<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 19, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PARACELSUS HEALTHCARE CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 8062 95-3565943
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
------------------------------
155 NORTH LAKE AVENUE, SUITE 1100
PASADENA, CALIFORNIA 91101
(818) 792-8600
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
----------------------------------
JAMES T. RUSH
VICE PRESIDENT, FINANCE, AND
CHIEF FINANCIAL OFFICER
155 NORTH LAKE AVENUE, SUITE 1100
PASADENA, CALIFORNIA 91101
(818) 792-8600
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
----------------------------------
COPY TO:
<TABLE>
<S> <C> