSES ACCOUNTS OF PERIOD
----------- ----------- ------------ ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL
ACCOUNTS RECEIVABLE:
Year ended December
31, 1997............. $30,398,000 $108,790,000 $ 7,200,000 $ (99,773,000) $46,615,000
=========== ============ =========== ============= ===========
Year ended December
31, 1996............. $49,016,000 $ 96,872,000 $10,324,000 $(125,814,000) $30,398,000
=========== ============ =========== ============= ===========
Year ended December
31, 1995............. $34,957,000 $ 76,905,000 $ 4,797,000 $ (67,643,000) $49,016,000
=========== ============ =========== ============= ===========
</TABLE>
47
<PAGE>
INDEX TO EXHIBITS
-----------------
10.4 Agreement, effective January 1, 1998, to renew Advisory Agreement, dated
as of December 24, 1986, between Universal Health Realty Income Trust and
UHS of Delaware, Inc.
10.29 Stock Purchase Agreement dated as of December 15, 1997, by and among the
Stockholders of Hospital San Pablo, Inc. and Universal Health Services,
Inc., and UHS of Puerto Rico, Inc.
10.30 Valley/Desert Contribution Agreement dated January 30, 1998, by and among
Valley Hospital Medical Center, Inc. and NC-DSH, Inc.
10.31 Summerlin Contribution Agreement dated January 30, 1998, by and among
Summerlin Hospital Medical Center, L.P. and NC-DSH, Inc.
10.32 1992 Stock Option Plan, As Amended.
22. Subsidiaries of Registrant.
24. Consent of Independent Public Accountants.
27. Financial Data Schedule.
<PAGE>
[LETTERHEAD OF UNIVERSAL HEALTH]
January 7, 1998
Mr. Alan B. Miller
President
UHS of Delaware, Inc.
367 South Gulph Road
King of Prussia, PA 19406
Dear Alan:
The Board of Trustees of Universal Health Realty Income Trust at their
December 2, 1997, meeting authorized the renewal of the current Advisory
Agreement between the Trust and UHS of Delaware, Inc. ("Agreement") upon the
same terms and conditions.
This letter constitutes the Trust's offer to renew the Agreement until
December 31, 1998, upon the same terms and conditions. Please acknowledge UHS
of Delaware, Inc.'s acceptance of this offer by signing in the space provided
below and returning one copy of this letter to me.
Sincerely yours,
/s/ Kirk E. Gorman
Kirk E. Gorman
President and Secretary
cc: Warren J. Nimetz, Esquire
Charles Boyle
AGREED TO AND ACCEPTED:
UHS of Delaware, Inc.
By: /s/ Alan B. Miller
-------------------------
Alan B. Miller, President
<PAGE>
EXHIBIT 10.29
================================================================================
STOCK PURCHASE AGREEMENT
by and among
the Stockholders of Hospital San Pablo, Inc.,
on the one hand,
and
UNIVERSAL HEALTH SERVICES, INC.
and
UHS OF PUERTO RICO, INC.,
on the other hand
---------------
Dated as of December 15, 1997
---------------
================================================================================
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Purchase and Sale of the Shares..................................... 1
(a) Purchase and Sale of the Shares.............................. 1
(b) Purchase Price............................................... 1
(c) Estimated Purchase Price..................................... 2
2. Closing............................................................. 2
(a) Closing...................................................... 2
(b) Appointment of Representatives............................... 3
(c) Escrow....................................................... 5
(d) Post-Closing Adjustment to Estimated Purchase Price.......... 6
3. Representations and Warranties of the Sellers....................... 8
(a) Authority.................................................... 8
(b) Ownership of Capital Stock of the Company; the Shares........ 8
(c) Organization and Standing.................................... 9
(d) No Conflicts; Consents....................................... 9
(e) Capital Stock of the Company................................. 9
(f) Equity Interests............................................. 10
(g) Financial Statements; Undisclosed Liabilities................ 10
(h) Absence of Changes or Events................................. 10
(i) Taxes........................................................ 11
(j) Assets; Title; Absence of Liens and Encumbrances............. 12
(k) Contracts.................................................... 14
(l) Litigation................................................... 15
(m) Insurance.................................................... 15
(n) Employee and Labor Matters................................... 16
(o) Employee Plans............................................... 16
(p) Company Permits; Compliance with Legal Requirements.......... 18
(q) Intellectual Property........................................ 20
(r) Environmental Matters........................................ 20
(s) Brokers, Finders, etc........................................ 21
(t) Books and Records............................................ 21
(u) Special Funds................................................ 22
(v) Medical Staff Matters........................................ 22
(w) Puerto Rico Residence........................................ 22
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4. Representations and Warranties of the Parent and the Buyer.......... 22
(a) Organization and Standing.................................... 22
(b) Authority.................................................... 22
(c) No Conflicts; Consents....................................... 23
(d) Financing.................................................... 23
(e) Securities Act............................................... 23
(f) Brokers, Finders, etc........................................ 24
5. Covenants of the Sellers............................................ 24
(a) Access....................................................... 24
(b) Ordinary Conduct............................................. 24
(c) Other Transactions........................................... 25
(d) Non-Competition.............................................. 25
6. Covenants of the Parent and the Buyer............................... 26
(a) Confidentiality.............................................. 26
(b) Employees and Employee Benefit Plans......................... 26
(c) WARN Act..................................................... 26
(d) Indigent Care and Community Commitments...................... 27
(e) Advisory Board............................................... 27
(f) Capital Commitments.......................................... 27
(g) Names of Hospitals........................................... 27
(h) Fajardo...................................................... 27
(i) Long-Term Debt............................................... 28
(j) Parent Guarantee of the Buyer's Obligations.................. 28
7. Mutual Covenants.................................................... 28
(a) Consummation of the Transactions............................. 28
(b) Publicity.................................................... 29
(c) Antitrust Notification....................................... 29
(d) Hospital Records............................................. 29
(e) Related Agreements........................................... 31
(f) Fajardo...................................................... 31
(g) Additional Insurance......................................... 31
(h) Waiver of Article Eight...................................... 31
(i) Permitted Escrow............................................. 31
(j) Further Assurances........................................... 32
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
8. Conditions to Closing............................................... 32
(a) Each Party's Obligations..................................... 32
(b) The Sellers' Obligations..................................... 33
(c) The Buyer's Obligations...................................... 34
(d) Frustration of Closing Conditions............................ 35
9. Indemnification..................................................... 35
(a) Tax Indemnification.......................................... 35
(b) General Indemnification by the Sellers....................... 36
(c) General Indemnification by the Parent and the Buyer.......... 36
(d) Losses Net of Insurance, etc................................. 37
(e) Limitations on Indemnification Rights........................ 37
(f) Procedures Relating to Indemnification....................... 38
(g) Proportional Obligations of the Sellers...................... 41
10. Tax Matters......................................................... 41
11. Termination......................................................... 43
12. Survival of Representations and Warranties.......................... 44
13. Expenses............................................................ 44
14. Miscellaneous....................................................... 45
(a) No Third-Party Beneficiaries................................. 45
(b) Amendment or Waiver.......................................... 45
(c) Headings..................................................... 45
(d) Counterparts................................................. 45
(e) Certain Additional Definitions............................... 45
(f) Assignment; Binding Effect................................... 45
(g) Notices...................................................... 46
(h) Entire Agreement............................................. 47
(i) Severability................................................. 47
(j) Interpretation............................................... 47
(k) Consent to Jurisdiction...................................... 47
(l) Governing Law................................................ 48
</TABLE>
iii
<PAGE>
Exhibit A Form of Development Agreement
Schedule 1(a) Selling Stockholders
Schedule 1(b) Capital Expenditures
Schedule 2(c) Terms of Escrow Agreement
Schedule 3(a) Authority
Schedule 3(b) Ownership of Capital Stock of the Company; the Shares
Schedule 3(c) Subsidiaries
Schedule 3(d) Consents
Schedule 3(e) Shares Subject to Options or Rights
Schedule 3(f) Equity Interests
Schedule 3(g) Financial Statements; Undisclosed Liabilities
Schedule 3(h) Absence of Change or Events
Schedule 3(i) Taxes
Schedule 3(j) Assets; Title; Absence of Liens and Encumbrances
Schedule 3(k) Material Contracts
Schedule 3(l) Litigation
Schedule 3(m) Insurance
Schedule 3(n) Employee and Labor Matters
Schedule 3(o) Benefit Plans
Schedule 3(p) Company Permits; Compliance with Legal Requirements
Schedule 3(q) Intellectual Property
Schedule 3(r) Environmental Matters
Schedule 3(v) Medical Staff Matters
Schedule 3(w) Puerto Rico Residence
Schedule 5(b) Ordinary Conduct
Schedule 6(f) Capital Commitments
Schedule 7(e) Terms of Real Estate Purchase Agreement
Schedule 8(a) Excluded Assets
iv
<PAGE>
Table of Definitions
<TABLE>
<S> <C>
Accountants....................................................... 2(d)(ii)
Acquisition Amount................................................ 1(b)
Additional Insurance.............................................. 7(g)
Adjusted Working Capital.......................................... 2(d)(iii)
Advisory Board.................................................... 6(e)
Agreement......................................................... 14(e)
Affected Persons.................................................. 6(a)(ii)
Audit............................................................. 3(i)
Audited 1997 Financial Statements................................. 8(c)(vi)
business day...................................................... 1(c)
Business Records.................................................. 7(d)(i)
Buyer........................................................ Preamble
Buyer's Accountants............................................... 2(d)(i)
CapEx Amount...................................................... 1(b)
Closing Balance Sheet............................................. 1(b)
Citibank Loan..................................................... 6(i)
Closing........................................................... 2(a)
Closing Date...................................................... 2(a)
Code.............................................................. 3(i)
Common Stock................................................. Preamble
Company...................................................... Preamble
Company Permits................................................... 3(p)(i)
Confidentiality Agreement......................................... 6(a)
Destruction Notice................................................ 7(d)(iii)
Document Retention Period......................................... 7(d)(iii)
DOJ............................................................... 7(c)
Employee Plans.................................................... 3(o)
Environmental Assessments......................................... 3(r)(ii)
Environmental Laws................................................ 3(r)(i)
Escrow Agreement.................................................. 2(c)
Estimated Acquisition Amount...................................... 1(c)
Estimated CapEx Amount............................................ 1(c)
Estimated Loan-Term Debt Amount................................... 1(c)
Estimated Purchase Price.......................................... 1(c)
Escrow Agent...................................................... 2(c)
Escrow Amount..................................................... 2(c)
ERISA............................................................. 3(o)
Fajardo........................................................... 1(b)
</TABLE>
v
<PAGE>
<TABLE>
<S> <C>
Fajardo Acquisition............................................... 1(b)
Final Determination............................................... 2(d)(ii)
Financial Statements.............................................. 3(g)
FTC............................................................... 7(c)
GAAP.............................................................. 1(c)
Governmental Entity............................................... 3(d)
Guarantors........................................................ 8(b)(ii)
Hazardous Substances.............................................. 3(r)(i)
Hospitals.................................................... Preamble
Hospital San Francisco....................................... Preamble
Hospital San Pablo........................................... Preamble
Hospital Records.................................................. 7(d)(i)
HSR Act........................................................... 3(d)
indemnified party................................................. 9(f)(ii)
Intellectual Property............................................. 3(q)
Interim Balance Sheet............................................. 1(c)
JCAHO............................................................. 3(p)(v)
June Balance Sheet................................................ 1(c)
Liens............................................................. 3(b)(i)
Long-Term Debt Amount............................................. 1(b)
Loss.............................................................. 9(b)
Maintenance Contracts............................................. 3(j)(viii)
Material Adverse Effect........................................... 3(d)
Material Agreements............................................... 3(k)
Non-Assumed Long-Term Debt........................................ 6(i)
Parent....................................................... Preamble
Patient Records................................................... 7(d)(i)
Permitted Encumbrances............................................ 3(j)(ii)
Permitted Liens................................................... 3(f)
Pre-Closing Tax Period............................................ 3(i)
Purchase Price.................................................... 1(b)
PWI............................................................... 3(s)
Real Estate Purchase Agreement.................................... 8(a)(v)
Real Property..................................................... 3(j)
Representatives................................................... 2(b)
San Francisco................................................ Preamble
Secretary......................................................... 3(i)
Securities Act.................................................... 4(e)
Sellers...................................................... Preamble
Sellers' Accountants.............................................. 2(d)(i)
Seller's Pro Rata Portion......................................... 2(a)
</TABLE>
vi
<PAGE>
<TABLE>
<S> <C>
Shares....................................................... Preamble
Special Taxes..................................................... 9(a)
Spouses........................................................... 2(b)(1)
Straddle Period................................................... 9(a)(A)
Subsidiary........................................................ 3(c)
Tax or Taxes...................................................... 3(i)
Tax Loss.......................................................... 9(a)
Tax Claim......................................................... 9(f)(iv)
Tax Return........................................................ 3(i)
Third Party Claim................................................. 9(f)(ii)
Title Policies.................................................... 8(c)(v)
to the knowledge of............................................... 14(e)
WARN Act.......................................................... 6(c)
Zomil............................................................. 8(a)(v)
</TABLE>
vii
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT, dated as of December 15, 1997, by and among
the individual stockholders set forth on Schedule 1(a) attached hereto (each a
"Seller," and collectively the "Sellers"), on the one hand, and Universal Health
Services, Inc., a Delaware corporation (the "Parent"), and UHS of Puerto Rico,
Inc., a Delaware corporation and an indirect wholly-owned subsidiary of the
Parent (the "Buyer"), on the other hand.
A. The Sellers own all of the issued and outstanding shares (the
"Shares") of the common stock, par value $1.00 per share ("Common Stock"), of
Hospital San Pablo, Inc., a Puerto Rico corporation (the "Company"), which (i)
operates that certain acute-care general hospital commonly known as Hospital San
Pablo ("Hospital San Pablo") and (ii) owns all of the issued and outstanding
shares of the common stock, par value $1.00 per share, of Hospital San
Francisco, Inc., a Puerto Rico corporation ("San Francisco"), which operates
that certain acute-care general hospital commonly known as Hospital San
Francisco ("Hospital San Francisco" and together with Hospital San Pablo, the
"Hospitals").
B. The Sellers desire to sell to the Buyer, and the Buyer desires to
purchase from the Sellers all of the Shares for the consideration and on the
other terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements set forth below, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto, intending to be legally bound hereby, agree as follows:
1. Purchase and Sale of the Shares. (a) Purchase and Sale of the
------------------------------- ------------------------
Shares. On the terms and subject to the conditions of this Agreement, the
- - - ------
Sellers shall sell, assign, transfer, convey and deliver or cause to be sold,
assigned, transferred, conveyed and delivered to the Buyer, and the Buyer shall
purchase from the Sellers, all of the Sellers' rights, title and interest in and
to the Shares for the Purchase Price (as defined below), payable as set forth
below.
(b) Purchase Price. The aggregate purchase price (the "Purchase
--------------
Price") for the Shares will be an amount (subject to adjustment as provided in
Section 2(d) below) equal to the difference between: (i) an amount equal to the
total of (x) $165 million, plus (y) the CapEx Amount (as defined below), plus
----
(z) the Acquisition Amount (as defined below); less (ii) the Long-Term Debt
----
Amount (as defined below). The Long-Term Debt Amount shall not be paid to the
Sellers at the Closing but shall be paid or assumed as provided in Section 6(i)
below. As used herein (1) "CapEx Amount" shall mean the total amount expended by
the Company and its Subsidiaries (as defined in Section 3(c) below) for the
capital expenditures set forth on Schedule 1(b) hereto from June 30, 1997
through the Closing Date (as defined in Section 2(a) below), but
<PAGE>
in no event shall such amount exceed $9.7 million; (2) "Acquisition Amount"
shall mean the amount paid by or on behalf of the Company and its Subsidiaries,
if any, in connection with the proposed acquisition (whether or not such
acquisition is consummated) by the Company or one of its Subsidiaries (the
"Fajardo Acquisition") of the Fajardo Sub-Regional Hospital ("Fajardo"),
including without limitation the purchase price therefor and any documented and
reasonable third-party expenses (including any down payment, deposit or other
amount which may be subject to forfeiture) paid by or incurred by or on behalf
of the Company or its Subsidiaries on or before the Closing Date in connection
with evaluating such acquisition, preparing and negotiating the offer and
negotiating, documenting and executing the transaction; and (3) "Long-Term Debt
Amount" shall mean an amount equal to the sum of the following line items
reflected on the consolidated balance sheet of the Company and its Subsidiaries
at the Closing Date prepared substantially in the form of the June Balance Sheet
and the Interim Balance Sheet (each as defined in Section 1(c) below) (the
"Closing Balance Sheet"): (A) the amount of the "Long-Term Debt" line item
(adjusted, if necessary and without duplication, to include any prepayment fees
and expenses payable under the terms thereof through the Closing Date), plus (B)
----
the amount of the "Current Portion of Long-Term Debt" line item, if any, plus
----
(C) the amount of the "Obligation under Capital Lease" line item, plus (D) the
amount of the "Current Portion of Capital Lease" line item.
(c) Estimated Purchase Price. The Purchase Price (and the components
------------------------
thereof) shall be estimated in good faith (based on the most recent interim
financial statements available) by the Sellers as of the second business day (as
defined below) prior to the Closing Date (the "Estimated Purchase Price"), which
shall be subject to final adjustment as set forth in Section 2(d) below. Prior
to such date, the Representatives (as defined in Section 2(b) below) shall cause
the Company to prepare and deliver to the Parent and the Buyer the following:
(i) an unaudited consolidated balance sheet of the Company and its Subsidiaries
as of the most recent available date (the "Interim Balance Sheet") prepared in
accordance with generally accepted accounting principles ("GAAP") on a basis
consistent with the consolidated balance sheet for the Company and its
Subsidiaries as of June 30, 1997 (the "June Balance Sheet"); and (ii)
computations of the Estimated Purchase Price, including estimates of the CapEx
Amount, the Acquisition Amount and the Long-Term Debt Amount (respectively, the
"Estimated CapEx Amount," the "Estimated Acquisition Amount" and the "Estimated
Long-Term Debt Amount"). As used herein "business day" shall mean a day of the
year on which banks are not required or authorized to close in New York City or
San Juan, Puerto Rico.
2. Closing. (a) Closing. The closing (the "Closing") of the
------- -------
purchase and sale of the Shares shall be held at the offices of Brown & Wood
llp, One World Trade Center, New York, New York 10048 at 10:00 a.m. on January
30, 1998 or on such other date as the Representatives, the Parent and the Buyer
shall all agree upon, or, if the conditions to the Closing set forth in Section
8 shall not have been satisfied or waived by January 30, 1998, as soon as
practicable after such conditions shall have been satisfied or waived. The date
on which the
2
<PAGE>
Closing shall occur is hereinafter referred to as the "Closing Date." At the
Closing: (i) the Parent and the Buyer shall deliver or cause to be delivered to
each Seller (x) by wire transfer of immediately available funds to such account
or accounts as are specified by the Sellers, each Seller's pro rata portion
(based upon the percentage of outstanding Shares held of record by such Seller
as set forth on Schedule 1(a) hereto (such percentage, the "Seller's Pro Rata
Portion")) of the Estimated Purchase Price and (y) such other items as are
provided for in Section 8 hereof; and (ii) each Seller shall deliver or cause to
be delivered to the Buyer (x) certificates representing all Shares owned of
record by such Seller, duly endorsed in blank or accompanied by stock powers
duly endorsed in blank in proper form for transfer and (y) such other items as
are provided for in Section 8 hereof.
(b) Appointment of Representatives. (i) For the period from the date
------------------------------
hereof through and including the Closing Date (including the Closing), each of
the Sellers and their respective spouses identified on the signature pages to
this Agreement (the "Spouses") hereby appoint and authorize Juan L. Cruz Rosario
and Milton Cruz (the "Representatives") and each of them as their agents to deal
with the Company, the Parent and the Buyer regarding all matters arising under
this Agreement (except to the extent that this Agreement expressly provides for
any action to be taken or other matters to be dealt with by the Sellers
themselves) and the Escrow Agreement (as such term is defined below), and with
respect thereto, all of the Sellers and such Spouses hereby constitute and
appoint each of the Representatives as their true and lawful attorneys and
agents to sign the names of such Sellers and such Spouses on or with respect to
any and all agreements, certifications and instruments (including but not
limited to settlement agreements and consents) in connection with matters
arising under or in connection with this Agreement or the Escrow Agreement,
modifications or amendments of the terms of this Agreement or the Escrow
Agreement, and any waiver of any provisions of, and resolution of any disputes
or uncertainties arising under, this Agreement or the Escrow Agreement. Each of
the Sellers and the Spouses agrees that the Representatives, and each of them,
shall represent the Sellers and the Spouses for all purposes of this Agreement
and the Escrow Agreement, including the receipt of notices and the exercise of
any rights with respect to the Sellers' obligations hereunder and thereunder and
the modification or amendment of the terms of this Agreement and the Escrow
Agreement and the waiver of any provisions hereof and thereof, and resolution of
disputes or uncertainties arising hereunder and thereunder (except to the extent
that this Agreement expressly provides for any action to be taken or other
matters to be dealt with by the Sellers themselves).
(ii) For the period beginning one day after the Closing Date and
ending upon the later of (x) the expiration of the last representation and
warranty pursuant to Section 12 of this Agreement, or (y) the date upon the last
of any remaining claims for indemnification by or against the Sellers under
Section 9 of this Agreement are settled and satisfied, the Sellers hereby
appoint the Representatives, and each of them, as their agents with the power
and authority to negotiate and settle with the Parent and the Buyer any
adjustments to the Purchase Price provided
3
<PAGE>
for in Sections 1 and 2(d) hereof and any and all claims made by or against the
Sellers under Section 9 hereof.
(iii) In all cases under this Section 2(b), the Representatives
shall discharge their duties in good faith and in a manner the Representatives
reasonably believe to be in the best interests of the Sellers, but by virtue of
acting as Representatives shall not be deemed a fiduciary of, or to have an
obligation of trust in respect of, any of the Sellers. Said power of attorney
shall not be affected by the subsequent incapacity of any Seller. In the event
of the death or incapacity of one of the Representatives, the other
Representative shall become the Representative. In the event of the death or
incapacity of both of the Representatives, the Sellers shall promptly appoint a
successor Representative by majority vote of the Sellers determined on the basis
of the Sellers' Pro Rata Portion.
(iv) Each of the Sellers and the Spouses hereby ratifies and
confirms all that said attorneys or agents shall do or cause to be done by
virtue of this Section 2(b) hereof. The Sellers and the Spouses also agree that
the Sellers shall be bound by all decisions of the Representatives pursuant to
the authority granted pursuant to this Section 2(b), and that such authority
granted pursuant to this Section 2(b) may not be revoked during the term of this
Agreement or the Escrow Agreement. Anything in this Agreement to the contrary
notwithstanding, and in all cases under this Section 2(b), the Sellers and the
Spouses (other than the Representatives and their respective Spouses) jointly
and severally agree that (A) the Representatives, acting in their capacity as
such, shall have no liability or obligation (in contract, tort or otherwise) to
any Sellers or Spouses or the Company, the Parent or the Buyer for any action or
failure to act on the part of the Representatives except to the extent that the
same is found in a final judgment by a court of competent jurisdiction or in a
final settlement signed by the Representatives to have resulted from their bad
faith, gross negligence or willful misconduct and any action or failure to act
by the Representatives taken in accordance with this Section 2(b) shall not be
deemed to have so resulted in any such liability or obligation; (B) the
Representatives shall be protected in acting upon any written notice,
instruction, waiver, consent, receipt or other paper or document which the
Representatives in good faith believe to be genuine; (C) the Representatives
have undertaken to perform only such duties as are specifically set forth in
this Agreement or the Escrow Agreement, and no implied duties, obligations,
covenants or agreements shall be read into this Agreement or the Escrow
Agreement against the Representatives; (D) no provision of this Agreement or the
Escrow Agreement shall require the Representatives to expend or risk their own
iability in the performance of any of their duties hereunder or thereunder or in
the exercise of any of their rights or powers hereunder or thereunder, and the
Sellers and the Spouses (other than the Representatives and their respective
Spouses) agree, jointly and severally, to indemnify the Representatives against
and hold the Representatives harmless for any liability whatsoever in connection
therewith (including without limitation expenses incurred by the Representatives
in order to enforce their rights under this Section 2(b)) as incurred; (E) the
Representatives may in their absolute discretion seek
4
<PAGE>
instructions from the Sellers on any matter relating to this Agreement or the
Escrow Agreement and may refuse to take an action requested to be taken pursuant
to the terms of this Agreement or the Escrow Agreement pending receipt of
instructions from the Sellers, and if such instructions are received from a
majority of the Sellers (determined on the basis of the Sellers' Pro Rata
Portion) other than the Representatives and the Representatives correctly
implement such instructions, the Sellers (other than the Representatives and
their respective Spouses) agree, jointly and severally, to indemnify the
Representatives against and hold the Representatives harmless from any liability
whatsoever (including, but not limited to, expenses incurred by the
Representatives in order to enforce their rights under this Section 2(b)), as
incurred, arising out of the Representatives implementing such instructions; and
(F) the Representatives shall not be required to attempt to enforce any
provision of this Agreement or the Escrow Agreement on behalf of the Sellers if
the Representatives, in their sole discretion and in good faith, decide that
such provision or enforcement thereof is not material.
(v) If any indemnification provided for in this Section 2(b) is
unavailable or insufficient to hold harmless the Representatives, then each
Seller (other than the Representatives) shall contribute to the amount paid or
payable by the Representatives as a result of the losses, claims, damages or
liabilities referred to above in such proportion as is appropriate to reflect
the relative benefits received by the Sellers (other than the Representatives)
as among themselves, as well as any other relevant equitable considerations.
(vi) Each of the Sellers and their respective Spouses agree that the
provisions of this Section 2(b) shall be binding upon, and inure to the benefit
of, each of the Sellers, their respective Spouses and their respective permitted
assigns and successors.
(vii) Each of the Sellers agrees that the provisions of this Section
2(b) shall survive the Closing and shall not terminate.
(c) Escrow. For the purpose of satisfying the indemnification
------
obligations of the Sellers contained in Section 9, $45,000,000 (the "Escrow
Amount") of the Estimated Purchase Price shall be delivered by the Parent and
the Buyer on the Closing Date, by wire transfer of immediately available funds
to a bank located in Puerto Rico to be reasonably agreed upon by the Parent and
the Representatives to serve as escrow agent (the "Escrow Agent") under an
escrow agreement to be entered into on the Closing Date by the Sellers, the
Buyer and the Escrow Agent on the terms set forth on Schedule 2(c) hereto (the
"Escrow Agreement"). Each Seller's Pro Rata Portion of the Escrow Amount shall
be deducted from the portion of the Estimated Purchase Price payable by the
Parent and the Buyer to such Seller at the Closing pursuant to Section 2(a)
above.
5
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(d) Post-Closing Adjustment to Estimated Purchase Price. (i) As
---------------------------------------------------
promptly as practicable following the Closing Date, the Representatives shall
prepare, and within 90 days following the Closing Date deliver to the Parent and
the Buyer, the following (as certified by Pannell Kerr Forster Worldwide (the
"Sellers' Accountants")): (A) the Closing Balance Sheet; (B) a computation of
the CapEx Amount; (C) a computation of the Acquisition Amount; (D) a computation
of the Long-Term Debt Amount; (E) a computation of the Adjusted Working Capital
(as defined below) as of the Closing Date; and (F) a computation of the amounts,
if any, payable under Section 2(d)(iii). The Closing Balance Sheet shall be (x)
audited by, and accompanied by the opinion thereon of, the Sellers' Accountants
and (y) prepared in accordance with GAAP on a basis consistent with the June
Balance Sheet. The fees and expenses of preparing the Closing Balance Sheet
shall be shared equally by the Parent and the Buyer, on the one hand, and the
Sellers, on the other hand. The Parent and the Buyer shall make available to
the Sellers and the Sellers' Accountants such employees and records of the
Company and its Subsidiaries as may be necessary for the preparation of the
Closing Balance Sheet. Arthur Andersen LLP, or such other firm of independent
accountants of similar standing as the Buyer may select (the "Buyer's
Accountants"), on behalf of the Buyer shall be entitled at the Buyer's expense,
during normal working hours, to review the workpapers and other documents and
information used in the audit by the Seller's Accountants of the Closing Balance
Sheet and to conduct its own audit if it so chooses.
(ii) If within 30 days following delivery of the Closing Balance
Sheet the Parent and the Buyer have not given the Representatives written notice
of their reasonable good faith objection to the Closing Balance Sheet based on
the failure of the Closing Balance Sheet to be prepared in accordance with GAAP
and consistent with the June Balance Sheet (such notice to include a statement
in reasonable detail of the basis of the Buyer's specific objection), then the
Closing Balance Sheet shall be final and binding upon each of the Sellers, the
Parent and the Buyer and shall be used in computing the adjustment provided for
in Section 2(d)(iii). If the Parent and the Buyer give such notice, and such
objection is not resolved in good faith by the Representatives, on the one hand,
and the Parent and the Buyer, on the other hand, within 30 days from the date of
the receipt of such notice, then the issues in dispute shall be promptly
submitted for resolution to the Puerto Rico office of Ernst & Young LLP,
independent certified public accountants, or its successor firm, or such other
"big six" independent certified public accounting firm not previously retained
by the Representatives, the Parent or the Buyer or any of their respective
affiliates as the Representatives, on the one hand, and the Parent and the
Buyer, on the other hand, may reasonably agree upon in writing (the
"Accountants"). The Accountants shall act as experts and not as arbitrators.
If issues in dispute are submitted to the Accountants for resolution, each party
shall furnish to the Accountants such workpapers and other documents and
information relating to the disputed issues as the Accountants may request and
are available to that party (or its independent public accountants), and shall
be afforded the opportunity to present to the Accountants any material relating
to the Accountants' determination and to discuss the determination with the
Accountants. The determination by the Accountants shall be binding
6
<PAGE>
and cermination"). The fees and expenses of the Accountants in connection with
the Final Determination shall be shared equally by the Parent and the Buyer, on
the one hand, and the Sellers, on the other hand. The Representatives, the
Parent and the Buyer shall use reasonable efforts to cause the Final
Determination of the Accountants to be rendered within 30 days of its
appointment.
(iii) The Purchase Price shall be adjusted as follows: (x) if the
amount of Adjusted Working Capital shall (A) be less than $10,128,781 (the
amount of Adjusted Working Capital reflected on the June Balance Sheet), then
the Sellers shall be obligated to pay to the Buyer an amount equal to such
shortfall, or (B) exceed $10,128,781 then the Parent and the Buyer shall be
obligated to pay to the Sellers in the aggregate an amount equal to such excess;
(y) if the CapEx Amount and/or the Acquisition Amount shall (A) be more than the
Estimated CapEx Amount or the Estimated Acquisition Amount, respectively, then
the Parent and the Buyer shall be obligated to pay to the Sellers in the
aggregate an amount equal to such excess or (B) be less than the Estimated CapEx
Amount and/or the Estimated Acquisition Amount, respectively, then the Sellers
shall be obligated to pay to the Buyer an amount equal to such shortfall; and
(z) if the Long-Term Debt Amount shall (A) be less than the Estimated Long Term
Debt Amount, the Parent and the Buyer shall be obligated to pay to the Sellers
an amount equal to such shortfall, or (B) exceed the Estimated Long-Term Debt
Amount, then the Sellers shall be obligated to pay the Parent and the Buyer in
the aggregate an amount equal to such excess. If the net adjustment to the
Purchase Price (the sum of clauses (x), (y) and (z) in the foregoing sentence)
results in an obligation of the Sellers to make a payment to the Buyer, the
Sellers shall be severally obligated, on the same basis as provided in Section
9(g) hereof, to promptly pay to the Buyer such amount, which payment shall be
made from the Escrow Amount. Alternatively, if such net adjustment results in
an obligation of the Parent and the Buyer to make a payment to the Sellers, then
the Buyer shall, and the Parent shall cause the Buyer to, promptly pay to the
Sellers an aggregate amount equal to such difference, which payment shall be
made by wire transfer in immediately available funds to such bank account or
accounts as the intended recipients shall specify and otherwise in the manner
and allocation of the Seller's Pro Rata Portion as set forth in Section 2(a).
All payments required to be made under this Section 2(d)(iii) shall be made
together with interest at an annual rate of 7% beginning on the Closing Date and
ending on the date of payment. Any such payment shall be made within two
business days after the date that the Representatives, the Parent and the Buyer
agree to such amount or that the Accountants announce the Final Determination to
the Representatives, the Parent and the Buyer, as the case may be. For purposes
hereof, "Adjusted Working Capital" shall mean an amount equal to (A) the sum of
the following "Total Current Assets" line items as reflected on the Closing
Balance Sheet (adjusted, without duplication, to include the amount of the
"Restricted Cash and Investments" line item reflected on the June Balance Sheet
that will become unrestricted as a result of the payment at Closing of the Non-
Assumed Long-Term Debt (as defined in Section 6(i) below): "Cash," "Net
Accounts Receivable," "Other Accounts Receivable," "Supplies" and "Prepaids;"
less (B) the sum of the following "Total Current Liabilities" line items as
- - - ----
reflected on
7
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the Closing Balance Sheet (specifically excluding the "Current Portion of Long-
Term Debt" and the "Current Portion of Capital Lease" line items): "Notes
Payable," "Accounts Payable," "Accrued Expenses" and "Dividends Payable."
3. Representations and Warranties of the Sellers. Subject to the
---------------------------------------------
provisions of Section 14(h) of this Agreement (i) as to Sections 3(a), 3(b) and
3(w) below, each Seller, individually, hereby represents and warrants to the
Parent and the Buyer specifically with respect to such Seller, and (ii) as to
Sections 3(c) through 3(v) below, the Sellers, severally, hereby represent and
warrant to the Parent and the Buyer, as follows:
(a) Authority. Each Seller and Spouse represents and warrants that
---------
(i) except as set forth on Schedule 3(a) hereto, the execution and delivery of
the Agreement by such Seller and such Spouse and the Escrow Agreement by such
Seller, and the performance by such Seller or Spouse of his or her respective
obligations to sell the Shares hereunder, and thereunder, have been duly
authorized by all necessary action on the part of such Seller or Spouse, (ii)
this Agreement has been duly executed and delivered by such Seller or Spouse
and, assuming the due execution and delivery hereof by the Parent and the Buyer,
constitutes a valid and binding obligation of such Seller or Spouse, enforceable
against such Seller or Spouse in accordance with its terms (subject, as to the
enforcement of remedies, to applicable bankruptcy, reorganization, insolvency,
moratorium (whether general or specific) and similar laws relating to creditors'
rights generally, and general principles of equity (regardless of whether such
enforcement is sought in a proceeding in equity or at law)), and (iii) the
Escrow Agreement, when executed and delivered by such Seller and, assuming the
due execution and delivery thereof by the Buyer and the Escrow Agent, will
constitute a valid and binding obligation of such Seller, enforceable against
such Seller in accordance with its terms (subject, as to enforcement of
remedies, to applicable bankruptcy, reorganization, insolvency, moratorium
(whether general or specific) and similar laws relating to creditors' rights and
general principles of equity (regardless of whether such enforcement is sought
in a proceeding in equity or at law)).
(b) Ownership of Capital Stock of the Company; the Shares. (i) Each
-----------------------------------------------------
Seller represents and warrants that (x) he or she is the record and beneficial
owner of the Shares next to his or her name as set forth on Schedule 1(a) hereto
and (y) that he or she has good and valid title to his or her respective Shares
free of all claims, liens or encumbrances ("Liens"), except as set forth on
Schedule 3(b) hereto.
(ii) Each Seller represents and warrants that, assuming the
Parent and the Buyer have the requisite power and authority to own the Shares,
upon delivery to the Buyer at the Closing of certificates representing such
Seller's Shares, duly endorsed by such Seller for transfer to the Buyer, and
upon such Seller's receipt of the Purchase Price, the Buyer will acquire title
to such Seller's Shares, free and clear of all Liens, other than those arising
from acts of the Buyer or its affiliates.
8
<PAGE>
(c) Organization and Standing. The Company and each of its
-------------------------
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Puerto Rico. The Company and
each of its Subsidiaries have all requisite corporate power and authority to
carry on their respective businesses as presently conducted and to enable them
to own, lease and operate their respective properties and assets they now own,
lease and operate. Neither the Company nor any of its Subsidiaries is required
to be qualified or licensed to do business in any jurisdiction other than Puerto
Rico. The term "Subsidiary" means each person of which a majority of the voting
power of the voting equity securities or equity interest is owned, directly or
indirectly, by the Company. As of the Closing, the only direct or indirect
subsidiaries of the Company will be those set forth on Schedule 3(c) hereto.
(d) No Conflicts; Consents. Except as set forth on Schedule 3(d)
----------------------
hereto, the consummation of the sale of the Shares contemplated hereby and the
Sellers' indemnification obligation provided herein will not conflict with, or
result in any violation of or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to the loss of a material benefit under any
provision of (i) the respective certificates of incorporation or by-laws of the
Company or any of its Subsidiaries, (ii) any note, bond, mortgage, indenture,
deed of trust, license, lease, contract, commitment, agreement or arrangement to
which the Company or any of its Subsidiaries is a party or by which any of them
or any of their respective properties or assets is bound or (iii) any judgment,
order or decree, or statute, law, ordinance, rule or regulation, applicable to
the Company or any of its Subsidiaries or any of their respective properties or
assets, in each case except for any such conflict, violation, default or right
which would not have a material adverse effect on the business, assets,
financial condition, or results of operations of the Company and its
Subsidiaries taken as a whole (a "Material Adverse Effect"). No consent,
approval, license, permit, order or authorization of, or registration,
declaration or filing with, any Federal, state, commonwealth, local or foreign
government or any court of competent jurisdiction, administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, or other regulatory or self-regulatory body or association (a
"Governmental Entity") is required to be obtained or made by the Sellers or the
Company or any of its Subsidiaries in connection with the consummation of the
sale of the Shares contemplated hereby and the Sellers' indemnification
obligation provided herein other than (w) compliance with and filings under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (t as set forth
on Schedule 3(d), (y) as become applicable solely as a result of the specific
regulatory status of the Parent or the Buyer and their affiliates and (z) for
those the failure of which to make or obtain would not have a Material Adverse
Effect.
(e) Capital Stock of the Company. The authorized capital stock of the
----------------------------
Company consists of 3,000,000 shares of Common Stock, par value $1.00 per share,
of which 1,228,259 shares, constituting the Shares, are duly authorized and
validly issued and outstanding,
9
<PAGE>
fully paid and nonassessable. Except for the Shares, there are no shares of
capital stock or other equity securities of the Company outstanding. Except as
set forth on Schedule 3(e), none of the Shares has been issued in violation of,
or are subject to, any purchase option, call, right of first refusal or
preemptive, subscription or similar right. There are no outstanding warrants,
options, rights, agreements, convertible or exchangeable securities or other
commitments (other than this Agreement) (i) pursuant to which any Seller or the
Company is or may become obligated to issue, sell, purchase, return or redeem
any shares of capital stock or other securities of the Company or (ii) that give
any person the right to receive any benefits or rights similar to any rights
enjoyed by or accruing to the holders of shares of capital stock of the Company.
(f) Equity Interests. Except as set forth on Schedule 3(f), none of
----------------
the Company nor any of its Subsidiaries shall own, directly or indirectly, any
capital stock of or other equity interests in any corporation, partnership or
other person. All of the issued and outstanding shares of capital stock of each
of the Company's Subsidiaries are duly authorized, have been validly issued, are
fully paid and nonassessable and, as of the Closing, will be owned by the
Company or its Subsidiaries free and clear of all Liens other than Liens that
will be released in connection with the Closing (collectively, the "Permitted
Liens").
(g) Financial Statements; Undisclosed Liabilities. (i) Schedule 3(g)
---------------------------------------------
sets forth (A) the unaudited balance sheet of the Company (on a consolidated
basis) as of the June Balance Sheet, and the unaudited statement of income of
the Company (on a consolidated basis) for the twelve month period ended June 30,
1997, and (B) the audited balance sheets of the Company and San Francisco as of
September 30, 1995 and 1996, and the audited statements of income of the Company
and San Francisco for the years ended September 30, 1995 and 1996 (the financial
statements described in clauses (A) and (B) are collectively referred to herein
as the "Financial Statements"). The Financial Statements have been prepared in
conformity with GAAP applied on a basis consistent with prior periods (except in
each case as described in the notes thereto) and on that basis fairly present
(subject, in the case of the unaudited statements, to normal, recurring year-end
audit adjustments and the absence of notes) the financial condition and results
of operations of each of the Company and San Francisco as of the respective
dates thereof and for the respective periods indicated.
(ii) As of the date hereof, neither the Company nor any of its
Subsidiaries have any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise), except (A) as set forth or disclosed,
reflected or reserved against in the Financial Statements, (B) for items set
forth in Schedules 3(g) and 3(l) or (C) for liabilities and obligations incurred
in the ordinary course of business consistent with past practice since the date
of the June Balance Sheet that would not, individually or in the aggregate,
result in a Material Adverse Effect.
10
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(h) Absence of Changes or Events. (i) Except as set forth on
----------------------------
Schedule 3(h), since the date of the June Balance Sheet there has not been any
event or development in the business, assets, financial condition or results of
operations of the Company and its Subsidiaries that would result in a Material
Adverse Effect.
(ii) Except as set forth in Schedule 3(h) and except for the sale
of the Shares as contemplated hereby, since the date of the June Balance Sheet,
the businesses of the Company and the Subsidiaries have been conducted in the
ordinary course and in substantially the same manner as previously conducted,
and neither the Company nor its Subsidiaries have (A) amended their certificate
of incorporation or by-laws or similar documents, (B) declared or paid any
dividend or made any other distribution to their stockholders whether or not
upon or in respect of any shares of their capital stock, (C) redeemed or
otherwise acquired any shares of their capital stock or issued any capital stock
or any option, warrant or right relating thereto or any securities convertible
into or exchangeable for any shares of capital stock, (D) adopted, or amended
any Employee Plan (as defined in Section 3(o)), except as required by law, (E)
granted to any director, officer or employee any increase in compensation or
benefits, except for increases for any such employee in the ordinary course of
business consistent with past practice or as may be required under existing
agreements, (F) incurred or assumed any liability, obligation or indebtedness
for borrowed money or guaranteed any such liability, obligation or indebtedness,
(G) cancelled any indebtedness or waived any claims or rights of substantial
value, (H) made any material change in any method of accounting or accounting
practice by the Company or any of its Subsidiaries; or (I) made any sale,
assignment, transfer or disposition of any item of plant, property or equipment
having a net book value in excess of $10,000 (other than supplies), except in
the ordinary course of business.
(i) Taxes. (i) For purposes of this Agreement, (A) "Tax" or "Taxes"
-----
shall mean all taxes, charges, fees, levies or other assessments, including,
without limitation, income, gross receipts, municipal license, excise, real and
personal property, sales, withholding, social security, occupation, use,
service, license, payroll, franchise, transfer and recording taxes, fees and
charges, including estimated taxes, imposed by Puerto Rico, its
instrumentalities and municipalities or any other taxing authority (domestic or
foreign), whether computed on a separate, consolidated, unitary, combined or any
other basis; and such term shall include any interest, fines, penalties or
additional amounts attributable to, or imposed upon, or with respect to any such
taxes, charges, fees, levies or other assessments; (B) "Tax Return" shall mean
any return, report or other document or information required to be supplied to a
taxing authority in connection with Taxes; (C) "Secretary" shall mean the
Secretary of the Treasury of Puerto Rico; (D) "Code" shall mean the Puerto Rico
Internal Revenue Code of 1994, as amended and its predecessor, the Puerto Rico
Income Tax Act of 1954, as amended, to the extent applicable; (E) "Pre-Closing
Tax Period" shall mean all taxable periods ending on or before the Closing Date
and the portion ending on the Closing Date of any taxable period that includes
(but does not end on) such day; and (F) "Audit" shall mean any audit, assessment
of Taxes, reassessment of Taxes,
11
<PAGE>
or other examination by any taxing authority or any judicial or administrative
proceedings or appeal of such proceedings.
(ii) The Company and the Subsidiaries are each corporations as
defined in the Code.
(iii) In the last five years the only jurisdiction where each of
the Company and the Subsidiaries has filed any income Tax Returns is Puerto
Rico.
(iv) Hospital San Pablo has been issued a hospital facilities
tax exemption granted pursuant to Act No. 168 of June 30, 1968, as amended, by
resolution of the Secretary of Treasury of June 25, 1996 (the "Resolution"),
granting certain tax concessions to Hospital San Pablo as more fully set forth
in the Resolution. The Resolution has not been revoked or altered in any way and
is in full force and effect.
(v) Except as set forth on Schedule 3(i), (A) each of the
Company and its Subsidiaries has (x) duly filed with the appropriate
Governmental Entities all Tax Returns required to be filed by it on or prior to
the date hereof, and such Tax Returns are true, correct and complete in all
material respects and (y) duly paid in full or made provision in accordance with
GAAP for the payment of all Taxes for all periods ending through the date
hereof, (B) there are no liens for Taxes upon the Shares or the assets of the
Company and its Subsidiaries except for statutory liens for current Taxes not
yet due, (C) each of the Company and its Subsidiaries has complied in all
respects with all applicable laws, rules and regulations relating to the payment
and withholding of Taxes, except where the failure to so comply would not have a
Material Adverse Effect; and has, within the time and the manner prescribed by
law, withheld from and paid over to the proper Governmental Entities all amounts
required to be so withheld and paid over under applicable laws, (D) no Puerto
Rico or foreign audits or other administrative proceedings or court proceedings
are presently pending with regard to any Taxes or Tax Returns of the Company or
its Subsidiaries, and neither the Company nor its Subsidiaries has received
notice of any pending audits or proceedings, (E) there are no outstanding
written requests, agreements, consents or waivers to extend the statutory period
of limitations applicable to the assessment of any Taxes or deficiencies against
the Company or its Subsidiaries, (F) neither the Company nor its Subsidiaries is
a party to any agreement providing for the allocation or sharing of Taxes, (G)
no power of attorney has been executed by the Company or its Subsidiaries with
respect to any matter relating to Taxes which is currently in force, and (H)
Hospital San Pablo has complied in all material respects with all of the
requirements of Act No. 168 of June 30, 1968, as amended, the regulations order
to enjoy the tax concessions provided under the Resolution.
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(j) Assets; Title; Absence of Liens and Encumbrances.
------------------------------------------------
(i) Schedule 3(j) is a true, correct and complete list of the
Hospitals and a true, correct and complete description of all real property
owned, leased, operated or used by the Company or any of its Subsidiaries
(collectively, the "Real Property").
(ii) The Company and its Subsidiaries collectively own or
validly lease all properties and assets, real, personal and mixed, tangible and
intangible, comprising and employed in the operation of or associated with the
Hospitals. Except for leased assets, each of the Company and its Subsidiaries
has good and marketable title to all of the Real Property and all of their
respective other assets, including those reflected in the consolidated balance
sheet of the Company as of June 30, 1997, free and clear of all title defects,
liens, pledges, security interests, claims, encumbrances and restrictions
except, with respect to all such assets, the following encumbrances
(collectively, "Permitted Encumbrances"): (A) mortgages and liens securing debt
reflected as liabilities in the Financial Statements; (B) mechanics', carriers',
workers', repairmen's, statutory or common law liens being contested in good
faith and by appropriate proceedings, which contested liens are listed in
Schedule 3(j); (C) liens for current Taxes not yet due and payable which have
been fully reserved against, or which, if due, are being contested in good faith
and by appropriate proceedings, which contested liens are listed in Schedule
3(j); and (D) such imperfections of title, easements, encumbrances and other
liens, if any, as are set forth in the deeds or leases covering the Real
Property or the surveys heretofore delivered to the Buyer or which are not
substantial in character, amount or extent, and do not, singly or in the
aggregate, materially detract from the value, or interfere with the present use,
of the properties and assets subject thereto or affected thereby or otherwise
materially impair the operations of the Company or any of its Subsidiaries as
presently conducted.
(iii) All leases pursuant to which the Company or any of its
Subsidiaries leases the Real Property or personal property are valid, binding
and enforceable in accordance with their respective terms; and neither the
Company nor its Subsidiaries has received notice of their default under such
leases, and, to the knowledge of the Company, there are faults on the part of
any other party thereto, or any event which, with notice or lapse of time or
both, would constitute such a default. Schedule 3(j) sets forth a true, correct
and complete list of all such leases.
(iv) Except as set forth in Schedule 3(j), neither the whole nor
any portion of any parcel of the Real Property has been condemned, requisitioned
or otherwise taken by any public authority, no notice of any such condemnation,
requisition or taking has been received by the Company or any of its
Subsidiaries and, to the knowledge of the Sellers, no such condemnation,
requisition or taking is threatened or contemplated. To the knowledge of the
Sellers, there are no public improvements which may result in special
assessments against or otherwise affecting the Real Property.
13
<PAGE>
(v) The Company has conducted its business in compliance with
all applicable reservations, land use, zoning, health, fire, water and building
codes affecting the Real Property, except for such non-compliance that would not
individually or in the aggregate have a Material Adverse Effect. The Company has
not received written notice from any Governmental Entity of any contemplated,
threatened or anticipated change in the zoning classification of any of the
Hospitals or any portion thereof.
(vi) Except as provided on Schedule 3(j)(vi), and other than as
provided on Schedule 3(j)(ix) hereto as to which no representation is made, (a)
the Hospitals are in a good state of repair and operating condition comparable
to other hospitals located in Puerto Rico (ordinary wear and tear excepted)
suitable for the current purposes used and (b) there are not existing in the
Hospitals any structural defects (excluding any cosmetic defects or matters
attributable to ordinary wear and tear), nor any life-threatening conditions,
(except those attendant in the operation of a hospital facility in the ordinary
course). All gas, electric power, storm sewer, sanitary sewer, water and other
utility services necessary for the current operation and use of each Hospital
are available at the boundaries of each Hospital and when necessary direct
connection has been made to all such utility facilities. To the Sellers'
knowledge except as set forth on Schedule 3(j)(iv), there are no plans, studies
or efforts by any Governmental Entity that would modify or realign any street or
highway adjacent to any of the Hospitals.
(vii) The Company has heretofore made available to the Parent an
historical summary of plant, property and equipment of the Company and its
Subsidiaries, as of September 30, 1997. Each Hospital contains all equipment,
inventories and other personal property in sufficient condition and in
quantities (of not less than that required by applicable Governmental Entities)
to operate such Hospital at the capacity for which it is currently operated.
(viii) The Company is party to the maintenance contracts listed
on Schedule 3(j)(viii) hereto (the "Maintenance Contracts") relating to the
maintenance and repair of the roofs as identified therein, each of which are
valid, binding and enforceable in accordance with their respective terms. The
Maintenance Contracts provide coverage for the direct cost of any repairs to the
roofs on the buildings associated with each applicable Hospital as identified
therein, provided that the Parent causes the Company to exercise its rights
--------
under the Maintenance Contracts identified in Schedule 3(j)(viii) hereto to
renew such contracts at the expiration of their initial terms. The Company has
heretofore made available to the Parent true and correct copies of each of the
Maintenance Contracts.
(ix) Notwithstanding anything to the contrary in this
Agreement, the Sellers are not making any representations or warranties
regarding, and the parties agree that the Sellers shall not otherwise have any
liability for, the condition or any other matter with respect to the items
listed on Schedule 3(j)(ix) hereto.
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(k) Contracts. Except for this Agreement, and the transactions
---------
contemplated hereby, and the contracts listed on Schedule 3(k), as of the date
hereof, neither the Company nor any of its Subsidiaries is a party to:
(i) any contract relating to the borrowing or lending of
$200,000 or more by the Company or any Subsidiary;
(ii) any employment agreement, consulting agreement, severance
agreement or other similar types of agreements with any person requiring
payments of base compensation in excess of $50,000 per year unless terminable
without payment or penalty upon no more than 30 days notice;
(iii) any contract not made in the ordinary course of business
involving an estimated total future payment or payments in excess of $200,000
unless terminable without payment or penalty upon no more than 30 days notice;
or
(iv) any contract for the sale of any of the Company's or any
Subsidiaries' assets (other than inventory sales in the ordinary course of
business), or the grant of any preferential rights to purchase any of the
Company's or any Subsidiaries' assets.
Except as disclosed on Schedule 3(k), to the knowledge of the Sellers,
as of the date hereof, no party is in breach or default under any contract
described in clauses (i) through (iv) above ("Material Agreements"), except for
such breaches and defaults as to which requisite waivers or consents have been
or will be obtained prior to the Closing Date. Complete and correct copies of
all Material Agreements together with all modifications and amendments thereto,
have been made available to the Parent. For purposes of this Section 3(k), the
term "contract" shall not include Employee Plans referred to in Section 3(o).
(l) Litigation. Except (i) as set forth on Schedule 3(1) and (ii)
----------
governmental inspections and reviews customarily made of businesses such as
those of the Company and its Subsidiaries, as of the date hereof, there is no
suit, action or proceeding pending or, to the knowledge of the Sellers,
threatened in writing, against the Hospitals, the Company or any Subsidiary in
any Federal, state, commonwealth or local court or agency that (A) seeks more
than $500,000 in damages (net of insurance proceeds, if any), (B) seeks any
injunctive relief or (C) seeks to have any effect on the Medicare or CHAMPUS
provider status of the Hospitals. Neither the Hospitals, the Company nor any of
its Subsidiaries is in default under any judgment, order or decree of any
Governmental Entity applicable to its business.
(m) Insurance. Each of the Company and its Subsidiaries maintains
---------
policies of fire and casualty, liability and other forms of insurance in such
amounts, with such deductibles
15
<PAGE>
and against such risks and losses as are reasonable for the business and assets
of the Company and its Subsidiaries. The material insurance policies maintained
with respect to the Company and its Subsidiaries and their assets and properties
are listed on Schedule 3(m). All such policies are in full force and effect, all
premiums due and payable thereon have been paid (other than retroactive or
retrospective premium adjustments that are not yet, but may be, required to be
paid with respect to any period ending prior to the Closing Date), and no notice
of cancellation or termination has been received with respect to any such policy
which has not been replaced on substantially similar terms prior to the date of
such cancellation.
(n) Employee and Labor Matters. Except as set forth on Schedule
--------------------------
3(n), (i) no action, suit, formal complaint, arbitration or proceeding or, to
the knowledge of the Company, formal charge, inquiry or investigation, by or
before any Governmental Entity (including without limitation the U.S. Equal
Employment Opportunity Commission and the Anti-Discrimination Unit of the
Department of Labor of Puerto Rico), or brought before any Governmental Entity
by or on behalf of any employee, prospective employee, former employee, retiree,
labor organization or other representative of the Company's or any of its
Subsidiaries' employees is pending or, to the knowledge of the Sellers,
threatened against the Company or any of its Subsidiaries or any employee of the
Company or any of its Subsidiaries (including, without limitation, with respect
to alleged sexual harassment), except for any such action, suit, formal
complaint, arbitration or proceeding or, to the knowledge of the Company, formal
charge inquiry or investigation, as would not individually or in the aggregate
have a Material Adverse Effect; (ii) there is no labor strike, dispute, slowdown
or stoppage actually pending or, to the knowledge of the Company, threatened
against or involving or affecting the Company, any of its Subsidiaries or any of
the Hospitals, and no union representation question exists respecting any of
their respective employees; (iii) no formal labor grievance is pending before
any Governmental Entity or, to the knowledge of the Sellers, threatened against
the Company or any of its Subsidiaries, except for any such formal labor
grievances which would not have a Material Adverse Effect; (iv) neither the
Company nor any of its Subsidiaries is a party to, or otherwise bound by, any
consent decree with, or material citation by, any Governmental Entity relating
to employees or employment practices; and (v) the Company and its Subsidiaries
are in compliance with all applicable laws, agreements, contracts, and
applicable policies relating to employment, employee safety and health
requirements, employment practices, wages, hours, and terms and conditions of
employment (including, without limitation, with respect to workmens'
compensation laws and disability insurance coverage laws), except for any such
non-compliance which would not individually or in the aggregate have a Material
Adverse Effect. Except as set forth on Schedule 3(n), neither the Company nor
any of its Subsidiaries is a party to any collective bargaining agreements.
(o) Employee Plans. (i) Schedule 3(o) lists all employment
--------------
agreements, all union, guild, labor or collective bargaining agreements, all
employee benefit plans, and all other material arrangements or understandings,
explicit or implied, written or oral whether for the
16
<PAGE>
benefit of one or more persons, relating to employment, compensation or
benefits, to which the Company or any of its Subsidiaries is a party or is
obligated to contribute, or by which the Company or any of its Subsidiaries is
bound, including: (A) all employee benefit plans within the meaning of section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"); (B) all deferred compensation, bonus, stock option, stock purchase,
stock incentive, stock appreciation rights, restricted stock, severance or
incentive compensation plans, agreements or arrangements; (C) plans, agreements
or arrangements providing for "fringe benefits" or perquisites to employees,
officers, directors or agents; and (D) all employment, consulting, termination
or indemnification agreements (collectively, the "Employee Plans"). The Sellers
have made available for inspection by the Parent true, correct and complete
copies of all Employee Plans, all related summary plan descriptions, the most
recent financial reports and summary annual reports and, where applicable,
summary descriptions of any Employee Plans not otherwise reduced to writing.
Except as set forth on Schedule 3(o), there are no negotiations or written
demands or proposals that are pending or have been made since the respective
dates of the Employee Plans which concern matters now covered, or that would be
covered, by any Employee Plan.
(ii) The Company and each of its Subsidiaries and each of the
Employee Plans have complied and are in compliance in all material respects with
the applicable provisions of the Code, ERISA and all other applicable laws. The
Company and each of its Subsidiaries have performed all of their obligations
under all of the Employee Plans, including the full payment when originally due
of all amounts required to be made as contributions thereto or otherwise.
(iii) With respect to each Employee Plan that is an "employee
benefit plan" within the meaning of section 3(3) of ERISA, no transaction has
occurred which is prohibited by section 406 of ERISA or which could give rise to
a material liability under sections 502(i) or 409 of ERISA. None of the Employee
Plans nor any fiduciary thereof has been the direct or indirect subject of an
audit investigation or examination by any Governmental Entity within the last
five years. There are no actions, suits, penalties or claims (other than routine
undisputed claims for benefits) pending, or to the knowledge of the Company,
threatened against or arising out of any of the Employee Plans or the respective
assets thereof and, to the knowledge of the Company, no facts exist which could
give rise to any such actions, suits, penalties or claims which might have a
material adverse effect on any Employee Plan or a Material Adverse Effect.
(iv) Neither the Company nor any of its Subsidiaries maintains
or has at any time maintained, or has or could have any liability with respect
to, an Employee Plan subject to Title IV of ERISA and the Employee Plans have
not been the subject of a reportable event, as such term is defined in Section
4043(b) of ERISA, which would require a notice to be filed with a Governmental
Entity. No Employee Plan is or ever has been a "multiemployer plan" within
17
<PAGE>
the meaning of section 3(37) of ERISA. Neither the Company nor any of its
Subsidiaries has or could have any liability with respect to a "multiemployer
plan" as defined under section 3(37) of ERISA. No Employee Plan now holds or has
heretofore held any stock or other securities issued by the Company or any of
its Subsidiaries. Neither the Company nor any of its Subsidiaries has
established or contributed to, is required to contribute to or has or could have
any liability with respect to any "multiple employer welfare arrangement" within
the meaning of section 3(40) of ERISA.
(v) All group health plans of the Company and its Subsidiaries
have been operated in material compliance with the group health plan
continuation coverage requirements of sections 601 through 608 of ERISA, Title
XXII of the Public Health Service Act and the provisions of the Social Security
Act, to the extent such requirements are applicable. Neither the Company nor any
of its Subsidiaries provides health or welfare benefits (through the purchase of
insurance or otherwise) for any retired employee or any former employee.
(vi) No provision of any Employee Plan restricts the ability of
the Buyer or the Company or its Subsidiaries to terminate the future accruals of
obligations thereunder after the Closing Date; provided, however, that no such
representation or warranty is made with respect to liabilities already accrued
at the time of such termination.
(vii) There has been no act or omission by the Company or any of
its Subsidiaries that has given rise or may give rise to fines, penalties, Taxes
or related charges under sections 4980D, 502(c) or 502(l) of ERISA.
(viii) Solely for purposes of this Section 3(o), all references
to the Company or any of its Subsidiaries includes any person which, together
with the Company or any of its Subsidiaries, is considered an affiliated
organization within the meaning of sections 3(5) or 4001(b)(1) of ERISA.
(p) Company Permits; Compliance with Legal Requirements. (i)
---------------------------------------------------
Schedule 3(p) contains a complete and accurate list of all material licenses,
permits, certificates, registrations, accreditations, orders, franchises,
authorizations and approvals and all consents, variances and exemptions, of any
Governmental Entity which are necessary for the operation of the Hospitals as
currently operated, the conduct of the business of the Company and its
Subsidiaries and utilization of the Real Property, including valid licenses from
the Commonwealth of Puerto Rico to operate Hospital San Pablo, a 430-bed general
acute care hospital, and Hospital San Francisco, a 160-bed general acute care
hospital (collectively, the "Company Permits"), all of which are in full force
and effect. Each of the Company and its Subsidiaries is in compliance with the
applicable terms of each of the Company Permits, except where such failure would
not have a Material Adverse Effect. No action is pending or, to the
18
<PAGE>
knowledge of the Sellers, threatened or recommended by any Governmental Entity
to revoke, withdraw or suspend any Company Permit.
(ii) The businesses of each of the Company and its Subsidiaries
are being, and since June 30, 1997 have been, conducted in compliance with all
applicable laws, except for such non-compliance that would not individually or
in the aggregate have a Material Adverse Effect. To the knowledge of the
Sellers, no investigation or review by any Governmental Entity with respect to
the Company or any of its Subsidiaries is pending or threatened, nor has any
Governmental Entity indicated an intention to conduct the same.
(iii) With respect to each of the Hospitals, the Company and its
Subsidiaries are qualified for participation in the Medicare and CHAMPUS
programs, have current and valid provider agreements with the Medicare program
and, except as set forth in Schedule 3(p), are in compliance in all material
respects with all conditions and standards of participation in such programs,
except for such non-compliance that would not have a Material Adverse Effect,
and have received all health planning approvals necessary for capital
reimbursement on their assets. Neither the Company nor its Subsidiaries
participates in the Medicaid program. No action is pending or, to the knowledge
of the Sellers, threatened or recommended by any Governmental Entity to
terminate or decertify any participation of the Hospitals in the Medicare and
CHAMPUS programs nor, to the knowledge of the Sellers, has there been any
decision not to renew any provider agreement related to the Hospitals. With the
exception of deficiencies which are currently the subject of a waiver and those
which are the subject of a plan of correction as set forth on Schedule 3(p),
there are no outstanding written notices of deficiencies or written notices of
work orders of a material nature of any Governmental Entity having jurisdiction
over the Hospitals requiring conformity to any applicable law pertaining to the
Hospitals, including the Medicare and CHAMPUS programs. Complete copies of the
most recent survey reports and any waivers of deficiencies, plans of correction
and any other investigation report issued with respect to the Hospitals have
been made available to the Buyer.
(iv) Except as set forth on Schedule 3(p) and since October 1,
1994, all cost reports required to be filed by the Company or its Subsidiaries
with respect to the Hospitals under Titles XVIII and XIX of the Social Security
Act, or any other applicable law or requirements of private providers have been
prepared and filed in accordance with all applicable laws, and copies of all
such reports filed since October 1, 1994 have been made available to the Parent.
The Company has paid or made provision to pay through proper recordation of any
net liability all Notices of Program Reimbursement received from the Medicare
program and tentative settlements for periods ended prior to September 30, 1995
for Hospital San Pablo and December 31, 1994 for Hospital San Francisco and any
similar obligations with respect to the CHAMPUS program.
19
<PAGE>
(v) Hospital San Pablo is accredited by the Joint Commission on
Accreditation of Healthcare Organizations ("JCAHO") and it is not conditionally
accredited. The date of Hospital San Pablo's surveys by the JCAHO within the
past five years, and any statements of deficiencies and plans of correction
related to such surveys, are set forth in Schedule 3(p). With the exception of
deficiencies which are currently the subject of a waiver and those which are the
subject of a plan of corrections as set forth in Schedule 3(p), there are no
outstanding deficiencies of a material nature under the JCAHO conditions,
standards and requirements for accreditation. Hospital San Pablo is in material
compliance with all conditions, standards and requirements for accreditation by
the JCAHO.
(vi) Schedule 3(p) includes a true, correct and complete
statement of: (A) the bed categories for which each Hospital is, and immediately
prior to Closing will be, licensed and/or qualified for Medicare and CHAMPUS;
(B) the number of beds in each such category; (C) the number of beds in each
such category which are, and immediately prior to Closing will be, available for
use in such Hospital; and (D) the number of patients, as of stated date
reasonably proximate to the date hereof, admitted in each Hospital who (I)
qualify for Medicare, (II) qualify for CHAMPUS and (III) qualify for neither
Medicare nor CHAMPUS. Except as set forth in Schedule 3(p), immediately prior to
Closing, no beds will be in use at the Hospitals in any category for which such
Hospital is not licensed. The Sellers have no knowledge that the number of
licensed beds in any category may be reduced by any Governmental Entity.
(vii) Schedule 3(p) includes a true, correct and complete
statement of all ancillary patient services that are, and immediately prior to
Closing will be, offered by each Hospital, the licensed capacity of each service
(if applicable) and the number of available beds (if applicable). Neither the
Company nor any of its Subsidiaries has received notice that any Hospital will
not be properly licensed or certified to provide any such service prior to or
upon the consummation of the sale of the Shares contemplated hereby.
(q) Intellectual Property. Set forth on Schedule 3(q) are all
---------------------
material trademarks, copyrights and other intellectual property rights used or
held for use primarily in the business of the Company and its Subsidiaries (the
"Intellectual Property"), owned, or licensed for use, by the Company and its
Subsidiaries as of the date hereof. Except as set forth on Schedule 3(q)
hereto, there are no existing, or, to the knowledge of the Sellers, threatened,
claims based on the use by, or challenging the ownership of, the Company or its
Subsidiaries of any Intellectual Property that would have a Material Adverse
Effect. The Sellers do not have any knowledge of any infringing use of any
Intellectual Property by any other person.
(r) Environmental Matters. (i) For the purposes of this Agreement,
---------------------
(A) "Release" shall mean any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, or disposing of
any Hazardous Substance into the environment, except as authorized under any
applicable Environmental Law; (B) "Environmental
20
<PAGE>
Laws" shall mean the Puerto Rico and Federal applicable laws and regulations, as
of the date of this Agreement relating to the use, handling, treatments,
storage, transportation, disposal, emissions, discharges or releases of
Hazardous Substances or otherwise relating to the protection of the environment
(including, without limitation, ambient air, surface water, ground water, land
surface or subsurface strata); and (C) "Hazardous Substances" shall mean any
substance, material or waste which is regulated by any Governmental Entity with
jurisdiction over the Hospitals pursuant to any applicable Environmental Laws,
and includes, without limitation: (I) any substance, material or waste defined,
used or listed as a "hazardous waste", "extremely hazardous waste", "restricted
hazardous waste", "hazardous substance", "toxic substance" or other similar
terms as defined or used in any applicable Environmental Laws, and; (II)
asbestos, polychlorinated biphenyl, or radioactive materials.
(ii) The Company has heretofore conducted Phase I environmental
assessments of the Real Property (the "Environmental Assessments") and has made
available the same to the Parent. Except as disclosed in Schedule 3(r) or the
Environmental Assessments: (a) none of the Real Property is in violation of any
Environmental Laws, except for violations which would not have a Material
Adverse Effect; (b) neither the Company nor any of its Subsidiaries has Released
any Hazardous Substances from the Real Property in a manner that has violated
any Environmental Laws and, to the knowledge of the Sellers, there has been no
such Release by any previous owner or operator of any of the Real Property; (c)
to the knowledge of the Sellers and except as set forth on Schedule 3(r), the
Real Property has not (i) ever had any underground storage tanks, as defined in
42 U.S.C. (S)6991(1)(A)(I), whether empty, filled or partially filled with any
Hazardous Substance, or (ii) any friable asbestos or any material that contains
any hydrated mineral silicate, including chrysolite, amosite, crocidolite,
tremolite, anthophylite and/or actinolite; (d) neither the Company, any of its
Subsidiaries nor any of the Hospitals has received any request for information,
notice or order alleging that it may be a potentially responsible party under
any Environmental Laws for the investigation or remediation of a Release or
threatened Release of Hazardous Substances from the Real Property; (e) no event
has occurred with respect to any of the Real Property which, with the passage of
time or the giving of notice, or both, would constitute a violation of or non-
compliance with any applicable Environmental Law or the Company Permits; and (f)
there is no lien, notice, litigation or, to the knowledge of the Sellers, threat
of litigation relating to an alleged unauthorized Release of any Hazardous
Substance on, about or beneath the Real Property (or any portion thereof), or
the migration of any Hazardous Substance to or from the Real Property, or
alleging any obligation under Environmental Laws. The Sellers will promptly
notify the Buyer should the Company, any of its Subsidiaries or any of the
Hospitals receive any such request for information, notice or order, or become
aware of any lien, notice, litigation or threat of litigation relating to an
alleged unauthorized Release of any Hazardous Substance on, about or beneath the
Real Property (or any portion thereof) or any other alleged environmental
contamination or liability with respect to the Real Property (or any portion
thereof). Except as disclosed on Schedule 3(r) or in the Environmental
Assessments, the Company and its Subsidiaries hold all the Company Permits
21
<PAGE>
required under any Environmental Law in connection with the use of the Real
Property or the operation of the Hospitals.
(s) Brokers, Finders, etc. Except for PaineWebber Incorporated
----------------------
("PWI"), the Sellers and the Company are not subject to any valid claim of any
broker, investment banker, finder or other intermediary in connection with the
sale of the Shares contemplated by this Agreement. The Sellers are solely
responsible for any payment, fee or commission that may be due to PWI in
connection with the transaction contemplated hereby, including any withholding
required to be made on such payments.
(t) Books and Records. The Company has provided the Parent with
-----------------
access to all of the books and records of the Company, its Subsidiaries and the
Hospitals. All of such books and records are true, correct and complete in all
respects, and are and have been maintained in compliance with all applicable
laws, except where the failure to be true, correct and complete or in such
compliance with all applicable laws will not have a Material Adverse Effect.
Without limiting the generality of the foregoing and except where the failure to
do such actions would not cause a Material Adverse Effect: (i) the Company and
its Subsidiaries have at least since September 30, 1996 maintained continuous
ownership, care, custody and control of all patient medical records of the
Hospitals in compliance with all applicable laws; (ii) all such patient medical
records have been maintained for the retention period required by applicable
laws; and (iii) the Company and its Subsidiaries have maintained the security
and confidentiality of all patient medical records as required by applicable
laws.
(u) Special Funds. Neither the Company nor any of its Subsidiaries
-------------
is subject to any material liability in respect of amounts received by any of
them for the purchase or improvement of any Real Property or any part thereof
under restricted or conditioned grants or donations, including monies received
under the Public Health Service Act, 42 U.S.C. (S)291 et seq., if any.
-- ---
(v) Medical Staff Matters. The Company has heretofore made available
---------------------
to the Parent true, correct and complete copies of the bylaws and rules and
regulations of the medical staff of the Hospitals. Except as set forth on
Schedule 3(v), there are no pending disputes with applicants to be staff members
of the Hospitals or staff members of the Hospitals or, to the knowledge of the
Sellers, threatened in writing which would reasonably be expected to have a
Material Adverse Effect; and all appeal periods in respect of any medical staff
member or applicant against whom an adverse action has been taken have expired.
(w) Puerto Rico Residence. Except as set forth on Schedule 3(w)
---------------------
hereto, each Seller represents and warrants that he or she is a bona fide
resident of the Commonwealth of Puerto Rico within the meaning of U.S. Internal
Revenue Code, Section 933, and that he or she is not subject to U.S. individual
income tax with respect to the sale of the Shares.
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<PAGE>
4. Representations and Warranties of the Parent and the Buyer. The
----------------------------------------------------------
Parent and the Buyer hereby jointly and severally represent and warrant to the
Sellers as follows:
(a) Organization and Standing. The Parent and the Buyer are
-------------------------
corporations duly organized, validly existing and in good standing under the
laws of Delaware.
(b) Authority. The Parent and the Buyer have all requisite corporate
---------
power and authority to carry on their business as presently conducted and to
enable them to own, lease and operate their properties and assets they now own,
lease and operate. Each of the Parent and the Buyer are duly qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
in which the conduct or nature of its business or the ownership or use of its
properties or assets requires such qualification, except such jurisdictions
where the failure to be so qualified or in good standing would not effect the
ability of the Parent or the Buyer to consummate the transactions contemplated
hereby. The execution and delivery of the Agreement and the Escrow Agreement,
and the performance by the Parent and the Buyer of their respective obligations
hereunder and thereunder, have been duly authorized by all necessary action on
the part of each of the Parent and the Buyer. This Agreement has been duly
executed and delivered by each of the Parent and the Buyer and, assuming the due
execution and delivery hereof by the Sellers, constitutes a valid and binding
obligation of each of the Parent and the Buyer, enforceable against each of the
Parent and the Buyer in accordance with its terms (subject, as to the
enforcement of remedies, to applicable bankruptcy, reorganization, insolvency,
moratorium (whether general or specific) and similar laws relating to creditors'
rights generally, and general principles of equity (regardless of whether such
enforcement is sought in a proceeding in equity or at law)). The Escrow
Agreement, when executed and delivered by the Buyer and, assuming the due
execution and delivery thereof each of by the Sellers and the Escrow Agent will
constitute a valid and binding obligation of the Buyer, enforceable against the
Buyer in accordance with its terms (subject, as to enforcement of remedies, to
applicable bankruptcy, reorganization, insolvency, moratorium (whether general
or specific) and sim to creditors' rights and general principles of equity
(regardless of whether such enforcement is sought in a proceeding in equity or
at law)).
(c) No Conflicts; Consents. The consummation of the transactions
----------------------
contemplated hereby will not, conflict with, or result in any violation of or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or to
loss of a material benefit under any provision of (i) the respective certificate
of incorporation or by-laws of the Parent or the Buyer, (ii) any note, bond,
mortgage, indenture, deed of trust, license, lease, contract, commitment,
agreement or arrangement to which the Parent or the Buyer is a party or by which
any of them or any of their respective properties or assets is bound or (iii)
any judgment, order or decree, or statute, law, ordinance, rule or regulation,
applicable to the Parent or the Buyer or any of their respective
23
<PAGE>
properties or assets, in each case except for any such conflict, violation,
default or right which would not have a Material Adverse Effect. No consent,
approval, license, permit, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required to be obtained
or made by the Parent or the Buyer or in connection with the consummation of the
transactions contemplated hereby other than (x) compliance with and filings
under the HSR Act and (y) for those the failure of which to make or obtain would
affect the ability of the Parent or the Buyer to consummate the transactions
contemplated hereby.
(d) Financing. The Parent and the Buyer have sufficient funds or
---------
firm financing commitments in place with respect to all funds necessary to
consummate the transactions contemplated by this Agreement. The Parent and the
Buyer will have available as of the Closing Date funds sufficient to pay the
Purchase Price and the Long-Term Debt Amount.
(e) Securities Act. The Buyer is acquiring the Shares for its own
--------------
account for investment and not with a view to, or for offer or sale in
connection with, any distribution thereof in violation of the Securities Act of
1933, as amended (the "Securities Act") or any applicable state securities law.
Each of the Parent and the Buyer (i) is knowledgeable, sophisticated and
experienced in business and financial matters and fully understands the
limitations on transfer of the Shares and (ii) is an "accredited investor" as
such term is defined in Rule 501(a) of Regulation D under the Securities Act.
(f) Brokers, Finders, etc. Neither the Parent nor the Buyer are
---------------------
subject to any valid claim of any broker, investment banker, finder or other
intermediary in connection with the transactions contemplated by this Agreement.
5. Covenants of the Sellers. Each Seller individually covenants and
------------------------
agrees with the Parent and the Buyer as to such Seller as follows:
(a) Access. Prior to the Closing, each Seller shall cause the
------
Company and its Subsidiaries to give the Parent and the Buyer and their
officers, employees, representatives, counsel and accountants full access,
during normal business hours and upon reasonable notice, to the personnel,
properties, financial statements, contracts, books, records, working papers and
other relevant information pertaining thereto of the Hospitals, the Company and
its Subsidiaries. Prior to the Closing, each Seller shall cause the officers and
employees of the Company and its Subsidiaries to furnish to the Parent and the
Buyer and their officers, employees, representatives, counsel and accountants
such financial and operating data and other information with respect to the
business, properties and assets of the Company and its Subsidiaries as the
Parent and the Buyer shall from time to time reasonably request. The Sellers and
the Company shall, and shall use reasonable efforts to cause the Sellers'
Accountants to, cooperate with the Parent and the Buyer in the preparation and
filing, after the Closing, of such financial information about the Company and
its Subsidiaries as may be required to be included in the Parent's filings with
the
24
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Securities and Exchange Commission if requested by the Parent. Any expenses
incurred in connection with such audit shall be promptly paid or reimbursed by
the Parent or the Buyer.
(b) Ordinary Conduct. Except (i) as may be permitted herein, (ii) as
----------------
set forth on Schedule 5(b), (iii) with the prior consent of the Buyer (which
consent shall not be unreasonably withheld) and (iv) in the ordinary course of
business consistent with past practices, from and after the date hereof each of
the Company and its Subsidiaries will: (A) carry on its business in
substantially the same manner as has heretofore been conducted and not make any
change in the personnel, operations, finance, accounting practices or policies
or assets of the Hospitals except for any such change which would not have a
Material Adverse Effect; (B) continue to maintain the Hospitals in substantially
the same working order and condition as heretofore in existence (ordinary wear
and tear excepted); (C) use their best efforts to maintain relationships with
physicians, consistent with the medical staff bylaws of the Hospitals and, to
the extent commercially reasonable, maintain relationships with suppliers and
others having business relations with the Hospitals consistent with the terms of
such relationships; (D) perform all of its obligations under Material Agreements
and not enter into or terminate or amend in any respect that would have a
Material Adverse Effect any Material Agreement; (E) neither cancel, nor allow to
lapse nor make any material change in the coverage of any insurance policy
applicable to the Company, any of its Subsidiaries or the Hospitals; (F) pay all
Taxes as they become due, unless such Taxes are being disputed and a reserve is
established in respect of such disputed Taxes; (G) neither make offers of
employment to any persons for periods subsequent to the Closing (except for
offers made in the ordinary course for employment on an at will basis), nor
enter into any agreement with respect thereto nor incur or agree to incur any
liability with respect thereto; (H) neither adopt nor amend in any material
respect any Employee Plans; (I) not increase the compensation, in any form,
payable or to become payable to any employee, consultant or agent, except for
employees' compensation increases in the ordinary course of business in
accordance with existing personnel policies; (J) not incur any indebtedness or
guarantee any indebtedness of third parties, nor issue any debt securities in
excess of $100,000 in the aggregate; (K) not create or assume any mortgage,
pledge or other Lien or encumbrance upon any of its assets, other than Permitted
Encumbrances and Permitted Liens; (L) neither acquire nor agree to acquire by
merging or consolidating with, or by purchasing a substantial equity interest in
or a substantial portion of the assets of, or by any other manner, any person;
(M) except for expenditures included within the CapEx Amount and as otherwise
contemplated herein, neither make nor authorize any purchase order or capital
expenditure in excess of $20,000; (N) neither sell, lease, assign nor otherwise
transfer or dispose of any assets (other than supplies and other inventory); (O)
not amend their certificate of incorporation or by-laws or similar documents;
(P) not declare or pay any dividend or make any other distribution to their
stockholders whether or not upon or in respect of any shares of their capital
stock; (Q) not redeem or otherwise acquire any shares of their capital stock or
issue any capital stock or any option, warrant or right relating thereto or any
securities convertible into or exchangeable for any shares of capital stock; (R)
not enter into any operating lease providing for payments aggregating in excess
of $20,000; and (S) not cancel or
25
<PAGE>
waive any right not otherwise covered by the foregoing clauses (A) through (R)
that would, individually or in the aggregate, have a Material Adverse Effect.
(c) Other Transactions. From the date of execution and delivery of
------------------
this Agreement to the Closing, no Seller shall, nor shall such Seller cause or
permit the Company or any of its Subsidiaries or any of their respective
directors, officers, stockholders or representatives to, directly or indirectly,
encourage, solicit, initiate or participate in discussions or negotiations with,
or provide any information or assistance to, any person or group (other than the
Parent, the Buyer and their respective representatives) concerning any merger,
sale of securities, sale of substantial assets or similar transaction involving
the Company or any of its Subsidiaries. In the event that any of the Sellers,
the Company or its Subsidiaries receives a proposal relating to any such
transaction, such Seller shall promptly notify the Parent and the Buyer of such
proposal.
(d) Non-Competition. Each of the Sellers agrees that he or she will
---------------
not for a period of five (5) years from the Closing Date directly or indirectly
build, invest in, assist in the development of, or have any management role in,
any firm, corporation, business or other organization or enterprise primarily
engaged, directly or indirectly, in provision of hospital services within the
Commonwealth of Puerto Rico without first receiving the written consent of the
Parent. If any court determines that the restrictive covenant set forth in this
Section 5(d), or any part of such covenant, is unenforceable because of the
duration of such provision or the geographic area covered thereby, such court
shall have the power to reduce the duration or geographic area of such provision
and, in its reduced form, such provision shall then be enforceable and shall be
enforced. Notwithstanding the foregoing, (i) this Section 5(d) shall apply only
to such Sellers who individually own in excess of 1% of the Shares, (ii) this
Section 5(d) shall not prevent the practice of medicine by any Seller and (iii)
each of the Sellers may own up to 1% of any class of stock of any such
corporation or entity listed on a national securities exchange or quoted on The
Nasdaq Stock Market.
6. Covenants of the Parent and the Buyer.
-------------------------------------
(a) Confidentiality. The Buyer acknowledges that the information
---------------
being provided to them in connection with the purchase and sale of the Shares
and the consummation of the other transactions contemplated hereby is subject to
the terms of a confidentiality agreement, dated July 30, 1997, between the
Parent and the Company (the "Confidentiality Agreement"), the terms of which are
incorporated herein by reference.
(b) Employees and Employee Benefit Plans. (i) The Buyer shall cause
------------------------------------
the Company and its Subsidiaries to offer the employment, on an at will basis
and at substantially the same rates of compensation as in effect immediately
prior to the Closing, to all employees of the Company and its Subsidiaries
employed at the Closing Date (including, without limitation, the
26
<PAGE>
medical staff of the Hospitals, on the same basis and with the same privileges,
subject to applicable medical staff by-law requirements as in effect immediately
prior to the Closing Date. The Buyer shall substantially the same benefits as in
effect immediately prior to the Closing for at least two (2) years after the
Stock Purchase Closing. Notwithstanding anything to the contrary, no contracts
of employment shall be deemed to have been created pursuant to this Section
6(b)(i).
(ii) The Buyer shall cause service by employees of the Company
or its Subsidiaries to be recognized under each benefit plan or arrangement
established, maintained or contributed to by the Buyer, the Company or its
Subsidiaries after the Closing for the benefit of any such employees for
purposes of (A) eligibility to participate and (B) vesting, but in no event
shall such service be taken into account in determining the accrual of benefits
under any such benefit plan or arrangement, including, but not limited to, a
defined benefit plan.
(c) WARN Act. The Buyer acknowledges and agrees that any employment
--------
loss within the meaning of the Worker Adjustment and Retraining Notification Act
(the "WARN Act"), 29 U.S.C. (S)(S) 2101 et seq., suffered by any employee of the
-------
Hospitals, the Company or its Subsidiaries immediately upon or within 90 days of
the Closing, shall have been caused by the Parent's or the Buyer's decision not
to continue the employment of such employee, and not by the sale of the Company
and its Subsidiaries. The Parent and the Buyer each further acknowledge and
agree that they shall be responsible for giving any notices required by the WARN
Act, that they are liable to any employee who does not receive notice under, and
who suffers an employment loss (as defined in the WARN Act) and that they are
responsible to and shall indemnify and hold harmless the Sellers for any and all
claims asserted under the WARN Act because of a "plant closing" or "mass
layoff," as defined therein, occurring on or after the Closing Date (unless such
claims are due solely and directly to acts of the Sellers prior to the Closing
Date). For purposes of this Agreement, the Closing Date is and shall be the same
as the "effective date" of the sale within the meaning of the WARN Act.
(d) Indigent Care and Community Commitments. After the Closing, the
---------------------------------------
Buyer shall (i) cause the Company and its Subsidiaries to provide indigent care
as required by applicable law and in accordance with the policies of the
Hospitals existing at June 30, 1997 and (ii) commit such resources as reasonably
necessary to expand the medical staff and clinical services of the Company and
its Subsidiaries to meet the needs of the Hospitals and their respective local
community.
(e) Advisory Board. Promptly following the Closing, the Buyer shall
--------------
establish an advisory board (the "Advisory Board") consisting of representatives
from (i) the Board of Directors of the Company as it exists on the date hereof,
(ii) the medical staff of the Hospitals, (iii) members of the community and (iv)
the Buyer. From and after the Closing, the Advisory Board shall meet on a
regular basis with the Buyer and shall act on behalf of the
27
<PAGE>
Hospitals for the purpose of granting medical staff privileges to physicians and
other members of the medical staff and, subject to the rights and obligations of
the Buyer as the owner of the Hospitals, shall assist in developing the
Hospitals' policies and shall make recommendations to the Buyer.
(f) Capital Commitments. From and after the Closing, the Buyer shall
-------------------
continue and complete the capital projects set forth on Schedule 6(f) hereto.
(g) Names of Hospitals. For a period of five (5) years following the
------------------
Closing Date, the Buyer shall continue using the names "Hospital San Francisco"
and "Hospital San Pablo" as the respective names of the Hospitals.
(h) Fajardo. If the Fajardo Acquisition is not consummated on or
-------
prior to the Closing Date, the Buyer agrees to cause the Company and its
Subsidiaries to consummate the Fajardo Acquisition in accordance with the terms
of the Asset Purchase Agreement among San Pablo Del Este, Inc., the Company, the
Department of Health of Puerto Rico, the Puerto Rico Health Facilities and
Services Administration, the Government Development Bank for Puerto Rico and the
Puerto Rico Department of Transportation and Public Works, with respect thereto,
executed by the parties thereto on or prior to the Closing Date. The Parent and
the Buyer agree that any exercise, prior to or after the Closing, of any right
by the Commonwealth of Puerto Rico in connection with the Fajardo Acquisition,
including without limitation any right of first refusal with respect thereto,
shall in no way affect the obligations of the Parent and the Buyer to proceed
with the transactions contemplated hereby or the Parent's guarantee of the
Buyer's obligations hereunder, or give any rights to the Parent or the Buyer to
make any claim against the Sellers with respect thereto. The Parent and the
Buyer further agree that if, prior to the Closing Date, the Company or its
Subsidiaries determine not to consummate the Fajardo Acquisition for any reason,
the Buyer will proceed with the purchase of the Shares contemplated hereby.
(i) Long-Term Debt. At the Closing, the Buyer shall discharge in
--------------
full an aggregate amount (the "Non-Assumed Long-Term Debt") equal to the
difference between (x) the Long-Term Debt Amount, and (y) the total amount of
the obligations to remain in place at the Company that are reflected in the
"Obligation under Capital Lease" line item and the "Current Portion of Capital
Lease" line item of the Closing Balance Sheet. In connection with any amounts
included within the Non-Assumed Long-Term Debt attributable to the credit
agreement, dated as of March 27, 1997, by and among Citibank, N.A., for itself
and as agent for the lenders thereunder, and the Company and San Francisco (the
"Citibank Loan"), the Buyer shall obtain in consideration thereof (i) a release,
satisfactory to the Buyer, from the bank to the Company and its Subsidiaries of
all further liabilities and liens thereunder and (ii) a release, satisfactory to
the Guarantors, from the bank to the Guarantors (as defined in Section 8(b)(ii)
below) of their personal guarantees thereof.
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<PAGE>
(j) Parent Guarantee of the Buyer's Obligations. The Parent
-------------------------------------------
irrevocably and unconditionally guarantees, as primary obligor, the due and
punctual performance by the Buyer and its permitted assigns of the agreements
and obligations under this Agreement and the Escrow Agreement and all agreements
and instruments to be executed by the Buyer and its permitted assigns as
contemplated hereunder and thereunder. This Guarantee shall survive the
Closing.
7. Mutual Covenants. (a) Consummation of the Transactions.
---------------- --------------------------------
Subject to the terms and conditions of this Agreement, each party hereto shall
use its best efforts to cause the Closing to occur. The Sellers shall cause the
Company and its Subsidiaries and their respective directors, officers,
stockholders and representatives to cooperate with the Parent and the Buyer, and
the Parent and the Buyer shall cooperate with the Sellers, the Company and its
Subsidiaries in filing any necessary applications, reports or other documents
with, giving any notices to, and seeking any consents from, all Governmental
Entities and all third parties as may be required in connection with the
consummation of the transactions contemplated by this Agreement and the
performance by the Company and its Subsidiaries of their businesses after such
consummation, and in seeking necessary consultation with and prompt favorable
action by any such Governmental Entity or third party.
(b) Publicity. The Sellers, the Parent and the Buyer agree that,
---------
from the date of the execution and delivery of this Agreement through the
Closing, no public release or announcement concerning the transactions
contemplated hereby shall be issued by any party hereto or the Company or its
Subsidiaries without the prior consent of (i) the Parent in the case of a
release or an announcement by a Seller, the Company or any of its Subsidiaries
or (ii) the Representatives in the case of a release or an announcement by the
Parent or the Buyer (in each case which consent shall not be unreasonably
withheld), except as such release or announcement may be required by law or the
rules or regulations of any United States or foreign securities exchange, in
which case the party required to make the release or announcement shall allow
the other party reasonable time to comment on such release or announcement in
advance of such issuance. After the date hereof, the parties hereto shall not
make any comments or statements with respect to the transactions contemplated
hereby to any third party (including without limitation members of the news
media, securities analysts and employees of the Company, any of its
Subsidiaries, the Parent or the Buyer) without the prior consent of the Parent
or the Representatives, as the case may be.
(c) Antitrust Notification. The Sellers shall cause the Company to,
----------------------
and the Parent and the Buyer shall, as promptly as practicable, but in no event
later than ten (10) business days following the execution and delivery of this
Agreement, file with the United States Federal Trade Commission (the "FTC") and
the United States Department of Justice (the "DOJ") the notification and report
form, if any, required for the transactions contemplated hereby and any
supplemental information requested in connection therewith pursuant to the HSR
Act. Any such notification and report form and supplemental information shall
be in substantial compliance with
29
<PAGE>
the requirements of the HSR Act. The Sellers shall cause the Company to furnish
to the Parent and the Buyer, and the Parent and the Buyer jointly and severally
shall furnish to the Company, such necessary information and reasonable
assistance as may be requested in connection with the preparation of any filing
or submission which is necessary under the HSR Act. The Sellers shall cause the
Company to keep the Parent and the Buyer informed, and the Parent and the Buyer
jointly and severally shall keep the Company informed, of the status of any
communications with, and any inquiries or requests for additional information
from, the FTC and the DOJ and shall comply promptly with any such inquiry or
request.
(d) Hospital Records. (i) The term "Hospital Records" shall mean
----------------
(A) all or any portion of the medical, clinical and other records directly or
indirectly associated with the admission, care and treatment of patients at the
Hospitals (excluding, however, all billing, other financial and marketing
information related thereto) for periods ending on or prior to the Closing Date
(the "Patient Records") and (B) all or any portion of the financial and other
records and files of the Company and its Subsidiaries for periods ending on or
prior to the Closing Date (the "Business Records") including, without limiting
the generality of the foregoing, any records, documents or other material.
Notwithstanding the foregoing, the parties shall cooperate in providing copies
and access to the Hospital Records as set forth below in clause (iii).
(ii) On the Closing Date, the Sellers shall deliver or cause to
be delivered to the Buyer all Hospital Records, if any, in the possession of the
Sellers relating to the business and operations of the Company and its
Subsidiaries, subject to the following exceptions:
(A) The Representatives may retain all Hospital Records
prepared in connection with the sale of the Shares, including bids received from
other parties, if any, and analyses relating to the Company and its
Subsidiaries; and
(B) The Representatives may retain any Tax Returns and
supporting work papers, and the Parent and the Buyer shall be provided with
copies of such Tax Returns only to the extent that they relate to the Company's
or its Subsidiaries' separate returns or separate Tax liability prior to the
Closing Date.
(iii) The Parent and the Buyer shall retain the Hospital Records
at the Hospital (or at such other locations as the Parent and the Buyer and the
Representatives shall determine by their mutual agreement from time to time) at
the Buyer's cost, pursuant to the provisions of Regulation No. 52 (Regulation
for the Operation of Health Facilities in Puerto Rico) enforced by the Puerto
Rico Department of Health, until the expiration of the time periods set forth in
Regulation No. 52 (and, if at the expiration thereof any tax or payor audit or
judicial proceeding is in process or the applicable statute of limitations has
been extended or has not then expired or terminated, for such longer period if
such audit or proceeding is in process or such statutory period is extended and
for such longer period until such expiration or termination) (the
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<PAGE>
"Document Retention Period"). After the Closing, the Buyer shall grant, and the
Representatives shall have, full access to the Hospital Records (including any
Patient Records) as needed for any lawful purpose (including the
Representative's inspection and copying of the same), and the Representatives
shall have the same rights of access to inspect and copy that the
Representatives had prior to the Closing, subject to the Buyer's standard
policies and procedures concerning confidentiality and compliance with
applicable laws; provided, however, that any Hospital Records delivered to or
-------- -------
made available to the Representatives, the Sellers and their representatives
will be treated as strictly confidential by the Representatives, the Sellers and
their representatives, will not be directly or indirectly divulged, disclosed or
communicated to any other person other than the Representatives, the Sellers and
their representatives who are reasonably required to have access to such
information (unless the Representatives are compelled to disclose the same by
judicial or administrative process), and will be returned to the Buyer when the
Repruyer shall instruct the appropriate employees of the Company, its
Subsidiaries and the Hospitals to cooperate in providing access to such records
to the Representatives and their authorized representatives as contemplated
herein. Access to such records shall be, wherever reasonably possible, during
normal business hours, with reasonable prior written notice to the Parent and
the Buyer of the time when such access shall be needed. The Representatives'
employees, representatives and agents shall conduct themselves in such a manner
so that the Parent's and the Buyer's normal business activities shall not be
unduly or unnecessarily disrupted. After the expiration of the aforementioned
Document Retention Period, the Buyer or the Parent may, pursuant to the
provisions of Regulation No. 52, destroy Hospital Records in their possession;
provided, however, that, for a period of two (2) years after the Document
- - - -------- -------
Retention Period, the Buyer and the Parent shall not (and shall not allow the
Company or its Subsidiaries to), without 90 days prior written notification to
the Representatives (the "Destruction Notice"), destroy any Hospital Records.
Within 80 days after its receipt of the Destruction Notice, the Representatives
shall have the right, at the Sellers' expense, to require the Buyer to deliver
any such records to the Representatives and the Buyer shall thereupon deliver
the same to the Representatives. Within 10 business days following the Closing,
the Buyer shall apprise the executive officers and such other appropriate
employees of the Company, its Subsidiaries and the Hospitals, as the case may
be, of, and shall instruct such officers and employees to adopt and follow a
records retention/destruction policy with respect to the Hospital Records which
complies with, the foregoing record maintenance and destruction program for the
Hospital Records.
(e) Related Agreements. The Parent and the Company shall use their
------------------
best efforts to reach agreement on or before the Closing Date with respect to,
and shall negotiate in good faith, (i) the Real Estate Purchase Agreement (as
defined in Section 8(a)(v) below) on the terms set forth on Schedule 7(e)
hereto, and (ii) the Escrow Agreement on the terms set forth on Schedule 2(c)
hereto.
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<PAGE>
(f) Fajardo. Prior to the Closing, the Company shall include the
-------
Parent and the Buyer in any negotiations with the government of the Commonwealth
of Puerto Rico regarding the Fajardo Acquisition and the parties will negotiate
the final terms of such Fajardo Acquisition substantially in accordance with the
terms of the letter of understanding, dated November 4, 1997, between the
Puerto Rico Department of Health, the Government Development Bank and San Pablo
del Este, Inc. and the letter dated October 27, 1997, between the Puerto Rico
Department of Health and the Government Development Bank to San Pablo del Este,
Inc., regarding the Fajardo Acquisition.
(g) Additional Insurance. The parties hereto will use their
--------------------
respective best efforts to obtain a "tail insurance" policy for any suits,
actions or proceedings that may arise against the Hospitals, the Company or any
Subsidiary (the "Additional Insurance"), the cost of which shall be shared
equally by the Parent and the Buyer, on the one hand, and the Sellers, on the
other hand, provided that in no event shall the Sellers be obligated in the
aggregate to pay more than $250,000 of such cost.
(h) Waiver of Article Eight. The Company shall waive its right under
-----------------------
Article Eight of the Company's Certificate of Incorporation on or before the
Closing Date.
(i) Permitted Escrow. In the event that the Shares identified on
----------------
Schedule 3(a) are not available for transfer on or prior to the Closing as
disclosed on such Schedule (and only for purposes of effectuating the transfer
thereof) the Buyer and such Sellers shall effectuate the purchase and sale of
such Shares through an interest bearing escrow arrangement (with interest
accruing for the benefit of the Sellers providing for the escrow of such
Sellers' respective Pro Rata Portions of the Purchase Price and the Shares, the
release thereof being subject only to the receipt of any necessary approvals
identified Schedule 3(a) or the consummation of the merger as hereinafter
provided. At the Buyer's option and in accordance with applicable law, after the
Closing the Buyer may effect a "short-form" merger in order to acquire such
Shares, provided that the consideration to be paid in respect of such Shares
shall be an amount equal to the sum of (x) each of such Sellers' Pro Rata
Portions of the Purchase Price, plus (y) such Seller's proportionate interest in
interest earned during the aforementioned escrow agreement. Except as provided
in this Section 7(i), the agreements of such Sellers and the Buyer provided in
this Agreement shall otherwise remain unaffected.
(j) Further Assurances. From time to time, as and when reasonably
------------------
requested by another party hereto, a party hereto shall execute and deliver, or
cause to be executed and delivered, all such documents and instruments and shall
take, or cause to be taken, all such further acts or other actions as such other
party may reasonably deem necessary or desirable to consummate the transactions
contemplated by this Agreement.
32
<PAGE>
8. Conditions to Closing. (a) Each Party's Obligations. The
--------------------- ------------------------
respective obligations of each party hereto to effect the transactions
contemplated hereby is subject to the satisfaction or waiver as of the Closing
of the following conditions:
(i) No statute, rule, regulation, executive order, decree,
temporary restraining order, preliminary or permanent injunction or other order
shall have been enacted, entered, promulgated, enforced or issued by any
Governmental Entity and no other legal restraint or prohibition preventing the
purchase and sale of the Shares or any of the other transactions contemplated by
this Agreement shall be in effect.
(ii) The waiting period under the HSR Act, if applicable to the
purchase and sale of the Shares, shall have expired or been terminated.
(iii) The Sellers, the Company, the Parent and the Buyer shall
have filed all material applications, reports or other documents, given all
material notices, met all material requirements, and received all material
consents and approvals in connection with the consummation of the transactions
sale of the Shares contemplated hereby.
(iv) The Buyer, the Escrow Agent and the Sellers shall have
executed and delivered the Escrow Agreement.
(v) The Buyer and Zomil Realty, Inc., a Puerto Rico
corporation ("Zomil"), shall have executed and delivered a real estate purchase
agreement relating to the purchase of the assets identified in Schedule 8(a)
hereto on the terms set forth on Schedule 7(e) hereto (the "Real Estate Purchase
Agreement"); and all conditions precedent required to be fulfilled or waived
prior to the consummation of the transactions contemplated in the Real Estate
Purchase Agreement (including, if applicable, the execution of any long-term
leases provided for therein as contemplated by Schedule 7(e) hereto) shall have
been fulfilled or waived, as the case may be, and the transactions contemplated
thereby shall be consummated concurrently with the Closing.
(vi) The Buyer and Zomil shall have executed and delivered a
purchase and development agreement substantially in the form of Exhibit A hereto
(the "Development Agreement").
(vii) All Non-Assumed Long-Term Debt of the Company shall be
paid in full at the Closing as contemplated by Sections 2(a)(ii) and 6(i) of
this Agreement and all liens securing such indebtedness shall be removed.
(viii) The parties shall have obtained the Additional Insurance.
33
<PAGE>
(ix) Immediately prior to the Closing, the employment
arrangement for Juan L. Cruz Rosario shall have been terminated.
(b) The Sellers' Obligations. The obligations of the Sellers to sell
------------------------
and deliver the Shares to the Buyer is subject to the satisfaction (or waiver by
the Sellers) as of the Closing of the following additional conditions:
(i) The representations and warranties of the Parent and the
Buyer made in this Agreement qualified as to materiality shall be true and
correct, and those not so qualified shall be true and correct in all material
respects, as of the date hereof and as of the time of the Closing as though made
as of such time, except to the extent such representations and warranties
expressly relate to an earlier date (in which case such representations and
warranties qualified as to materiality shall be true and correct, and those not
so qualified shall be true and correct in all material respects, on and as of
such earlier date). The Parent and the Buyer shall have duly performed, complied
with and satisfied in all material respects all covenants, agreements and
conditions required by this Agreement to be performed, complied with or
satisfied by the Parent and the Buyer by the time of the Closing. The Parent and
the Buyer shall have delivered to the Sellers a certificate dated the Closing
Date and signed by an officer of the Parent and the Buyer confirming the
foregoing.
(ii) The personal guaranties of each of Mr. and Mrs. Juan L.
Cruz Rosario, Mr. Milton Cruz and Ms. Zoraida Cruz Torres (the "Guarantors"),
whereby the Guarantors agreed to guaranty the obligations up to the amount of
$2,500,000 under the Citibank Loan, shall be terminated, and written evidence
reasonably satisfactory to the Guarantors of such termination or assumption
shall be supplied to the Representatives.
(c) The Buyer's Obligations. The obligations of the Buyer to
-----------------------
purchase the Shares from the Sellers is subject to the satisfaction (or waiver
by the Buyer) as of the Closing of the following additional conditions:
(i) The representations and warranties of the Sellers made in
this Agreement shall be true and correct in all material respects, as of the
date hereof and as of the time of the Closing as though made as of such time,
except to the extent such representations and warranties expressly relate to an
earlier date (in which case such representations and warranties shall be true
and correct in all material respects, on and as of such earlier date). The
Sellers shall have duly performed, complied with and satisfied in all material
respects all covenants, agreements and conditions required by this Agreement to
be performed, complied with or satisfied by the Sellers by the time of the
Closing. Each Seller shall have delivered to the Parent and the Buyer a
certificate dated the Closing Date and signed by such Seller confirming the
foregoing.
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<PAGE>
(ii) Except as caused solely by any change in the relevant
market conditions and prospects and for those matters set forth on Schedule 3(h)
hereto, for which the Parent and the Buyer shall assume all risk, there shall
have been no material adverse change since June 30, 1997 in the financial
condition, business or affairs of the Company and its Subsidiaries taken as a
whole; and the Company and its Subsidiaries taken as whole shall not have
suffered any material loss (whether or not insured) by reason of physical damage
caused by fire, earthquake, accident or other calamity which substantially
affects the value of its assets, properties or business the insurance proceeds
related to which are not, in the reasonable opinion of the Parent and the Buyer,
adequate to repair such damage and compensate for any lost business related
thereto. The Buyer shall have received a certificate of the Sellers dated the
Closing Date that the statements set forth in this Section 8(c)(ii) are true and
correct.
(iii) No Seller shall have defaulted in its obligation to sell
or deliver such Seller's Shares to the Buyer.
(iv) The Company shall have waived its rights under Article
Eight of the Company's Certificate of Incorporation prior to the Closing.
(v) On or prior to the Closing, the Sellers (at their sole
cost and expense) shall provide to the Buyer (A) a standard ALTA fee owner's
title insurance policies (the "Title Policies") insuring title to each parcel of
the Real Property in the Buyer as prospective fee owner, subject only to the
Permitted Encumbrances, in the aggregate amount of $100 million and (B) surveys
of the Real Property made by a registered land surveyor bearing a certificate
addressed to the Buyer and the title company, signed by the surveyor, certifying
that the survey was actually made on the ground and that there are no
encumbrances except as shown, complying with the minimum detail requirements for
ALTA/ACSM and land title surveys as adopted by the American Land Title
Association and the American Congress on Surveying and Mapping 1992 and
providing sufficient detail to provide the basis for the title company to issue
the Title Policies without the general exception for survey matters. The Sellers
shall be entitled to any credit received for existing policies and surveys.
(vi) The Company shall have delivered to the Buyer a copy of
the audited balance sheet of the Company (on a consolidated basis) as of, and
the audited statement of income of the Company (on a consolidated basis) for the
twelve month period ended, September 30, 1997 (the "Audited 1997 Financial
Statements"); and there shall not be any material adverse change in the
financial condition of the Company reflected in the Audited 1997 Financial
Statements from the draft of such statements made available to the Parent on or
prior to the date of this Agreement.
(d) Frustration of Closing Conditions. Neither any Seller nor the
---------------------------------
Parent or the Buyer may rely on the failure of any condition set forth in
Section 8(a), Section 8(b) or
35
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Section 8(c), respectively, to be satisfied if such failure was caused by such
party's failure to act in good faith or to use its best efforts to cause the
Closing to occur as required by Section 7(a).
9. Indemnification. (a) Tax Indemnification. The Sellers shall
--------------- -------------------
severally indemnify the Parent and the Buyer and their affiliates (including the
Company and its Subsidiaries) and each of their respective directors, officers,
employees, stockholders, agents and other representatives against and hold them
harmless from (i) any liability for Taxes of the Company or its Subsidiaries for
any Pre-Closing Tax Period (except to the extent such taxable period began
before and continues after the Closing Date, in which case such indemnity will
cover only that portion of any such Taxes that are for the Pre-Closing Tax
Period), (ii) any liability for Taxes of the Sellers and (iii) any liability for
reasonable legal, accounting, appraisal, consulting or similar fees and expenses
for any item attributable to any item in clause (i) or (ii) above (collectively,
a "Tax Loss"). The Seller's indemnification obligations under this Section 9(a)
shall be limited to the excess of amounts reserved (if any) for payment of Taxes
set forth in the Closing Balance Sheet. The Parent and the Buyer shall, and
after the Closing shall cause the Company and its Subsidiaries to, jointly and
severally indemnify each Seller and its affiliates and each of their respective
employees, agents and representatives against and hold them harmless from any
liability for Taxes and other Tax Losses of the Company or its Subsidiaries for
any taxable period ending after the Closing Date (except to the extent such
taxable period began before the Closing Date, in which case such indemnity will
cover only that portion of any such Taxes that are not for the Pre-Closing Tax
Period). In the case of any taxable period that includes (but does not begin or
end on) the Closing Date (a "Straddle Period"):
(A) Notwithstanding the assessment date, real property, personal
property and municipal license taxes (collectively, the "Special Taxes") of the
Company and its Subsidiaries for any Pre-Closing Tax Period (other than Taxes
imposed in connection with the sale of the Shares or otherwise in connection
with this Agreement, or the transactions contemplated hereby) shall be equal to
the amount of such Special Taxes for the fiscal year (or semester, if
applicable) to which they relate multiplied by a fraction the numerator of which
is the number of days that have elapsed during the particular fiscal year (or
semester, if applicable) that are in the Pre-Closing Tax Period and the
denominator which is 365 (or 182 in the case of a semester); and
(B) the Taxes of the Company or its Subsidiaries (other than the
Special Taxes) for the Pre-Closing Tax Period (other than Taxes imposed in
connection with the sale of the Shares or otherwise in connection with this
Agreement or the transactions contemplated hereby) shall be computed as if such
taxable period ended as of the close of business on the Closing Date. The
indemnification obligations of the Sellers in respect of Taxes for a Straddle
Period shall equal the excess of (x) such Taxes for the Pre-Closing Tax Period
over (y) the sum of (I) the amount of such Taxes for the Pre-Closing Tax Period
paid by the Sellers or any of their affiliates (other than the Company) at any
time and (II) the amount of such Taxes paid by the
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<PAGE>
Company or its Subsidiaries on or prior to the Closing Date and, as provided in
Section 9(a) above, shall be limited to the excess of amounts reserved (if any)
for payment of Taxes set forth in the Closing Balance Sheet. The Sellers shall
initially pay such excess to the Buyer five days prior to the date on which the
Tax Return (including any Tax Return with respect to estimated Taxes) with
respect to the liability for such Taxes is required to be filed (and if no such
Tax Return is required to be filed, five days prior to the date satisfaction of
the Tax liability is required by the relevant taxing authority). The payments to
be made pursuant to this paragraph by the Sellers with respect to a Straddle
Period shall be appropriately adjusted to reflect any final determination (which
shall include the execution of Department of the Treasury Model Form SC 2845 or
any successor form) with respect to Taxes for the Straddle Period. The
indemnification obligations of the Sellers provided under this Section 9(a)
shall terminate when the applicable statute of limitations has expired.
(b) General Indemnification by the Sellers. The Sellers, severally,
--------------------------------------
shall indemnify the Parent and the Buyer and hold them harmless from any loss,
liability, claim, damage or expense (including reasonable legal fees and
expenses) (collectively, a "Loss") suffered or incurred by any such indemnified
party (other than any relating to Taxes, for which indemnification provisions
are set forth in Section 9(a)) arising from, relating to or otherwise in respect
of (i) any failure of any representation or warranty of any of the Sellers
contained in this Agreement which survives the Closing or in any certificate
delivered pursuant hereto to be true and correct (provided, that with respect to
the representations made in Sections 3(d), 3(i), 3(j), 3(n), 3(o), 3(p), 3(q),
3(r), 3(t) and 3(v) of this Agreement, such determination shall be made without
regard to any reference as to "Material Adverse Effect" contained therein) and
(ii) any breach of any covenant of any of the Sellers contained in this
Agreement.
(c) General Indemnification by the Parent and the Buyer. The Parent
---------------------------------------------------
and the Buyer shall, and shall cause the Company and its Subsidiaries to,
jointly and severally, indemnify each Seller, its affiliates and each of their
respective employees, agents and representatives against and hold them harmless
from any Loss, suffered or incurred by any such indemnified party (other than
any relating to Taxes, for which indemnification provisions are set forth in
Section 9(a)) arising from, relating to or otherwise in respect of (i) any
failure of any representation or warranty of the Parent or the Buyer contained
in this Agreement which survives the Closing or in any certificate delivered
pursuant hereto to be true and correct and (ii) any breach of any covenant of
the Parent or the Buyer contained in this Agreement, including, but not limited
to, Section 6(c).
(d) Losses Net of Insurance, etc. The amount of any Loss or Tax for
-----------------------------
which indemnification is provided under this Section 9 shall be net of (x) any
amounts actually recovered or recoverable by the indemnified party under
insurance policies or other reimbursement received or to be received from third
parties and (y) any amounts reserved for on the Company's or its Subsidiaries'
financial statements with respect to such Loss or Tax and shall
37
<PAGE>
be (i) increased to take account of any net Tax cost incurred by the indemnified
party arising from the receipt of indemnity payments hereunder (grossed up for
such increase) and (ii) reduced to take account of any net Tax benefit realized
by the indemnified party arising from the incurrence or payment of any such
Loss. In computing the amount of any such Tax cost or Tax benefit, the
indemnified party shall be deemed to recognize all other items of income, gain,
loss, deduction or credit before recognizing any item arising from the receipt
of any indemnity payment hereunder or the incurrence or payment of any
indemnified Loss. Any indemnity payment under this Agreement shall be treated as
an adjustment to the Purchase Price for Tax purposes, unless a final
determination (which shall include the execution of a Department of the Treasury
Model Form SC 2845 or successor form) with respect to the indemnified party or
any of its affiliates causes any such payment not to be treated as an adjustment
to the Purchase Price for Puerto Rico Tax purposes.
(e) Limitations on Indemnification Rights. (i) No claim for
-------------------------------------
indemnification under Sections 9(a) or 9(b) may be made, and the Sellers shall
not have any liability:
(x) unless the aggregate of all Losses relating thereto for which the
Sellers would, but for this clause (x), be liable exceeds on a cumulative basis
an amount equal to $250,000 and, in such event, the Sellers shall be liable for
all of such amount;
(y) for any and all Losses which, when aggregated with all previous
Losses for which payment has been made under this Section 9, exceed $45 million,
nor will any individual Seller have any liability for any and all such Losses in
excess of each Seller's Pro Rata Portion of the Escrow Amount (except, in each
case, as otherwise specifically provided in Section 9(e)(ii) below); and
(z) whatsoever for the matters contemplated by Section 3(j)(ix).
(ii) In the event that the Parent, the Buyer and/or any other
person claiming a right to indemnification under this Section 9 through the
Parent or the Buyer (together, a "Claimant") shall be entitled to, or claim to
be entitled to, recover any amount pursuant to the indemnification provisions
set forth in this Section 9, the Parent, the Buyer or such other party, as the
case may be, shall look only to the Escrow Amount and shall not seek to recover
any amount directly from any of the Sellers, except for Losses in Excess of the
Escrow Amount arising from claims made for breach of the representation set
forth in (x) Section 3(b) of this Agreement, in which case a Claimant may seek
to recover from the Seller responsible for the breach any such additional
losses, and (y) Section 3(e) of this Agreement, in which case a Claimant may
seek from the Sellers, severally but not jointly, any such additional Losses.
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<PAGE>
(iii) The Parent and the Buyer acknowledge and agree that, from
and after the Closing, the sole and exclusive remedy with respect to any and all
claims relating to the subject matter of this Agreement (other than (x) claims
of fraud in connection with the transactions provided for under this Agreement
and (y) claims arising specifically pursuant to the procedures set forth in
Section 2(d) hereof in connection with determining any adjustment to the
Purchase Price required thereunder) shall be pursuant to the indemnification
provisions set forth in this Section 9. As used in this Section 9(e)(iii), the
term "fraud" shall not include or extend to Losses relating from claims of
noncompliance with the antifraud and abuse provisions of Medicare, Medicaid and
other similar applicable laws, which matters the parties agree are addressed
generally by Section 3(p) hereof.
(f) Procedures Relating to Indemnification. (i) All claims under
--------------------------------------
Section 9(b) or 9(c) other than Third Party Claims (as defined in Section
9(f)(ii)) shall be governed by Section 9f(iii). All Tax Claims (as defined in
Section 9(f)(iv)) shall be governed by Section 9f(v).
(ii) In order for a party (the "indemnified party") to be
entitled to any indemnification provided for under this Agreement (other than
under Section 9(a)) in respect of, arising out of or involving a claim or demand
made by any person against the indemnified party (a "Third Party Claim"), such
indemnified party must notify the indemnifying party in writing, and in
reasonable detail, of the Third Party Claim within 10 business days after
receipt by such indemnified party of written notice of the Third Party Claim;
provided, however, that failure to give such notification shall not affect the
- - - -------- -------
indemnification provided hereunder except to the extent the indemnifying party
shall have been actually prejudiced as a result of such failure (except that the
indemnifying party shall not be liable for any expenses incurred during the
period in which the indemnified party failed to give such notice). Thereafter,
the indemnified party shall deliver to the indemnifying party, within 5 business
days after the indemnified party's receipt thereof, copies of all notices and
documents (including court papers) received by the indemnified party relating to
the Third Party Claim.
If a Third Party Claim is made against an indemnified party, the
indemnifying party shall be entitled to participate in the defense thereof and,
if it so chooses and acknowledges its obligation to indemnify the indemnified
party therefor, to assume the defense thereof with counsel selected by the
indemnifying party; provided that such counsel is not reasonably objected to by
--------
the indemnified party. Should the indemnifying party so elect to assume the
defense of a Third Party Claim, the indemnifying party shall not be liable to
the indemnified party for legal expenses subsequently incurred by the
indemnified party in connection with the defense thereof. If the indemnifying
party assumes such defense, the indemnified party shall have the right to
participate in the
39
<PAGE>
defense thereof and to employ counsel, at its own expense, separate from the
counsel employed by the indemnifying party, it being understood that the
indemnifying party shall control such defense. The indemnifying party shall be
liable for the fees and expenses of counsel employed by the indemnified party
for any period during which the indemnifying party has failed to assume the
defense thereof (other than during the period prior to the time the indemnified
party shall have given notice of the Third Party Claim as provided above).
If the indemnifying party so elects to assume the defense of any Third
Party Claim, all of the indemnified parties shall cooperate with the
indemnifying party in the defense or prosecution thereof. Such cooperation
shall include the retention and (upon the indemnifying party's request) the
provision to the indemnifying party of records and information which are
reasonably relevant to such Third Party Claim, and making employees available on
a mutually convenient basis to provide additional information and explanation of
any material provided hereunder. Whether or not the indemnifying party shall
have assumed the defense of a Third Party Claim, the indemnified party shall not
admit any liability with respect to, or settle, compromise or discharge, such
Third Party Claim without the indemnifying party's prior written consent (which
consent shall not be unreasonably withheld). If the indemnifying party shall
have assumed the defense of a Third Party Claim, the indemnified party shall
agree to any settlement, compromise or discharge of a Third Party Claim which
the indemnifying party may recommend and which by its terms obligates the
indemnifying party to pay the full amount of the liability in connection with
such Third Party Claim, which releases the indemnifying party completely in
connection with such Third Party Claim and which would not otherwise adversely
affect the indemnified party.
Notwithstanding the foregoing, the indemnifying party shall not be
entitled to assume the defense of any Third Party Claim (and shall be liable for
the reasonable fees and expenses of counsel incurred by the indemnified party in
defending such Third Party Claim) if the Third Party Claim seeks an order,
injunction or other equitable relief or relief for other than money damages
against the indemnified party which the indemnified party reasonably determines,
after conferring with its outside counsel, cannot be separated from any related
claim for money damages. If such equitable relief or other relief portion of
the Third Party Claim can be so separated from that for money damages, the
indemnifying party shall be entitled to assume the defense of the portion
relating to money damages. The indemnification required by Section 9(b) and
9(c) shall be made by periodic payments of the amount thereof during the course
of the investigation or defense, as and when bills are received or loss,
liability, claim, damage or expense is incurred.
(iii) In the event any indemnified party should have a claim
against any indemnifying party under Section 9(b) or 9(c) that does not involve
a Third Party
40
<PAGE>
Claim being asserted against or sought to be collected from such indemnified
party, the indemnified party shall deliver notice of such claim with reasonable
promptness to the indemnifying party. The failure by any indemnified party so to
notify the indemnifying party shall not relieve the indemnifying party from any
liability which it may have to such indemnified party under Section 9(b) or
9(c), except to the extent that the indemnifying party demonstrates that it has
been materially prejudiced by such failure. If the indemnifying party does not
notify the indemnified party within 90 calendar days following its receipt of
such notice that the indemnifying party disputes its liability to the
indemnified party under Section 9(b) or 9(c), such claim specified by the
indemnified party in such notice shall be conclusively deemed a liability of the
indemnifying party under Section 9(b) or 9(c) and the indemnifying party shall
pay the amount of such liability to the indemnified party on demand or, in the
case of any notice in which the amount of the claim (or any portion thereof) is
estimated, on such later date when the amount of such claim (or such portion
thereof) becomes finally determined. If the indemnifying party has timely
disputed its liability with respect to such claim, as provided above, the
indemnifying party and the indemnified party shall proceed in good faith to
negotiate a resolution of such dispute and, if not resolved through
negotiations, such dispute shall be resolved by litigation in an appropriate
court of competent jurisdiction.
(iv) If a claim shall be made by any taxing authority, which, if
successful, might result in an indemnity payment to the Buyer, one of its
affiliates or any of their respective directors, officers, employees,
stockholders, agents or representatives pursuant to Section 9(a), then the
Parent or the Buyer shall give notice to the Representatives in writing of such
claim (a "Tax Claim") and of any counterclaim the Buyer proposes to assert.
With respect to any Tax Claim relating to a taxable period ending on
or prior to the Closing Date, the Representatives (on behalf of themselves and
each of the other Sellers) shall control all proceedings and may make all
decisions taken in connection with such Tax Claim (including selection of
counsel) and, without limiting the foregoing, may in their sole discretion
pursue or forego any and all administrative appeals, proceedings, hearings and
conferences with any taxing authority with respect thereto, and may, in their
sole discretion, either pay the Tax and sue for a refund where applicable law
permits such refund suits or contest the Tax Claim in any permissible manner.
The Representatives (on behalf of themselves and each of the other
Sellers) and the Buyer shall jointly control and participate in all proceedings
taken in connection with any Tax Claim relating to Taxes of the Company or its
Subsidiaries for a Straddle Period. Neither the Representatives nor the Buyer
shall settle any such Tax Claim relating to a Straddle Period without the prior
written consent of the other.
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<PAGE>
The Buyer shall control all proceedings with respect to any Tax Claim
relating to a taxable period beginning after the Closing Date. None of the
Sellers shall have any right to participate in the conduct of any such
proceeding.
The Buyer shall, and shall cause the Company, its Subsidiaries and
each of their affiliates, on the one hand, to, and each Seller and its
affiliates, on the other hand, shall, reasonably cooperate in contesting any Tax
Claim, which cooperation shall include the retention and, upon request, the
provision to the requesting person of records and information which are
reasonably relevant to such Tax Claim, and making employees available on a
mutually convenient basis to provide additional information or explanation of
any material provided hereunder or to testify at proceedings relating to such
Tax Claim.
(g) Proportional Obligations of the Sellers. Notwithstanding anything
---------------------------------------
to the contrary in this Agreement (i) the indemnification and purchase price
adjustment obligations of the Sellers pursuant to this Agreement (other than (x)
indemnification obligations for breaches of a Seller's individual
representations and covenants set forth in Sections 3(a), 3(b), 3(w) and 5 which
shall be the sole obligation of the particular Seller, and (y) indemnification
obligations pursuant to Section 2(b) hereof) shall be borne severally by each of
the Sellers based upon their respective Pro Rata Portion and (ii) no Seller
shall be liable for any such obligations (other than pursuant to Section 2(b)
hereof) for any amount under this Agreement in excess of the amount of the
Seller's Pro Rata Portion of the Purchase Price hereunder.
10. Tax Matters. (a) The Parent and the Buyer shall be responsible
-----------
for, and shall have ultimate discretion with respect to, (i) all Tax Returns
required to be filed by the Company and its Subsidiaries with respect to periods
that begin on or after the Closing Date and (ii) the Straddle Tax Returns, if
any, and (iii) any Audit (including the execution of any waiver of limitation
with respect to any Audit) relating to any such Tax Returns; provided, however,
-------- -------
that (x) in the case of any Straddle Tax Return, the preparation and filing of
such Return shall be subject to review and approval of the Representatives, and
(y) in the event that any Audit for which the Parent and the Buyer are
responsible pursuant to this Section 10(a) could reasonably be expected to
result in a material increase in Tax liability for which the Sellers would be
liable, the Parent and the Buyer shall consult in good faith with the
Representatives with respect of the specific issues that could give rise to such
increased Tax liability. For any taxable period of the Company and its
Subsidiaries that ends on or before the Closing Date, the Sellers shall timely
prepare and file with the appropriate taxing authorities all Tax Returns
required to be filed, and shall pay all Taxes due with respect to such Tax
Returns; provided, however, that no such Tax Return shall be filed without the
-------- -------
prior written consent of the Buyer. The Buyer and the Sellers agree to cause the
Company and its Subsidiaries to file
42
<PAGE>
all Tax Returns for the taxable period including the Closing Date on the basis
that the relevant taxable period ended as of the close of business on the
Closing Date, unless the relevant taxing authority will not accept a Tax Return
filed on that basis.
(b) The Representatives shall, and shall cause the Sellers to, and
the Parent shall and the Buyer shall and shall cause the Company and its
Subsidiaries to, reasonably cooperate, and shall cause their respective
affiliates, officers, employees, agents, auditors and other representatives
reasonably to cooperate, in preparing and filing all Tax Returns and in
resolving all disputes and audits with respect to all taxable periods relating
to Taxes, including by maintaining and making available to each other all
records necessary in connection with Taxes, provided, however, in no event shall
-------- -------
the Buyer be required to provide any Tax Return to the Sellers. The Buyer and
the Sellers recognize that the Sellers and their affiliates will need access,
from time to time, after the Closing Date, to certain accounting and Tax records
and information held by the Company and its Subsidiaries to the extent such
records and information pertain to events occurring prior to the Closing Date;
therefore, the Parent and the Buyer jointly and severally agree, and agree after
the Closing to cause the Company and its Subsidiaries, to allow the Sellers and
their agents and other representatives, at times and dates mutually acceptable
to the parties, reasonable access to such records from time to time, during
normal business hours and at the Sellers' expense.
(c) The amount or economic benefit of any refunds, credits or offsets
of Taxes of the Company and its Subsidiaries for any taxable period ending on or
before the Closing Date shall be for the account of the Sellers. Notwithstanding
the foregoing, (i) any such refunds, credits or offsets of Taxes shall be for
the account of the Buyer to the extent such refunds, credits or offsets of Taxes
are attributable (determined on a marginal basis) to the carryback from a
taxable period beginning after the Closing Date (or the portion of a Straddle
Period that begins on the day after the Closing Date) of items of loss,
deduction or credit, or other tax items, of the Company and its Subsidiaries (or
any of their affiliates, including the Buyer) and (ii) to the extent the Buyer
or the Company and its Subsidiaries pays after the Closing Date any amount with
respect to Taxes for any such taxable period, refunds of such Taxes (determined
on a first-in, first-out basis) shall be for the account of the Buyer. The
amount or economic benefit of any refunds, credits or offsets of Taxes of the
Company and its Subsidiaries for any taxable period beginning after the Closing
Date shall be for the account of the Buyer. The amount or economic benefit of
any refunds, credits or offsets of Taxes of the Company and its Subsidiaries for
any Straddle Period shall be equitably apportioned between the Sellers on the
one hand, and the Buyer, on the other hand. Each party shall forward, and shall
cause its affiliates to forward, to the party entitled pursuant to this Section
10(c) to receive the amount or economic benefit of a refund, credit or offset to
Tax the amount of such refund, or the economic benefit of such credit or offset
to Tax, within 30 days after such refund is
43
<PAGE>
received or after such credit or offset is allowed or applied against other Tax
liability, as the case may be; provided, however, that any such amounts payable
-------- -------
pursuant to this Section 10(c) shall be net of any Tax cost ant to this Section
10(c) and its affiliates attributable to the receipt of such refund, credit or
offset to Tax and/or the payment of such amounts pursuant to this Section 10(c).
The Buyer and the Sellers shall treat any amounts payable pursuant to this
Section 10(c) as an adjustment to the Purchase Price unless a final
determination (which shall include the execution of a Department of the Treasury
Model From SC 2845 or successor form) causes any such payment not to be treated
as an adjustment to the Purchase Price for Puerto Rico income Tax purposes.
(d) The Sellers shall file any amended or unitary Tax Returns for
taxable years ending on or prior to the Closing Date which are required as a
result of examination adjustments made by the Secretary for such taxable years
as finally determined; provided, however, that no such Tax Return shall be filed
-------- -------
without the prior written consent of the Buyer, which consent shall not be
unreasonably withheld.
(e) Each of the Parent, the Buyer and the Sellers shall promptly
inform, keep regularly apprised of the progress with respect to, and notify the
other party or parties in writing not later than (i) ten business days after the
receipt of any notice of any Audit or (ii) fifteen business days prior to the
settlement or final determination of any Audit for which it was responsible
pursuant to Section 10 hereof which could affect the Tax liability of such other
party for any taxable year.
11. Termination. (a) Anything contained herein to the contrary
-----------
notwithstanding, this Agreement may be terminated and the transactions
contemplated hereby abandoned at any time prior to the Closing Date:
(i) by mutual written consent of the Representatives and the
Buyer;
(ii) by the Representatives, on the one hand, or the Parent and
the Buyer, on the other hand, if the Closing does not occur on or prior to March
31, 1998; provided, however, that the right to terminate this Agreement pursuant
-------- -------
to this Section 11(a)(ii) shall not be available to the Representatives, on the
one hand, or the Parent and the Buyer, on the other hand, as the case may be, if
the terminating party has failed to perform in any material respect any of its
obligations under this Agreement; or
(iii) if any Governmental Entity shall have issued a judgment,
order or decree or taken any other action permanently enjoining, restraining or
otherwise prohibiting the purchase of the Shares or any of the other
transactions contemplated by this Agreement, and such judgment, order or decree
or other action shall have become final and nonappealable.
44
<PAGE>
(b) In the event of termination by the Representatives or the Buyer
pursuant to this Section 11, written notice thereof setting forth the reasons
therefore shall forthwith be given to the other parties and the transactions
contemplated by this Agreement shall be terminated, without further action by
any party. If the transactions contemplated by this Agreement are terminated as
provided herein: (i) the Parent and the Buyer shall return all documents and
other materials received from the Sellers or the Company or its Subsidiaries
relating to the transactions contemplated hereby, whether so obtained before or
after the execution hereof, to the Representatives; and (ii) all confidential
information received by the Parent and the Buyer with respect to the business of
the Company and its Subsidiaries shall be treated in accordance with the
Confidentiality Agreement, which shall remain in full force and effect
notwithstanding the termination of this Agreement.
(c) If this Agreement is terminated and the transactions contemplated
hereby are abandoned as described in this Section 11, this Agreement shall
become void and of no further force or effect, except for the provisions of (i)
Section 6(a) relating to the obligation of the Parent and the Buyer to keep
confidential certain information and data obtained by them, (ii) Section 6(h)
relating to the obligation of the Parent to guarantee the Buyer's obligations
hereunder, (iii) Section 7(b) relating to publicity, (iv) this Section 11 and
(v) Section 13 relating to certain expenses. Nothing in this Section 11 shall be
deemed to release any party from any liability for any breach by such party of
the terms and provisions of this Agreement or to impair the right of any party
to compel specific performance by any other party of its obligations under this
Agreement.
12. Survival of Representations and Warranties. The representations
------------------------------------------
and warranties in this Agreement and in any certificate delivered pursuant
hereto shall survive the Closing solely for purposes of Sections 9(b) and (c)
and shall terminate at the close of business on the date which is two (2) years
from the Closing Date, except as follows:
(a) in the case of Sections 3(i), 3(o), 3(s) and 4(f) such
representations and warranties shall terminate when the applicable statute of
limitations has expired; and
(b) in the case of Sections 3(b) and 3(e), such representations and
warranties shall not terminate.
13. Expenses. Whether or not the transactions contemplated hereby
--------
are consummated, and except as otherwise specifically provided in this
Agreement, all costs and expenses incurred in connection with this Agreement and
the transactions contemplated hereby shall be paid by the party incurring such
costs or expenses, except that (a) all expenses (including, but not limited to,
any downpayment, deposit or other
45
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amount which may be subject to forfeiture) incurred by the Company or its
affiliates related to the Fajardo Acquisition, if such transaction is not
consummated by the Company or its Subsidiaries pursuant to the instructions of
the Parent or the Buyer, shall be borne by the Parent or the Buyer and (b) all
expenses related to obtaining (i) the Additional Insurance shall be borne as set
forth in Section 7(g) and (ii) title insurance shall be borne as set forth in
Section 8(c)(v).
14. Miscellaneous.
-------------
(a) No Third-Party Beneficiaries. This Agreement is for the sole
----------------------------
benefit of the parties signatory hereto and their permitted assigns, and nothing
herein expressed or implied shall give or be construed to give to any person,
other than the parties signatory hereto and such assigns, any legal or equitable
rights hereunder.
(b) Amendment or Waiver. No amendment, modification or waiver in
-------------------
respect of this Agreement shall be effective unless it shall be in writing and
signed by the Buyer and the Representatives (on behalf of themselves and the
other Sellers).
(c) Headings. The headings contained in this Agreement, or in any
--------
Exhibit or Schedule hereto and in the table of contents to this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(d) Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to the other parties.
(e) Certain Additional Definitions. (i) For the purposes of this
------------------------------
Agreement "to the knowledge of" shall mean to the actual knowledge of the
Company's Chairman and President and (ii) the term "Agreement" shall mean this
Stock Purchase Agreement plus the exhibits and schedules attached hereto.
(f) Assignment; Binding Effect. This Agreement and the rights and
--------------------------
obligations hereunder shall not be assignable or transferable by any Seller or
the Parent or the Buyer (including by operation of law in connection with a
merger, or sale of substantially all the assets, or any dissolution, of the
Parent or the Buyer or any Seller) without the prior written consent of the
Parent or the Buyer or the Representatives (for themselves or on behalf of the
other Sellers), as the case may be; provided, however, that the Buyer may
-------- -------
(subject to Section 6(h)) assign its right to purchase the Shares hereunder to a
wholly-owned subsidiary of the Parent without the prior written consent of any
Seller
46
<PAGE>
and any Seller may assign its right to sell the Shares owned by it to a duly
organized and existing trust organized for the benefit of such Seller without
the prior written consent of the Parent or the Buyer; provided further,
-------- -------
however, that no assignment shall limit or affect the assignor's obligations
hereunder. Any attempted assignment in violation of this Section 14(f) shall be
void. Subject to the preceding sentence, this Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns.
(g) Notices. All notices or other communications required or
-------
permitted to be given hereunder shall be in writing and shall be delivered by
hand or sent by telecopy or sent, postage prepaid, by registered, certified or
express mail or overnight courier service and shall be deemed given when so
delivered by hand, or telecopied, or if mailed, three days after mailing (one
business day in the case of express mail or overnight courier service), as
follows:
(i) if to any of the Sellers, to the respective addresses noted on
Schedule 1(a) hereto, with a copy to each of the Representatives, Juan L. Cruz
Rosario and Milton Cruz, at the respective addresses noted on Schedule 1(a)
hereto,
and a copy to:
Brown & Wood LLP
One World Trade Center
58th Floor
New York, New York 10048
Telecopy No.: (212) 839-5599
Attention: Lori Anne Czepiel, Esq.,
and a copy to:
Fiddler Gonzalez & Rodriguez LLP
Chase Manhattan Bank Building
Eighth Floor
San Juan, Puerto Rico 00918
Telecopy No.: (787) 754-7539
Attention: Rafael Cortes Dapena, Esq., and
47
<PAGE>
(ii) if to the Parent or the Buyer,
Universal Health Services, Inc.
or
--
UHS of Puerto Rico, Inc.
c/o Universal Health Services, Inc.
Universal Corporate Center
367 South Gulph Road
King of Prussia, PA 19406
Telecopy No.: (610) 992-4566
Attention: General Counsel,
with a copy to:
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, NY 10103
Telecopy No: (212) 752-5958
Attention: Anthony Pantaleoni, Esq.,
or such other address as any party may from time to time specify by written
notice to the other parties hereto.
(h) Entire Agreement. This Agreement, the Escrow Agreement and the
----------------
Confidentiality Agreement contain the entire agreement and understanding between
the parties hereto with respect to the subject matter hereof and supersede all
prior agreements and understandings relating to such subject matter. The
parties hereto shall not be liable or bound to any other party in any manner by
any representations, warranties or covenants relating to such subject matter
except as specifically set forth herein, in the Escrow Agreement or in the
Confidentiality Agreement. Without limiting the generality of the foregoing,
and notwithstanding any otherwise express representations and warranties made by
the Sellers herein, the Sellers make no representation or warranty to the Parent
and the Buyer with respect to: (i) Fajardo; (ii) Arecibo Surgical Center; (iii)
items set forth in Section 3(j)(ix) hereto; (iv) any projections, estimates or
budgets heretofore delivered to or made available to the Parent and the Buyer of
future revenues, expenses or expenditures or future results of operations of the
Company or its Subsidiaries; or (v) except as expressly covered by a
representation and warranty contained in Section 3 hereof, any other information
or documents (financial or otherwise) made available to the Parent and the Buyer
or their counsel, accountants or advisers with respect to the Company.
48
<PAGE>
(i) Severability. If any provision of this Agreement (or any portion
------------
thereof) or the application of any such provision (or any portion thereof) to
any person or circumstance shall be held invalid, illegal or unenforceable in
any respect by a court of competent jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other provision hereof (or the remaining
portion thereof) or the application of such provision to any other persons or
circumstances.
(j) Interpretation. In this Agreement, unless the context otherwise
--------------
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
(k) Consent to Jurisdiction. The Parent, the Buyer and the Sellers
-----------------------
irrevocably submit to the exclusive jurisdiction of the Federal District Court
for the District of Puerto Rico for the purposes of any suit, action or other
proceeding arising out of this Agreement, the Escrow Agreement or any
transaction contemplated hereby or thereby or, if such suit, action or other
proceeding may not be brought in such Federal court for jurisdictional reasons,
then in the Court of First Instance of the Commonwealth of Puerto Rico. The
Parent, the Buyer and the Sellers agree to commence any action, suit or
proceeding relating hereto in the Federal District Court for the District of
Puerto Rico or, if such suit, action or other proceeding may not be brought in
such Federal court for jurisdictional reasons, then in the Court of First
Instance of the Commonwealth of Puerto Rico. The Parent, the Buyer and the
Sellers further agree that service of any process, summons, notice or document
by registered mail to such party's respective address set forth above shall be
effective service of process for any action, suit or proceeding in Puerto Rico
with respect to any matters to which it has submitted to jurisdiction in this
Section 14(k). The Parent, the Buyer and the Sellers irrevocably and
unconditionally waive any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement or the Escrow Agreement or the
transactions contemplated hereby or thereby in the Federal District Court for
the District of Puerto Rico (or, if unavailable as set forth above, then in the
Court of First Instance of the Commonwealth of Puerto Rico) and hereby further
irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum.
(l) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the internal laws of the Commonwealth of Puerto Rico.
49
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first written above.
UNIVERSAL HEALTH SERVICES, INC. UHS OF PUERTO RICO, INC.
By: /s/ RICHARD C. WRIGHT By: /s/ RICHARD C. WRIGHT
------------------------- -------------------------
Name: Richard C. Wright Name: Richard C. Wright
Title: Vice President Title: Vice President
STOCKHOLDERS: SPOUSES OF STOCKHOLDERS, AS
APPLICABLE:
/s/ RAFAEL A. BRITO ARACHE /s/ CARMEN N. BRITO
- - - --------------------------------- ------------------------------------
Rafael A. Brito Arache Carmen M. Brito
/s/ FRANCISCO ARRIETA /s/ LYDIA R. ARRIETA
- - - --------------------------------- ------------------------------------
Francisco Arrieta Lydia R. Arrieta
/s/ ANA MARIA CADILLA N/A
- - - --------------------------------- ------------------------------------
Ana Maria Cadilla N/A
/s/ JOSE A. SOBRINO-CATONI /s/ MARIA A.N. SOBRINO
- - - --------------------------------- ------------------------------------
Jose A. Sobrino-Catoni Maria A.N. Sobrino
/s/ IGNACIO ECHENIQUE /s/ MARY ELLEN C. ECHENIQUE
- - - --------------------------------- ------------------------------------
Ignacio Echenique Mary Ellen C. Echenique
/s/ VICTOR GONZALEZ /s/ MARIA N.E. GONZALEZ
- - - --------------------------------- ------------------------------------
Victor Gonzalez Maria N.E. Gonzalez
/s/ OCTAVIO JORDAN N/A
- - - --------------------------------- ------------------------------------
Octavio Jordan N/A
S-1
<PAGE>
/s/ FERNANDO L. LONGO /s/ CONCEPCION Q. LONGO
- - - --------------------------------- --------------------------------------
Fernando L. Longo Concepcion Q. Longo
/s/ PEDRO M. MAYOL /s/ NOHEMI U. MAYOL
- - - --------------------------------- --------------------------------------
Pedro M. Mayol Nohemi U. Mayol
/s/ ANGEL OQUENDO /s/ MARIA DEL C.V. OQUENDO
- - - --------------------------------- --------------------------------------
Angel Oquendo Maria del C.V. Oquendo
/s/ ISABEL OYOLA N/A
- - - --------------------------------- --------------------------------------
Isabel Oyola N/A
/s/ WILLIAM MIRANDA-REYES /s/ NELLY C. MIRANDA
- - - --------------------------------- --------------------------------------
William Miranda-Reyes Nelly C. Miranda
/s/ HECTOR L. RIVERA (IRA) N/A
- - - --------------------------------- --------------------------------------
Hector L. Rivera N/A
/s/ JUAN L. CRUZ-ROSARIO /s/ PETRITA T. CRUZ
- - - --------------------------------- --------------------------------------
Juan L. Cruz-Rosario Petrita T. Cruz
/s/ JOSE A. SEGARRA /s/ MABEL G. SEGARRA
- - - --------------------------------- --------------------------------------
Jose A. Segarra Mabel G. Segarra
/s/ JULIO E. SIMONS /s/ JANET G. SIMONS
- - - --------------------------------- --------------------------------------
Julio E. Simons Janet G. Simons
/s/ JOSE J. RIVERA-VALDES /s/ TERESITA O. RIVERA
- - - --------------------------------- --------------------------------------
S-2
<PAGE>
Jose J. Rivera-Valdes Teresita O. Rivera
/s/ JOSE F. GUZMAN-VIRELLA /s/ FRANCES C. GUZMAN
- - - --------------------------------- -------------------------------------
Jose F. Guzman-Virella Frances C. Guzman
/s/ RODOLFO A. CATINCHI Estate of Anthony Mark
- - - ---------------------------------
Rodolfo A. Catinchi, as Trustee
for Maria T. Mella Catinchi
By: /s/ ELIZABETH VIVERITO
----------------------------------
Name: Elizabeth Viverito
/s/ RODOLFO A. CATINCHI Title: Authorized Representative
- - - ---------------------------------
Rodolfo A. Catinchi, as Trustee
for Juan R. Mella Catinchi By and Further Acknowledged By the
Following Beneficiaries of the Estate:
/s/ ELIZABETH VIVERITO
--------------------------------------
Elizabeth Viverito
/s/ ANTHONY MARK
--------------------------------------
Anthony Mark
/s/ MELISSA MARK
--------------------------------------
Melissa Mark
/s/ RANDOLF MARK
--------------------------------------
Randolf Mark
/s/ JUDITH I. MARK
--------------------------------------
Judith I. Mark
S-3
<PAGE>
Exhibit 10.30
VALLEY/DESERT CONTRIBUTION AGREEMENT
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
1. Contribution of Assets.............................................. 2
1.1 Creation of Subsidiaries; Agreement to Contribute;
and Merger..................................................... 2
1.2 Excluded Assets................................................ 4
1.3 Contract Assignments........................................... 5
1.4 Instruments of Conveyance...................................... 6
1.5 Consideration; Working Capital Shortage/Overage................ 6
1.6 Liabilities Assumed............................................ 8
1.7 Liabilities Not Assumed........................................ 8
1.8 Closing........................................................ 10
2. Representations and Warranties of Parties........................... 11
2.1 Existence; Good Standing; Corporate Authority.................. 11
2.2 Authorization; Validity and Effect of Agreements............... 11
2.3 Subsidiaries................................................... 12
2.4 Capitalization................................................. 13
2.5 Records........................................................ 13
2.6 Financial Statements........................................... 13
2.7 Absence of Undisclosed Liabilities............................. 14
2.8 Absence of Certain Changes or Events Since the
Date of the Balance Sheets..................................... 14
2.9 Taxes.......................................................... 16
2.10 Real Property.................................................. 16
2.11 Title to Property and Assets; Sufficiency of
Facilities Assets.............................................. 18
2.12 Condition of Property.......................................... 19
2.13 List of Contracts and Other Data............................... 19
2.14 No Breach or Default........................................... 21
2.15 Labor Controversies............................................ 21
2.16 Litigation..................................................... 21
2.17 Patents; Trademarks, Etc....................................... 22
2.18 Licenses; Permits; Authorizations.............................. 22
2.19 Compliance with Applicable Law;
Environmental Laws............................................. 22
2.20 Employee Benefit Plans; Employees and Employee
Relations...................................................... 25
2.21 Adverse Agreements; No Adverse Change.......................... 26
2.22 Trade Notes and Accounts Receivable; Trade
Accounts Payable; Prepaid Contracts............................ 26
2.23 Inventories and Supplies....................................... 27
2.24 Illegal Payments............................................... 27
2.25 Insurance Policies............................................. 27
</TABLE>
<PAGE>
<TABLE>
<S> <C>
2.26 Professional Staff, Medicare, Medicaid
and Other Health Care Programs................................. 28
2.27 Facility Surveys............................................... 29
2.28 Related Party Transactions..................................... 29
2.29 No Brokers..................................................... 29
2.30 No Misrepresentation or Omission............................... 29
3. [Intentionally Omitted]............................................. 30
4. Covenants of the Parties............................................ 30
4.1 Access to Facilities and Additional Information................ 30
4.2 Operations..................................................... 30
4.3 Negative Covenants............................................. 31
4.4 Governmental Approvals......................................... 32
4.5 Insurance Ratings.............................................. 32
4.6 Employees; Employee Benefit Plans.............................. 32
4.7 Further Acts and Assurances.................................... 33
4.8 Summerlin Transaction.......................................... 33
4.9 Additional Properties and Assets............................... 34
5. Matters Pertaining to the Company................................... 34
5.1 Employee Matters............................................... 34
5.2 Further Acts and Assurances.................................... 34
6. Conditions of Closing............................................... 35
6.1 Conditions of Closing.......................................... 35
7. Nature and Survival of Representations and Warranties;
Indemnification..................................................... 38
7.1 Events of Default.............................................. 38
7.2 Survival of Representations, Etc............................... 38
7.3 Indemnification................................................ 38
7.4 Representation, Cooperation and Settlement..................... 39
8. Transactions Subsequent to the Closing Date......................... 40
8.1 Access to Records.............................................. 40
8.2 Litigation Cooperation......................................... 40
9. Termination......................................................... 41
9.1 Methods of Termination......................................... 41
9.2 Procedure Upon Termination..................................... 41
10. Miscellaneous....................................................... 41
10.1 Notice......................................................... 41
10.2 Execution of Additional Documents.............................. 43
10.3 Waivers and Amendment.......................................... 43
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.4 Expenses........................................................ 44
10.5 Occurrence of Conditions Precedent.............................. 44
10.6 Confidentiality Obligations; Public Announcements............... 44
10.7 Binding Effect; Benefits........................................ 45
10.8 Entire Agreement................................................ 45
10.9 Governing Law................................................... 45
10.10 Counterparts................................................... 45
10.11 Headings....................................................... 45
10.12 Incorporation of Exhibits and Schedules........................ 45
10.13 Severability................................................... 46
10.14 Assignability.................................................. 46
Joinder Agreement - Universal Health Services, Inc................... 48
Joinder Agreement - Quorum Health Group, Inc......................... 49
</TABLE>
<PAGE>
VALLEY/DESERT CONTRIBUTION AGREEMENT
This Agreement (the "Agreement") is dated this 30th day of January, 1998,
by and among VALLEY HOSPITAL MEDICAL CENTER, INC., a Nevada corporation
("Valley") and NC-DSH, INC., a Nevada corporation ("Desert Springs")(Valley and
Desert Springs are sometimes hereinafter referred to collectively as the
"Parties" and individually as a "Party").
WITNESSETH:
WHEREAS, Valley owns all of the right, title and interest in and to certain
assets used to operate Valley Hospital Medical Center and certain related
businesses operated by Valley in and around Las Vegas, Nevada (collectively, the
"UHS Facilities"); and
WHEREAS, Desert Springs owns all of the right, title and interest in and to
certain assets used to operate Desert Springs Hospital and certain related
businesses operated by Desert Springs in and around Las Vegas, Nevada
(collectively, the "Quorum Facilities"); and
WHEREAS, the Parties desire to combine the UHS Facilities and the Quorum
Facilities and operate such combined facilities as a limited liability company
pursuant to the Limited Liability Company Act as enacted in the State of
Delaware (the "LLC Act"); and
WHEREAS, pursuant to the terms of this Agreement Valley desires to
contribute the UHS Facilities in exchange for a seventy-two and one-half percent
(72.5%) membership interest in such limited liability company; and
WHEREAS, pursuant to the terms of this Agreement Desert Springs desires to
contribute the Quorum Facilities in exchange for a twenty-seven and one-half
percent (27.5%) membership interest in such limited liability company; and
WHEREAS, the Parties desire to enter into this Agreement for the purpose of
setting forth their respective rights and obligations as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises, the provisions and the
respective agreements hereinafter set forth, the Parties, intending to be
legally bound hereby, agree as follows:
1
<PAGE>
1. CONTRIBUTION OF ASSETS.
1.1 CREATION OF SUBSIDIARIES; AGREEMENT TO CONTRIBUTE; AND MERGER.
On or prior to the Closing Date (as hereinafter defined) Valley shall create
Valley Health System LLC, a wholly owned limited liability company ("Newco UHS-
1") pursuant to the LLC Act and Desert Springs shall create Newco Q LLC, a
wholly owned limited liability company ("Newco Q-1") pursuant to the LLC Act.
Upon the terms and subject to the conditions set forth in this Agreement, on the
Closing Date, Valley and Desert Springs shall contribute, convey, assign,
transfer and deliver to Newco UHS-1 and Newco Q-1, respectively, all of their
respective right, title and interest in and to the Facilities Assets (as defined
below), except for the Excluded Assets (as hereinafter defined), free and clear
of all liens, charges, claims, pledges, security interests and encumbrances of
any nature whatsoever (collectively, "Liens"), except for Permitted Encumbrances
(as hereinafter defined). Immediately following the contribution, conveyance,
assignment, transfer and delivery of the Facilities Assets in accordance with
the preceding sentence, Newco Q-1 shall be merged with and into Newco UHS-1
pursuant to the Agreement of Merger ("Agreement and Plan of Merger") attached
hereto as Exhibit A (the "Merger"). Following the Merger, the separate
---------
corporate existence of Newco Q-1 shall cease and Newco UHS-1 shall continue as
the surviving limited liability company (the "Company") with Valley owning a
seventy-two and one-half percent (72.5%) membership interest in the Company and
Desert Springs owning a twenty-seven and one-half percent (27.5%) membership
interest in the Company. The "Facilities Assets" shall mean and include all
those personal, tangible and intangible properties, and the real properties and
improvements of the Parties used in connection with the operation of the UHS
Facilities and the Quorum Facilities (collectively, the "Facilities") as set
forth below, other than the Excluded Assets, including, without limitation,(i)
the going concern value of the Facilities, if any, and (ii) the following:
(a) all fee or leasehold title to all real property, including the
real property described in Schedule 2.10, which Schedule identifies the property
-------------
as fee or leasehold, together with all improvements, buildings and fixtures
located thereon or therein, including the Facilities and all construction in
progress (such real properties owned in fee are hereafter collectively, the
"Real Property");
(b) all equipment, computers, computer hardware and software (subject
to any restrictions by the licensor on the assignment thereof), tools, supplies,
furniture, vehicles and other tangible personal property and assets owned or
leased by the Parties related to the Facilities as of the date of this
Agreement, as such items may be modified prior to the Closing
2
<PAGE>
Date in the ordinary course of business, and including without limitation those
items set forth on Schedule 1.1(b);
---------------
(c) all items of inventory listed on the Balance Sheets (as
hereinafter defined), as such items may be modified prior to the Closing Date in
the ordinary course of business;
(d) all patients accounts, notes and other receivables, whether or
not written off, or recorded or not recorded, exclusive of any third party cost
report payables or receivables, petty cash and those prepaid expenses usable by
the Company;
(e) all financial records located at the Facilities and all patient,
medical staff, research and development, and other records (including equipment
records, medical/ administrative libraries, medical records, documents,
production reports and records, personnel records, catalogs, books, records,
files, equipment logs and operating manuals) located at the Facilities or
necessary for the operation of the Facilities;
(f) all of the Parties' interest in the Assumed Contracts, as defined
in Section 1.3.1;
(g) all licenses, permits and other governmental approvals (including
certificates of need), to the extent assignable, held or used by any of the
Parties in connection with the ownership, development and operations of the
Facilities (including any pending or approved governmental approvals regarding
the Facilities);
(h) all marks, names, trademarks, service marks, patents, patent
rights, assumed names, logos and copyrights used in the business of the
Facilities;
(i) the interest in all property, real, personal or mixed, tangible
or, to the extent assignable, intangible, arising or acquired in the ordinary
and regular course of any of the Parties' business in connection with the
Facilities between the date hereof and the Closing Date;
(j) all insurance proceeds (including applicable deductibles,
copayments or self-insured requirements) arising in connection with damage to
the Facilities occurring prior to the Closing Date, to the extent not expended
for the repair or restoration of the Facilities;
(k) all assets included in the Balance Sheets generally as
"inventories", "property, plant or equipment", and "other assets";
3
<PAGE>
(l) all of the Parties' membership interests in Oasis Health System
LLC (25% of which is currently owned by Valley and 50% of which is currently
owned by Desert Springs); Desert Springs' 10.38% limited partnership interest in
Valley View Surgery Center, L.P.; and Desert Springs' 40% partnership interest
in Desert Surgery Center Limited Partnership;
(m) cash equal to the Working Capital Shortage (to be contributed by
either Valley or Desert Springs under the terms of Section 1.5); and
(n) all of Desert Springs' right title and interest in and to the
Plaza Surgery Center, Limited Partnership which is described in detail in
Schedule 1.1(n); and
- - - ---------------
(o) all other property of every kind, character or description, to
the extent assignable, owned by any of the Parties and used or held for use in
the business of the Facilities, whether or not reflected on the Financial
Statements (as hereinafter defined), located at the Facilities or necessary for
the operation of the Facilities and whether or not similar to the things
specifically set forth above, including the "Schwartz Sublease" (as defined in
Section 6.1.14), except the Excluded Assets.
Except as expressly set forth in this Agreement, including the
Schedules and Exhibits hereto, all of the Facilities Assets contributed by the
Parties to Newco UHS-1 and Newco Q-1 shall be contributed on an "as is" basis.
1.2 EXCLUDED ASSETS. The following items are not part of the
contributions contemplated hereunder and are excluded from the Facilities Assets
(collectively, the "Excluded Assets");
(a) all of Valley's or any of its affiliates' right, title and
interest in and to the following: Goldring Surgery Center, Universal Health
Network, Nevada Radiation Oncology Center and the real estate located within a
fifty (50) mile radius of Las Vegas, Nevada, all of which is described in detail
on Schedule 1.2(a) hereof (collectively, the "UHS Excluded Businesses");
---------------
(b) all of the Parties' respective deferred taxes, and intercompany
receivables;
(c) personnel records and any other records which either of the
Parties is required by law to retain in its possession, but only to the extent
such records are not necessary for the continued operation of the Facilities in
the manner in which they are currently being operated;
4
<PAGE>
(d) all claims for amounts due, or that may become due from Medicare,
Medicaid or any other health care payment intermediary resulting from cost
reports for periods through the Closing Date;
(e) all refunds relating to any federal, state, local or foreign
taxes paid by, or on behalf or for the benefit of a Party or, to the extent they
relate to the period prior to the Closing Date, the Facilities, whether received
prior to or after the Closing Date;
(f) any proprietary information contained in either Party's employee
or operation manuals;
(g) each Party's corporate and financial records;
(h) cash and cash equivalents; and
(i) any other assets expressly designated in Schedule 1.2(i) to this
---------------
Agreement as Excluded Assets.
1.3 CONTRACT ASSIGNMENTS.
1.3.1 ASSIGNMENT OF INTEREST IN CONTRACTS. Except for intercompany
and non-physician employment contracts, on the Closing Date and upon and
subject to the terms and conditions set forth in this Agreement, the Parties
shall transfer or cause to be transferred and assign or cause to be assigned to
Newco UHS-1 and Newco Q-1, as the case may be, and Newco UHS-1 and Newco Q-1
shall assume and perform all of the Parties' interest in (including all rights,
benefits and obligations) all commitments, contracts, leases, licenses,
agreements and understandings, and all outstanding offers or solicitations to
enter into any of the foregoing, including those described on Schedule 1.3.1
--------------
hereto (the "Assumed Contracts").
1.3.2 CONSENTS TO ASSIGNMENTS. Notwithstanding anything in this
Agreement to the contrary, this Agreement shall not constitute an agreement to
assign or transfer any of the Assumed Contracts or part thereof or right or
benefit arising thereunder or resulting therefrom if an attempted assignment or
transfer thereof, without the consent of a third party thereto, would constitute
a breach thereof or in any way affect the rights of the Company following the
Merger. If such consent is not obtained, or if an attempted assignment thereof
would be ineffective or would affect the rights of the Company following the
Merger, so that the Company would not in fact receive all such rights, Valley or
Desert Springs, as the case may be, (i) shall cooperate with the Company in its
request in endeavoring to obtain such consent promptly at no cost to the
Company, and (ii) if any such consent is unobtainable, shall cooperate with the
5
<PAGE>
Company in any reasonable arrangement (the "Assignment Substitute") designed to
provide the Company the benefits under any such Assumed Contract or part thereof
or any right or benefit arising thereunder or resulting therefrom, including
enforcement for the benefit of the Company of any and all rights of Valley or
Desert Springs against a third party arising out of the breach or cancellation
by such third party or otherwise. Valley and Desert Springs shall, to the extent
necessary, perform under the Assignment Substitute without a fee to the Company
except the consideration being tendered hereunder.
1.4 INSTRUMENTS OF CONVEYANCE.
On the Closing Date, Valley shall deliver to Newco UHS-1 and Desert
Springs shall deliver to Newco Q-1 such deeds (in the case of the real property
and the improvements thereon described in Schedules 2.10 hereto, a special
--------------
warranty deed or the equivalent thereof in use in accordance with local
practice), bills of sale, endorsements, assignments and other good and
sufficient instruments of conveyance and assignment, including the Schwartz
Sublease as shall be effective to vest in Newco UHS-1 and Newco Q-1, as the case
may be, all of the Parties' respective right, title and interest in and to the
Facilities Assets, free and clear of all Liens except for the Permitted
Encumbrances. Simultaneously with such delivery, the Parties will take all
reasonable additional steps as may be necessary to put the Company, following
the Merger, in possession of the Facilities Assets. The Parties shall pay all
transfer costs, title insurance fees, recording fees and transfer or stamp taxes
or similar charges payable by each of them respectively by reason of the
contribution, conveyance, assignment, transfer and delivery hereunder of the
Facilities Assets.
1.5 CONSIDERATION; WORKING CAPITAL SHORTAGE/OVERAGE.
1.5.1 In consideration of the transfer and conveyance of the
Facilities Assets and the Merger, on the Closing Date the Parties acknowledge
and agree that the Company shall issue membership interests in the Company as
follows: (i) the Company shall issue a 72.5% membership interest in the Company
to Valley and (ii) the Company shall issue a 27.5% membership interest in the
Company to Desert Springs.
1.5.2 Within 45 days after the Closing Date, the Parties will
determine the Working Capital Shortage to be paid to the Company by either
Valley or Desert Springs or the Working Capital Overage to be retained by either
Valley or Desert Springs. The Working Capital Shortage or Overage will be the
amount necessary to make the Working Capital contributed by each Party equal
that Party's percentage membership interest in the
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Company. For example, if Valley contributed $7,250,000 in Working Capital to the
Company on the Closing Date and Desert Springs contributed $2,550,000 in Working
Capital to the Company on the Closing Date, then the Working Capital Shortage
would be $200,000 to be paid to the Company by Desert Springs or the Working
Capital Overage would be $527,272.72 which would be retained by Valley rather
than contributed. The Working Capital Shortage shall be calculated and used
unless Valley and Desert Springs shall agree to calculate and use the Working
Capital Overage. For the sole purpose of determining the Working Capital
Shortage or Overage, Working Capital will be defined as the sum of the following
items that have been contributed to or assumed by the Company, all valued in
accordance with generally accepted accounting principles, consistently applied
(unless otherwise specified):
(a) patient accounts receivable, net of allowances for contractual
adjustments and discounts and bad debts (computed on a basis consistent with
historical practice) except that the allowance for bad debts will be equal to
the amount of patient accounts receivable older than one hundred seventy-nine
(179) days from discharge for inpatients or date of services for outpatients;
(b) plus inventories, based on a physical count at the Closing Date,
priced at latest invoice cost, and including only those items and areas that
have historically been counted;
(c) plus prepaid expenses, but only to the extent that they are
usable by the Company;
(d) plus other receivables, net of allowances for uncollectibles;
(e) less trade accounts payable;
(f) less accrued compensation and related taxes thereon and related
liabilities, including accrued vacation, sick leave payable in cash for reasons
other than actual absence, paid time off, or the like;
(g) less other accrued liabilities and expenses;
(h) less the present value (computed using the prime rate as the
discount factor) of remaining payments due under any capitalized lease included
in the Assumed Contracts; and
(i) less any other liabilities assumed by the Company to the extent
such liabilities are to be included on the balance sheet under generally
accepted accounting principles.
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Each of the Parties will work together in good faith to agree on
adjustments to and the amount of Working Capital Shortage. No later than 45
days after the Closing Date, the Parties hereto shall prepare the "Final Closing
Statement" reflecting the items listed above determined as set forth above. Any
payment due 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
the 45 day period, they shall appoint Coopers & Lybrand, a firm of independent
certified public accountants of recognized national standing (the
"Accountants"), to make such determination, which determination shall be final
and binding on the Parties hereto for the purposes of this Agreement, and Valley
and Desert Springs shall each pay one-half of the fee. Each Party represents
that the Accountants are not its auditor.
1.6 LIABILITIES ASSUMED. In further consideration for the contribution of
the Facilities Assets, on and as of the Closing Date, subject to the exclusion
of liabilities described in Section 1.7 below, the Parties acknowledge and agree
that Newco UHS-1, Newco Q-1 and the Company, following the Merger, shall assume
and agree to pay, perform and discharge the following liabilities (collectively,
the "Assumed Liabilities"):
(a) all current liabilities of the Parties (except for the current
portion of long term debt, accrued interest, pension plan liabilities, employer
benefit plan liabilities, intercompany liabilities and self-insurance costs);
(b) all obligations under the Assumed Contracts and under Section 4.6
hereof; and
(c) such other liabilities of the Parties which the Company agrees in
writing at or prior to the Closing Date that the Company will assume, which
liabilities are listed on Schedule 1.6(c).
---------------
1.7 LIABILITIES NOT ASSUMED. Newco UHS-1, Newco Q-1 and the Company,
following the Merger, shall assume only those liabilities and obligations
specified in Section 1.6 above. Without limiting the generality of the foregoing
sentence, neither Newco UHS-1, Newco Q-1 nor the Company shall assume and each
Party shall retain and be responsible for the following obligations and
liabilities to the extent they relate to such Party (except to the extent
reflected in the calculation of the Working Capital Shortage) (each reference in
this Section 1.7 to a Party shall include such Party and its affiliates):
(a) any and all obligations for the payment of any long term debt
existing at the Closing Date (including the
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current portion thereof) relating to a Party and whether or not set forth on the
Balance Sheets;
(b) any and all accrued interest through the Closing Date;
(c) liabilities or obligations of a Party arising under Medicare,
Medicaid, Blue Cross or other comparable third party payor programs (the
"Government Reimbursement Programs") for periods through the Closing Date and as
a result of the consummation of the transactions contemplated herein, including
reimbursement recapture or any other adjustments;
(d) liabilities or obligations for Taxes (as hereinafter defined) of
a Party in respect of periods prior to the Closing Date or resulting from the
consummation of the transactions contemplated;
(e) liabilities under any Employee Benefit Plan (as hereinafter
defined) of a Party; and liabilities for any and all EEOC, wage and hour,
unemployment compensation, employee medical or workers' compensation claims
relating to periods prior to the Closing Date;
(f) except as provided in Section 4.6 below, liabilities or
obligations for any and all workers' compensation, health, disability or other
benefits due to or for the benefit of any employees of a Party (or their covered
dependents);
(g) liabilities arising out of or in connection with claims,
litigations or proceedings described in Section 2.16, and claims, litigations or
proceedings (whether instituted prior to or after the Closing Date) for acts or
omissions which allegedly occurred prior to or at the Closing Date;
(h) liabilities attributable to legal, accounting or brokerage fees,
and similar costs incurred by a Party related to the contribution of any of the
Facilities Assets;
(i) except as expressly set forth herein, liabilities arising from a
Party's assignment and the Company's assumption of the Assumed Liabilities;
(j) liabilities for the payment by a Party of any deductibles,
copayments or other self-insurance requirements relating to events occurring
prior to the Closing Date;
(k) any and all liabilities respecting any intercompany transactions
of the Parties, whether or not such transaction relates to the provision of
goods and services, tax
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sharing arrangements, payment arrangements, intercompany charges or balances, or
the like;
(l) except for Assumed Liabilities, any and all actual or contingent
liabilities or obligations of or demands upon a Party arising from acts or
omissions of either of the Parties (actual or alleged) prior to the Closing
Date;
(m) all liabilities arising out of or in connection with the
existence of Materials of Environmental Concern (as hereinafter defined) upon,
about, beneath or migrating to or from any of the Real Property on or before the
Closing Date or the existence on or before the Closing Date of any Environmental
Claim (as hereinafter defined) or any violation of any Environmental Laws (as
hereinafter defined) pertaining to such Real Property or the operation of the
Facilities by a Party or any other business operated therefrom;
(n) any liability which allegedly occurred out of any negligence,
medical malpractice or similar acts or omissions which allegedly occurred prior
to the Closing Date;
(o) sales, income, franchise, use and other taxes payable with
respect to the business or operations of a Party through the Closing Date or the
transactions contemplated hereby;
(p) except as expressly set forth herein, liabilities for rights or
remedies claimed by third parties under any of the Assumed Liabilities which
broaden or vary the rights and remedies such third parties would have had
against either Party if the contribution of the Facilities Assets were not to
occur; and
(q) liabilities on account of those liens or mortgages set forth on
Schedule 1.7(q).
- - - ---------------
With respect to Subsection 1.7(m) above, for a period of five (5)
years from and after the Closing Date, in the event that it cannot be proven
that the event giving rise to a Subsection 1.7(m) liability occurred after the
Closing Date then it shall be presumed to have occurred on or before the Closing
Date and the Parties can rebut this presumption with a Phase I environmental
study. From and after five (5) years following the Closing Date, the presumption
shall shift and thereafter all events giving rise to a Subsection 1.7(m)
liability shall be presumed to have occurred from and after the Closing Date.
1.8 CLOSING. The closing of the transactions provided herein will be
accomplished by means of overnight courier delivery and facsimile transmission
or by such other method as may be agreed upon by the Parties. Upon contribution
of the Facilities Assets which shall be as of 11:59 p.m. Pacific Time on
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January 31, 1998, and consummation of the Merger, the closing shall be deemed to
be effective and shall be deemed to have occurred as of 12:01 a.m. Pacific Time
on February 1, 1998 which is as of the date and time specified in the Agreement
of Merger. Such date and time of effectiveness of the Merger is herein referred
to as the "Closing Date".
2. REPRESENTATIONS AND WARRANTIES OF PARTIES. Each of Valley and Desert
Springs hereby severally represent, warrant and agree as follows (it being
understood and agreed that Valley is making the following representations and
warranties solely with respect to the UHS Facilities and Newco UHS-1 and not
with respect to any other Party or for the other Party's Facilities, and that
Desert Springs is making the following representations and warranties solely
with respect to the Quorum Facilities and Newco Q-1 and not with respect to any
other Party or for the other Party's Facilities):
2.1 EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY. Valley is a Nevada
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada. Desert Springs is a Nevada corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada.
Each of the Parties has all requisite corporate power and authority to own its
properties and carry on its business as now conducted. The copies provided to
the other Party of the Articles of Incorporation and Bylaws of each of the
Parties, all as amended to date, are complete and correct and presently in
effect. No Party has failed to qualify in any jurisdiction in which property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification necessary and where the failure to so qualify would
have a material adverse effect on it. No Party is in default with respect to
any order of any court, governmental authority or arbitration board or tribunal
to which it is a party or is subject.
2.2 AUTHORIZATION; VALIDITY AND EFFECT OF AGREEMENTS. The execution,
delivery and performance of this Agreement and all agreements and documents
contemplated hereby by such Party and the consummation by it of the transactions
contemplated hereby, have been duly and effectively authorized by all necessary
corporate action on its part. The execution, delivery and performance of the
Agreement and Plan of Merger by Newco UHS-1 or Newco Q-1, as the case may be,
and the consummation by it of the transactions contemplated thereby, have been
duly and effectively authorized by all necessary corporate action on its part.
This Agreement, and the Agreement and Plan of Merger, constitute, and all
agreements and documents contemplated hereby or thereby when executed and
delivered pursuant hereto will constitute the valid and legally binding
obligations of such Party or Newco UHS-1 or Newco Q-1, as the case may be,
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enforceable in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, fraudulent
transfer, moratorium or other similar laws of general application now or
hereafter in effect relating to the enforcement of creditors' rights generally
and except that remedies of specific performance, injunction and other forms of
equitable relief are subject to certain tests of equity jurisdiction, equitable
defenses and the discretion of the court before which any proceeding therefor
may be brought. Except as set forth on Schedule 2.2 hereto, the execution and
------------
delivery of this Agreement by such Party, and the execution and delivery of the
Agreement and Plan of Merger by Newco UHS-1 or Newco Q-1 does not and the
consummation of the transactions contemplated hereby and thereby will not,
except to the extent the same would not have a material adverse effect on it:
(i) require the consent, approval or authorization of any person, corporation,
partnership, joint venture or other business association or any governmental,
public authority or accrediting body; (ii) violate, with or without the giving
of notice or the passage of time, or both, any provisions of law or statute or
any rule, regulation, order, award, judgment, or decree of any court or
governmental authority applicable to such Party or Newco UHS-1 or Newco Q-1;
(iii) result in the breach or termination of any term or provision of, or
constitute a default under, or result in the acceleration of or entitle any
party to accelerate (whether after the giving of notice or the lapse of time or
both) any obligation under, or result in the creation or imposition of any lien,
charge, pledge, security interest or other encumbrance upon any part of the
property of such Party or Newco UHS-1 or Newco Q-1 pursuant to any provision of,
any order, judgment, arbitration award, injunction, decree, indenture, mortgage,
lease, license, lien, or other agreement or instrument to which such Party or
Newco UHS-1 or Newco Q-1 is a party or by which it is bound, or violate any
provision of the Bylaws or Articles of Incorporation of such Party, or the
Certificate of Formation or Limited Liability Company Agreement of Newco UHS-1
or Newco Q-1 as amended to the date of this Agreement; or (iv) result in any
suspension, revocation, impairment, forfeiture or nonrenewal of any License (as
hereinafter defined) relating to the ownership and operation by such Party of
health care facilities which are the subject of the transactions contemplated
hereby, subject to the Company obtaining new Licenses for its operation of the
Facilities.
2.3 SUBSIDIARIES. Except as set forth on Schedule 2.3, none of
------------
Valley or Desert Springs owns, directly or indirectly, any debt or equity
securities issued by any other corporation, or any interest in any partnership,
joint venture or other business enterprise. During the period between the
effective time of its creation and the effective time of the contribution of
assets to it described in Section 1.1 above,
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neither Newco UHS-1 nor Newco Q-1 shall have conducted any business or incurred
any liabilities.
2.4 CAPITALIZATION. The authorized capital stock of each of Valley
and Desert Springs is set forth on Schedule 2.4, together with a list of the
------------
number of shares issued and outstanding and owned of record and beneficially by
each of the shareholders. Except as set forth on Schedule 2.4, there are no
------------
outstanding or authorized rights, warrants, options, subscriptions, agreements
or commitments of any character giving anyone any right to require such Party to
sell or issue any capital stock or other securities, nor are there any voting
trusts or any other agreements or understandings with respect to the voting
common stock of such Party.
2.5 RECORDS. The books, records and work papers of such Party will
be made available to the other Party for inspection prior to the Closing Date
and will contain the minutes of all meetings of directors and of shareholders
and unanimous written consents reflecting all actions taken by the directors or
shareholders without a meeting, have been maintained in accordance with good
business practice and accurately reflect the basis for the financial condition
and results of operations of such Party set forth in the financial statements
referred to in Section 2.6 hereof except to the extent the same would not have a
material adverse effect on it.
2.6 FINANCIAL STATEMENTS. Such Party has furnished true, complete
and correct copies of: (i) with respect to Desert Springs: a) unaudited balance
sheets as of June 30, 1996 and 1997 and related statements of income and
operations for the two years then ended (the "Desert Springs Balance Sheets"),
and b) unaudited balance sheet as of September 30, 1997 and related statements
of income and operations for the three months then ended (the "Desert Springs
Interim Balance Sheet"); and (ii) with respect to Valley: a) unaudited balance
sheets as of December 31, 1995 and 1996 and related statements of income and
operations for the two years then ended (the "Valley Balance Sheets"), and b)
unaudited balance sheet as of September 30, 1997 and related statements of
income and operations for the nine months then ended (the "Valley Interim
Balance Sheet") (the Desert Springs Interim Balance Sheet and the Valley Interim
Balance Sheet are referred to herein as the "Balance Sheets" and the Desert
Springs Balance Sheets, the Desert Springs Interim Balance Sheet, the Valley
Balance Sheets and the Valley Interim Balance Sheet are referred to herein as
the "Financial Statements"). Copies of the Financial Statements are attached
hereto as Schedule 2.6. The Financial Statements of each such Party are in
------------
accordance with the books and records of such Party, are complete and correct in
all material respects, fully and fairly set forth the financial condition of
such Party as of the dates indicated, and the
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results of its operations for the periods indicated, and have been prepared in
accordance with generally accepted accounting principles consistently applied,
except as otherwise stated therein and except for normal year-end adjustments
(the effect of which will not, individually or in the aggregate, be materially
adverse) and the absence of notes.
2.7 ABSENCE OF UNDISCLOSED LIABILITIES. Such Party has no
liabilities or obligations of any nature, either accrued, absolute, contingent
or otherwise, which are not reflected or provided for in the Financial
Statements relating to it, except (i) those arising after the date of the
Balance Sheets which are in the ordinary course of business, in each case in
normal amounts and none of which is materially adverse, and (ii) as and to the
extent specifically described in Schedule 2.7 hereof. Except as set forth on
------------
Schedule 2.7, such Party does not know and has no reasonable grounds to know of
- - - ------------
any reasonable basis, as of the date hereof, for assertion against it of any
claim or liability of any nature in excess of $25,000 individually or $50,000 in
the aggregate not fully disclosed in the Balance Sheets.
2.8 ABSENCE OF CERTAIN CHANGES OR EVENTS SINCE THE DATE OF THE
BALANCE SHEETS. Except as otherwise disclosed in Schedule 2.8, since the date
------------
of the Balance Sheets such Party has not, except to the extent the same would
not have a material adverse effect on it:
2.8.1 incurred any obligation or liability (fixed, contingent or
otherwise), except normal trade or business obligations incurred in the ordinary
course of business and consistent with past practice, none of which is
materially adverse, and except in connection with this Agreement and the
transactions contemplated hereby;
2.8.2 discharged or satisfied any lien, security interest or
encumbrance or paid any obligation or liability (fixed, contingent or
otherwise), including intercompany obligations and liabilities except in the
ordinary course of business;
2.8.3 mortgaged, pledged or subjected to any Lien any of its
assets or properties (other than mechanic's, materialman's and similar statutory
liens arising in the ordinary course of business and purchase money security
interests arising as a matter of law between the date of delivery and payment);
2.8.4 sold, assigned, conveyed, transferred, leased or otherwise
disposed of, or agreed to sell, assign, convey, transfer, lease or otherwise
dispose of any of its assets
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<PAGE>
or properties except for a fair consideration in the ordinary course of business
and consistent with past practice or, except in the ordinary course of business
and consistent with past practice, acquired any assets or properties;
2.8.5 canceled or compromised any debt or claim in excess of
$2,500 for any individual debt or claim or $10,000 in the aggregate except
patient account bad debt which is addressed in Section 2.8.14;
2.8.6 waived or released any rights of material value;
2.8.7 made or granted any wage or salary increase applicable to
any group or classification of employees generally except merit increases and
bonuses pursuant to prior personnel practices, entered into any employment
contract with, or made any loan to, or entered into any material transaction of
any other nature with any director, officer or employee, been the subject of any
material labor dispute or, to its knowledge, threat thereof;
2.8.8 entered into any transaction or contract (other than
Immaterial Contracts as defined in Section 2.13.4), except (i) contracts listed
on Schedule 2.8 and (ii) this Agreement and the transactions contemplated
hereby;
2.8.9 suffered any casualty loss or damage (whether or not such
loss or damage shall have been covered by insurance) which affects in any
material respect its ability to conduct business;
2.8.10 authorized or effected any amendment or restatement of its
articles of incorporation or bylaws, or taken any steps looking toward its
dissolution or liquidation;
2.8.11 suffered any material adverse change in its operations,
earnings, assets, liabilities, properties or business or in its condition,
financial or otherwise, other than changes in the general market conditions and
prospects for the Facilities;
2.8.12 made capital expenditures or entered into any commitment
therefore which, in the aggregate, exceed $500,000;
2.8.13 suffered any material adverse change in its relations
with, or any material loss or, to its knowledge, material adverse threatened
loss of any of its material
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suppliers, managed care contracts, or Medicare or Medicaid contracts;
2.8.14 written off as uncollectible any accounts receivable or
trade notes in excess of reserves; or
2.8.15 introduced any material change with respect to the
operation of its business, including its method of accounting.
2.9 TAXES. Except as set forth in Schedule 2.9, such Party (i) has
------------
duly and timely filed or caused to be filed all federal, state, local and
foreign tax returns and reports of "Taxes" (as hereinafter defined) required to
be filed by it prior to the date of this Agreement which relate to it or with
respect to which it or its assets or properties are liable or otherwise in any
way subject, (ii) has paid or fully accrued for all Taxes, interest, penalties,
assessments and deficiencies shown to be due and payable on such returns and
reports (which Taxes, interest, penalties, assessments and deficiencies are all
the Taxes, interest, penalties, assessments and deficiencies due and payable
under the laws and regulations pursuant to which such returns were filed), and
(iii) has properly accrued for all such Taxes accrued in respect of it or its
assets and properties for periods subsequent to the periods covered by such
returns. Except as set forth in Schedule 2.9, no deficiency in payment of taxes
------------
for any period has been asserted by any taxing body and remains unsettled at the
date of this Agreement. Such Party has made all withholdings of Taxes required
to be made under all applicable United States, state and local tax regulations
and such withholdings have either been paid to the respective governmental
agencies or set aside in accounts for such purpose or accrued, reserved against
and entered upon the books of such Party. As used herein, the term "Tax" or
"Taxes" means any federal, state, local or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Internal Revenue Code
("Code") Sec. 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum or estimated tax, assessment, charge, levy or fee
of any kind whatsoever, which are due or alleged to be due to any taxing
authority, whether disputed or not.
2.10 REAL PROPERTY. Except as set forth on Schedule 2.10:
-------------
(a) Schedule 2.10 hereto identifies all interests in real
-------------
property, including land and improvements held by such
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<PAGE>
Party as of the date hereof, together with the nature of such interest. Such
Party owns fee simple title to the tracts of Real Property set forth opposite
its respective name on Schedule 2.10. To the extent that any interest in real
-------------
property set forth thereon is leased or shared, Schedule 2.10 identifies the
-------------
property as leased and describes the lease agreement and sets forth the nature
and proportion of the sharing arrangement;
(b) the Real Property comprises all of the real property
associated with or employed or used in the business of each of the Facilities;
(c) except as set forth in Schedule 2.10(c), to the best
----------------
knowledge of such Party, no part of the Real Property contains, is located
within or abuts any navigable water or other body of water, tideland, wetland,
marshland or any other area which is subject to special state, federal or
municipal regulation, control or protection;
(d) such Real Property adjoins dedicated public roadways and
there is access for motor vehicles from the Real Property to such roadways by
valid public or private easements; and, to the best knowledge of such Party,
there are no conditions existing which could result in the termination or
reduction of the current access from the Real Property to existing roadways;
(e) all essential utilities (including water, sewer, electricity
and telephone service) are available to the Real Property;
(f) to the best knowledge of such Party, the Facilities and the
Real Property and the businesses conducted thereon are in material compliance
with all applicable planning, zoning, land use, public health, fire safety and
building codes and ordinances; the consummation of the transactions contemplated
herein will not result in a violation of any applicable planning, land use,
public health, fire safety, zoning or building code or ordinance, or the
termination of any applicable zoning variances, conditional use permits,
waivers, exemptions or "grandfathering" now existing; and final, permanent and
unconditional certificates of occupancy and/or use have been duly issued by the
applicable governmental authority having jurisdiction for all buildings located
on the Real Property;
(g) such Party has not received actual notice of a violation of
any ordinance or other law, order, regulation or requirement, and has not
received actual notice of condemnation or similar proceedings relating to any
part of the Real Property;
(h) the Real Property of such Party is subject only to the Liens
described in Schedule 2.10(h), and on
----------------
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the Closing Date will be subject only to the Liens described on Schedule 2.10(h)
---------------
which are not designated therein as "excluded" and any other Liens approved by
the Company in writing on or after the effective date hereof (the "Permitted
Encumbrances");
(i) such Party has not created or may not assert any rights in
respect of any Liens which will interfere with the Company's use of the Real
Property after the Closing Date;
(j) except for those tenants in possession of the Real Property
under contracts described in Schedule 2.10(j), there are no parties in
----------------
possession of, or claiming any possession, adverse or not, to or other interest
in, any portion of Real Property as lessees, tenants at sufferance, trespassers
or otherwise;
(k) no tenant is entitled to any rebate, concession or free rent,
other than as set forth in the contract with such tenant; no commitments have
been made to any tenant for repairs or improvements other than for normal
repairs and maintenance in the future or as set forth in the contract with such
tenant; and no rents due under any of the tenant contracts have been assigned or
hypothecated to, or encumbered by, any person, other than pursuant to the
encumbrances relating to indebtedness to be satisfied on or prior to the Closing
Date, or Permitted Encumbrances, as additional security for the payment thereof;
(l) no part of the Real Property is currently subject to
condemnation, eminent domain or other proceedings for the taking thereof, and to
the best of such Party's knowledge, no condemnation or taking is threatened or
known by such Party to be contemplated; and
(m) the improvements to the Real Property are located entirely
within the boundaries of the Real Property and, to such Party's knowledge, do
not materially violate any building set back lines or materially encroach upon
any easements located on the Real Property.
2.11 TITLE TO PROPERTY AND ASSETS; SUFFICIENCY OF FACILITIES ASSETS.
(a) Such Party has good and marketable title to the Facilities
Assets owned by it (including, without limitation, the properties and assets
reflected in the Balance Sheets except any thereof since disposed of for value
in the ordinary course of business) except for the Permitted Encumbrances, and
none of such properties or assets is, except as disclosed in the Balance Sheets
or the Schedules hereto, subject to a contract of sale not
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<PAGE>
in the ordinary course of business, or, except for Permitted Encumbrances,
subject to any Liens.
(b) Except as described on Schedule 2.11, such Facilities Assets
-------------
constitute, in the aggregate, all the properties and assets necessary for the
operation of such Party's Facilities as currently conducted. The Facilities
Assets, together with the Excluded Assets, comprise all of the following: (i)
all assets owned by such Party, (ii) all assets used in connection with the
Facilities and their related businesses and (iii) all assets owned, used or
operated by any affiliate of such Party located within a fifty (50) mile radius
of Las Vegas, Nevada.
2.12 CONDITION OF PROPERTY. All buildings on the Real Property and
all items of tangible personal property, equipment, fixtures and inventories
included within the assets and properties of such Party or required to be used
in the ordinary course of its business are being contributed and transferred
pursuant to this Agreement on an "as is, where is" basis with no representations
or warranties express or implied as to their physical condition and WITHOUT ANY
WARRANTIES FROM ANY PARTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
2.13 LIST OF CONTRACTS AND OTHER DATA. Schedule 2.13 sets forth the
-------------
following information with respect to the properties and assets of such Party,
other than the Excluded Assets (indicating in each case, where appropriate,
whether or not consent by a third party is required for the transfer of such
properties and assets to the Company):
2.13.1 a description of all real property leased by such Party
and all leases of real property to which such Party is a party;
2.13.2 a list of all personal property owned of record or
beneficially by such Party having a value per item or group of items in excess
of $1,000 and all leases of personal property, licenses, permits, franchises,
concessions, certificates of public convenience or the like to which such Party
is a party;
2.13.3 a list of (i) all United States and foreign patents,
trademarks and trade names, trademark and trade name registrations, service
marks and service mark registrations, copyrights and copyright registrations,
unexpired as of the date hereof, all United States and foreign applications
pending on said date for patents, for trademark or trade name registrations, for
service mark registrations, or for copyright registrations, and all trademarks,
trade names, service marks, labels and other trade rights in use on said date,
all of the foregoing being
19
<PAGE>
owned in whole or in part as noted thereon on said date by such Party, (ii) a
description of all action taken by such Party to protect all tradenames used by
it, and (iii) all licenses granted by or to such Party and all other agreements
to which such Party is a party, which relate in whole or in part to any items of
the categories mentioned in clause (i) above or to any other proprietary rights,
whether owned by such Party or otherwise;
2.13.4 a list of all existing contracts and commitments to which
such Party is a party or by which such Party or any of its respective properties
or assets is bound, except for Immaterial Contracts. "Immaterial Contracts"
shall mean contracts which (i) no party thereto is a physician, physician group
or other referral source to a Facility, and is not a third party payor contract
and is not a real estate lease and (ii) requires payment by any Party to such
---
contract of less than $100,000 per year; and
2.13.5 a list of (i) all collective bargaining agreements,
multi-employer pension plans, employment, consulting and separation agreements,
executive compensation plans, bonus plans, incentive compensation plans,
deferred compensation agreements, employee pension plans or retirement plans,
employee profit sharing plans, employee stock purchase and stock option plans
and hospitalization insurance or other plans or arrangements providing for
benefits for employees or former employees of such Party, and (ii) all
Multiemployer Plans (as defined in ERISA as hereinafter defined) which such
Party maintains or has maintained or to which such Party makes, is required to
make, has made or has been required to make a contribution.
All documents, rights, obligations and commitments referred to in this
Section 2.13 are, to the best knowledge of such Party, valid and enforceable in
accordance with their terms for the period stated therein and there is not under
any of them any existing breach, default, event of default or event which with
the giving of notice or lapse of time, or both, would constitute a default, by
such Party, or, to such Party's knowledge, by any other party thereto, nor,
except as set forth on Schedule 2.13, has any party thereto given notice of or
-------------
made a claim with respect to any breach or default. There are no existing laws,
regulations or decrees, nor to such Party's knowledge are there any proposed
laws, regulations or decrees, which adversely affect any of such documents,
rights, obligations or commitments. Except as set forth on Schedule 2.13, no
-------------
part of the business or operations of such Party is dependent to any material
extent on any patent, trademark, copyright, or license or any assignment thereof
or any secret processes or formulae. Except as set forth on Schedule 2.13, none
-------------
of the rights of such Party under such documents, rights, obligations or
commitments
20
<PAGE>
is subject to termination or modification as a result of the transactions
contemplated hereby.
2.14 NO BREACH OR DEFAULT. Such Party is not in default under any
contract to which it is a party or by which it is bound, nor has any event
occurred which, after the giving of notice or the passage of time or both, would
constitute a default under any such contract except as set forth in Schedule
--------
2.14. Such Party has no reason to believe that the parties to such contracts
- - - ----
will not fulfill their obligations under such contracts in all material respects
or are threatened with insolvency.
2.15 LABOR CONTROVERSIES. Neither such Party, nor any of its
employees, is a party to any collective bargaining agreement except as included
in Schedule 2.13. There are not any controversies pending or, to the knowledge
-------------
of such Party, threatened between such Party and any of its employees which
might reasonably be expected to materially adversely affect the conduct of its
business, or any unresolved labor union grievances or unfair labor practice or
labor arbitration proceedings pending or, to the knowledge of such Party,
threatened relating to its business, and to the knowledge of such Party, there
are not any further organizational efforts presently being made or threatened
involving any of the employees of such Party. Except as set forth on Schedule
--------
2.15, such Party has not received any notice or claim that it has not complied
- - - ----
with any laws relating to the employment of labor, including any provisions
thereof relating to wages, hours, collective bargaining, the payment of social
security and similar taxes, equal employment opportunity, employment
discrimination and employment safety, or that such Party is liable for any
arrears of wages or any taxes or penalties for failure to comply with any of the
foregoing.
No person or Party (including, but not limited to, any governmental
agency) has any claim or basis for any action or proceeding, against a Party,
arising out of any statute, ordinance or regulation relating to wages,
collective bargaining, discrimination in employment or employment practices or
occupational safety and health standards (including, but not limited to, the
Fair Labor Standards Act, Title VII of the Civil Rights Act of 1964, as amended,
the Occupational Safety and Health Act, or the Age Discrimination in Employment
Act of 1967 or the Americans With Disabilities Act of 1990). Each Party has
complied with all laws and regulations with respect to the determining of
independent contractor or employee status.
2.16 LITIGATION. Except as set forth in Schedule 2.16, there are no
-------------
claims, actions, suits or proceedings or, to the knowledge of such Party,
investigations with respect to such Party, involving claims by or against such
Party which are pending or, to such Party's knowledge, threatened against such
Party, at law or in equity, or before or by any federal, state,
21
<PAGE>
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, or before the internal grievance mechanisms of such Party. To
such Party's knowledge, no basis for any action, suit or proceeding exists, and
there are no orders, judgments, injunctions or decrees of any court or
governmental agency with respect to which it has been named or to which it is a
party, which directly apply, in whole or in part, to the business of such Party,
or to any of its assets or properties, or which would result in any material
adverse change in its business.
2.17 PATENTS; TRADEMARKS, ETC. No patents, trademarks, trade names,
copyrights, registrations or applications are necessary for the conduct of the
business of such Party as now conducted, other than those listed in Schedule
--------
2.13 hereto. Except as described in Schedule 2.13 hereto, all such patents,
- - - ---- -------------
trademarks, trade names, copyrights and registrations are in good standing, are
valid and enforceable and are free from any default on the part of such Party.
Such Party is not a licensor in respect of any patents, trademarks, trade names,
copyrights or registrations or applications therefor. Such Party is not in
violation of any patent, patent license, trade name, trademark, or copyright of
others. No director, officer or employee of such Party owns, directly or
indirectly, in whole or in part, any patents, trademarks, trade names,
copyrights, registrations or applications therefor or interests therein which
such Party has used, is presently using, or the use of which is necessary for
its business as now conducted.
2.18 LICENSES; PERMITS; AUTHORIZATIONS. Schedule 2.18 hereto is a
-------------
schedule of all rights, approvals, authorizations, consents, licenses, orders,
accreditations, franchises, concessions, certificates and permits of all
governmental agencies, whether United States, state or local, and accrediting
bodies, (collectively, the "Licenses") required by the nature of the business
conducted by such Party to permit the continued operation of its business in the
manner in which it was conducted as of the date hereof (indicating in each case,
where appropriate, whether or not the consent by a third party to the transfer
to the Company is required). Such Party has all Licenses required to permit the
operation of its business as presently conducted; such Party's business is and
has been operated in all material respects in compliance therewith and all such
Licenses are in full force and effect and no action or claim is pending, nor to
the knowledge of such Party, is threatened to revoke, terminate or declare
invalid any of the foregoing.
2.19 COMPLIANCE WITH APPLICABLE LAW; ENVIRONMENTAL LAWS.
22
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(a) Except as set forth on Schedule 2.19 hereto, the conduct of
-------------
the business of such Party does not (i) violate or infringe any domestic or
foreign laws, statutes, rules or regulations or any material ordinances,
including, without limitation, any of the foregoing that pertain to or regulate
the operation of a hospital, consumer protection, health and safety or
occupational safety matters, or (ii) violate or infringe any right or patent,
trademark, trade name, service mark, copyright, know-how or other proprietary
right of third parties, the enforcement of which would adversely affect the
business of such Party or the value of its properties or assets.
(b) Neither such Party nor, to the knowledge of such Party, any
of its employees, officers and directors in their capacities as such, have
engaged in any activities which are prohibited under any federal laws, or the
regulations promulgated pursuant to such laws or related state or local laws,
statutes or regulations or which are prohibited by rules of professional
conduct, including but not limited to the following: (i) knowingly and willfully
making or causing to be made a false statement or representation of a material
fact in any application for any benefit or payment; (ii) knowingly and willfully
making or causing to be made any false statement or representation of a material
fact for use in determining rights to any benefit or payment; (iii) presenting
or causing to be presented a claim for reimbursement for services under
Medicare, Medicaid or other state health care programs that is for an item or
service that is known or should be known to be (a) not provided as claimed, or
(b) false or fraudulent; (iv) failing to disclose knowledge by a claimant of the
occurrence of any event affecting the initial or continued right to any benefit
or payment on its own behalf or on behalf of another, with intent to
fraudulently secure such benefit or payment; (v) knowingly and willfully
offering, paying, soliciting, or receiving any remuneration (including any
kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in
cash or in kind (a) in return for referring an individual to a person for the
furnishing or arranging for the furnishing of any item or service for which
payment may be made in whole or in part by Medicare, Medicaid or other state
health care program, or (b) in return for purchasing, leasing, or ordering or
arranging for or recommending purchasing, leasing, or ordering any good,
facility, service, or item for which payment may be made in whole or in part by
Medicare, Medicaid or other state health care program; (vi) knowingly making a
payment, directly or indirectly, to a physician as an inducement to reduce or
limit necessary services to individuals who are under the direct care of the
physician and who are entitled to benefits under Medicare, Medicaid, or other
state health care programs; (vii) providing to any person information that is
known or should be known to be false or misleading that could reasonably be
expected to influence the decision when to discharge a patient
23
<PAGE>
from a Facility; (viii) knowingly and willfully making or causing to be made or
inducing or seeking to induce the making of any false statement or
representation (or omitting to state a material fact required to be stated
therein or necessary to make the statement contained therein not misleading) of
a material fact with respect to (a) the conditions or operations of a Facility
in order that the Facility may qualify for Medicare, Medicaid or other state
health care program certification, or (b) information required to be provided
under (S) 1124A of the Social Security Act (42 U.S.C. (S) 1320a-3); or (ix)
knowingly and willfully (a) charging for any Medicaid service money or other
consideration at a rate in excess of the rates established by the state, or (b)
charging, soliciting, accepting or receiving, in addition to amounts paid by
Medicaid, any gift money, donation or other consideration (other than a
charitable, religious or other philanthropic contribution from an organization
or from a person unrelated to the patient) (1) as a precondition of admitting
the patient, or (2) as a requirement for the patient's continued stay in the
Facility.
(c) All Licenses currently held by such Party pursuant to the
Environmental Laws are identified in Schedule 2.18.
-------------
(d) Such Party is in compliance in all material respects with all
applicable Environmental Laws except as disclosed in Schedule 2.19.
-------------
(e) In regards to the Facilities and the Real Property, there is
no Environmental Claim pending or, to such Party's knowledge, threatened against
the Facilities or the Real Property or, to such Party's best knowledge after due
inquiry, any other person whose liability for any Environmental Claim such Party
has retained or assumed contractually; to such Party's knowledge, there are no
past or present actions, activities, circumstances, conditions, events or
incidents, including the release, emission, discharge or disposal of any
Materials of Environmental Concern, that could form the basis of any
Environmental Claim against such Party or against any person whose liability for
any Environmental Claim such Party has retained or assumed contractually; and
such Party has not received any written communication, whether from a
governmental authority or otherwise, that alleges that such Party is not in full
compliance with all applicable Environmental Laws.
(f) In regards to the Facilities and the Real Property, without
in any way limiting the generality of the foregoing, (i) all on-site and off-
site locations where such Party has stored, disposed or arranged for the
disposal of Materials of Environmental Concern are identified in Schedule 2.19,
-------------
(ii) all Contracts dealing with the removal, storage,
24
<PAGE>
disposal and handling of Materials of Environmental Concern are with properly
licensed and registered vendors, (iii) all underground storage tanks, and the
capacity and contents of such tanks, located on the Real Property are identified
in Schedule 2.19, (iv) except as set forth on Schedule 2.19, there is no
------------- -------------
asbestos contained in or forming part of the Real Property, and (v) except as
set forth on Schedule 2.19, no polychlorinated biphenyls (PCBs) are used or
-------------
stored on the Real Property.
(g) As used herein: (i) "Environmental Claim" means any written
notice by a person alleging potential liability (including potential liability
for investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries or penalties) arising out
of, based on or resulting from, directly or indirectly, the presence, or release
into the environment, of any Materials of Environmental Concern (as defined
below); (ii) "Environmental Laws" means any and all federal, state, local and
foreign laws and regulations (including common law) relating to pollution or
protection of human health or the environment (including ground water, land
surface or subsurface strata), including laws and regulations relating to
emissions, discharges, releases or threatened releases of Materials of
Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, recycling, reporting
or handling of Materials of Environmental Concern; and (iii) "Materials of
Environmental Concern" means chemicals, pollutants, contaminants, wastes
(including medical waste), toxic substances, polychlorinated biphenyls (PCB's),
ureaformaldehyde, petroleum and petroleum products and such other substances,
materials and wastes which are defined or classified as hazardous or toxic under
any Environmental Laws.
2.20 EMPLOYEE BENEFIT PLANS; EMPLOYEES AND EMPLOYEE RELATIONS.
2.20.1 Attached hereto is an accurate list (Schedule 2.20.1) of
---------------
all "employee welfare benefit plans" and "employee pension benefit plans"
(collectively, "Qualified Plans"), as such terms are defined by the Employment
Retirement Income Security Act of 1974, as amended ("ERISA"), and any other
group employee benefit plan, agreement, arrangement or understanding maintained
for the benefit of such Party (the Qualified Plans, together with such other
plans, arrangements and understandings, collectively, the "Employee Benefit
Plans"). To the extent available, complete and genuine copies of the summary
plan descriptions have been provided to the other Party, which summary plan
descriptions accurately summarize the material provisions of the Employee
Benefit Plans. Neither such Party nor any other members of the Controlled Group
of Corporations (as defined in Section 1563 of the Code) that includes such
Party
25
<PAGE>
contributes to, ever has contributed to, or ever has been required to contribute
to any Multiemployer Plan (as defined in Section 3(37) of ERISA) or has any
liability (including withdrawal liability) under any Multiemployer Plan. There
is no lien, encumbrance or claim of any type on the Facilities Assets or against
such Party with respect to the Employee Benefit Plans, and such Party has not
taken any action, or omitted to take any action, with respect to the Employee
Benefit Plans (or has any knowledge of the same) that would or could be expected
to result in a Lien on the Facilities Assets or against such Party.
2.20.2 Schedule 2.20.2 sets forth a complete list (as of the
---------------
date set forth therein) of names, positions, current annual salaries or wage
rates, and bonus and other compensation arrangements of all full-time and part-
time employees of such Party.
2.21 ADVERSE AGREEMENTS; NO ADVERSE CHANGE.
(a) Such Party is not a party to or subject to any agreement or
instrument or subject to any charter or other corporate restriction or any
judgment, order, writ, injunction, decree or rule specifically naming such Party
which adversely affects the business, operations, properties, assets or
conditions, financial or otherwise, of such Party.
(b) To the best of such Party's knowledge there has not been any
material adverse change in, or development materially adversely affecting the
business, assets, financial position or results of operations of any of such
Party since the Balance Sheet date.
2.22 TRADE NOTES AND ACCOUNTS RECEIVABLE; TRADE ACCOUNTS PAYABLE;
PREPAID CONTRACTS.
(a) Except as set forth on Schedule 2.22 hereto, the trade notes
-------------
and accounts receivable of such Party are reflected on the Balance Sheets and
all trade notes and accounts receivable arising thereafter and prior to the
Closing Date arose and will arise from bona fide transactions in the ordinary
course of business of such Party, and are (except for normal claims and
allowances which are consistent with past experience of such Party and which in
the aggregate are not material) current, arose in the usual and ordinary course
of business of such Party from arms-length transactions, are not subject to any
defenses, counterclaims or set-offs which would materially adversely affect such
trade notes and accounts receivable, and, to such Party's knowledge, are fully
collectible, less the applicable allowance for doubtful accounts. Such Party has
fully performed all obligations with respect to such trade notes and accounts
26
<PAGE>
receivable which it was obligated to perform prior to the date hereof and
Schedule 2.22 sets forth an aging schedule, as of December 31, 1997, or
- - - -------------
thereafter, for all such trade notes and accounts receivable.
(b) The trade accounts payable of such Party reflected on the
Balance Sheets and all trade accounts payable arising thereafter and prior to
the Closing Date arose and will arise from bona fide transactions in the
ordinary course of business of such Party and were paid or are not yet due and
payable.
(c) Schedule 2.22 hereto sets forth the amounts and dates of all
-------------
payments (the "Prepayments") received by such Party which relate to services to
be performed by such Party subsequent to the Closing Date, including, without
limitation, all such payments expressly authorized to be made in advance by any
of the terms of any contract or agreement with such Party.
2.23 INVENTORIES AND SUPPLIES. All inventories and supplies of such
Party, whether or not reflected in the Balance Sheets, consist of a quality and
quantity useable and salable in the ordinary course of business, without
discount or reduction, except for obsolete items and items of below-standard
quality, all of which have been written off or written down to net realizable
value in the Balance Sheets. All inventories and supplies not written off are
valued at the lower of cost (applied on a first in, first out basis) or market
in accordance with generally accepted accounting principles. The present
quantities of inventory and supplies are not excessive and are reasonable and
consistent with the past inventory and supply practices of such Party.
2.24 ILLEGAL PAYMENTS. Such Party has not, nor to the knowledge of
such Party, has any of its respective directors or officers, in their capacity
as such, either directly or indirectly, made any illegal payments to, or
provided any illegal benefit or inducement for, any person pursuant to an action
illegal under any federal, state or local law.
2.25 INSURANCE POLICIES. (a) Schedule 2.25 contains a correct and
-------------
complete description of all insurance policies of such Party covering such Party
and its employees, agents and assets. Each such policy is in full force and
effect and, to the knowledge of such Party, is reasonably adequate in coverage
and amount to insure against customarily insured risks to which such Party and
its employees, businesses, properties and other assets may likely be exposed in
the operation of its business. All premiums with respect to such insurance
policies have been paid on a timely basis, and no notice of cancellation or
termination has been received with respect to any such policy. To the knowledge
of such Party, and except as set forth on Schedule
--------
27
<PAGE>
2.25, there are no pending claims against such insurance by such Party as to
- - - ----
which the insurers have denied coverage or otherwise reserved rights. Since
January 1, 1994, such Party 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.
(b) Schedule 2.25 contains a correct and complete description of
-------------
all insurance policies of such Party covering the Real Property. Each such
policy is in full force and effect and, to the knowledge of such Party, is
reasonably adequate in coverage and amount to insure against customarily insured
risks with respect to property of this type. All premiums with respect to such
insurance policies have been paid on a timely basis, and no notice of
cancellation or termination has been received with respect to any such policy.
Except as set forth on Schedule 2.25, there are no pending claims against such
-------------
insurance by such Party as to which the insurers have denied coverage or
otherwise reserved rights.
2.26 PROFESSIONAL STAFF, MEDICARE, MEDICAID AND OTHER HEALTH CARE
PROGRAMS.
(a) The professional licensed provider staff of each of the
Facilities consists of the persons whose names and status are set forth on
Schedule 2.26(a) hereto.
- - - ---------------
(b) Except as set forth on Schedule 2.26(b) hereto, such Party
----------------
is certified for participation in the Medicare and Nevada Medical Assistance
("Medicaid") programs, and has a current and valid provider contract with such
programs.
(c) Except as set forth on Schedule 2.26(c) hereto, such Party
----------------
has timely filed or caused to be timely filed all cost reports and other reports
of every kind whatsoever required by any governmental or other 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 all such reports are complete and accurate in all material
respects. Such Party has paid or caused to be paid all refunds, discounts or
adjustments which have become due in accordance with said reports as filed and,
except as set forth on Schedule 2.26(c), have not been notified that there is
----------------
any further liability now due (whether or not disclosed in any report heretofore
or hereafter made) for any such refund, discount or adjustment, or any interest
or penalties accruing with respect thereto. Such Party has delivered to the
other Party complete copies of all of its Medicare and Medicaid cost reports
submitted by such Party for the two most recent fiscal years.
28
<PAGE>
(d) To the knowledge of such Party, such Party and its officers,
directors, employees or agents (acting in their capacities as such), have not
engaged in any activities which (i) could subject such Party or person to
sanctions under 42 U.S.C. (S) 1320a-7 (other than subparagraph (b)(7) thereof)
or (ii) at the time such activities were engaged in were known or reasonably
could have been known to be prohibited under Federal Medicare and Medicaid
statutes, 42 U.S.C. (S) (S) 1320a-7a and 1320a-7b, or the regulations
promulgated pursuant to such statutes or related state or local statutes or
regulations or which are prohibited by rules of professional conduct.
2.27 FACILITY SURVEYS. True and complete copies of any and all
licensure survey reports and any and all Medicare and/or Medicaid and JCAHO or
other accreditation survey reports issued within the 24-month period preceding
the execution of this Agreement with respect to each Facility for which surveys
are conducted by the appropriate state or Federal agencies having jurisdiction
thereof and JCAHO or accreditation bodies have been furnished to the other
Party, along with true and complete copies of any and all plans of correction
which the agencies required to be submitted in response to said survey reports.
2.28 RELATED PARTY TRANSACTIONS. To the knowledge of such Party,
except as set forth in Schedule 2.28, and except for compensation to employees
-------------
for services rendered, no current director or officer of such Party or any
affiliate thereof is presently, or during the last fiscal year has been, (a) a
party to any material transaction with such Facility (including, but not limited
to, any contract or other arrangement providing for the furnishing of service
by, or rental of real or personal property from, or otherwise requiring payments
to, any such director, officer, or shareholder, or (b) the direct or indirect
owner of any interest in any person which is a present competitor, supplier or
customer of such Party with respect to the business, nor does any such person
receive income from any source other than such Party which should properly
accrue to such Party.
2.29 NO BROKERS. Such Party has not entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of the Company following the Merger or any other Party to pay any
finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the consummation
of the transactions contemplated hereby, and such Party is not aware of any
claim or basis for any claim for payment of any finder's fees, brokerage or
agent's commissions or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the transactions contemplated
hereby.
29
<PAGE>
2.30 NO MISREPRESENTATION OR OMISSION. No representation or warranty
by such Party in this Article 2 or in any other Article or Section of this
Agreement, or in any certificate or other document furnished or to be furnished
by or on behalf of such Party pursuant hereto, contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary to make the statements contained therein not misleading.
3. [ARTICLE 3 INTENTIONALLY OMITTED.]
4. COVENANTS OF THE PARTIES.
4.1 ACCESS TO FACILITIES AND ADDITIONAL INFORMATION.
4.1.1 From the date hereof until the Closing Date, the Parties
shall provide, and cause their respective agents (including counsel and
accountants) to provide to one another reasonable access to and the right to
inspect the Facilities Assets and their respective books and records pertaining
to the Facilities Assets, and will furnish and cause to be furnished to one
another all material information concerning their respective businesses not
otherwise disclosed pursuant to this Agreement, and such additional financial,
operating and other data and information regarding themselves, their respective
businesses and the Facilities Assets as either of them may from time to time
reasonably request, without regard to where such information may be located.
4.1.2 Promptly after the execution of this Agreement, each Party
shall deliver to one another, to the extent not already delivered, copies of all
title insurance policies and binders in the possession of either Party for any
of the Real Property and copies of all surveys of any of the Real Property in
the possession of either Party.
4.2 OPERATIONS. From the date hereof until the Closing Date and
except as otherwise expressly provided in this Agreement, each of Desert Springs
and Valley will:
(a) carry on its business in substantially the same manner as
heretofore and not make any material change in its personnel, operations,
finances, accounting policies, or real or personal property;
(b) maintain the Facilities Assets and all parts thereof in their
current condition, ordinary wear and tear excepted;
30
<PAGE>
(c) perform all of its obligations relating to or affecting the
Facilities Assets or the business of its Facility;
(d) use their reasonable efforts to obtain appropriate releases,
consents, estoppels and other instruments as the other Party may reasonably
request;
(e) keep in full force and effect present insurance policies or
other comparable insurance and maintain sufficient liquid reserves to meet all
deductible, self-insurance and copayment requirements under present insurance
policies;
(f) maintain and preserve its business organizations and
operations intact, deal with the present employees at its Facility in a manner
consistent with its existing personnel policies; maintain its relationships with
physicians, suppliers and other persons having business relations with it; and
cooperate with the other Party by taking such actions as are reasonably
necessary to facilitate the smooth, efficient and successful transition to the
Company following the Merger of such business organizations and operations and
employee and other relations; and
(g) permit and allow reasonable access by the other Party to
discuss post-closing employment with any of its personnel and to establish
relationships with physicians, suppliers and others having business relations
with it.
4.3 NEGATIVE COVENANTS. From the date hereof until the Closing Date,
except as otherwise expressly permitted by this Agreement or without the prior
written consent of one another, none of Desert Springs or Valley will:
(a) amend or terminate any of the Assumed Contracts, enter into
any contract or agreement or incur or agree to incur any liability, except in
the ordinary and regular course of business, and in no event that requires the
payment by such entity prior to the Closing Date or the Company following the
Merger of an amount greater than twenty-five thousand dollars ($25,000) per
contract or agreement, or that is not terminable without cause or penalty within
thirty (30) days following the Closing Date;
(b) make offers to any of its employees for employment with it
after the Closing Date;
(c) increase compensation payable or to become payable to, make
a bonus payment to, or otherwise enter into one or more bonus agreements with,
any of its employees or agents, except in the ordinary and regular course of
business in accordance with existing personnel policies;
31
<PAGE>
(d) create, assume or permit to exist any new Lien upon any of
the Facilities Assets other than purchase money liens arising in the ordinary
course of business;
(e) sell, assign, transfer, distribute or otherwise dispose of
any property, plant or equipment, except in the ordinary and regular business of
the Facilities with comparable replacement thereof;
(f) take any action outside the ordinary and regular course of
business;
(g) take any action relating to its liquidation or dissolution;
or
(h) create, incur, assume, guarantee or otherwise become liable
for, cancel, pay, agree to cancel or pay, provide for a complete or partial
discharge in advance of a scheduled payment date with respect to, or waive any
right to receive any direct or indirect payment or other benefit under, any
liability except in the ordinary and regular course of business and in an amount
not exceeding $25,000 individually or $50,000 in the aggregate.
4.4 GOVERNMENTAL APPROVALS. From the date hereof until the Closing
Date, each Party shall (a) promptly apply for and use its reasonable best
efforts to obtain prior to the Closing Date all consents, approvals,
authorizations and clearances of governmental and regulatory authorities
required of it to consummate the transactions contemplated hereby, (b) provide
such information and communications to governmental and regulatory authorities
as such authorities may reasonably request, and (c) assist and cooperate with
the other Party to obtain all consents, licenses, permits, approvals,
authorizations and clearances of governmental and regulatory authorities that
the other Party reasonably deems necessary or appropriate, and to prepare any
document or other information required of the Company following the Merger by
any such authorities, in order to consummate the transactions contemplated
herein.
4.5 INSURANCE RATINGS. From the date hereof until the Closing Date,
each Party will take all action reasonably requested by the other Party to
enable the Company following the Merger to succeed to the worker's compensation
and unemployment insurance ratings of each Party with respect to its Facility
for insurance purposes. The Company shall not be obligated to succeed to any
such rating except as it may elect to do so.
4.6 EMPLOYEES; EMPLOYEE BENEFIT PLANS. Each Party shall retain all
liabilities and obligations for all benefits
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under the Employee Benefit Plans, regardless of whether any such liabilities and
obligations are disclosed on the Balance Sheets (including, without limitation,
any and all workers' compensation, health, disability or other benefits due to
or for the benefit of any employees of such Party or their covered dependents)
with the exception of vacation, sick leave, paid time off and the like, and
COBRA, all of which will be assumed by the Company. As of the Closing Date, each
Party shall terminate the participation of all employees in any Employee Pension
Benefit Plan in which any of such Party's employees participates, and provide
for distributions pursuant to the terms of the plans, ERISA and the Code.
4.7 FURTHER ACTS AND ASSURANCES. At any time and from time to time
at and after the Closing, upon request of the Company, each Party shall do,
execute, acknowledge and deliver, or cause to be done, executed, acknowledged
and delivered, such further acts, deeds, assignments, transfers, conveyances,
powers of attorney, confirmations and assurances as the Company may reasonably
request to more effectively convey, assign and transfer to and vest in the
Company, full legal right, title and interest in and actual possession of the
Facilities Assets and the business of the Parties, to confirm each Party's
capacity and ability to perform its post-closing covenants and agreements under
this Agreement, and to generally carry out the purposes and intent of this
Agreement. Each Party shall also furnish the Company with such information and
documents in its possession or under its control, or which such Party can
execute or cause to be executed, as will enable the Company to prosecute any and
all petitions, applications, claims and demands by or against third parties
relating to or constituting a part of the Facilities Assets and the business of
the Parties. After the Closing Date, the Parties shall promptly remit to the
Company any payments received by such Party with respect to any accounts
receivable or other amounts sold to the Company; and similarly, after the
Closing Date the Company shall promptly remit to a Party any payments received
by the Company with respect to accounts receivable or other amounts retained by
such Party. Any funds so collected will be remitted within five (5) days
following receipt of such payment.
4.8 SUMMERLIN TRANSACTION. Simultaneous with the contribution of the
Facilities Assets to Newco UHS-1 pursuant to this Agreement, (i) Summerlin
Hospital Medical Center, L.P. ("Summerlin") shall contribute, convey, assign,
transfer and deliver to Summerlin Hospital Medical Center LLC, a limited
liability company ("Newco UHS-2") created by Summerlin pursuant to the LLC Act
those assets and properties of Summerlin which are in the nature of the
Facilities Assets (but excluding its assets and properties which are in the
nature of Excluded Assets) and (ii) Newco UHS-2 shall assume and agree to pay,
perform and
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discharge the liabilities and obligations of Summerlin which are in the nature
of Assumed Liabilities. Simultaneous with the consummation of the Merger,
Summerlin shall sell to Desert Springs and Desert Springs shall acquire a
twenty-six and 115/1000 percent (26.115%) interest in Newco UHS-2 upon terms and
conditions mutually acceptable to Valley, Summerlin and Desert Springs, and
Summerlin thereafter shall own a seventy-three and 885/1000 percent (73.885%)
interest in Newco UHS-2.
4.9 ADDITIONAL PROPERTIES AND ASSETS. On or prior to the Closing
Date, Valley shall cause the entities listed on Schedule 4.9, all of which
------------
Valley represents are its affiliates, to convey to Valley or Newco UHS-1, or
contribute to the Company, the properties and assets listed on Schedule 4.9. If
------------
such properties and assets are conveyed to Valley such properties and assets
shall constitute UHS Facilities and shall be contributed by Valley to Newco UHS-
1 pursuant to the terms of this Agreement as if they had been contributed prior
to execution hereof. Any representations, warranties, and covenants (including
liabilities not assumed) which reference knowledge, receipt of notice, or a
phrase of similar import, shall also include knowledge, notice or phrase of
similar import of such affiliate of Valley and any references in Section 1.7 and
Sections 2.7 to 2.30 to Valley as a Party shall include such affiliate of
Valley.
5. MATTERS PERTAINING TO THE COMPANY.
5.1 EMPLOYEE MATTERS. Subject to the exclusions set forth in this
Section, the Parties will cause the Company to offer to employ as of the Closing
Date, on an at-will basis (subject to any existing union contracts), all
employees working at the Facilities immediately prior to the Closing Date
(including those on leave) so that the Parties may avoid the imposition of any
liability under the WARN Act and the Company shall pay all liability of the
Parties under the WARN Act resulting from the Company's failure to do so. For
the employees who accept the Company's offer of employment, the Company shall
recognize the employee's length of service with the Parties for vesting and
benefits eligibility purposes under the Company's employee benefit programs.
Notwithstanding the foregoing, the Company shall have no obligation to offer
employment to, except as required under any union contract, (i) those employees
who are "part-time employees" (as defined in the WARN Act) and (ii) those
employees who voluntarily elect to leave the employment of any Party.
5.2 FURTHER ACTS AND ASSURANCES. At any time and from time to time
at and after the Closing Date, the Parties shall cause the Company to execute,
acknowledge and deliver, or cause to be done, executed, acknowledged and
delivered such further
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acts, deeds, assignments, transfers, conveyances, powers of attorney,
confirmations and assurances as the Parties may reasonably request to confirm
the capacity and ability of the Company to perform those acts relating to the
post-closing covenants and agreements of the Parties (with respect to causing
the Company to perform such acts) under this Agreement, and to generally carry
out the purposes and intent of this Agreement. The Parties shall cause the
Company to furnish the Parties with such information and documents in its
possession or under its control, or which it can execute or cause to be
executed, as will enable the Parties to prosecute any and all petitions,
applications, claims and demands by or against third parties relating to or
constituting a part of the Facilities Assets and the business of the Facilities
for which any Party is liable hereunder or relating to Government Reimbursement
Programs.
6. CONDITIONS OF CLOSING.
6.1 CONDITIONS OF CLOSING. The obligations of the Parties to
contribute the Facilities Assets and cause the Merger to be consummated shall be
subject to and conditioned upon the satisfaction at the Closing Date of each of
the following conditions (it being understood and agreed that (i) the conditions
to the benefit of Valley are solely with respect to Quorum Facilities and Desert
Springs and not with respect to itself or its Facilities and (ii) the conditions
to the benefit of Desert Springs are solely with respect to UHS Facilities and
Valley and not with respect to itself or its Facilities):
6.1.1 All representations and warranties of the Parties
contained in this Agreement and the Schedules hereto shall be true and correct
in all material respects at and as of the Closing Date, the Parties shall have
performed in all material respects all agreements and covenants and satisfied
all conditions on their part to be performed or satisfied by the Closing Date
pursuant to the terms of this Agreement, and each Party shall have received a
certificate of the other Party dated the Closing Date to such effect.
6.1.2 Except as caused solely by any change in the relevant
market conditions and prospects, for which the other Party shall assume all
risk, there shall have been no material adverse change since the date of the
Balance Sheets in the financial condition, business or affairs of each Party;
and each Party shall not have suffered any material loss (whether or not
insured) by reason of physical damage caused by fire, earthquake, accident or
other calamity which substantially affects the value of its assets, properties
or business the insurance proceeds related to which are not, in the reasonable
opinion of the other Party, adequate to repair such damage and compensate for
any lost
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business related thereto. Each Party shall have received a certificate of the
other Party dated the Closing Date that the statements set forth in this Section
6.1.2 are true and correct.
6.1.3 Each Party shall have delivered to the other Party a
Certificate of the Secretary of State (or other authorized officer) of the State
of its jurisdiction of incorporation, and certifying as of a date reasonably
close to the Closing Date that such Party has filed all required reports, paid
all required fees and taxes, and is, as of such date, in good standing and
authorized to transact business as a domestic corporation.
6.1.4 Each Party shall have delivered to the other Party a
certificate of its corporate Secretary certifying:
(i) The Resolutions of its Board of Directors
authorizing the execution, performance and delivery of this Agreement and the
execution, performance and delivery of all agreements, documents and
transactions contemplated hereby;
(ii) The incumbency of its officers executing this
Agreement and all agreements and documents contemplated hereby; and
(iii) That the Articles of Incorporation and Bylaws of
such Party attached to such certificate are complete and correct and in effect
as of the date of such certification.
6.1.5 Each Party shall have received from counsel for the other
Party (which may be house counsel), an opinion, dated the Closing Date,
satisfactory to such party in the form attached hereto as Exhibit B.
---------
6.1.6 All material authorizations, consents, waivers, approvals,
orders, registrations, qualifications, designations, declarations, filings or
other actions required with or from any governmental entity (including without
limitation receipt of licenses (or commitments to issue licenses) to own and
operate the Facilities and for the Company following the Merger to conduct the
businesses of the Parties as currently conducted) 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 Parties, and copies thereof shall be delivered to
the Parties prior to the Closing Date.
6.1.7 On the Closing Date, no injunction or order shall be in
effect prohibiting consummation of the transactions contemplated hereby or which
would make the consummation of such
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transactions unlawful and no action or proceeding shall have been instituted and
remain pending before a governmental entity to restrain or prohibit the
transactions contemplated by this Agreement and no adverse decision shall have
been made by any such governmental entity which is reasonably likely to
materially adversely affect the Company, the Parties, Newco UHS-1, Newco Q-1 or
the Facilities Assets. No federal, state or local statute, rule or regulation
shall have been enacted the effect of which would be to prohibit, materially
restrict, impair or delay the consummation of the transactions contemplated
hereby or materially restrict or impair the ability of the Company following the
Merger to own the Facilities Assets or to conduct the businesses relating
thereto.
6.1.8 The Parties' receipt of standard ALTA or CLTA fee owner's
title insurance policies using the current ALTA or CLTA form(the "Title
Policies") insuring title (at standard market rates for fee simple or leasehold
title) to each parcel of Real Property in the Company, as fee owner, or with
respect to the Boyer Property and the Capstone Property identified on Schedule
--------
2.13, as leasehold owner, as the case may be, subject only to the Permitted
- - - ----
Encumbrances, in the aggregate amount of $50,000,000 for Valley and $44,300,000
for Desert Springs, and issued by a national title insurance company (the "Title
Company"). The Title Policies shall be issued with all standard or general
printed exceptions (other than the survey exceptions) deleted and will contain a
so-called "non-imputation" endorsement and such additional endorsements as the
Parties may reasonably require.
6.1.9 Execution and delivery by the Parties of the Instruments
of Conveyance set forth in Section 1.4.
6.1.10 Execution and delivery by the Company and the parties
thereto of the Management Agreement in substantially the form attached hereto as
Exhibit C (the "Management Agreement").
- - - ---------
6.1.12 Execution and delivery by the Company and the Parties of
the Operating Agreement in substantially the form attached hereto as Exhibit D
---------
(the "Operating Agreement").
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6.1.13 The Company's receipt of current as-built surveys of
the Real Property, and the Boyer Property and the Capstone Property described on
Schedule 2.13, prepared and certified by a registered surveyor licensed in the
- - - -------------
State of Nevada (the "Surveys"). The Surveys shall be in form and substance
mutually satisfactory to the Parties.
6.1.14 Execution and delivery by Valley, Universal Health
Services, Inc. and the Company of the Schwartz Sublease in substantially the
form attached hereto as Exhibit E (the "Schwartz Sublease").
6.1.15 Execution and delivery by Valley, Summerlin and
Universal Health Services, Inc. of the Survey Agreement in substantially the
form attached hereto as Exhibit F (the "Survey Agreement").
7. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION.
7.1 EVENTS OF DEFAULT. A breach as a result of the failure of a Party
to perform any of its agreements, covenants and obligations under this
Agreement, shall be considered a default hereunder giving rise to the
indemnification set forth in Section 7.3 hereof.
7.2 SURVIVAL OF REPRESENTATIONS, ETC. All representations and
warranties made by the Parties in this Agreement or in any exhibit, schedules or
certificates hereof or in connection with the transactions contemplated hereby
shall terminate at the Closing Date, and thereafter be of no further force or
effect and no action or cause of action on account thereof shall survive. All
other agreements, covenants and obligations of the Parties in this Agreement or
in any exhibit,
38
<PAGE>
schedules, certificate, document or instrument delivered pursuant to the
provisions hereof or in connection with the transactions contemplated hereby,
and the remedies of the Parties with respect thereto, shall survive the closing
of the transactions contemplated by this Agreement.
7.3 INDEMNIFICATION. From and after the Closing Date, each Party, as
the case may be (an "Indemnifying Party"), severally and not jointly, shall
indemnify and hold the other Party and the Company, as the case may be, and
their respective affiliates, agents and representatives (an "Indemnified
Party"), harmless from and against any and all claims, losses, expenses, damages
or liabilities arising out of or relating to any of the following: (i) any
breach, violation or nonperformance of a covenant, agreement or obligation to be
performed hereunder on the part of any Indemnifying Party; (ii) any claims
against, or liabilities or obligations of an Indemnifying Party not specifically
assumed by an Indemnified Party pursuant to this Agreement; or (iii) any
actions, judgments, costs and expenses (including reasonable attorneys' fees and
all other expenses incurred in investigating, preparing or defending any
litigation or proceedings, commenced or threatened) incident to any of the
foregoing or the enforcement of this Section. In addition to the foregoing,
following the Merger the Parties shall cause the Company to indemnify and hold
the Parties and their affiliates harmless from and against any and all claims,
losses, expenses, damages or liabilities arising out of or relating to the
Company's assumption of the Assumed Liabilities and any actions, judgments,
39
<PAGE>
costs and expenses (including reasonable attorneys' fees and all other expenses
incurred in investigating, preparing or defending any litigation or proceedings,
commenced or threatened) incident to the foregoing. Any indemnification payment
pursuant to the foregoing shall include interest at a floating rate equal to the
prime rate of Citibank N.A., from time to time, from the date the Indemnified
Party provides the Indemnifying Party notice of the loss, cost, expenses or
damages until the date of payment.
7.4 REPRESENTATION, COOPERATION AND SETTLEMENT. (a) An Indemnified
Party agrees to give prompt written notice to an Indemnifying Party of any claim
against it which might give rise to a claim by such Indemnified Party based on
the indemnity agreement contained in Section 7.3 hereof, stating the nature and
basis of the first-mentioned claim and the amount thereof; provided, that the
failure of the Indemnified Party to give the Indemnifying Party prompt notice
shall not relieve the Indemnifying Party of any of its obligations hereunder,
but may create a cause of action for breach for damages directly attributable to
such delay.
(b) The Indemnifying Party shall have full responsibility and
authority with respect to the payment, settlement, compromise or other
disposition of any third party dispute, action, suit or proceeding subject to
indemnification by such Indemnifying Party hereunder, including, without
limitation, the right to conduct and control all negotiations with respect to
the settlement, compromise or other disposition thereof, and the Indemnified
Party agrees to cooperate with the Indemnifying Party in any reasonable manner
requested by the Indemnifying Party in connection with any such negotiations.
The Indemnified Party shall have the right, without prejudice to the
Indemnifying Party's rights under this Agreement, at the Indemnified Party's
sole expense, to be represented by counsel of its own choosing and with whom
counsel for the Indemnifying Party shall confer in connection with the defense
of any such action, suit or proceeding. The Parties agree to render to each
other such assistance as may reasonably be requested in order to insure the
proper and adequate defense of any such action, suit or proceeding.
Notwithstanding the foregoing, the Indemnifying Party may compromise and settle
any claim, action, or suit to which it must indemnify an Indemnified Party
hereunder, provided that it gives the Indemnified Party advance notice of any
proposed compromise or settlement and shall obtain the consent of the
Indemnified Party to such proposed compromise or settlement, which consent shall
not be unreasonably withheld.
8. TRANSACTIONS SUBSEQUENT TO THE CLOSING DATE
8.1 ACCESS TO RECORDS. From time to time after the Closing Date,
upon the request of the Company, each Party will provide the Company with
reasonable access to any records, documents and data relating to the Facilities
Assets or any of the Parties
40
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retained by any of the Parties wherever located. From time to time after the
Closing Date, upon the request of either Party, the other Party shall cause the
Company to make available to the requesting Party any records, documents and
data relating to the Facilities Assets acquired by the Company as needed for any
lawful purpose (including such Party's inspection and copying of the same), and
each Party shall have the same rights of access to inspect and copy that such
Party had prior to the Closing Date; provided, however, that any records,
documents and data pertaining to a particular Facility delivered to or made
available to such Party and its representatives will be treated as strictly
confidential by such Party and its representatives, will not be directly or
indirectly divulged, disclosed or communicated to any other person other than
such Party and its representatives who are reasonably required to have access to
such information (unless such Party is compelled to disclose the same by
judicial or administrative process), and will be returned to the Company when
such Party's use therefor has terminated. The Parties shall cause the Company to
instruct the appropriate employees of the Facilities to cooperate in providing
access to such records to the Parties and their authorized representatives as
contemplated herein. Access to such records shall be, wherever reasonably
possible, during normal business hours, with reasonable prior written notice to
the Company of the time when such access shall be needed. The Parties shall
cause the Company to provide sufficient office space to such requesting Party
without charge to conduct the activities described herein. The Parties'
employees, representatives and agents shall conduct themselves in such a manner
so that the Company's normal business activities shall not be unduly or
unnecessarily disrupted. For a period of seven (7) years following the Closing
Date, neither of the Parties shall, and each of the Parties shall cause the
Company not to, discard, destroy or otherwise dispose of records, documents and
data relating to the Facilities Assets or the Parties without first making such
records, documents and data available to the other Party for inspection and
copying. The Parties shall cause the Company to retain the records, documents
and data pertaining to a particular Facility at such Facility (or at such other
locations as the Company and the Parties shall determine by their mutual
agreement from time to time) at the Company's cost, until the expiration of
seven (7) years from the Closing Date.
8.2 LITIGATION COOPERATION. After the Closing Date, upon prior
reasonable written request, each Party shall cooperate with the other and with
the Company, at the requesting Party's expense (but including only out-of-pocket
expenses to third parties and not the costs incurred by any Party for the wages
or other benefits paid to its officers, directors or employees), in furnishing
information, testimony and other assistance in connection with any actions, tax
or cost report audits, proceedings, arrangements or disputes involving any of
the Parties hereto (other than in connection with disputes between the Parties
hereto) and based upon contracts,
41
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arrangements or acts of any Party or any of their respective affiliates which
were in effect or occurred on or prior to the Closing Date and which related to
the Facilities Assets, including, without limitation, arranging discussions
with, and the calling as witnesses of, officers, directors, employees, agents
and representatives of the Company.
9. TERMINATION.
9.1 METHODS OF TERMINATION. The transactions contemplated herein may
be terminated at any time before or after approval thereof by the Parties, but
not later than the Closing Date:
(i) By mutual consent of the Parties; or
(ii) by a Party after March 1, 1998 if any of the conditions in
Section 6.1 to the benefit of such Party shall not have been met or waived in
writing prior to such date.
9.2 PROCEDURE UPON TERMINATION. In the event of termination pursuant
to Section 9.1 hereof, written notice thereof shall forthwith be given to the
other Party and the transactions contemplated by this Agreement shall be
terminated, without further action by any party. If the transactions
contemplated by this Agreement are terminated as provided herein:
(i) Each Party will redeliver all documents, work papers and
other material of the other Party relating to the transactions contemplated
hereby, whether so obtained before or after the execution of this Agreement, to
the Party furnishing the same; and
(ii) No Party shall have any liability or further obligation to
the other Party to this Agreement other than the confidentiality obligations set
forth in Section 10.6 hereof.
10. MISCELLANEOUS.
10.1 NOTICE. Any notice required or permitted hereunder shall be in
writing and shall be sufficiently given if personally delivered or mailed by
certified or registered mail, return receipt requested, addressed as follows:
IF TO VALLEY: Universal Health Services, Inc.
367 South Gulph Road
Box 61558
King of Prussia, Pennsylvania 19406
Attention: Michael G. Servais, Sr. Vice President
42
<PAGE>
COPIES TO: Bruce Gilbert, Esq.
General Counsel
Universal Health Services, Inc.
367 South Gulph Road
Box 61558
King of Prussia, Pennsylvania 19406
AND
Klett Lieber Rooney & Schorling
A Professional Corporation
40th Floor, One Oxford Centre
Pittsburgh, Pennsylvania 15219
Attention: Robert T. Harper, Esq.
IF TO DESERT SPRINGS:
Quorum Health Group, Inc.
103 Continental Place
Brentwood, Tennessee 37027
Attention: Ashby Q. Burks,
Vice President/General Counsel
Facsimile No. (615) 371-4788
COPIES TO: Ernest E. Hyne, II, Esquire
Harwell Howard Hyne
Gabbert & Manner, P.C.
1800 First American Center
315 Deaderick Street
Nashville, Tennessee 37238
IF TO THE
COMPANY: Valley Health System LLC
c/o Quorum Health Group, Inc.
103 Continental Place
Brentwood, Tennessee 37027
Attention: Ashby Q. Burks,
Vice President/General Counsel
Facsimile No. (615) 371-4788
and
Valley Health System LLC
c/o Universal Health Services, Inc.
367 South Gulph Road
Box 61558
King of Prussia, Pennsylvania 19406
Attention: Michael G. Servais, Sr. Vice President
43
<PAGE>
(or to such other address as any Party or the Company,
as the case may be, shall specify by written notice so given), and shall be
deemed to have been duly delivered: (a) if delivered personally or sent by
facsimile, on the date received and (b) if delivered by overnight courier, on
the day after mailing.
10.2 EXECUTION OF ADDITIONAL DOCUMENTS. The Parties will at any
time, and from time to time after the Closing Date, upon request of the other
Party, execute, acknowledge and deliver all such further acts, deeds,
assignments, transfers, conveyances, powers of attorney and assurances as may be
required to carry out the intent of this Agreement and to transfer and vest
title to any Facilities Assets being transferred hereunder, and to protect the
right, title and interest in and enjoyment of all of the Facilities Assets
granted, assigned, transferred, delivered and conveyed pursuant to this
Agreement with all costs being borne by the Company; provided, however, that
this Agreement shall be effective regardless of whether any such additional
documents are executed.
10.3 WAIVERS AND AMENDMENT.
(a) Each Party may, by written notice to each other Party
executed by a properly authorized officer, (i) extend the time for the
performance of any of the obligations or other actions of the other; (ii) waive
any inaccuracies in the representations or warranties of the other contained in
this Agreement; (iii) waive compliance with any of the covenants of the other
contained in this Agreement; and (iv) waive or modify performance of any of the
obligations of the other.
(b) This Agreement may be amended, modified or supplemented only
by a written instrument executed by all the Parties. Except as provided in the
preceding sentence, no action taken pursuant to this Agreement, including,
without limitation, any investigation by or on behalf of any Party, shall be
deemed to constitute a waiver by the Party taking such action of compliance with
any representations, warranties, covenants or agreements contained herein. The
waiver by any Party of a breach of any provision of this Agreement shall not
operate or be construed as a waiver of any subsequent breach.
10.4 EXPENSES. Whether or not the transactions contemplated by this
Agreement are consummated, each Party shall pay the fees and expenses of their
respective counsel, accountants, other experts and all other expenses incurred
by them incident to the negotiation, preparation and execution of this Agreement
and the performance by them of their obligations hereunder.
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10.5 OCCURRENCE OF CONDITIONS PRECEDENT. Each of the Parties agrees
to use its reasonable efforts to cause all conditions precedent to its
obligations under this Agreement to be satisfied.
10.6 CONFIDENTIALITY OBLIGATIONS; PUBLIC ANNOUNCEMENTS.
(a) Each Party agrees that it will treat in confidence all
documents, materials and other information which it shall have obtained
regarding the other Party during the course of the negotiations leading to the
consummation of the transactions contemplated hereby (whether obtained before or
after the date of this Agreement), the investigation provided for herein and the
preparation of this Agreement and other related documents, and, in the event the
transactions contemplated hereby shall not be consummated, each Party will
return to the other Party all copies of non-public documents and materials which
have been furnished in connection therewith. The obligation of each Party to
treat such documents, materials and other information in confidence shall not
apply to any information which (i) such Party can demonstrate was already
lawfully in its possession prior to the disclosure thereof by the other Party,
(ii) is known to the public and did not become so known through any violation of
a legal obligation, (iii) became known to the public through no fault of such
Party or (iv) is later lawfully acquired by such Party from other sources.
Except as required by law and except for disclosures to its advisors, who shall
be advised of the confidentiality requirements herein, no Party shall disclose
to any person the identity of the other Party, the terms or provisions of this
Agreement or the content of any discussions or communications between any of the
Parties.
(b) Any public announcement or similar publicity with respect to
this Agreement or the transactions contemplated hereby will be issued, if at
all, at such time and in such manner as the Parties determine. Unless consented
to by each Party in advance or required by law, prior to the Closing Date, each
Party shall keep this Agreement strictly confidential and may not make any
disclosure of this Agreement to any person. The Parties will consult with each
other concerning the means by which their respective employees, customers, and
suppliers and others having dealings with them will be informed of the
transactions contemplated by this Agreement.
10.7 BINDING EFFECT; BENEFITS. Subject to Section 10.14, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective heirs, successors, executors, administrators and
assigns. Notwithstanding anything contained in this Agreement to the contrary,
nothing in this Agreement, expressed or implied, is intended to confer on any
person other than the Parties or their respective heirs, successors, executors,
administrators and assigns any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
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10.8 ENTIRE AGREEMENT. This Agreement, together with the Exhibits,
Schedules and other documents contemplated hereby, constitute the final written
expression of all of the agreements between the Parties, and is a complete and
exclusive statement of those terms. It supersedes all prior understandings and
negotiations (written and oral) concerning the matters specified herein. Any
representations, promises, warranties or statements made by a Party that differ
in any way from the terms of this written Agreement and the Exhibits, Schedules
and other documents contemplated hereby, shall be given no force or effect. The
Parties specifically represent, each to the other, that there are no additional
or supplemental agreements between them related in any way to the matters herein
contained unless specifically included or referred to herein. No addition to or
modification of any provision of this Agreement shall be binding upon any party
unless made in writing and signed by all Parties.
10.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada exclusive of the
conflict of law provisions thereof.
10.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
10.11 HEADINGS. Headings of the Articles and Sections of this
Agreement are for the convenience of the Parties only, and shall be given no
substantive or interpretive effect whatsoever.
10.12 INCORPORATION OF EXHIBITS AND SCHEDULES. All Exhibits and
Schedules attached hereto are by this reference incorporated herein and made a
part hereof for all purposes as if fully set forth herein.
10.13 SEVERABILITY. If for any reason whatsoever, any one or more of
the provisions of this Agreement shall be held or deemed to be inoperative,
unenforceable or invalid as applied to any particular case or in all cases, such
circumstances shall not have the effect of rendering such provision invalid in
any other case or of rendering any of the other provisions of this Agreement
inoperative, unenforceable or invalid.
10.14 ASSIGNABILITY. Neither this Agreement nor any of the Parties'
rights hereunder shall be assignable by any Party hereto without the prior
written consent of the other Party.
[SIGNATURES ARE ON THE NEXT FOLLOWING PAGES]
46
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement and
caused the same to be duly delivered on their behalf on the day and year
hereinabove first set forth.
VALLEY MEDICAL CENTER, INC.
By:________________________
Title:_____________________
NC-DSH, INC.
By:________________________
Title:_____________________
47
<PAGE>
JOINDER AGREEMENT
The undersigned hereby agrees to become a party to that certain
Contribution Agreement (the "Contribution Agreement") by and between Valley
Hospital Medical Center, Inc., a Nevada corporation ("Valley") and NC-DSH, Inc.,
a Nevada corporation ("Desert Springs") for the sole purpose of unconditionally
guaranteeing the performance of the obligations of and payments by Valley under
Section 7.3 of the Contribution Agreement and for no other purpose. By executing
this Joinder Agreement the undersigned hereby guarantees the due and punctual
payment and performance by Valley of its obligations under Section 7.3 of the
Contribution Agreement. This Joinder Agreement may not be terminated by the
undersigned until such time as all amounts due and obligations owing or to be
owed by Valley under such Section shall have been fully paid and performed. In
the event of breach under Section 7.3, the parties thereto shall have the right
to proceed against the undersigned or Valley separately, jointly, or against the
undersigned without first proceeding against Valley. Bankruptcy or the like of
Valley shall be no defense to the undersigned.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
undersigned has executed this Joinder Agreement this 30th day of January, 1998.
UNIVERSAL HEALTH SERVICES, INC.
By:________________________________
Title:_____________________________
48
<PAGE>
JOINDER AGREEMENT
The undersigned hereby agrees to become a party to that certain
Contribution Agreement (the "Contribution Agreement") by and between Valley
Hospital Medical Center, Inc., a Nevada corporation ("Valley") and NC-DSH, Inc.,
a Nevada corporation ("Desert Springs") for the sole purpose of unconditionally
guaranteeing the performance of the obligations of and payments by Desert
Springs under Section 7.3 of the Contribution Agreement and for no other
purpose. By executing this Joinder Agreement the undersigned hereby guarantees
the due and punctual payment and performance by Desert Springs of its
obligations under Section 7.3 of the Contribution Agreement. This Joinder
Agreement may not be terminated by the undersigned until such time as all
amounts due and obligations owing or to be owed by Desert Springs under such
Section shall have been fully paid and performed. In the event of breach under
Section 7.3, the parties thereto shall have the right to proceed against the
undersigned or Desert Springs separately, jointly, or against the undersigned
without first proceeding against Desert Springs. Bankruptcy or the like of
Desert Springs shall be no defense to the undersigned.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
undersigned has executed this Joinder Agreement this 30th day of January, 1998.
QUORUM HEALTH GROUP, INC.
By:________________________________
Roland P. Richardson
Title: Senior Vice President
-----------------------------
49
<PAGE>
SCHEDULES, EXHIBITS AND APPENDICES
TO CONTRIBUTION AGREEMENT
Schedule
- - - --------
1.1(b) Tangible Personal Property
1.1(n) Plaza Surgery Center
1.2(a) UHS Excluded Businesses and Real Estate
1.2(i) Other Excluded Assets
1.3.1 Assumed Contracts
1.6(c) List of Additional Assumed Liabilities
1.7(q) Liens and Mortgages Not Released at Closing
2.2 Authorization; Validity and Effect of Agreements
2.3 Subsidiaries; Debt and Equity Securities
2.4 Capitalization of Parties; Outstanding Rights, Warrants, etc.
2.6 Financial Statements
2.7 Absence of Undisclosed Liabilities
2.8 Absence of Certain Changes or Events
2.9 Taxes
2.10 Real Property
2.10(c) Navigable Water
2.10(h) Liens on Real Property
2.10(j) Leases of Real Property
2.11 Exceptions to Sufficiency of Facilities Assets
2.13 List of Contracts and Other Data
2.14 Exceptions to No Breach or Default
2.15 Labor Controversies
<PAGE>
2.16 Litigation
2.18 Licenses; Permits; Authorizations
2.19 Compliance with Applicable Law; Environmental Laws
2.20.1 Employee Benefit Plans
2.20.2 Employees
2.22 Trade Notes and Accounts Receivable; Aging Schedule; Prepayments
2.25 Insurance Policies; Pending Insurance Claims
2.26(a) Professional Staff
2.26(b) Medicare and Medicaid Participation
2.26(c) Cost Reports
2.28 Related Party Transactions
4.9 Additional Properties and Assets
ii
<PAGE>
Exhibit
- - - -------
A Agreement and of Merger
B Form of Opinion of Parties' Counsel
C Form of Management Agreement
D Form of Operating Agreement
E Form of Schwartz Sublease
F Form of Survey Agreement
iii
<PAGE>
EXHIBIT 10.31
SUMMERLIN CONTRIBUTION AGREEMENT
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
1. Contribution of Assets; Purchase and Sale of
Membership Interest ................................................... 2
1.1 Creation of Subsidiary; Agreement to Contribute;
Purchase and Sale of Membership Interest.......................... 2
1.2 Excluded Assets................................................... 4
1.3 Contract Assignments.............................................. 5
1.4 Instruments of Conveyance......................................... 6
1.5 Issuance of Membership Interest to Desert Springs;
Working Capital Shortage/Overage.................................. 6
1.6 Liabilities Assumed............................................... 8
1.7 Liabilities Not Assumed........................................... 8
1.8 Closing........................................................... 10
2. Representations and Warranties of Summerlin............................ 11
2.1 Existence; Good Standing; Partnership Authority................... 11
2.2 Authorization; Validity and Effect of Agreements.................. 11
2.3 Subsidiaries...................................................... 12
2.4 Capitalization.................................................... 12
2.5 Records........................................................... 13
2.6 Financial Statements.............................................. 13
2.7 Absence of Undisclosed Liabilities................................ 13
2.8 Absence of Certain Changes or Events Since the
Date of the Summerlin Balance Sheet............................... 13
2.9 Taxes............................................................. 15
2.10 Real Property..................................................... 16
2.11 Title to Property and Assets; Sufficiency of
Facilities Assets................................................. 18
2.12 Condition of Property............................................. 18
2.13 List of Contracts and Other Data.................................. 19
2.14 No Breach or Default.............................................. 20
2.15 Labor Controversies............................................... 21
2.16 Litigation........................................................ 21
2.17 Patents; Trademarks, Etc.......................................... 22
2.18 Licenses; Permits; Authorizations................................. 22
2.19 Compliance with Applicable Law;
Environmental Laws................................................ 22
2.20 Employment Benefit Plans; Employees and Employee
Relations......................................................... 25
2.21 Adverse Agreements; No Adverse Change............................. 26
2.22 Trade Notes and Accounts Receivable; Trade
Accounts Payable; Prepaid Contracts............................... 26
2.23 Inventories and Supplies.......................................... 27
</TABLE>
<PAGE>
<TABLE>
<S> <C>
2.24 Illegal Payments.................................................. 27
2.25 Insurance Policies................................................ 27
2.26 Professional Staff, Medicare, Medicaid and
Other Health Care Programs........................................ 28
2.27 UHS Facility Surveys.............................................. 39
2.28 Related Party Transactions........................................ 39
2.29 No Brokers........................................................ 30
2.30 No Misrepresentation or Omission.................................. 30
3. Representations and Warranties of Desert Springs....................... 39
3.1 Existence; Good Standing; Corporate Authority..................... 39
3.2 Authorization; Validity and Effect of Agreements.................. 39
3.3 No Brokers........................................................ 31
4. Covenants of the Summerlin and Desert Springs.......................... 33
4.1 Access to UHS Facilities and Additional
Information....................................................... 32
4.2 Operations........................................................ 332
4.3 Negative Covenants................................................ 33
4.4 Governmental Approvals............................................ 34
4.5 Insurance Ratings................................................. 34
4.6 Employees; Employee Benefit Plans................................. 35
4.7 Further Acts and Assurances....................................... 35
4.8 Valley Transaction................................................ 35
4.9 Additional Properties and Assets
[Intentionally Omitted]........................................... 36
5. Matters Pertaining to the Company...................................... 36
5.1 Employee Matters.................................................. 36
5.2 Further Acts and Assurances....................................... 37
6. Conditions of Closing.................................................. 37
6.1 Conditions of Closing............................................. 37
7. Nature and Survival of Representations
and Warranties; Indemnification........................................ 40
7.1 Events of Default................................................. 40
7.2 Survival of Representations, Etc.................................. 41
7.3 Indemnification................................................... 41
7.4 Representation, Cooperation and Settlement........................ 42
8. Transactions Subsequent to the Closing Date............................ 42
8.1 Access to Records................................................. 42
8.2 Litigation Cooperation............................................ 43
9. Termination............................................................ 44
9.1 Methods of Termination............................................ 44
9.2 Procedure Upon Termination........................................ 44
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10. Miscellaneous.......................................................... 44
10.1 Notice.......................................................... 44
10.2 Execution of Additional Documents............................... 46
10.3 Waivers and Amendment........................................... 46
10.4 Expenses........................................................ 47
10.5 Occurrence of Conditions Precedent.............................. 47
10.6 Confidentiality Obligations; Public Announcements............... 47
10.7 Binding Effect; Benefits........................................ 48
10.8 Entire Agreement................................................ 48
10.9 Governing Law................................................... 48
10.10 Counterparts.................................................... 48
10.11 Headings........................................................ 48
10.12 Incorporation of Exhibits and Schedules......................... 49
10.13 Severability.................................................... 49
10.14 Assignability................................................... 49
Joinder Agreement - Universal Health Services, Inc..................... 51
Joinder Agreement - Quorum Health Group, Inc........................... 52
</TABLE>
<PAGE>
SUMMERLIN CONTRIBUTION AGREEMENT
This Agreement (the "Agreement") is dated this 30th day of January, 1998,
by and among SUMMERLIN HOSPITAL MEDICAL CENTER, L.P.,a Delaware limited
partnership formerly known as Summerlin Medical Center, L.P. ("Summerlin") and
NC-DSH, INC., a Nevada corporation ("Desert Springs")(Summerlin and Desert
Springs are sometimes hereinafter referred to collectively as the "Parties" and
individually as a "Party").
WITNESSETH:
WHEREAS, Summerlin owns all of the right, title and interest in and to
certain assets used to operate Summerlin Hospital Medical Center and certain
related businesses operated by Summerlin in and around Las Vegas, Nevada
(collectively, the "UHS Facilities"); and
WHEREAS, Summerlin desires to operate the UHS Facilities as a limited
liability company pursuant to the Limited Liability Company Act as enacted in
the State of Delaware (the "LLC Act"); and
WHEREAS, pursuant to the terms of this Agreement Summerlin desires to
contribute the UHS Facilities in exchange for a 100% membership interest in such
limited liability company, such membership interest to be subsequently reduced
to a 73.885% membership interest pursuant to the terms of this Agreement; and
WHEREAS, Desert Springs desires to acquire from Summerlin, subsequent to
the formation of such limited liability company and the contribution of the UHS
Facilities by Summerlin, a 26.115% membership interest in such limited liability
company in exchange for the payment of $23,078,619 to Summerlin; and
WHEREAS, the Parties desire to enter into this Agreement for the purpose of
setting forth their respective rights and obligations as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises, the provisions and the
respective agreements hereinafter set forth, the Parties, intending to be
legally bound hereby, agree as follows:
<PAGE>
1. CONTRIBUTION OF ASSETS; PURCHASE AND SALE OF MEMBERSHIP INTEREST.
1.1 CREATION OF SUBSIDIARY; AGREEMENT TO CONTRIBUTE; PURCHASE AND
SALE OF MEMBERSHIP INTEREST. On or prior to the Closing Date (as hereinafter
defined) Summerlin shall create Summerlin Hospital Medical Center LLC, a wholly
owned limited liability company (the "Company") pursuant to the LLC Act. Upon
the terms and subject to the conditions set forth in this Agreement, on the
Closing Date, Summerlin shall contribute, convey, assign, transfer and deliver
to the Company all of Summerlin's right, title and interest in and to the
Facilities Assets (as defined below), except for the Excluded Assets (as
hereinafter defined), free and clear of all liens, charges, claims, pledges,
security interests and encumbrances of any nature whatsoever (collectively,
"Liens"), except for Permitted Encumbrances (as hereinafter defined).
Immediately following the contribution, conveyance, assignment, transfer and
delivery of the Facilities Assets in accordance with the preceding sentence,
Desert Springs shall purchase from Summerlin, and Summerlin shall sell and
transfer to Desert Springs, a 26.115% membership interest in the Company, and in
exchange therefore, Desert Springs shall pay and deliver to Summerlin, by wire
transfer of immediately available funds to an account or accounts designated by
Summerlin, the sum of $23,078,619 (the "Desert Springs Payment"). Following the
contribution, conveyance, assignment, transfer and delivery of the Facilities
Assets and the payment and delivery of the Desert Springs Payment as provided in
this Section 1.1, Summerlin shall own a 73.885% membership interest in the
Company and Desert Springs shall own a 26.115% membership interest in the
Company. The "Facilities Assets" shall mean and include all those personal,
tangible and intangible properties, and the real properties and improvements of
Summerlin used in connection with the operation of the UHS Facilities as set
forth below, other than the Excluded Assets, including, without limitation,(i)
the going concern value of the UHS Facilities, if any, and (ii) the following:
(a) all fee or leasehold title to all real property, including the
real property described in Schedule 2.10, which Schedule identifies the property
-------------
as fee or leasehold, together with all improvements, buildings and fixtures
located thereon or therein, including the UHS Facilities and all construction in
progress (such real properties owned in fee are hereafter collectively, the
"Real Property");
(b) all equipment, computers, computer hardware and software (subject
to any restrictions by the licensor on the
2
<PAGE>
assignment thereof), tools, supplies, furniture, vehicles and other tangible
personal property and assets owned or leased by Summerlin related to the UHS
Facilities as of the date of this Agreement, as such items may be modified prior
to the Closing Date in the ordinary course of business, and including without
limitation those items set forth on Schedule 1.1(b);
---------------
(c) all items of inventory listed on the Summerlin Balance Sheet (as
hereinafter defined), as such items may be modified prior to the Closing Date in
the ordinary course of business;
(d) all patients accounts, notes and other receivables, whether or not
written off, or recorded or not recorded, exclusive of any third party cost
report payables or receivables, petty cash and those prepaid expenses usable by
the Company;
(e) all financial records located at the UHS Facilities and all
patient, medical staff, research and development, and other records (including
equipment records, medical/ administrative libraries, medical records,
documents, production reports and records, personnel records, catalogs, books,
records, files, equipment logs and operating manuals) located at the UHS
Facilities or necessary for the operation of the UHS Facilities;
(f) all of Summerlin's interest in the Assumed Contracts, as defined
in Section 1.3.1;
(g) all licenses, permits and other governmental approvals (including
certificates of need), to the extent assignable, held or used by Summerlin in
connection with the ownership, development and operations of the UHS Facilities
(including any pending or approved governmental approvals regarding the UHS
Facilities);
(h) all marks, names, trademarks, service marks, patents, patent
rights, assumed names, logos and copyrights used in the business of the UHS
Facilities;
(i) the interest in all property, real, personal or mixed, tangible
or, to the extent assignable, intangible, arising or acquired in the ordinary
and regular course of Summerlin's business in connection with the UHS Facilities
between the date hereof and the Closing Date;
3
<PAGE>
(j) all insurance proceeds (including applicable deductibles,
copayments or self-insured requirements) arising in connection with damage to
the UHS Facilities occurring prior to the Closing Date, to the extent not
expended for the repair or restoration of the UHS Facilities;
(k) all assets included in the Summerlin Balance Sheet generally as
"inventories", "property, plant or equipment", and "other assets";
(l) all of Summerlin's membership interest in Oasis Health System LLC
(25% of which is owned by Summerlin); and
(m) all other property of every kind, character or description, to
the extent assignable, owned by Summerlin and used or held for use in the
business of the UHS Facilities, whether or not reflected on the Financial
Statements (as hereinafter defined) of Summerlin, located at the UHS Facilities
or necessary for the operation of the UHS Facilities and whether or not similar
to the things specifically set forth above, except the Excluded Assets.
Except as expressly set forth in this Agreement, including the
Schedules and Exhibits hereto, all of the Facilities Assets contributed by
Summerlin to the Company shall be contributed on an "as is" basis.
1.2 EXCLUDED ASSETS. The following items are not part of the
contributions contemplated hereunder and are excluded from the Facilities Assets
(collectively, the "Excluded Assets");
(a) all of Summerlin's deferred taxes and intercompany receivables;
(b) personnel records and any other records which Summerlin is
required by law to retain in its possession, but only to the extent such records
are not necessary for the continued operation of the UHS Facilities in the
manner in which they are currently being operated;
(c) all claims for amounts due, or that may become due from Medicare,
Medicaid or any other health care payment intermediary resulting from cost
reports for periods through the Closing Date;
(d) all refunds relating to any federal, state, local or foreign
taxes paid by, or on behalf or for the benefit of Summerlin or, to the extent
they relate to the period prior to
4
<PAGE>
the Closing Date, the UHS Facilities, whether received prior to or after the
Closing Date;
(e) any proprietary information contained in Summerlin's employee or
operation manuals;
(f) Summerlin's corporate and financial records; and
(g) cash and cash equivalents.
1.3 CONTRACT ASSIGNMENTS.
1.3.1 ASSIGNMENT OF INTEREST IN CONTRACTS. Except for
intercompany and non-physician employment contracts, on the Closing Date and
upon and subject to the terms and conditions set forth in this Agreement,
Summerlin shall transfer or cause to be transferred and assign or cause to be
assigned to the Company, and the Company shall assume and perform all of
Summerlin's interest in (including all rights, benefits and obligations) all
commitments, contracts, leases, licenses, agreements and understandings, and all
outstanding offers or solicitations to enter into any of the foregoing,
including those described on Schedule 1.3.1 hereto (the "Assumed Contracts").
--------------
1.3.2 CONSENTS TO ASSIGNMENTS. Notwithstanding anything in this
Agreement to the contrary, this Agreement shall not constitute an agreement to
assign or transfer any of the Assumed Contracts or part thereof or right or
benefit arising thereunder or resulting therefrom if an attempted assignment or
transfer thereof, without the consent of a third party thereto, would constitute
a breach thereof or in any way affect the rights of the Company following the
Closing Date. If such consent is not obtained, or if an attempted assignment
thereof would be ineffective or would affect the rights of the Company following
the Closing Date so that the Company would not in fact receive all such rights,
Summerlin (i) shall cooperate with the Company in its request in endeavoring to
obtain such consent promptly at no cost to the Company, and (ii) if any such
consent is unobtainable, shall cooperate with the Company in any reasonable
arrangement (the "Assignment Substitute") designed to provide the Company the
benefits under any such Assumed Contract or part thereof or any right or benefit
arising thereunder or resulting therefrom, including enforcement for the benefit
of the Company of any and all rights of Summerlin against a third party arising
out of the breach or cancellation by such third party or otherwise. Summerlin
shall, to the extent necessary, perform under the Assignment Substitute without
a fee to the Company except the consideration being tendered hereunder.
5
<PAGE>
1.4 INSTRUMENTS OF CONVEYANCE.
On the Closing Date, Summerlin shall deliver to the Company such deeds
(in the case of the real property and the improvements thereon described in
Schedules 2.10 hereto, a special warranty deed or the equivalent thereof in use
- - - --------------
in accordance with local practice), bills of sale, endorsements, assignments and
other good and sufficient instruments of conveyance and assignment as shall be
effective to vest in the Company all of Summerlin's right, title and interest in
and to the Facilities Assets, free and clear of all Liens except for the
Permitted Encumbrances. Simultaneously with such delivery, Summerlin will take
all reasonable additional steps as may be necessary to put the Company in
possession of the Facilities Assets. Summerlin shall pay all transfer costs,
title insurance fees, recording fees and transfer or stamp taxes or similar
charges payable by reason of the contribution, conveyance, assignment, transfer
and delivery hereunder of the Facilities Assets.
1.5 ISSUANCE OF MEMBERSHIP INTEREST TO DESERT SPRINGS; WORKING
CAPITAL SHORTAGE/OVERAGE.
1.5.1 On the Closing Date, immediately following the issuance of
the Summerlin membership interest to Summerlin in accordance with Section 1.1
hereof, Summerlin shall sell, transfer and deliver to Desert Springs, and Desert
Springs shall purchase and acquire from Summerlin, a 26.115% membership interest
in the Company. Accordingly, in consideration of and subject to the payment of
the Desert Springs Payment by Desert Springs and the receipt by Summerlin of the
full amount of such Desert Springs Payment in immediately available funds as
provided in Section 1.1 hereof, on the Closing Date Summerlin shall cause the
Company to issue a 26.115% membership interest in the Company to Desert Springs,
which 26.115% membership interest in the Company shall be free and clear of all
Liens except for those listed or described on Schedule 1.5 (the "Permissible
------------
Liens").
1.5.2 Within 45 days after the Closing Date, the Parties will
determine the amount of Working Capital (as defined below) contributed to the
Company by Summerlin as of the Closing Date. Desert Springs will pay to
Summerlin in cash 26.115% of the amount of the Working Capital. For the sole
purpose of determining the amount to be paid by Desert Springs to Summerlin on
account of Working Capital, Working Capital will be defined as the sum of the
following items that have been contributed to or assumed by the Company, all
valued in accordance with generally
6
<PAGE>
accepted accounting principles, consistently applied (unless otherwise
specified):
(a) patient accounts receivable, net of allowances for contractual
adjustments and discounts and bad debts;
(b) plus inventories, based on a physical count at the Closing Date,
priced at latest invoice cost, and including only those items and areas that
have historically been counted;
(c) plus prepaid expenses, but only to the extent that they are usable
by the Company;
(d) plus other receivables, net of allowances for uncollectibles;
(e) less trade accounts payable;
(f) less accrued compensation and related taxes thereon and related
liabilities, including accrued vacation, sick leave payable in cash for reasons
other than actual absence, paid time off, or the like;
(g) less other accrued liabilities and expenses;
(h) less the present value (computed using the prime rate as the
discount factor) of remaining payments due under any capitalized lease included
in the Assumed Contracts; and
(i) less any other liabilities assumed by the Company to the extent
such liabilities are to be included on the balance sheet under generally
accepted accounting principles.
Each of the Parties will work together in good faith to agree on the
amount of Working Capital and the amount to be paid by Desert Springs to
Summerlin pursuant to this Section 1.5.2. No later than 45 days after the
Closing Date, the Parties hereto shall prepare the "Final Closing Statement"
reflecting the items listed above determined as set forth above. If the Parties
are unable to agree on the Final Closing Statement within the 45 day period,
they shall appoint Coopers & Lybrand, a firm of independent certified public
accounts of recognized national standing (the "Accountants"), to make such
determination, which determination shall be final and binding on the Parties
hereto for the purposes of this Agreement, and Summerlin and Desert Springs
shall each pay one-half of the fee. Each Party represents that the Accountants
are not its auditor. Upon determination of the Final Closing Statement, whether
by
7
<PAGE>
agreement of the Parties or by determination of the Accountants, Desert Springs
shall immediately pay to Summerlin in cash 26.115% of the amount of the Working
Capital.
1.6 LIABILITIES ASSUMED. In further consideration for the
contribution of the Facilities Assets, on and as of the Closing Date, subject to
the exclusion of liabilities described in Section 1.7 below, the Parties
acknowledge and agree that the Company, following the contribution of the
Facilities Assets, shall assume and agree to pay, perform and discharge the
following liabilities (collectively, the "Assumed Liabilities"):
(a) all current liabilities of Summerlin (except for the current
portion of long term debt, accrued interest, pension plan liabilities, employer
benefit plan liabilities, intercompany liabilities and self-insurance costs);
(b) all obligations under the Assumed Contracts and Section 4.6
hereof; and
(c) such other liabilities of Summerlin which the Company agrees in
writing at or prior to the Closing Date that the Company will assume, which
liabilities are listed on Schedule 1.6(c).
---------------
1.7 LIABILITIES NOT ASSUMED. The Company, following the contribution
of the Facilities Assets, shall assume only those liabilities and obligations
specified in Section 1.6 above. Without limiting the generality of the foregoing
sentence, the Company shall not assume and Summerlin shall retain and be
responsible for the following obligations and liabilities to the extent they
relate to Summerlin (each reference in this Section 1.7 to Summerlin shall
include Summerlin and its affiliates):
(a) any and all obligations for the payment of any long term debt
existing at the Closing Date (including the current portion thereof) relating to
Summerlin and whether or not set forth on the Summerlin Balance Sheet;
(b) any and all accrued interest payable by Summerlin in respect of
periods through the Closing Date;
(c) liabilities or obligations of Summerlin arising under Medicare,
Medicaid, Blue Cross or other comparable third party payor programs (the
"Government Reimbursement Programs") for periods through the Closing Date and as
a result of the consummation of the transactions contemplated herein, including
reimbursement recapture or any other adjustments;
8
<PAGE>
(d) liabilities or obligations for Taxes (as hereinafter defined) of
Summerlin in respect of periods prior to the Closing Date or resulting from the
consummation of the transactions contemplated;
(e) liabilities under any Employee Benefit Plan (as hereinafter
defined) of Summerlin; and liabilities for any and all EEOC, wage and hour,
unemployment compensation, employee medical or workers' compensation claims
relating to periods prior to the Closing Date;
(f) except as provided in Section 4.6 below, liabilities or
obligations for any and all workers' compensation, health, disability or other
benefits due to or for the benefit of any employees of Summerlin (or their
covered dependents);
(g) liabilities arising out of or in connection with claims,
litigations or proceedings described in Section 2.16, and claims, litigations or
proceedings (whether instituted prior to or after the Closing Date) for acts or
omissions which allegedly occurred prior to or at the Closing Date;
(h) liabilities attributable to legal, accounting or brokerage fees,
and similar costs incurred by Summerlin related to the contribution of any of
the Facilities Assets;
(i) except as expressly set forth herein, liabilities arising from
Summerlin's assignment and the Company's assumption of the Assumed Liabilities;
(j) liabilities for the payment by Summerlin of any deductibles,
copayments or other self-insurance requirements relating to events occurring
prior to the Closing Date;
(k) any and all liabilities respecting any intercompany transactions
of Summerlin, 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;
(l) except for Assumed Liabilities, any and all actual or contingent
liabilities or obligations of or demands upon Summerlin arising from acts or
omissions of Summerlin (actual or alleged) prior to the Closing Date;
(m) all liabilities arising out of or in connection with the existence
of Materials of Environmental Concern (as
9
<PAGE>
hereinafter defined) upon, about, beneath or migrating to or from any of the
Real Property on or before the Closing Date or the existence on or before the
Closing Date of any Environmental Claim (as hereinafter defined) or any
violation of any Environmental Laws (as hereinafter defined) pertaining to such
Real Property or the operation of the UHS Facilities by Summerlin or any other
business operated therefrom;
(n) any liability of Summerlin which allegedly occurred out of any
negligence, medical malpractice or similar acts or omissions which allegedly
occurred prior to the Closing Date;
(o) sales, income, franchise, use and other taxes payable with respect
to the business or operations of Summerlin through the Closing Date or the
transactions contemplated hereby;
(p) except as expressly set forth herein, liabilities for rights or
remedies claimed by third parties under any of the Assumed Liabilities which
broaden or vary the rights and remedies such third parties would have had
against Summerlin if the contribution of the Facilities Assets were not to
occur; and
(q) liabilities on account of those liens or mortgages set forth on
Schedule 1.7(g).
- - - ---------------
With respect to Subsection 1.7(m) above, for a period of five (5)
years from and after the Closing Date, in the event that it cannot be proven
that the event giving rise to a Subsection 1.7(m) liability occurred after the
Closing Date then it shall be presumed to have occurred on or before the Closing
Date and Summerlin can rebut this presumption with a Phase I environmental
study. From and after five (5) years following the Closing Date, the
presumption shall shift and thereafter all events giving rise to a Subsection
1.7(m) liability shall be presumed to have occurred from and after the Closing
Date.
1.8 CLOSING. The closing of the transactions provided herein will be
accomplished by means of overnight courier delivery and facsimile transmission
or by such other method as may be agreed upon by the Parties. Upon contribution
of the Facilities Assets which shall be effective as of 11:59 p.m. Pacific Time
on January 31, 1998, payment of the Desert Springs Payment and the issuance of
membership interests to Desert Springs in accordance with Section 1.5 hereof,
the closing shall be deemed to be effective as of 12:01 a.m. Pacific Time on
February 1, 1998. Such date of effectiveness of closing is herein referred to
as the "Closing Date". On the date of
10
<PAGE>
effectiveness of the Closing, Summerlin shall receive good funds in the amount
of the Desert Springs Payment if a business day, otherwise the parties shall
agree on whether it shall be prior or after such effectiveness. The parties have
agreed that if the Closing is to be effective February 1, 1998, the parties
shall use their best efforts to close the transaction sufficiently so that the
funds shall be wired on January 30, 1998. In the event that the Desert Springs
Payment is received by Summerlin before or after the date of the effectiveness
of the Closing, the Desert Springs Payment shall be reduced or increased on a
per diem basis, based on the prime rate as reported in The Wall Street Journal
-----------------------
five (5) business days before the actual date of closing.
2. REPRESENTATIONS AND WARRANTIES OF SUMMERLIN. Summerlin hereby
represents, warrants and agrees as follows:
2.1 EXISTENCE; GOOD STANDING; PARTNERSHIP AUTHORITY. Summerlin is a
Delaware limited partnership duly formed, validly existing and in good standing
under the laws of the State of Delaware. Summerlin has all requisite partnership
power and authority to own its properties and carry on its business as now
conducted. The copies provided to Desert Springs of the Agreement of Limited
Partnership of Summerlin, as amended to date, are complete and correct and
presently in effect. Summerlin has not failed to qualify in any jurisdiction in
which property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary and where the failure to so
qualify would have a material adverse effect on it. Summerlin is not in default
with respect to any order of any court, governmental authority or arbitration
board or tribunal to which it is a party or is subject.
2.2 AUTHORIZATION; VALIDITY AND EFFECT OF AGREEMENTS. The execution,
delivery and performance of this Agreement and all agreements and documents
contemplated hereby by Summerlin and the consummation by it of the transactions
contemplated hereby, have been duly and effectively authorized by all necessary
partnership action on its part. This Agreement constitutes, and all agreements
and documents contemplated hereby when executed and delivered pursuant hereto
will constitute, the valid and legally binding obligations of Summerlin,
enforceable in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, fraudulent
transfer, moratorium or other similar laws of general application now or
hereafter in effect relating to the enforcement of creditors' rights generally
and except that remedies of specific performance, injunction and other forms of
equitable relief are subject to certain tests of equity
11
<PAGE>
jurisdiction, equitable defenses and the discretion of the court before which
any proceeding therefor may be brought. Except as set forth on Schedule 2.2
------------
hereto, the execution and delivery of this Agreement by Summerlin does not, and
the consummation of the transactions contemplated hereby will not, except to the
extent the same would not have a material adverse effect on it: (i) require the
consent, approval or authorization of any person, corporation, partnership,
joint venture or other business association or any governmental, public
authority or accrediting body; (ii) violate, with or without the giving of
notice or the passage of time, or both, any provisions of law or statute or any
rule, regulation, order, award, judgment, or decree of any court or governmental
authority applicable to such Party;(iii) result in the breach or termination of
any term or provision of, or constitute a default under, or result in the
acceleration of or entitle any party to accelerate (whether after the giving of
notice or the lapse of time or both) any obligation under, or result in the
creation or imposition of any lien, charge, pledge, security interest or other
encumbrance upon any part of the property of Summerlin pursuant to any provision
of, any order, judgment, arbitration award, injunction, decree, indenture,
mortgage, lease, license, lien, or other agreement or instrument to which
Summerlin is a party or by which it is bound, or violate any provision of the
Agreement of Limited Partnership of Summerlin, as amended to the date of this
Agreement; or (iv) result in any suspension, revocation, impairment, forfeiture
or nonrenewal of any License (as hereinafter defined) relating to the ownership
and operation by Summerlin of health care facilities which are the subject of
the transactions contemplated hereby, subject to the Company obtaining new
Licenses for its operation of the UHS Facilities.
2.3 SUBSIDIARIES. Except as set forth on Schedule 2.3, Summerlin
------------
does not own, directly or indirectly, any debt or equity securities issued by
any other partnership or corporation, or any interest in any partnership, joint
venture or other business enterprise. During the period between the effective
time of its creation and the effective time of the transactions described in
Section 1.1 above, the Company shall not have conducted any business or incurred
any liabilities.
2.4 CAPITALIZATION. Schedule 2.4 sets forth a list of the general
------------
and limited partnership interests issued and outstanding and owned of record and
beneficially by each of the partners in Summerlin. Except as set forth on
Schedule 2.4, there are no outstanding or authorized rights, warrants, options,
- - - ------------
subscriptions, agreements or commitments of any character giving anyone any
right to require Summerlin to sell or issue any
12
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partnership interests or other securities, nor are there any voting trusts or
other agreements or understandings with respect to the partnership interests in
Summerlin. On and as of the date of payment of the Desert Springs Payment,
Summerlin shall be the owner of 100% of the outstanding membership interests in
the Company, free and clear of all Liens other than the Permissible Liens.
2.5 RECORDS. The books, records and work papers of Summerlin will be
made available to Desert Springs for inspection prior to the Closing Date and
(a) will contain the minutes of all meetings of partners and actions taken by
partners, (b) have been maintained in accordance with good business practice and
(c) accurately reflect the basis for the financial condition and results of
operations of Summerlin set forth in the financial statements referred to in
Section 2.6 hereof except to the extent the same would not have a material
adverse effect on it.
2.6 FINANCIAL STATEMENTS. Summerlin has furnished true, complete and
correct copies of its unaudited balance sheet as of December 31, 1997 and
related statements of income and operations for the period then ended (the
"Summerlin Balance Sheet, or sometimes the "Financial Statements"). Copies of
the Financial Statements are attached hereto as Schedule 2.6. The Financial
------------
Statements of Summerlin are in accordance with its books and records, are
complete and correct in all material respects, fully and fairly set forth the
financial condition of Summerlin as of the dates indicated, and the results of
its operations for the periods indicated, and have been prepared in accordance
with generally accepted accounting principles consistently applied, except as
otherwise stated therein and except for normal year-end adjustments (the effect
of which will not, individually or in the aggregate, be materially adverse) and
the absence of notes.
2.7 ABSENCE OF UNDISCLOSED LIABILITIES. Summerlin has no liabilities
or obligations of any nature, either accrued, absolute, contingent or otherwise,
which are not reflected or provided for in the Financial Statements, except (i)
those arising after the date of the Summerlin Balance Sheet which are in the
ordinary course of business, in each case in normal amounts and none of which is
materially adverse, and (ii) as and to the extent specifically described in
Schedule 2.7 hereof. Except as set forth on Schedule 2.7, Summerlin does not
- - - ------------ ------------
know and has no reasonable grounds to know of any reasonable basis, as of the
date hereof, for assertion against it of any claim or liability of any nature in
excess of $25,000 individually or
13
<PAGE>
$50,000 in the aggregate not fully disclosed in the Summerlin Balance Sheet.
2.8 ABSENCE OF CERTAIN CHANGES OR EVENTS SINCE THE DATE OF THE
SUMMERLIN BALANCE SHEET. Except as otherwise disclosed in Schedule 2.8, since
------------
the date of the Summerlin Balance Sheet Summerlin has not, except to the extent
the same would not have a material adverse effect on it:
2.8.1 incurred any obligation or liability (fixed, contingent or
otherwise), except normal trade or business obligations incurred in the ordinary
course of business and consistent with past practice, none of which is
materially adverse, and except in connection with this Agreement and the
transactions contemplated hereby;
2.8.2 discharged or satisfied any lien, security interest or
encumbrance or paid any obligation or liability (fixed, contingent or
otherwise), including intercompany obligations and liabilities except in the
ordinary course of business;
2.8.3 mortgaged, pledged or subjected to any Lien any of its
assets or properties (other than mechanic's, materialman's and similar statutory
liens arising in the ordinary course of business and purchase money security
interests arising as a matter of law between the date of delivery and payment);
2.8.4 sold, assigned, conveyed, transferred, leased or otherwise
disposed of, or agreed to sell, assign, convey, transfer, lease or otherwise
dispose of any of its assets or properties except for a fair consideration in
the ordinary course of business and consistent with past practice or, except in
the ordinary course of business and consistent with past practice, acquired any
assets or properties;
2.8.5 canceled or compromised any debt or claim in excess of
$2,500 for any individual debt or claim or $10,000 in the aggregate except
patient account bad debt which is addressed in Section 2.8.14;
2.8.6 waived or released any rights of material value;
2.8.7 made or granted any wage or salary increase applicable to
any group or classification of employees generally except merit increases and
bonuses pursuant to prior personnel practices, entered into any employment
contract with, or made any
14
<PAGE>
loan to, or entered into any material transaction of any other nature with any
partner, officer or employee, been the subject of any material labor dispute or,
to its knowledge, threat thereof;
2.8.8 entered into any transaction or contract (other than
Immaterial Contracts as defined in Section 2.13.4), except (i) contracts listed
on Schedule 2.8 and (ii) this Agreement and the transactions contemplated
------------
hereby;
2.8.9 suffered any casualty loss or damage (whether or not such
loss or damage shall have been covered by insurance) which affects in any
material respect its ability to conduct business;
2.8.10 authorized or effected any amendment or restatement of its
Agreement of Limited Partnership, or taken any steps looking toward its
dissolution or liquidation;
2.8.11 suffered any material adverse change in its operations,
earnings, assets, liabilities, properties or business or in its condition,
financial or otherwise, other than changes in the general market conditions and
prospects for the UHS Facilities;
2.8.12 made capital expenditures or entered into any commitment
therefore which, in the aggregate, exceed $500,000;
2.8.13 suffered any material adverse change in its relations
with, or any material loss or, to its knowledge, material adverse threatened
loss of any of its material suppliers, managed care contracts, or Medicare or
Medicaid contracts;
2.8.14 written off as uncollectible any accounts receivable or
trade notes in excess of reserves; or
2.8.15 introduced any material change with respect to the
operation of its business, including its method of accounting.
2.9 TAXES. Except as set forth in Schedule 2.9, Summerlin (i) has
------------
duly and timely filed or caused to be filed all federal, state, local and
foreign tax returns and reports of "Taxes" (as hereinafter defined) required to
be filed by it prior to the date of this Agreement which relate to it or with
respect to which it or its assets or properties are liable or otherwise in any
way subject, (ii) has paid or fully accrued for all Taxes,
15
<PAGE>
interest, penalties, assessments and deficiencies shown to be due and payable on
such returns and reports (which Taxes, interest, penalties, assessments and
deficiencies are all the Taxes, interest, penalties, assessments and
deficiencies due and payable under the laws and regulations pursuant to which
such returns were filed), and (iii) has properly accrued for all such Taxes
accrued in respect of it or its assets and properties for periods subsequent to
the periods covered by such returns. Except as set forth in Schedule 2.9, no
------------
deficiency in payment of taxes for any period has been asserted by any taxing
body and remains unsettled at the date of this Agreement. Such Party has made
all withholdings of Taxes required to be made under all applicable United
States, state and local tax regulations and such withholdings have either been
paid to the respective governmental agencies or set aside in accounts for such
purpose or accrued, reserved against and entered upon the books of such Party.
As used herein, the term "Tax" or "Taxes" means any federal, state, local or
foreign income, gross receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, windfall profits, environmental (including taxes
under Internal Revenue Code ("Code") Sec. 59A), customs duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum or estimated tax,
assessment, charge, levy or fee of any kind whatsoever, which are due or alleged
to be due to any taxing authority, whether disputed or not.
2.10 REAL PROPERTY. Except as set forth on Schedule 2.10:
-------------
(a) Schedule 2.10 hereto identifies all interests in real
-------------
property, including land and improvements held by Summerlin as of the date
hereof, together with the nature of such interest. Summerlin owns fee simple
title to the tracts of Real Property. To the extent that any interest in Real
Property set forth thereon is shared, Schedule 2.10 sets forth the nature and
-------------
proportion of the sharing arrangement;
(b) the Real Property comprises all of the real property
associated with or employed or used in the business of the UHS Facilities;
(c) except as set forth in Schedule 2.10(c), to the best
----------------
knowledge of Summerlin, no part of the Real Property contains, is located within
or abuts any navigable water or other body of water, tideland, wetland,
marshland or any other area
16
<PAGE>
which is subject to special state, federal or municipal regulation, control or
protection;
(d) such Real Property adjoins dedicated public roadways and
there is access for motor vehicles from the Real Property to such roadways by
valid public or private easements; and, to the best knowledge of Summerlin,
there are no conditions existing which could result in the termination or
reduction of the current access from the Real Property to existing roadways;
(e) all essential utilities (including water, sewer, electricity
and telephone service) are available to the Real Property;
(f) to the best knowledge of Summerlin, the UHS Facilities and
the Real Property and the businesses conducted thereon are in material
compliance with all applicable planning, zoning, land use, public health, fire
safety and building codes and ordinances; the consummation of the transactions
contemplated herein will not result in a violation of any applicable planning,
land use, public health, fire safety, zoning or building code or ordinance, or
the termination of any applicable zoning variances, conditional use permits,
waivers, exemptions or "grandfathering" now existing with respect to the Real
Property; and final, permanent and unconditional certificates of occupancy
and/or use have been duly issued by the applicable governmental authority having
jurisdiction for all buildings located on the Real Property;
(g) Summerlin has not received actual notice of a violation of
any ordinance or other law, order, regulation or requirement, and has not
received actual notice of condemnation or similar proceedings relating to any
part of the Real Property;
(h) the Real Property is subject only to the Liens described in
Schedule 2.10(h), and on the Closing Date will be subject only to the Liens
- - - ----------------
described on Schedule 2.10(h) which are not designated therein as "excluded" and
----------------
any other Liens approved by the Company in writing on or after the effective
date hereof (the "Permitted Encumbrances");
(i) Summerlin has not created or may not assert any rights in
respect of any Liens which will interfere with the Company's use of the Real
Property after the Closing Date;
(j) except for those tenants in possession of the Real Property
under contracts described in Schedule 2.10(j), there are no parties in
----------------
possession of, or claiming any
17
<PAGE>
possession, adverse or not, to or other interest in, any portion of the Real
Property as lessees, tenants at sufferance, trespassers or otherwise;
(k) with respect to the Real Property, no tenant is entitled to
any rebate, concession or free rent, other than as set forth in the contract
with such tenant; no commitments have been made to any tenant for repairs or
improvements other than for normal repairs and maintenance in the future or as
set forth in the contract with such tenant; and no rents due under any of the
tenant contracts have been assigned or hypothecated to, or encumbered by, any
person, other than pursuant to the encumbrances relating to indebtedness to be
satisfied on or prior to the Closing Date, or Permitted Encumbrances, as
additional security for the payment thereof;
(l) no part of the Real Property is currently subject to
condemnation, eminent domain or other proceedings for the taking thereof, and to
the best of Summerlin's knowledge, no condemnation or taking is threatened or
known by Summerlin to be contemplated; and
(m) the improvements to the Real Property are located entirely
within the boundaries of the Real Property and, to Summerlin's knowledge, do not
materially violate any building set back lines or materially encroach upon any
easements located on the Real Property.
2.11 TITLE TO PROPERTY AND ASSETS; SUFFICIENCY OF FACILITIES ASSETS.
(a) Summerlin has good and marketable title to the Facilities
Assets (including, without limitation, the properties and assets reflected in
the Summerlin Balance Sheet except any thereof since disposed of for value in
the ordinary course of business) except for the Permitted Encumbrances, and none
of such properties or assets is, except as disclosed in the Summerlin Balance
Sheet or the Schedules hereto, subject to a contract of sale not in the ordinary
course of business, or, except for Permitted Encumbrances, subject to any Liens.
(b) Except as described on Schedule 2.11, the Facilities Assets
-------------
constitute, in the aggregate, all the properties and assets necessary for the
operation of the UHS Facilities as currently conducted. The Facilities Assets,
together with the Excluded Assets, comprise all of the following: (i) all assets
owned by Summerlin, (ii) all assets used in connection with the UHS Facilities
and their related businesses
18
<PAGE>
and (iii) all assets owned, used or operated by any affiliate of Summerlin
located within a fifty (50) mile radius of Las Vegas, Nevada.
2.12 CONDITION OF PROPERTY. All buildings on the Real Property and
all items of tangible personal property, equipment, fixtures and inventories
included within the assets and properties of Summerlin or required to be used in
the ordinary course of its business are being contributed and transferred
pursuant to this Agreement on an "as is, where is" basis with no representations
or warranties express or implied as to their physical condition and WITHOUT ANY
WARRANTIES FROM ANY PARTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
2.13 LIST OF CONTRACTS AND OTHER DATA. Schedule 2.13 sets forth the
-------------
following information with respect to the properties and assets of Summerlin,
other than the Excluded Assets (indicating in each case, where appropriate,
whether or not consent by a third party is required for the transfer by
Summerlin of such properties and assets to the Company):
2.13.1 a description of all real property leased by Summerlin
and all leases of real property to which Summerlin is a party;
2.13.2 a list of all personal property owned of record or
beneficially by Summerlin having a value per item or group of items in excess of
$1,000 and all leases of personal property, licenses, permits, franchises,
concessions, certificates of public convenience or the like to which Summerlin
is a party;
2.13.3 a list of (i) all United States and foreign patents,
trademarks and trade names, trademark and trade name registrations, service
marks and service mark registrations, copyrights and copyright registrations,
unexpired as of the date hereof, all United States and foreign applications
pending on said date for patents, for trademark or trade name registrations, for
service mark registrations, or for copyright registrations, and all trademarks,
trade names, service marks, labels and other trade rights in use on said date,
all of the foregoing being owned in whole or in part as noted thereon on said
date by Summerlin, (ii) a description of all action taken by Summerlin to
protect all tradenames used by it, and (iii) all licenses granted by or to
Summerlin and all other agreements to which Summerlin is a party, which relate
in whole or in part to any items of the categories mentioned in clause (i) above
or to any other proprietary rights, whether owned by Summerlin or otherwise;
19
<PAGE>
2.13.4 a list of all existing contracts and commitments to
which Summerlin is a party or by which Summerlin or any of its respective
properties or assets is bound, except for Immaterial Contracts. "Immaterial
Contracts" shall mean contracts which (i) no party thereto is a physician,
physician group or other referral source to a UHS Facility, and is not a third
party payor contract and is not a real estate lease and (ii) requires payment by
---
Summerlin of less than $100,000 per year; and
2.13.5 a list of (i) all collective bargaining agreements,
multi-employer pension plans, employment, consulting and separation agreements,
executive compensation plans, bonus plans, incentive compensation plans,
deferred compensation agreements, employee pension plans or retirement plans,
employee profit sharing plans, employee stock purchase and stock option plans
and hospitalization insurance or other plans or arrangements providing for
benefits for employees or former employees of Summerlin, and (ii) all
Multiemployer Plans (as defined in ERISA as hereinafter defined) which Summerlin
maintains or has maintained or to which Summerlin makes, is required to make,
has made or has been required to make a contribution.
All documents, rights, obligations and commitments referred to in this
Section 2.13 are, to the best knowledge of Summerlin, valid and enforceable in
accordance with their terms for the period stated therein and there is not under
any of them any existing breach, default, event of default or event which with
the giving of notice or lapse of time, or both, would constitute a default, by
Summerlin, or, to Summerlin's knowledge, by any other party thereto, nor, except
as set forth on Schedule 2.13, has any party thereto given notice of or made a
-------------
claim with respect to any breach or default. There are no existing laws,
regulations or decrees, nor to Summerlin's knowledge are there any proposed
laws, regulations or decrees, which adversely affect any of such documents,
rights, obligations or commitments. Except as set forth on Schedule 2.13, no
-------------
part of the business or operations of Summerlin is dependent to any material
extent on any patent, trademark, copyright, or license or any assignment thereof
or any secret processes or formulae. Except as set forth on Schedule 2.13, none
-------------
of the rights of Summerlin under such documents, rights, obligations or
commitments is subject to termination or modification as a result of the
transactions contemplated hereby.
20
<PAGE>
2.14 NO BREACH OR DEFAULT. Summerlin is not in default under any
contract to which it is a party or by which it is bound, nor has any event
occurred which, after the giving of notice or the passage of time or both, would
constitute a default under any such contract except as set forth in Schedule
--------
2.14. Summerlin has no reason to believe that the parties to such contracts will
- - - ----
not fulfill their obligations under such contracts in all material respects or
are threatened with insolvency.
2.15 LABOR CONTROVERSIES. Neither Summerlin nor any of its employees
is a party to any collective bargaining agreement except as included in Schedule
--------
2.13. There are not any controversies pending or, to the knowledge of
- - - ----
Summerlin, threatened between Summerlin and any of its employees which might
reasonably be expected to materially adversely affect the conduct of its
business, or any unresolved labor union grievances or unfair labor practice or
labor arbitration proceedings pending or, to the knowledge of Summerlin,
threatened relating to its business, and to the knowledge of Summerlin, there
are not any further organizational efforts presently being made or threatened
involving any of the employees of Summerlin. Except as set forth on Schedule
--------
2.15, Summerlin has not received any notice or claim that it has not complied
- - - ----
with any laws relating to the employment of labor, including any provisions
thereof relating to wages, hours, collective bargaining, the payment of social
security and similar taxes, equal employment opportunity, employment
discrimination and employment safety, or that Summerlin is liable for any
arrears of wages or any taxes or penalties for failure to comply with any of the
foregoing.
No person or Party (including, but not limited to, any governmental
agency) has any claim or basis for any action or proceeding, against Summerlin,
arising out of any statute, ordinance or regulation relating to wages,
collective bargaining, discrimination in employment or employment practices or
occupational safety and health standards (including, but not limited to, the
Fair Labor Standards Act, Title VII of the Civil Rights Act of 1964, as amended,
the Occupational Safety and Health Act, or the Age Discrimination in Employment
Act of 1967 or the Americans With Disabilities Act of 1990). Summerlin has
complied with all laws and regulations with respect to the determining of
independent contractor or employee status.
2.16 LITIGATION. Except as set forth in Schedule 2.16, there are no
-------------
claims, actions, suits or proceedings or, to the knowledge of Summerlin,
investigations with respect to Summerlin, involving claims by or against
Summerlin which are pending or, to Summerlin's knowledge, threatened against
Summerlin, at law or in equity, or before or by any federal,
21
<PAGE>
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, or before the internal grievance mechanisms of
Summerlin. To Summerlin's knowledge, no basis for any action, suit or proceeding
exists, and there are no orders, judgments, injunctions or decrees of any court
or governmental agency with respect to which it has been named or to which it is
a party, which directly apply, in whole or in part, to the business of
Summerlin, or to any of its assets or properties, or which would result in any
material adverse change in its business.
2.17 PATENTS; TRADEMARKS, ETC. No patents, trademarks, trade names,
copyrights, registrations or applications are necessary for the conduct of the
business of Summerlin as now conducted, other than those listed in Schedule 2.13
-------------
hereto. Except as described in Schedule 2.13 hereto, all such patents,
-------------
trademarks, trade names, copyrights and registrations are in good standing, are
valid and enforceable and are free from any default on the part of Summerlin.
Summerlin is not a licensor in respect of any patents, trademarks, trade names,
copyrights or registrations or applications therefor. Summerlin is not in
violation of any patent, patent license, trade name, trademark, or copyright of
others. No officer, partner or employee of Summerlin owns, directly or
indirectly, in whole or in part, any patents, trademarks, trade names,
copyrights, registrations or applications therefor or interests therein which
Summerlin has used, is presently using, or the use of which is necessary for its
business as now conducted.
2.18 LICENSES; PERMITS; AUTHORIZATIONS. Schedule 2.18 hereto is a
-------------
schedule of all rights, approvals, authorizations, consents, licenses, orders,
accreditations, franchises, concessions, certificates and permits of all
governmental agencies, whether United States, state or local, and accrediting
bodies, (collectively, the "Licenses") required by the nature of the business
conducted by Summerlin to permit the continued operation of its business in the
manner in which it was conducted as of the date hereof (indicating in each case
of a License held by Summerlin, where appropriate, whether or not the consent by
a third party to the transfer to the Company of such License is required).
Summerlin has all Licenses required to permit the operation of its business as
presently conducted; Summerlin's business is and has been operated in all
material respects in compliance therewith and all such Licenses are in full
force and effect and no action or claim is pending, nor to the knowledge of
Summerlin, is threatened to revoke, terminate or declare invalid any of the
foregoing.
22
<PAGE>
2.19 COMPLIANCE WITH APPLICABLE LAW; ENVIRONMENTAL LAWS.
(a) Except as set forth on Schedule 2.19 hereto, the conduct of
-------------
the business of Summerlin does not (i) violate or infringe any domestic or
foreign laws, statutes, rules or regulations or any material ordinances,
including, without limitation, any of the foregoing that pertain to or regulate
the operation of a hospital, consumer protection, health and safety or
occupational safety matters, or (ii) violate or infringe any right or patent,
trademark, trade name, service mark, copyright, know-how or other proprietary
right of third parties, the enforcement of which would adversely affect the
business of Summerlin or the value of its properties or assets.
(b) Neither Summerlin nor, to the knowledge of Summerlin, any of
its employees, partners and officers in their capacities as such, have engaged
in any activities which are prohibited under any federal laws, or the
regulations promulgated pursuant to such laws or related state or local laws,
statutes or regulations or which are prohibited by rules of professional
conduct, including but not limited to the following: (i) knowingly and willfully
making or causing to be made a false statement or representation of a material
fact in any application for any benefit or payment; (ii) knowingly and willfully
making or causing to be made any false statement or representation of a material
fact for use in determining rights to any benefit or payment; (iii) presenting
or causing to be presented a claim for reimbursement for services under
Medicare, Medicaid or other state health care programs that is for an item or
service that is known or should be known to be (a) not provided as claimed, or
(b) false or fraudulent; (iv) failing to disclose knowledge by a claimant of the
occurrence of any event affecting the initial or continued right to any benefit
or payment on its own behalf or on behalf of another, with intent to
fraudulently secure such benefit or payment; (v) knowingly and willfully
offering, paying, soliciting, or receiving any remuneration (including any
kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in
cash or in kind (a) in return for referring an individual to a person for the
furnishing or arranging for the furnishing of any item or service for which
payment may be made in whole or in part by Medicare, Medicaid or other state
health care program, or (b) in return for purchasing, leasing, or ordering or
arranging for or recommending purchasing, leasing, or ordering any good,
facility, service, or item for which payment may be made in whole or in part by
Medicare, Medicaid or other state health care program; (vi) knowingly making a
payment, directly or indirectly, to a physician as an inducement to reduce
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or limit necessary services to individuals who are under the direct care of the
physician and who are entitled to benefits under Medicare, Medicaid, or other
state health care programs; (vii) providing to any person information that is
known or should be known to be false or misleading that could reasonably be
expected to influence the decision when to discharge a patient from a UHS
Facility; (viii) knowingly and willfully making or causing to be made or
inducing or seeking to induce the making of any false statement or
representation (or omitting to state a material fact required to be stated
therein or necessary to make the statement contained therein not misleading) of
a material fact with respect to (a) the conditions or operations of a UHS
Facility in order that the UHS Facility may qualify for Medicare, Medicaid or
other state health care program certification, or (b) information required to be
provided under (S) 1124A of the Social Security Act (42 U.S.C. (S) 1320a-3); or
(ix) knowingly and willfully (a) charging for any Medicaid service money or
other consideration at a rate in excess of the rates established by the state,
or (b) charging, soliciting, accepting or receiving, in addition to amounts paid
by Medicaid, any gift money, donation or other consideration (other than a
charitable, religious or other philanthropic contribution from an organization
or from a person unrelated to the patient) (1) as a precondition of admitting
the patient, or (2) as a requirement for the patient's continued stay in the UHS
Facility.
(c) All Licenses currently held by Summerlin pursuant to the
Environmental Laws are identified in Schedule 2.18.
-------------
(d) Summerlin is in compliance in all material respects with all
applicable Environmental Laws except as disclosed in Schedule 2.19.
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(e) In regards to the UHS Facilities and the Real Property, there
is no Environmental Claim pending or, to such Party's knowledge, threatened
against the UHS Facilities or the Real Property, or, to Summerlin's best
knowledge after due inquiry, any other person whose liability for any
Environmental Claim Summerlin has retained or assumed contractually; to
Summerlin's knowledge, there are no past or present actions, activities,
circumstances, conditions, events or incidents, including the release, emission,
discharge or disposal of any Materials of Environmental Concern, that could form
the basis of any Environmental Claim against Summerlin or against any person
whose liability for any Environmental Claim Summerlin has retained or assumed
contractually; and Summerlin has not received any written communication, whether
from a governmental authority
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or otherwise, that alleges that Summerlin is not in full compliance with all
applicable Environmental Laws.
(f) In regards to the UHS Facilities and the Real Property,
without in any way limiting the generality of the foregoing, (i) all on-site and
off-site locations where Summerlin has stored, disposed or arranged for the
disposal of Materials of Environmental Concern are identified in Schedule 2.19,
-------------
(ii) all Contracts dealing with the removal, storage, disposal and handling of
Materials of Environmental Concern are with properly licensed and registered
vendors, (iii) all underground storage tanks, and the capacity and contents of
such tanks, located on the Real Property identified in Schedule 2.19, (iv)
-------------
except as set forth on Schedule 2.19, there is no asbestos contained in or
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forming part of the Real Property, and (v) except as set forth on Schedule 2.19,
-------------
no polychlorinated biphenyls (PCBs) are used or stored on the Real Property.
(g) As used herein: (i) "Environmental Claim" means any written
notice by a person alleging potential liability (including potential liability
for investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries or penalties) arising out
of, based on or resulting from, directly or indirectly, the presence, or release
into the environment, of any Materials of Environmental Concern (as defined
below); (ii) "Environmental Laws" means any and all federal, state, local and
foreign laws and regulations (including common law) relating to pollution or
protection of human health or the environment (including ground water, land
surface or subsurface strata), including laws and regulations relating to
emissions, discharges, releases or threatened releases of Materials of
Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, recycling, reporting
or handling of Materials of Environmental Concern; and (iii) "Materials of
Environmental Concern" means chemicals, pollutants, contaminants, wastes
(including medical waste), toxic substances, polychlorinated biphenyls (PCB's),
ureaformaldehyde, petroleum and petroleum products and such other substances,
materials and wastes which are defined or classified as hazardous or toxic under
any Environmental Laws.
2.20 EMPLOYEE BENEFIT PLANS; EMPLOYEES AND EMPLOYEE RELATIONS.
2.20.1 Attached hereto is an accurate list (Schedule 2.20.1) of
---------------
all "employee welfare benefit plans" and "employee pension benefit plans"
(collectively, "Qualified
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Plans"), as such terms are defined by the Employment Retirement Income Security
Act of 1974, as amended ("ERISA"), and any other group employee benefit plan,
agreement, arrangement or understanding maintained for the benefit of Summerlin
(the Qualified Plans, together with such other plans, arrangements and
understandings, collectively, the "Employee Benefit Plans"). To the extent
available, complete and genuine copies of the summary plan descriptions have
been provided to Desert Springs, which summary plan descriptions accurately
summarize the material provisions of the Employee Benefit Plans. Neither
Summerlin nor any other members of the Controlled Group of Corporations (as
defined in Section 1563 of the Code) that includes Summerlin contributes to,
ever has contributed to, or ever has been required to contribute to any
Multiemployer Plan (as defined in Section 3(37) of ERISA) or has any liability
(including withdrawal liability) under any Multiemployer Plan. There is no lien,
encumbrance or claim of any type on the Facilities Assets or against Summerlin
with respect to the Employee Benefit Plans, and Summerlin has not taken any
action, or omitted to take any action, with respect to the Employee Benefit
Plans (or has any knowledge of the same) that would or could be expected to
result in a Lien on the Facilities Assets or against Summerlin.
2.20.2 Schedule 2.20.2 sets forth a complete list (as of the
---------------
date set forth therein) of names, positions, current annual salaries or wage
rates, and bonus and other compensation arrangements of all full-time and part-
time employees of Summerlin.
2.21 ADVERSE AGREEMENTS; NO ADVERSE CHANGE.
(a) Summerlin is not a party to or subject to any agreement or
instrument or subject to any charter or other corporate restriction or any
judgment, order, writ, injunction, decree or rule specifically naming Summerlin
which adversely affects the business, operations, properties, assets or
conditions, financial or otherwise, of Summerlin.
(b) To the best of Summerlin's knowledge there has not been any
material adverse change in, or development materially adversely affecting the
business, assets, financial position or results of operations of any of
Summerlin since the Summerlin Balance Sheet date.
2.22 TRADE NOTES AND ACCOUNTS RECEIVABLE; TRADE ACCOUNTS PAYABLE;
PREPAID CONTRACTS.
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(a) Except as set forth on Schedule 2.22 hereto, the trade notes
-------------
and accounts receivable of Summerlin are reflected on the Summerlin Balance
Sheet and all trade notes and accounts receivable arising thereafter and prior
to the Closing Date arose and will arise from bona fide transactions in the
ordinary course of business of Summerlin, and are (except for normal claims and
allowances which are consistent with past experience of Summerlin and which in
the aggregate are not material) current, arose in the usual and ordinary course
of business of Summerlin from arms-length transactions, are not subject to any
defenses, counterclaims or set-offs which would materially adversely affect such
trade notes and accounts receivable, and, to Summerlin's knowledge, are fully
collectible, less the applicable allowance for doubtful accounts. Summerlin has
fully performed all obligations with respect to such trade notes and accounts
receivable which it was obligated to perform prior to the date hereof and
Schedule 2.22 sets forth an aging schedule, as of December 31, 1997, for all
- - - -------------
such trade notes and accounts receivable.
(b) The trade accounts payable of Summerlin reflected on the
Summerlin Balance Sheet and all trade accounts payable arising thereafter and
prior to the Closing Date arose and will arise from bona fide transactions in
the ordinary course of business of Summerlin and were paid or are not yet due
and payable.
(c) Schedule 2.22 hereto sets forth the amounts and dates of all
-------------
payments (the "Prepayments") received by Summerlin which relate to services to
be performed by Summerlin subsequent to the Closing Date, including, without
limitation, all such payments expressly authorized to be made in advance by any
of the terms of any contract or agreement with Summerlin.
2.23 INVENTORIES AND SUPPLIES. All inventories and supplies of
Summerlin, whether or not reflected in the Summerlin Balance Sheet, consist of a
quality and quantity useable and salable in the ordinary course of business,
without discount or reduction, except for obsolete items and items of below-
standard quality, all of which have been written off or written down to net
realizable value in the Summerlin Balance Sheet. All inventories and supplies
not written off are valued at the lower of cost (applied on a first in, first
out basis) or market in accordance with generally accepted accounting
principles. The present quantities of inventory and supplies are not excessive
and are reasonable and consistent with the past inventory and supply practices
of Summerlin.
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2.24 ILLEGAL PAYMENTS. Summerlin has not, nor to the knowledge of
Summerlin, has any of its respective partners, directors or officers, in their
capacity as such, either directly or indirectly, made any illegal payments to,
or provided any illegal benefit or inducement for, any person pursuant to an
action illegal under any federal, state or local law.
2.25 INSURANCE POLICIES. (a) Schedule 2.25 contains a correct and
-------------
complete description of all insurance policies of Summerlin covering Summerlin
and its employees, agents and assets. Each such policy is in full force and
effect and, to the knowledge of Summerlin, is reasonably adequate in coverage
and amount to insure against customarily insured risks to which Summerlin and
its employees, businesses, properties and other assets may likely be exposed in
the operation of its business. All premiums with respect to such insurance
policies have been paid on a timely basis, and no notice of cancellation or
termination has been received with respect to any such policy. To the knowledge
of Summerlin, and except as set forth on Schedule 2.25, there are no pending
-------------
claims against such insurance by Summerlin as to which the insurers have denied
coverage or otherwise reserved rights. Since January 1, 1994, Summerlin 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.
(b) Schedule 2.25 contains a correct and complete description of
-------------
all insurance policies of Summerlin covering the Real Property. Each such policy
is in full force and effect and, to the knowledge of Summerlin, is reasonably
adequate in coverage and amount to insure against customarily insured risks with
respect to property of this type. All premiums with respect to such insurance
policies have been paid on a timely basis, and no notice of cancellation or
termination has been received with respect to any such policy. Except as set
forth on Schedule 2.25, there are no pending claims against such insurance by
-------------
Summerlin as to which the insurers have denied coverage or otherwise reserved
rights.
2.26 PROFESSIONAL STAFF, MEDICARE, MEDICAID AND OTHER HEALTH CARE
PROGRAMS.
(a) The professional licensed provider staff of the UHS
Facilities consists of the persons whose names and status are set forth on
Schedule 2.26(a) hereto.
- - - ----------------
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(b) Except as set forth on Schedule 2.26(b) hereto, Summerlin is
----------------
certified for participation in the Medicare and Nevada Medical Assistance
("Medicaid") programs, and has a current and valid provider contract with such
programs.
(c) Except as set forth on Schedule 2.26(c) hereto, Summerlin has
----------------
timely filed or caused to be timely filed all cost reports and other reports of
every kind whatsoever required by any governmental or other 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 all such reports are complete and accurate in all material respects.
Summerlin has paid or caused to be paid all refunds, discounts or adjustments
which have become due in accordance with said reports as filed and, except as
set forth on Schedule 2.26(c), have not been notified that there is any further
----------------
liability now due (whether or not disclosed in any report heretofore or
hereafter made) for any such refund, discount or adjustment, or any interest or
penalties accruing with respect thereto. Summerlin has delivered to Desert
Springs complete copies of all of its Medicare and Medicaid cost reports
submitted by Summerlin for the two most recent fiscal years.
(d) To the knowledge of Summerlin, Summerlin and its partners,
officers, employees or agents (acting in their capacities as such), have not
engaged in any activities which (i) could subject Summerlin or such person to
sanctions under 42 U.S.C. (S) 1320a-7 (other than subparagraph (b)(7) thereof)
or (ii) at the time such activities were engaged in were known or reasonably
could have been known to be prohibited under Federal Medicare and Medicaid
statutes, 42 U.S.C. (S) (S) 1320a-7a and 1320a-7b, or the regulations
promulgated pursuant to such statutes or related state or local statutes or
regulations or which are prohibited by rules of professional conduct.
2.27 UHS FACILITY SURVEYS. True and complete copies of any and all
licensure survey reports and any and all Medicare and/or Medicaid and JCAHO or
other accreditation survey reports issued within the 24-month period preceding
the execution of this Agreement with respect to each UHS Facility for which
surveys are conducted by the appropriate state or Federal agencies having
jurisdiction thereof and JCAHO or accreditation bodies have been furnished to
Desert Springs, along with true and complete copies of any and all plans of
correction which the agencies required to be submitted in response to said
survey reports.
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2.28 RELATED PARTY TRANSACTIONS. To the knowledge of Summerlin,
except as set forth in Schedule 2.28, and except for compensation to employees
-------------
for services rendered, no current partner or officer of Summerlin or any
affiliate thereof is presently, or during the last fiscal year has been, (a) a
party to any material transaction with Summerlin (including, but not limited to,
any contract or other arrangement providing for the furnishing of service by, or
rental of real or personal property from, or otherwise requiring payments to,
any such partner or officer, or (b) the direct or indirect owner of any interest
in any person which is a present competitor, supplier or customer of Summerlin
with respect to the business, nor does any such person receive income from any
source other than Summerlin which should properly accrue to Summerlin.
2.29 NO BROKERS. Summerlin has not entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of the Company or the other Party to pay any finder's fees, brokerage
or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby, and Summerlin is not aware of any claim or basis for any
claim for payment of any finder's fees, brokerage or agent's commissions or
other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby.
2.30 NO MISREPRESENTATION OR OMISSION. No representation or warranty
by Summerlin in this Article 2 or in any other Article or Section of this
Agreement, or in any certificate or other document furnished or to be furnished
by or on behalf of Summerlin pursuant hereto, contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary to make the statements contained therein not misleading.
3. REPRESENTATIONS AND WARRANTIES OF DESERT SPRINGS. Desert Springs
hereby represents, warrants and agrees as follows:
3.1 EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY. Desert Springs is
a Nevada corporation duly organized, validly existing and in good standing under
the laws of the State of Nevada. Desert Springs has all requisite corporate
power and authority to own its properties and carry on its business as now
conducted. The copies provided to Summerlin of the Articles of Incorporation
and Bylaws of Desert Springs, as amended to date, are complete and correct and
presently in effect. Desert Springs has not failed to qualify in any
jurisdiction in which property
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<PAGE>
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification necessary and where the failure to so qualify would
have a material adverse effect on it. Desert Springs is not in default with
respect to any order of any court, governmental authority or arbitration board
or tribunal to which it is a party or is subject.
3.2 AUTHORIZATION; VALIDITY AND EFFECT OF AGREEMENTS. The execution,
delivery and performance of this Agreement and all agreements and documents
contemplated hereby by Desert Springs and the consummation by it of the
transactions contemplated hereby, have been duly and effectively authorized by
all necessary corporate action on its part. This Agreement constitutes, and all
agreements and documents contemplated hereby when executed and delivered
pursuant hereto will constitute, the valid and legally binding obligations of
Desert Springs, enforceable in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent transfer, moratorium or other similar laws of general
application now or hereafter in effect relating to the enforcement of creditors'
rights generally and except that remedies of specific performance, injunction
and other forms of equitable relief are subject to certain tests of equity
jurisdiction, equitable defenses and the discretion of the court before which
any proceeding therefor may be brought. Except as set forth on Schedule 3.2
------------
hereto, the execution and delivery of this Agreement by Desert Springs does not,
and the consummation of the transactions contemplated hereby will not, except to
the extent the same would not have a material adverse effect on it: (i) require
the consent, approval or authorization of any person, corporation, partnership,
joint venture or other business association or any governmental, public
authority or accrediting body; (ii) violate, with or without the giving of
notice or the passage of time, or both, any provisions of law or statute or any
rule, regulation, order, award, judgment, or decree of any court or governmental
authority applicable to such Party; or (iii) result in the breach or termination
of any term or provision of, or constitute a default under, or result in the
acceleration of or entitle any party to accelerate (whether after the giving of
notice or the lapse of time or both) any obligation under, or result in the
creation or imposition of any lien, charge, pledge, security interest or other
encumbrance upon any part of the property of Desert Springs pursuant to any
provision of, any order, judgment, arbitration award, injunction, decree,
indenture, mortgage, lease, license, lien, or other agreement or instrument to
which Desert Springs is a party or by which it is bound, or violate any
provision of the Articles of Incorporation
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or Bylaws of Desert Springs, as amended to the date of this Agreement.
3.3 NO BROKERS. Desert Springs has not entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of the Company or the other Party to pay any finder's fees, brokerage
or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby, and Desert Springs is not aware of any claim or basis for
any claim for payment of any finder's fees, brokerage or agent's commissions or
other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby.
4. COVENANTS OF SUMMERLIN AND DESERT SPRINGS.
4.1 ACCESS TO UHS FACILITIES AND ADDITIONAL INFORMATION.
4.1.1 From the date hereof until the Closing Date, Summerlin
shall provide, and cause its agents (including counsel and accountants) to
provide to Desert Springs reasonable access to and the right to inspect the
Facilities Assets and the books and records pertaining to the Facilities Assets,
and Summerlin will furnish and cause to be furnished to Desert Springs all
material information concerning its businesses not otherwise disclosed pursuant
to this Agreement, and such additional financial, operating and other data and
information regarding Summerlin and its businesses and the Facilities Assets, as
Desert Springs may from time to time reasonably request, without regard to where
such information may be located.
4.1.2 Promptly after the execution of this Agreement, Summerlin
shall deliver to Desert Springs, to the extent not already delivered, copies of
all title insurance policies and binders in the possession of Summerlin for any
of the Real Property and copies of all surveys of any of the Real Property in
the possession of Summerlin.
4.2 OPERATIONS. From the date hereof until the Closing Date and
except as otherwise expressly provided in this Agreement:
(a) each of Summerlin and Desert Springs will carry on its
business in substantially the same manner as heretofore and not make any
material change in its personnel,
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operations, finances, accounting policies, or real or personal property;
(b) Summerlin will maintain the Facilities Assets and all parts
thereof in their current condition, ordinary wear and tear excepted;
(c) Summerlin will perform all of its obligations relating to or
affecting the Facilities Assets or the business of the UHS Facilities;
(d) Summerlin will use its reasonable efforts to obtain
appropriate releases, consents, estoppels and other instruments as Desert
Springs may reasonably request;
(e) Summerlin will keep in full force and effect present
insurance policies or other comparable insurance and maintain sufficient liquid
reserves to meet all deductible, self-insurance and copayment requirements under
present insurance policies;
(f) Summerlin will maintain and preserve its business
organizations and operations intact, and deal with its present employees at the
UHS Facilities in a manner consistent with its existing personnel policies;
Summerlin will maintain its relationships with physicians, suppliers and other
persons having business relations with it; and Summerlin will take such actions
as are reasonably necessary to facilitate the smooth, efficient and successful
transition to the Company following the Closing Date of the business
organizations and operations and employee and other relations of Summerlin; and
(g) Summerlin will permit and allow reasonable access by the
Company to discuss post-closing employment with any of its personnel and to
establish relationships with physicians, suppliers and others having business
relations with it.
4.3 NEGATIVE COVENANTS. From the date hereof until the Closing Date,
except as otherwise expressly permitted by this Agreement or without the prior
written consent of Desert Springs:
(a) Summerlin will not amend or terminate any of the Assumed
Contracts, enter into any contract or agreement or incur or agree to incur any
liability, except in the ordinary and regular course of business, and in no
event that requires the payment by Summerlin prior to the Closing Date or the
Company following the Closing Date of an amount greater than twenty-five
thousand dollars ($25,000) per contract or agreement, or that is
33
<PAGE>
not terminable without cause or penalty within thirty (30) days following the
Closing Date;
(b) Summerlin will not make offers to any of its employees for
employment with it after the Closing Date;
(c) Summerlin will not increase compensation payable or to become
payable to, make a bonus payment to, or otherwise enter into one or more bonus
agreements with, any of its employees or agents, except in the ordinary and
regular course of business in accordance with existing personnel policies;
(d) Summerlin will not create, assume or permit to exist any new
Lien upon any of the Facilities Assets other than purchase money liens arising
in the ordinary course of business;
(e) Summerlin will not sell, assign, transfer, distribute or
otherwise dispose of any property, plant or equipment, except in the ordinary
and regular business of the UHS Facilities with comparable replacement thereof;
(f) Summerlin will not take any action outside the ordinary and
regular course of business;
(g) Summerlin will not take any action relating to its
liquidation or dissolution; and
(h) Summerlin will not create, incur, assume, guarantee or
otherwise become liable for, cancel, pay, agree to cancel or pay, provide for a
complete or partial discharge in advance of a scheduled payment date with
respect to, or waive any right to receive any direct or indirect payment or
other benefit under, any liability except in the ordinary and regular course of
business and in an amount not ex ceeding $25,000 individually or $50,000 in the
aggregate.
4.4 GOVERNMENTAL APPROVALS. From the date hereof until the Closing
Date, Summerlin shall (a) promptly apply for and use its reasonable best efforts
to obtain prior to the Closing Date all consents, approvals, authorizations and
clearances of governmental and regulatory authorities required of it to
consummate the transactions contemplated hereby, (b) provide such information
and communications to governmental and regulatory authorities as such
authorities may reasonably request, and (c) assist and cooperate with such other
Party to obtain all consents, licenses, permits, approvals, authorizations
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<PAGE>
and clearances of governmental and regulatory authorities that such other Party
reasonably deems necessary or appropriate, and to prepare any document or other
information required of the Company following the Closing by any such
authorities, in order to consummate the transactions contemplated herein.
4.5 INSURANCE RATINGS. From the date hereof until the Closing Date,
Summerlin will take all action it deems reasonably necessary to enable the
Company following the Closing Date to succeed to the worker's compensation and
unemployment insurance ratings of Summerlin with respect to the UHS Facilities
for insurance purposes. The Company shall not be obligated to succeed to any
such rating except as it may elect to do so.
4.6 EMPLOYEES; EMPLOYEE BENEFIT PLANS. Summerlin shall retain all
liabilities and obligations for all benefits under its Employee Benefit Plans,
regardless of whether any such liabilities and obligations are disclosed on the
Summerlin Balance Sheet (including, without limitation, any and all workers'
compensation, health, disability or other benefits due to or for the benefit of
any employees of Summerlin or their covered dependents) with the exception of
vacation, sick leave, paid time off and the like, and COBRA, all of which will
be assumed by the Company. As of the Closing Date, Summerlin shall terminate
the participation of all employees in any Employee Pension Benefit Plan in which
any of Summerlin's employees participates, and provide for distributions
pursuant to the terms of the plans, ERISA and the Code.
4.7 FURTHER ACTS AND ASSURANCES. At any time and from time to time
at and after the Closing Date, upon request of the Company, Summerlin shall do,
execute, acknowledge and deliver, or cause to be done, executed, acknowledged
and delivered, such further acts, deeds, assignments, transfers, conveyances,
powers of attorney, confirmations and assurances as the Company may reasonably
request to more effectively convey, assign and transfer to and vest in the
Company, full legal right, title and interest in and actual possession of the
Facilities Assets and the business of Summerlin, to confirm each Party's
capacity and ability to perform its post-closing covenants and agreements under
this Agreement, and to generally carry out the purposes and intent of this
Agreement. Summerlin shall also furnish the Company with such information and
documents in its possession or under its control, or which Summerlin can execute
or cause to be executed, as will enable the Company to prosecute any and all
petitions, applications, claims and demands by or against third parties relating
to or constituting a part of the Facilities Assets and the business of
Summerlin. After the Closing Date,
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Summerlin shall promptly remit to the Company any payments received by Summerlin
with respect to any accounts receivable or other amounts sold to the Company;
and similarly, after the Closing Date the Company shall promptly remit to
Summerlin any payments received by the Company with respect to accounts
receivable or other amounts retained by Summerlin. Any funds so collected will
be remitted within five (5) days following receipt of such payment.
4.8 VALLEY TRANSACTION. Simultaneous with the contribution of the
Facilities Assets and the payment of the Desert Springs Payment to Summerlin
pursuant to this Agreement, (i) Valley Hospital Medical Center, Inc., a Nevada
corporation ("Valley"), shall contribute, convey, assign, transfer and deliver
to Valley Health System LLC, a limited liability company ("Newco UHS-1") created
by Valley pursuant to the LLC Act, and Desert Springs shall contribute, convey,
assign, transfer and deliver to Newco Q LLC, a limited liability company ("Newco
Q-1") created by Desert Springs pursuant to the LLC Act, those assets and
properties of Valley, in the case of Newco UHS-1, and those assets and
properties of Desert Springs, in the case of Newco Q-1, which are in the nature
of the Facilities Assets (but excluding those assets and properties which are in
the nature of Excluded Assets), (ii) Newco UHS-1 shall assume and agree to pay,
perform and discharge the liabilities and obligations of Valley which are in the
nature of Assumed Liabilities, and (iii) Newco Q-1 shall assume and agree to
pay, perform and discharge the liabilities and obligations of Desert Springs
which are in the nature of Assumed Liabilities. Immediately following the
consummation of such transactions in accordance with the preceding sentence,
Newco Q-1 shall be merged with and into Newco UHS-1 pursuant to an agreement of
merger on such terms and conditions as are mutually acceptable to Valley,
Summerlin and Desert Springs (the "Merger"). Following the Merger, the separate
legal existence of Newco Q-1 shall cease and Newco UHS-1 shall continue as the
entity surviving the Merger (the "Valley Company"), with Valley thereafter
owning a 72.5% membership interest in the Valley Company and Desert Springs
thereafter owning a 27.5% membership interest in the Valley Company.
4.9 ADDITIONAL PROPERTIES AND ASSETS. [INTENTIONALLY OMITTED.]
5. MATTERS PERTAINING TO THE COMPANY.
5.1 EMPLOYEE MATTERS. Subject to the exclusions set forth in this
Section, Summerlin and Desert Springs will cause the Company to offer to employ
as of the Closing Date, on an at-
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will basis (subject to any existing union contracts), all employees working at
the UHS Facilities immediately prior to the Closing Date (including those on
leave) so that Summerlin may avoid the imposition of any liability under the
WARN Act and the Company shall pay all liability of Summerlin under the WARN Act
resulting from the Company's failure to do so. For the employees who accept the
Company's offer of employment, the Company shall recognize the employee's length
of service with Summerlin for vesting and benefits eligibility purposes under
the Company's employee benefit programs. Notwithstanding the foregoing, the
Company shall have no obligation to offer employment to, except as required
under any union contract, (i) those employees who are "part-time employees" (as
defined in the WARN Act) and (ii) those employees who voluntarily elect to leave
the employment of Summerlin.
5.2 FURTHER ACTS AND ASSURANCES. At any time and from time to time
at and after the Closing Date, Summerlin and Desert Springs shall cause the
Company to execute, acknowledge and deliver, or cause to be done, executed,
acknowledged and delivered such further acts, deeds, assignments, transfers,
conveyances, powers of attorney, confirmations and assurances as the Parties may
reasonably request to confirm the capacity and ability of the Company to perform
those acts relating to the post-closing covenants and agreements of the Parties
(with respect to causing the Company to perform such acts) under this Agreement,
and to generally carry out the purposes and intent of this Agreement. Summerlin
and Desert Springs shall cause the Company to furnish Summerlin with such
information and documents in its possession or under its control, or which it
can execute or cause to be executed, as will enable Summerlin to prosecute any
and all petitions, applications, claims and demands by or against third parties
relating to or constituting a part of the Facilities Assets and the business of
the UHS Facilities for which Summerlin is liable hereunder or relating to
Government Reimbursement Programs.
6. CONDITIONS OF CLOSING.
6.1 CONDITIONS OF CLOSING. The obligations of Summerlin to
contribute the Facilities Assets and of Desert Springs to make the Desert
Springs Payment, the obligation of Summerlin to sell and deliver to Desert
Springs a 26.115% membership interest in the Company, and the obligations of the
Parties to otherwise cause the consummation of the transactions contemplated by
this Agreement, shall be subject to and conditioned upon the satisfaction at the
Closing Date of each of the following conditions (it being understood and agreed
that (i)
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the conditions to the benefit of Summerlin are solely with respect to the Desert
Springs Payment and Desert Springs and not with respect to itself or the UHS
Facilities, and (ii) the conditions to the benefit of Desert Springs are solely
with respect to the UHS Facilities and Summerlin and not with respect to itself
or the Desert Springs Payment):
6.1.1 All representations and warranties of the Parties
contained in this Agreement and the Schedules hereto shall be true and correct
in all material respects at and as of the Closing Date, the Parties shall have
performed in all material respects all agreements and covenants and satisfied
all conditions on their part to be performed or satisfied by the Closing Date
pursuant to the terms of this Agreement, and each Party shall have received a
certificate of the other Party dated the Closing Date to such effect.
6.1.2 Except as caused solely by any change in the relevant
market conditions and prospects, for which the other such Party shall assume all
risk, there shall have been no material adverse change since September 30, 1997
in the financial condition, business or affairs of Summerlin or Desert Springs;
and neither Summerlin nor Desert Springs shall have suffered any material loss
(whether or not insured) by reason of physical damage caused by fire,
earthquake, accident or other calamity which substantially affects the value of
its assets, properties or business the insurance proceeds related to which are
not, in the reasonable opinion of such other Party, adequate to repair such
damage and compensate for any lost business related thereto. Summerlin and
Desert Springs each shall have received a certificate of the other such Party
dated the Closing Date that the statements set forth in this Section 6.1.2 are
true and correct.
6.1.3 Each Party shall have delivered to the other Party a
Certificate of the Secretary of State (or other authorized officer) of the State
of its jurisdiction of incorporation or formation, and certifying as of a date
reasonably close to the Closing Date that such Party has filed all required
reports, paid all required fees and taxes, and is, as of such date, in good
standing and authorized to transact business as a domestic corporation or
limited partnership, as the case may be.
6.1.4 Each Party shall have delivered to the other Parties a
certificate of its corporate or partnership Secretary certifying:
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(i) The Resolutions of its Board of Directors or its
general partner authorizing the execution, performance and delivery of this
Agreement and the execution, performance and delivery of all agreements,
documents and transactions contemplated hereby;
(ii) The incumbency of its officers or the officers of
its general partner executing this Agreement and all agreements and documents
contemplated hereby; and
(iii) That the Articles of Incorporation and Bylaws of
Desert Springs, or the Agreement of Limited Partnership of Summerlin, as the
case may be, attached to such certificate are complete and correct and in effect
as of the date of such certification.
6.1.5 Each Party shall have received from counsel for the other
Party (which may be house counsel), an opinion, dated the Closing Date,
satisfactory to such Party in the form attached hereto as Exhibit A.
---------
6.1.6 All material authorizations, consents, waivers, approvals,
orders, registrations, qualifications, designations, declarations, filings or
other actions required with or from any governmental entity (including without
limitation receipt of licenses (or commitments to issue licenses) to own and
operate the UHS Facilities and for the Company following the Closing Date to
conduct the businesses of Summerlin as currently conducted) 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 Parties, and copies thereof shall be delivered
to the Parties prior to the Closing Date.
6.1.7 On the Closing Date, no injunction or order shall be in
effect prohibiting consummation of the transactions contemplated hereby or which
would make the consummation of such transactions unlawful and no action or
proceeding shall have been instituted and remain pending before a governmental
entity to restrain or prohibit the transactions contemplated by this Agreement
and no adverse decision shall have been made by any such governmental entity
which is reasonably likely to materially adversely affect the Company, the
Parties or the Facilities Assets. No federal, state or local statute, rule or
regulation shall have been enacted the effect of which would be to prohibit,
materially restrict, impair or delay the consummation of the transactions
contemplated hereby or materially restrict or impair
39
<PAGE>
the ability of the Company following the Closing Date to own the Facilities
Assets or to conduct the businesses relating thereto.
6.1.8 The receipt by Summerlin and Desert Springs of standard
ALTA or CLTA fee owner's title insurance policies using the current ALTA or CLTA
form(the "Title Policies") insuring title (at standard market rates for fee
simple or leasehold title) to each parcel of Real Property in the Company, as
fee owner, subject only to the Permitted Encumbrances, in the aggregate amount
of $60,000,000, and issued by a national title insurance company (the "Title
Company"). The Title Policies shall be issued with all standard or general
printed exceptions (other than the survey exceptions) deleted and will
40
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contain a so-called "non-imputation" endorsement and such additional
endorsements as the Parties may reasonably require.
6.1.9 Execution and delivery by Summerlin of the Instruments of
Conveyance set forth in Section 1.4.
6.1.10 Execution and delivery by the Company and the parties
thereto of the Management Agreement in substantially the form attached hereto as
Exhibit B (the "Management Agreement").
- - - ---------
6.1.11 Execution and delivery by the Company, Summerlin and
Desert Springs of the Operating Agreement in substantially the form attached
hereto as Exhibit C (the "Operating Agreement").
---------
6.1.12 The Company's receipt of current as-built surveys of the
Real Property, prepared and certified by a registered surveyor licensed in the
State of Nevada (the "Surveys"). The Surveys shall be in form and substance
mutually satisfactory to Summerlin and Desert Springs.
6.1.13 Summerlin's receipt of the membership interest in the
Company to be distributed to it in accordance with Section 1.1 hereof.
6.1.14 Summerlin's receipt of the Desert Springs Payment in
immediately available funds in accordance with Sections 1.1 and 1.5 hereof.
6.1.15 Desert Springs' receipt from Summerlin of a 26.115%
membership interest in the Company free and clear of all Liens other than
Permissible Liens.
6.1.16 Execution and delivery by the parties thereto of the
Survey Agreement substantially in the form attached hereto as Exhibit D.
---------
7. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION.
7.1 EVENTS OF DEFAULT. A breach as a result of the failure of a Party
to perform any of its agreements, covenants and obligations under this
Agreement, shall be considered a default hereunder giving rise to the
indemnification set forth in Section 7.3 hereof.
41
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7.2 SURVIVAL OF REPRESENTATIONS, ETC. All representations and
warranties made by the Parties in this Agreement or in any exhibit, schedules or
certificates hereof or in connection with the transactions contemplated hereby
shall terminate at the Closing Date, and thereafter be of no further force or
effect and no action or cause of action on account thereof shall survive. All
other agreements, covenants and obligations of the Parties in this Agreement or
in any exhibit, schedules, certificate, document or instrument delivered
pursuant to the provisions hereof or in connection with the transactions
contemplated hereby, and the remedies of the Parties with respect thereto, shall
survive the closing of the transactions contemplated by this Agreement.
7.3 INDEMNIFICATION. From and after the Closing Date, each Party, as
the case may be (an "Indemnifying Party"), severally and not jointly, shall
indemnify and hold the other Party and the Company, as the case may be, and
their respective affiliates, agents and representatives (an "Indemnified
Party"), harmless from and against any and all claims, losses, expenses, damages
or liabilities arising out of or relating to any of the following: (i) any
breach, violation or nonperformance of a covenant, agreement or obligation to be
performed hereunder on the part of any Indemnifying Party; (ii) any claims
against, or liabilities or obligations of an Indemnifying Party not specifically
assumed by an Indemnified Party pursuant to this Agreement; (iii) any claims
against, or liabilities or obligations relating to the Summerlin Limited
Partnership Agreement, or the partnership actions involved in accomplishing this
transaction; or (iv) any actions, judgments, costs and expenses (including
reasonable attorneys' fees and all other expenses incurred in investigating,
preparing or defending any litigation or proceedings, commenced or threatened)
incident to any of the foregoing or the enforcement of this Section. In
addition to the foregoing, following the Closing Date the Parties shall cause
the Company to indemnify and hold the Parties and their affiliates harmless from
and against any and all claims, losses, expenses, damages or liabilities arising
out of or relating to the Company's assumption of the Assumed Liabilities and
any actions, judgments, costs and expenses (including reasonable attorneys' fees
and all other expenses incurred in investigating, preparing or defending any
litigation or proceedings, commenced or threatened) incident to the foregoing.
Any indemnification payment pursuant to the foregoing shall include interest at
a floating rate equal the prime rate of Citibank N.A., from time to time, from
the date the Indemnified Party provides the Indemnifying Party notice of the
loss, cost, expenses or damages until the date of payment.
7.4 REPRESENTATION, COOPERATION AND SETTLEMENT.
42
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(a) An Indemnified Party agrees to give prompt written notice to
an Indemnifying Party of any claim against it which might give rise to a claim
by such Indemnified Party based on the indemnity agreement contained in Section
7.3 hereof, stating the nature and basis of the first-mentioned claim and the
amount thereof; provided, that the failure of the Indemnified Party to give the
Indemnifying Party prompt notice shall not relieve the Indemnifying Party of any
of its obligations hereunder, but may create a cause of action for breach for
damages directly attributable to such delay.
(b) The Indemnifying Party shall have full responsibility and
authority with respect to the payment, settlement, compromise or other
disposition of any third party dispute, action, suit or proceeding subject to
indemnification by such Indemnifying Party hereunder, including, without
limitation, the right to conduct and control all negotiations with respect to
the settlement, compromise or other disposition thereof, and the Indemnified
Party agrees to cooperate with the Indemnifying Party in any reasonable manner
requested by the Indemnifying Party in connection with any such negotiations.
The Indemnified Party shall have the right, without prejudice to the
Indemnifying Party's rights under this Agreement, at the Indemnified Party's
sole expense, to be represented by counsel of its own choosing and with whom
counsel for the Indemnifying Party shall confer in connection with the defense
of any such action, suit or proceeding. The Parties agree to render to each
other such assistance as may reasonably be requested in order to insure the
proper and adequate defense of any such action, suit or proceeding.
Notwithstanding the foregoing, the Indemnifying Party may compromise and settle
any claim, action, or suit to which it must indemnify an Indemnified Party
hereunder, provided that it gives the Indemnified Party advance notice of any
proposed compromise or settlement and shall obtain the consent of the
Indemnified Party to such proposed compromise or settlement, which consent shall
not be unreasonably withheld.
8. TRANSACTIONS SUBSEQUENT TO THE CLOSING DATE
8.1 ACCESS TO RECORDS. From time to time after the Closing Date,
upon the request of the Company, Summerlin will provide the Company with
reasonable access to any records, documents and data relating to the Facilities
Assets retained by Summerlin wherever located. From time to time after the
Closing Date, upon the request of either Summerlin or Desert Springs, the other
such Party shall cause the Company to make available to the requesting Party any
records, documents and data relating to the Facilities Assets acquired by the
Company as needed for any lawful purpose (including such Party's inspection and
copying of the
43
<PAGE>
same), and Summerlin shall have the same rights of access to inspect and copy
that Summerlin had prior to the Closing Date; provided, however, that any
records, documents and data delivered to or made available to such Party and its
representatives will be treated as strictly confidential by such Party and its
representatives, will not be directly or indirectly divulged, disclosed or
communicated to any other person other than such Party and its representatives
who are reasonably required to have access to such information (unless such
Party is compelled to disclose the same by judicial or administrative process),
and will be returned to the Company when such Party's use therefor has
terminated. Summerlin and Desert Springs shall cause the Company to instruct the
appropriate employees of the Company to cooperate in providing access to such
records to such Parties and their authorized representatives as contemplated
herein. Access to such records shall be, wherever reasonably possible, during
normal business hours, with reasonable prior written notice to the Company of
the time when such access shall be needed. Summerlin and Desert Springs shall
cause the Company to provide sufficient office space to such requesting Party
without charge to conduct the activities described herein. The employees,
representatives and agents of Summerlin and Desert Springs shall conduct
themselves in such a manner so that the Company's normal business activities
shall not be unduly or unnecessarily disrupted. For a period of seven (7) years
following the Closing Date, neither Summerlin nor Desert Springs shall, and each
of such Parties shall cause the Company not to, discard, destroy or otherwise
dispose of records, documents and data relating to the Facilities Assets or such
Parties without first making such records, documents and data available to the
other such Party for inspection and copying. Summerlin and Desert Springs shall
cause the Company to retain the records, documents and data pertaining to the
UHS Facility at the UHS Facility (or at such other locations as the Company and
such Parties shall determine by their mutual agreement from time to time) at the
Company's cost, until the expiration of seven (7) years from the Closing Date.
8.2 LITIGATION COOPERATION. After the Closing Date, upon prior
reasonable written request, each Party shall cooperate with the other and with
the Company, at the requesting Party's expense (but including only out-of-pocket
expenses to third parties and not the costs incurred by any Party for the wages
or other benefits paid to its partners, officers, directors or employees), in
furnishing information, testimony and other assistance in connection with any
actions, tax or cost report audits, proceedings, arrangements or disputes
involving any of the Parties hereto (other than in connection with disputes
between the Parties hereto) and based upon contracts, arrangements or acts of
any Party or any of their respective affiliates which were in effect or occurred
on or prior to the Closing Date and which
44
<PAGE>
related to the Facilities Assets, including, without limitation, arranging
discussions with, and the calling as witnesses of, officers, directors,
managers, employees, agents and representatives of the Company.
9. TERMINATION.
9.1 METHODS OF TERMINATION. The transactions contemplated herein may
be terminated at any time before or after approval thereof by the Parties, but
not later than the Closing Date:
(i) By mutual consent of the Parties; or
(ii) by a Party after March 1, 1998 if any of the conditions
in Section 6.1 to the benefit of such Party shall not have been met or waived in
writing prior to such date.
9.2 PROCEDURE UPON TERMINATION. In the event of termination pursuant
to Section 9.1 hereof, written notice thereof shall forthwith be given to the
other Parties and the transactions contemplated by this Agreement shall be
terminated, without further action by any party. If the transactions
contemplated by this Agreement are terminated as provided herein:
(i) Each Party will redeliver all documents, work papers and
other material of the other Parties relating to the transactions contemplated
hereby, whether so obtained before or after the execution of this Agreement, to
the Party furnishing the same; and
(ii) No Party shall have any liability or further obligation to
the other Parties other than the confidentiality obligations set forth in
Section 10.6 hereof.
10. MISCELLANEOUS.
10.1 NOTICE. Any notice required or permitted hereunder shall be in
writing and shall be sufficiently given if personally delivered or mailed by
certified or registered mail, return receipt requested, addressed as follows:
IF TO SUMMERLIN: Universal Health Services, Inc.
367 South Gulph Road
Box 61558
King of Prussia, Pennsylvania 19406
Attention: Michael G. Servais,
45
<PAGE>
Senior Vice President
COPIES TO: Bruce Gilbert, Esq.
General Counsel
Universal Health Services, Inc.
367 South Gulph Road
Box 61558
King of Prussia, Pennsylvania 19406
AND
Klett Lieber Rooney & Schorling
A Professional Corporation
40th Floor, One Oxford Centre
Pittsburgh, Pennsylvania 15219
Attention: Robert T. Harper, Esq.
IF TO DESERT SPRINGS:
Quorum Health Group, Inc.
103 Continental Place
Brentwood, Tennessee 37027
Attention: Ashby Q. Burks,
Vice President/General Counsel
Facsimile No. (615) 371-4788
COPIES TO: Ernest E. Hyne, II, Esquire
Harwell Howard Hyne
Gabbert & Manner, P.C.
1800 First American Center
315 Deaderick Street
Nashville, Tennessee 37238
IF TO THE
COMPANY: Summerlin Hospital Medical Center LLC
c/o Universal Health Services, Inc.
367 South Gulph Road
Box 61558
King of Prussia, Pennsylvania 19406
Attention: Michael G. Servais,
Senior Vice President
and
Summerlin Hospital Medical Center LLC
c/o Quorum Health Group, Inc.
103 Continental Place
Brentwood, Tennessee 37027
Attention: Ashby Q. Burks,
Vice President/General Counsel
46
<PAGE>
(or to such other address as any Party or the Company, as the case may be, shall
specify by written notice so given), and shall be deemed to have been duly
delivered: (a) if delivered personally or sent by facsimile, on the date
received and (b) if delivered by overnight courier, on the day after mailing.
10.2 EXECUTION OF ADDITIONAL DOCUMENTS. The Parties will at any
time, and from time to time after the Closing Date, upon request of any other
Party, execute, acknowledge and deliver all such further acts, deeds,
assignments, transfers, conveyances, powers of attorney and assurances as may be
required to carry out the intent of this Agreement and to transfer and vest
title to any Facilities Assets or membership interests being transferred
hereunder, and to protect the right, title and interest in and enjoyment of such
membership interests and of all of the Facilities Assets granted, assigned,
transferred, delivered and conveyed pursuant to this Agreement with all costs
being borne by the Company; provided, however, that this Agreement shall be
effective regardless of whether any such additional documents are executed.
10.3 WAIVERS AND AMENDMENT.
(a) Each Party may, by written notice to each of the other
Parties executed by a properly authorized officer, in the case of Desert
Springs, or its general partner, in the case of Summerlin, (i) extend the time
for the performance of any of the obligations or other actions of another Party;
(ii) waive any inaccuracies in the representations or warranties of another
Party contained in this Agreement; (iii) waive compliance with any of the
covenants of another Party contained in this Agreement; and (iv) waive or modify
performance of any of the obligations of another Party.
(b) This Agreement may be amended, modified or supplemented
only by a written instrument executed by all the Parties. Except as provided in
the preceding sentence, no action taken pursuant to this Agreement, including,
without limitation, any investigation by or on behalf of any Party, shall be
deemed to constitute a waiver by the Party taking such action of compliance with
any representations, warranties, covenants or agreements contained herein. The
waiver by any Party of a breach of any provision of this Agreement shall not
operate or be construed as a waiver of any subsequent breach.
10.4 EXPENSES. Whether or not the transactions contemplated by this
Agreement are consummated, each Party shall pay the fees and expenses of their
respective counsel,
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<PAGE>
accountants, other experts and all other expenses incurred by them incident to
the negotiation, preparation and execution of this Agreement and the performance
by them of their obligations hereunder.
10.5 OCCURRENCE OF CONDITIONS PRECEDENT. Each of the Parties agrees
to use its reasonable efforts to cause all conditions precedent to its
obligations under this Agreement to be satisfied.
10.6 CONFIDENTIALITY OBLIGATIONS; PUBLIC ANNOUNCEMENTS.
(a) Each Party agrees that it will treat in confidence all
documents, materials and other information which it shall have obtained
regarding the other Party during the course of the negotiations leading to the
consummation of the transactions contemplated hereby (whether obtained before or
after the date of this Agreement), the investigation provided for herein and the
preparation of this Agreement and other related documents, and, in the event the
transactions contemplated hereby shall not be consummated, each Party will
return to the other Parties all copies of non-public documents and materials
which have been furnished in connection therewith. The obligation of each Party
to treat such documents, materials and other information in confidence shall not
apply to any information which (i) such Party can demonstrate was already
lawfully in its possession prior to the disclosure thereof by any other Party,
(ii) is known to the public and did not become so known through any violation of
a legal obligation, (iii) became known to the public through no fault of such
Party or (iv) is later lawfully acquired by such Party from other sources.
Except as required by law and except for disclosures to its advisors, who shall
be advised of the confidentiality requirements herein, no Party shall disclose
to any person the identity of any other Party, the terms or provisions of this
Agreement or the content of any discussions or communications between any of the
Parties.
(b) Any public announcement or similar publicity with respect to
this Agreement or the transactions contemplated hereby will be issued, if at
all, at such time and in such manner as the Parties determine. Unless consented
to by each Party in advance or required by law, prior to the Closing Date, each
Party shall keep this Agreement strictly confidential and may not make any
disclosure of this Agreement to any person. Summerlin will consult with Desert
Springs concerning the means by which the employees, customers, and suppliers of
Summerlin and others having dealings with it will be informed of the
transactions contemplated by this Agreement.
48
<PAGE>
10.7 BINDING EFFECT; BENEFITS. Subject to Section 10.14, this
Agreement shall be binding upon and shall inure to the benefit of the Parties
and their respective heirs, successors, executors, administrators and assigns.
Notwithstanding anything contained in this Agreement to the contrary, nothing in
this Agreement, expressed or implied, is intended to confer on any person other
than the Parties or their respective heirs, successors, executors,
administrators and assigns any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
10.8 ENTIRE AGREEMENT. This Agreement, together with the Exhibits,
Schedules and other documents contemplated hereby, constitute the final written
expression of all of the agreements between the Parties, and is a complete and
exclusive statement of those terms. It supersedes all prior understandings and
negotiations (written and oral) concerning the matters specified herein. Any
representations, promises, warranties or statements made by a Party that differ
in any way from the terms of this written Agreement and the Exhibits, Schedules
and other documents contemplated hereby, shall be given no force or effect. The
Parties specifically represent, each to the other, that there are no additional
or supplemental agreements between them related in any way to the matters herein
contained unless specifically included or referred to herein. No addition to or
modification of any provision of this Agreement shall be binding upon any party
unless made in writing and signed by all Parties.
10.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada exclusive of the
conflict of law provisions thereof.
10.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
10.11 HEADINGS. Headings of the Articles and Sections of this
Agreement are for the convenience of the Parties only, and shall be given no
substantive or interpretive effect whatsoever.
10.12 INCORPORATION OF EXHIBITS AND SCHEDULES. All Exhibits and
Schedules attached hereto are by this reference incorporated herein and made a
part hereof for all purposes as if fully set forth herein.
10.13 SEVERABILITY. If for any reason whatsoever, any one or more of
the provisions of this Agreement shall be held or deemed to be inoperative,
unenforceable or invalid as applied to
49
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any particular case or in all cases, such circumstances shall not have the
effect of rendering such provision invalid in any other case or of rendering any
of the other provisions of this Agreement inoperative, unenforceable or invalid.
10.14 ASSIGNABILITY. Neither this Agreement nor any of the Parties'
rights hereunder shall be assignable by any Party without the prior written
consent of the other Parties.
[SIGNATURES ARE ON THE NEXT FOLLOWING PAGES]
50
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement and
caused the same to be duly delivered on their behalf on the day and year
hereinabove first set forth.
SUMMERLIN HOSPITAL MEDICAL CENTER, L.P.
BY: UHS HOLDING COMPANY, INC., ITS GENERAL
PARTNER
By:________________________
Title:_____________________
NC-DSH, INC.
By:________________________
Title:_____________________
51
<PAGE>
JOINDER AGREEMENT
The undersigned hereby agrees to become a party to that certain
Contribution Agreement (the "Contribution Agreement") by and among Summerlin
Hospital Medical Center, L.P., a Delaware limited partnership ("Summerlin") and
NC-DSH, Inc., a Nevada corporation ("Desert Springs"), for the sole purpose of
unconditionally guaranteeing the performance of the obligations of and the
payments by Summerlin under Section 7.3 of the Contribution Agreement and for no
other purpose. By executing this Joinder Agreement the undersigned hereby
guarantees the due and punctual payment and performance by Summerlin of its
obligations under Section 7.3 of the Contribution Agreement. This Joinder
Agreement may not be terminated by the undersigned until such time as all
amounts due and obligations owing or to be owed by Summerlin under such Section
shall have been fully paid and performed. In the event of breach under Section
7.3, the parties thereto shall have the right to proceed against the undersigned
or Summerlin separately, jointly, or against the undersigned without first
proceeding against Summerlin. Bankruptcy or the like of Summerlin shall be no
defense to the undersigned.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
undersigned has executed this Joinder Agreement this 30th day of January, 1998.
UNIVERSAL HEALTH SERVICES, INC.
By:________________________________
Title:_____________________________
52
<PAGE>
JOINDER AGREEMENT
The undersigned hereby agrees to become a party to that certain
Contribution Agreement (the "Contribution Agreement") by and among Summerlin
Hospital Medical Center, L.P., a Delaware limited partnership ("Summerlin") and
NC-DSH, Inc., a Nevada corporation ("Desert Springs"), for the sole purpose of
unconditionally guaranteeing the performance of the obligations of and payments
by Desert Springs under Section 7.3 of the Contribution Agreement and for no
other purpose. By executing this Joinder Agreement the undersigned hereby
guarantees the due and punctual payment and performance by Desert Springs of its
obligations under Section 7.3 of the Contribution Agreement. This Joinder
Agreement may not be terminated by the undersigned until such time as all
amounts due and obligations owing or to be owed by Desert Springs under such
Section shall have been fully paid and performed. In the event of breach under
Section 7.3, the parties thereto shall have the right to proceed against the
undersigned or Desert Springs separately, jointly, or against the undersigned
without first proceeding against Desert Springs. Bankruptcy or the like of
Desert Springs shall be no defense to the undersigned.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
undersigned has executed this Joinder Agreement this 30th day of January, 1998.
QUORUM HEALTH GROUP, INC.
By:________________________________
Title:_____________________________
53
<PAGE>
SCHEDULES, EXHIBITS AND APPENDICES
TO CONTRIBUTION AGREEMENT
Schedule
- - - --------
1.1(b) Tangible Personal Property
1.3.1 Assumed Contracts
1.5 Permissible Liens
1.6(c) List of Additional Assumed Liabilities
1.7(g) Liens and Mortgages Not Released at Closing
2.2 Authorization; Validity and Effect of Agreements
2.3 Subsidiaries; Debt and Equity Securities
2.4 Partnership Interests; Outstanding Rights, Warrants, etc.
2.6 Financial Statements
2.7 Absence of Undisclosed Liabilities
2.8 Absence of Certain Changes or Events
2.9 Taxes
2.10 Real Property
2.10(c) Navigable Water
2.10(h) Liens on Real Property
2.10(j) Leases of Real Property
2.11 Exceptions to Sufficiency of Facilities Assets
2.13 List of Contracts and Other Data
2.14 Exceptions to No Breach or Default
2.15 Labor Controversies
2.16 Litigation
<PAGE>
2.18 Licenses; Permits; Authorizations
2.19 Compliance with Applicable Law; Environmental Laws
2.20.1 Employee Benefit Plans
2.20.2 Employees
2.22 Trade Notes and Accounts Receivable; Aging Schedule; Prepayments
2.25 Insurance Policies; Pending Insurance Claims
2.26(a) Professional Staff
2.26(b) Medicare and Medicaid Participation
2.26(c) Cost Reports
2.28 Related Party Transactions
3.2 Authorization; Validity and Effect of Agreements
ii
<PAGE>
Exhibit
- - - -------
A Form of Opinion of Parties' Counsel
B Form of Management Agreement
C Form of Operating Agreement
D Form of Survey Agreement
iii
<PAGE>
EXHIBIT 10.32
UNIVERSAL HEALTH SERVICES, INC.
1992 STOCK OPTION PLAN, AS AMENDED
----------------------------------
1. Purpose. The purpose of the Universal Health Services, Inc. 1992
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Stock Option Plan (the "Plan") is to enable Universal Health Services, Inc. (the
"Company") and its stockholders to secure the benefits of common stock ownership
by personnel of the Company and its subsidiaries. The Board of Directors of the
Company (the "Board") believes that the granting of options under the Plan will
foster the Company's ability to attract, retain and motivate those individuals
who will be largely responsible for the continued profitability and long-term
future growth of the Company.
2. Stock Subject to the Plan. The Company may issue and sell a total
-------------------------
of 3,000,000 shares of its Class B Common Stock, $.01 par value (the "Common
Stock"), pursuant to the Plan. Such shares may be either authorized and
unissued or held by the Company in its treasury. New options may be granted
under the Plan with respect to shares of Common Stock which are covered by the
unexercised portion of an option which has terminated or expired by its terms,
by cancellation or otherwise.
3. Administration. The Plan will be administered by the Board of
--------------
Directors of the Company (the "Board"). Subject to the provisions of the Plan,
the Board, acting in its sole and absolute discretion, will have full power and
authority to grant options under the Plan, to interpret the provisions of the
Plan and option agreements made under the Plan, to supervise the administration
of the Plan, and to take such other action as may be necessary or desirable in
order to carry out the provisions of the Plan. The Board may act by the vote of
a majority of its members present at a meeting at which there is a quorum or by
unanimous written consent. The decision of the Board as to any disputed
question, including questions of construction, interpretation and
administration, will be final and conclusive on all persons. The Board will
keep a record of its proceedings and acts and will keep or caused to be kept
such books and records as may be necessary in connection with the proper
administration of the Plan. Notwithstanding the foregoing, the Board shall have
the authority to appoint a committee (the "Committee") of the Board whose
members shall satisfy the requirements of Section 162(m) of the Internal Revenue
Code of 1986 (the "Code"), and the requirements of Rule 16b-3(b)(3)(i) under the
Securities Exchange Act of 1934, as amended (or any successor laws or
regulations), to grant options to executive officers of the Company and, all
references to "the Board" hereunder with respect to the grant of such options
shall be deemed to refer to such Committee.
4. Eligibility. Options may be granted under the Plan to present or
-----------
future employees of the Company or a subsidiary of the Company (a "Subsidiary")
within the meaning of Section 424(f) of the Code, consultants to the Company or
a Subsidiary who are not employees, and to directors of the Company or a
Subsidiary whether or not they are employees of or consultants to the Company
and/or a Subsidiary. Subject to the provisions of the Plan, the Board may from
time to time select the persons to whom options will be granted, and will fix
the number of
<PAGE>
shares covered by each such option and establish the terms and conditions
thereof (including, without limitation, exercise price, which in the case of
grants by the Committee shall not be less than fair market value of the Common
Stock on the date of grant, and restrictions on exercisability of the option or
on the shares of Common Stock issued upon exercise thereof). Notwithstanding
anything to the contrary contained herein no person may receive grants of
options to purchase more than 200,000 shares in any one calendar year.
5. Terms and Conditions of Options. Each option granted under the
-------------------------------
Plan will be evidenced by a written agreement in a form approved by the Board.
Each such option will be subject to the terms and conditions set forth in this
paragraph and such additional terms and conditions not inconsistent with the
Plan as the Board deems appropriate.
(a) Option Period. The period during which an option may be exercised will
-------------
be fixed by the Board and will not exceed 10 years from the date the option
is granted.
(b) Exercise of Options. An option may be exercised by transmitting to
-------------------
the Company (1) a written notice specifying the number of shares to be
purchased, and (2) payment of the exercise price (or, if applicable,
delivery of a secured obligation therefor), together with the amount, if
any, deemed necessary by the Company to enable it to satisfy its income tax
withholding obligations with respect to such exercise (unless other
arrangements acceptable to the Company are made with respect to the
satisfaction of such withholding obligations).
(c) Payment of Exercise Price. The purchase price of shares of Common
-------------------------
Stock acquired pursuant to the exercise of an option granted under the Plan
may be paid in cash and/or such other form of payment as may be permitted
under the option agreement, including, without limitation, previously-owned
shares of Common Stock. The Board may permit the payment of all or a
portion of the purchase price in installments (together with interest) over
a period of not more than 5 years. The Board may permit the Company to
lend money to employees for purposes of exercising options and paying any
income tax due upon exercise. The Board may, in its sole discretion,
forgive any amounts due under the loans made hereunder under such
conditions as it deems appropriate.
(d) Rights as a Stockholder. No shares of Common Stock will be issued in
-----------------------
respect of the exercise of an option granted under the Plan until full
payment therefor has been made (and/or provided for where all or a portion
of the purchase price is being paid in installments). The holder of an
option will have no rights as a stockholder with respect to any shares
covered by an option until the date a stock certificate for such shares is
issued to him or her. Except as otherwise provided herein, no adjustments
shall be made for dividends or distributions of other rights for which the
record date is prior to the date such stock certificate is issued.
(e) Nontransferability of Options. Options granted under the Plan may be
-----------------------------
assigned or transferred to members of the immediate family of optionee or
trusts for the benefit
-2-
<PAGE>
of immediate family members, unless otherwise prohibited by the Option
Agreement, by will or by the applicable laws of descent and distribution or
dissemination; and each such option may be exercised during the optionee's
lifetime only by the optionee.
(f) Termination of Employment or Other Service. Unless otherwise provided
------------------------------------------
by the Board in its sole discretion, if an optionee ceases to be employed
by or to perform services for the Company and any Subsidiary for any reason
other than death or disability (defined below), then each outstanding
option granted to him or her under the Plan will terminate on the date of
termination of employment or service (or, if earlier, the date specified in
the option agreement). Unless otherwise provided by the Board in its sole
discretion, if an optionee's employment or service is terminated by reason
of the optionee's death or disability (or if the optionee's employment or
service is terminated by reason of his or her disability and the optionee
dies within one year after such termination of employment or service), then
each outstanding option granted to the optionee under the Plan will
terminate on the date one year after the date of such termination of
employment or service (or one year after the later death of a disabled
optionee) or, if earlier, the date specified in the option agreement. For
purposes hereof, the term "disability" means the inability of an optionee
to perform the customary duties of his or her employment or other service
for the Company or a Subsidiary by reason of a physical or mental
incapacity which is expected to result in death or be of indefinite
duration.
(g) Other Provisions. The Board may impose such other conditions with
----------------
respect to the exercise of options, including, without limitation, any
conditions relating to the application of federal or state securities laws,
as it may deem necessary or advisable.
6. Capital Changes, Reorganization, Sale.
-------------------------------------
(a) Adjustments Upon Changes in Capitalization. The aggregate number and
------------------------------------------
class of shares for which options may be granted under the Plan, the
maximum number of shares for which options may be granted to any person in
any one calendar year, the number and class of shares covered by each
outstanding option and the exercise price per share shall all be adjusted
proportionately for any increase or decrease in the number of issued shares
of Common Stock resulting from a split-up or consolidation of shares or any
like capital adjustment, or the payment of any stock dividend.
(b) Cash, Stock or Other Property for Stock. Except as provided in
---------------------------------------
subparagraph (c) below, upon a merger (other than a merger of the Company
in which the holders of Common Stock immediately prior to the merger have
the same proportionate ownership of Common Stock in the surviving
corporation immediately after the merger), consolidation, acquisition of
property or stock, separation, reorganization (other than a mere
reincorporation or the creation of a holding company) or liquidation of the
Company, as a result of which the Stockholders of the Company receive cash,
stock or other property in exchange for or in connection with their shares
of Common Stock, any option granted hereunder shall terminate, but the
optionee shall have the right
-3-
<PAGE>
immediately prior to any such merger, consolidation, acquisition of
property or stock, separation, reorganization or liquidation to exercise
his or her option in whole or in part to the extent permitted by the option
agreement, and, if the Board in its sole discretion shall determine, at the
time of grant or otherwise, may exercise the option whether or not the
vesting requirements set forth in the option agreement have been satisfied.
(c) Conversion of Options on Stock for Stock Exchange. If the Stockholders
-------------------------------------------------
of the Company receive capital stock of another corporation ("Exchange
Stock") in exchange for their shares of Common Stock in any transaction
involving a merger (other than a merger of the Company in which the holders
of Common Stock immediately prior to the merger have the same proportionate
ownership of Common Stock in the surviving corporation immediately after
the merger), consolidation, acquisition of property or stock, separation or
reorganization (other than a mere reincorporation or the creation of a
holding company), all options granted hereunder shall be converted into
options to purchase shares of Exchange Stock unless the Company and the
corporation issuing the Exchange Stock, in their sole discretion, determine
that any or all such options granted hereunder shall not be converted into
options to purchase shares of Exchange Stock but instead shall terminate in
accordance with the provisions of subparagraph (b) above. The amount and
price of converted options shall be determined by adjusting the amount and
price of the options granted hereunder in the same proportion as used for
determining the number of shares of Exchange Stock the holders of the
Common Stock receive in such merger, consolidation, acquisition of property
or stock, separation or reorganization. The Board shall determine in its
sole discretion if the converted options shall be fully vested whether or
not the vesting requirements set forth in the option agreement have been
satisfied.
(d) Fractional Shares. In the event of any adjustment in the number of
-----------------
shares covered by any option pursuant to the provisions hereof, any
fractional shares resulting from such adjustment will be disregarded and
each such option will cover only the number of full shares resulting from
the adjustment.
(e) Determination of Board to be Final. All adjustments under this
----------------------------------
paragraph 6 shall be made by the Board, and its determination as to what
adjustments shall be made, and the extent thereof, shall be final, binding
and conclusive.
7. Amendment and Termination of the Plan. The Board may amend or
-------------------------------------
terminate the Plan at any time. No amendment or termination may affect
adversely any outstanding option without the written consent of the optionee.
8. No Rights Conferred. Nothing contained herein will be deemed to give
-------------------
any individual any right to receive an option under the Plan or to be retained
in the employ or service of the Company or any Subsidiary.
9. Governing Law. The Plan and each option agreement shall be governed
-------------
by the laws of the State of Delaware.
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<PAGE>
10. Term of the Plan. The Plan shall be effective as of July 15, 1992,
----------------
the date on which it was adopted by the Board, subject to the approval of the
stockholders of the Company at the next Annual Meeting of Stockholders. The
Plan will terminate on July 15, 2002, unless sooner terminated by the Board.
The rights of optionees under options outstanding at the time of the termination
of the Plan shall not be affected solely by reason of the termination and shall
continue in accordance with the terms of the option (as then in effect or
thereafter amended).
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<PAGE>
Exhibit 22
SUBSIDIARIES OF THE COMPANY
---------------------------
JURISDICTION
NAME OF SUBSIDIARY OF INCORPORATION
------------------ ----------------
Aiken Regional Medical Centers, Inc. South Carolina
The Alliance for Creative Development, Inc. Pennsylvania
Alliance Regional Health Plans, Inc. (Non-profit) Texas
The Arbour, Inc. Massachusetts
Arbour Elder Services, Inc. Massachsetts
Arkansas Surgery Center of Fayetteville, L.P. Arkansas
ASC of Clarkston, Inc. Michigan
ASC of Corona, Inc. California
ASC of Las Vegas, Inc. Nevada
ASC of Littleton, Inc. Colorado
ASC of Midwest City, Inc. Oklahoma
ASC of New Albany, Inc. Indiana
ASC of Palm Springs, Inc. California
ASC of Ponca City, Inc. Oklahoma
ASC of Springfield, Inc. Missouri
ASC of St. George, Inc. Utah
Auburn Regional Medical Center, Inc. Washington
The BridgeWay, Inc. Arkansas
Chalmette Medical Center, Inc. Louisiana
Children's Hospital of McAllen, Inc. Texas
Children's Reach, L.L.C. Pennsylvania
<PAGE>
JURISDICTION
NAME OF SUBSIDIARY OF INCORPORATION
------------------ ----------------
Comprehensive Occupational and Clinical Health, Inc. Delaware
Contemporary Physician Services, Inc. Texas
Del Amo Hospital, Inc. California
District Hospital Partners, L.P. District of Columbia
Doctors' General Hospital, Ltd. Florida
Doctors' Hospital of Shreveport, Inc. Louisiana
Eye West Laser Vision, L.P. Delaware
Forest View Psychiatric Hospital, Inc. Michigan
Glen Oaks Hospital, Inc. Texas
Health Care Finance & Construction Corp. Delaware
HRI Clinics, Inc. Massachusetts
HRI Hospital, Inc. Massachusetts
Hope Square Surgical Center, L.P. Delaware
(d/b/a Surgery Centers of the Desert)
Inland Valley Regional Medical Center, Inc. California
Internal Medicine Associates of Doctors' Hospital, Inc. Louisiana
La Amistad Residential Treatment Center, Inc. Florida
Lakeside Women's Center of Oklahoma City, L.L.C. Oklahoma
Manatee Memorial Hospital, L.P. Delaware
McAllen Holdings, Inc. Texas
McAllen Medical Center, Inc. Texas
-2-
<PAGE>
JURISDICTION
NAME OF SUBSIDIARY OF INCORPORATION
------------------ ----------------
McAllen Medical Center, L.P. Delaware
(d/b/a Edinburg Regional Medical Center
and McAllen Medical Center)
McAllen Medical Center Foundation (Non-Profit) Texas
McAllen Medical Center Physicians Group, Inc. (Non-profit) Texas
Meridell Achievement Center, Inc. Texas
Merion Building Management, Inc. Delaware
New Albany Outpatient Surgery, L.P. Delaware
(d/b/a Surgical Center of New Albany)
Northern Nevada Medical Center, L.P. Delaware
(d/b/a Northern Nevada Medical Center)
Northwest Texas Healthcare System, Inc. Texas
The Pavilion Foundation Illinois
Pueblo Medical Center, Inc. Nevada
Professional Surgery Corporation of Arkansas Arkansas
RCW of Edmond, Inc. Oklahoma
Relational Therapy Clinic, Inc. Louisiana
Renaissance Women's Center of Austin, L.L.C. Delaware
Renaissance Women's Center of Edmond, L.L.C. Oklahoma
Renaissance Women's Center of Enid, L.L.C. Oklahoma
Renaissance Women's Center of South Oklahoma City, L.L.C. Oklahoma
River Crest Hospital, Inc. Texas
River Oaks, Inc. Louisiana
-3-
<PAGE>
JURISDICTION
NAME OF SUBSIDIARY OF INCORPORATION
------------------ ----------------
River Parishes Internal Medicine, Inc. Louisiana
Seacoast Outpatient Surgical Center, Limited Partnership New Hampshire
SOSC, Inc. New Hampshire
Sparks Family Hospital, Inc. Nevada
St. George Surgical Center, L.P. Delaware
(d/b/a St. George Surgery Center)
St. Louis Behavioral Medicine Institute, Inc. Missouri
Summerlin Hospital Medical Center, LLC Delaware
Summerlin Hospital Medical Center, L.P. Delaware
Surgery Center of Corona, L.P. Delaware
(d/b/a Surgery Center of Corona)
Surgery Center of Littleton, L.P. Delaware
(d/b/a Littleton Day Surgery Center)
Surgery Center of Midwest City, L.P. Delaware
(d/b/a MD Physicians Surgicenter of Midwest City)
Surgery Center of Odessa, L.P. Delaware
(d/b/a Surgery Center of Texas)
Surgery Center of Ponca City, L.P. Delaware
(d/b/a Outpatient Surgical Center of Ponca City)
Surgery Center of Springfield, L.P. Delaware
(d/b/a Surgery Center of Springfield)
Surgery Center of Waltham, Limited Partnership Massachusetts
(d/b/a Surgery Center of Waltham)
Tonopah Health Services, Inc. Nevada
-4-
<PAGE>
JURISDICTION
NAME OF SUBSIDIARY OF INCORPORATION
------------------ ----------------
Turning Point Care Center, Inc. Georgia
(d/b/a Turning Point Hospital)
Two Rivers Psychiatric Hospital, Inc. Delaware
UHS of Belmont, Inc. Delaware
UHS of Bethesda, Inc. Delaware
UHS of Columbia, Inc. District of Columbia
UHS Croyden Limited United Kingdom
UHS of D.C., Inc. Delaware
UHS of Delaware, Inc. Delaware
UHS of Fayetteville, Inc. Arkansas
UHS of Florida, Inc. Florida
UHS of Fuller, Inc. Massachusetts
UHS Holding Company, Inc. Nevada
UHS of Illinois, Inc. Illinois
UHS International Limited United Kingdom
UHS Las Vegas Properties, Inc. Nevada
UHS Leasing Company, Limited United Kingdom
UHS London Limited United Kingdom
UHSMS, Inc. Delaware
UHS of Manatee, Inc. Florida
UHS of New Orleans, Inc. Louisiana
(d/b/a Chalmette Hospital and River Parishes Hospital)
-5-
<PAGE>
JURISDICTION
NAME OF SUBSIDIARY OF INCORPORATION
------------------ ----------------
UHS of Odessa, Inc. Texas
UHS of Pennsylvania, Inc. Pennsylvania
UHS of Plantation, Inc. Florida
UHS of Puerto Rico, Inc. Delaware
UHSR Corporation Delaware
UHS Receivables Corp. Delaware
UHS Recovery Foundation, Inc. Pennsylvania
UHS of River Parishes, Inc. Louisiana
UHS of Riverton, Inc. Washington
UHS of Timberlawn, Inc. Texas
UHS of Vermont, Inc. Vermont
UHS of Waltham, Inc. Massachusetts
Universal Health Network, Inc. Nevada
Universal Health Pennsylvania Properties, Inc. Pennsylvania
Universal Health Recovery Centers, Inc. Pennsylvania
(d/b/a UHS KeyStone Center)
Universal Health Services of Cedar Hill, Inc. Texas
Universal Health Services of Concord, Inc. California
Universal Probation Services, Inc. Georgia
Universal Treatment Centers, Inc. Delaware
-6-
<PAGE>
JURISDICTION
NAME OF SUBSIDIARY OF INCORPORATION
------------------ ----------------
Valley Health System, LLC Delaware
Valley Hospital Medical Center, Inc. Nevada
Valley Surgery Center, L.P. Delaware
(d/b/a Goldring Surgery Center)
Victoria Regional Medical Center, Inc. Texas
Wellington Physician Alliances, Inc. Florida
Wellington Regional Medical Center Incorporated Florida
Westlake Medical Center, Inc. California
-7-
<PAGE>
EXHIBIT 24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statements on Forms S-8 (File No. 33-43276), (File No. 33-49426),
(File No. 33-49428), (File No. 33-51671), (File No. 33-56575), (File No.
33-63291), and (File No. 333-13453).
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Philadelphia, PA
March 25, 1998
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 332
<SECURITIES> 0
<RECEIVABLES> 180,252
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<INVENTORY> 28,214
<CURRENT-ASSETS> 230,022
<PP&E> 991,992
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<TOTAL-ASSETS> 1,085,349
<CURRENT-LIABILITIES> 160,456
<BONDS> 272,466
0
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<COMMON> 324
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<TOTAL-LIABILITY-AND-EQUITY> 1,085,349
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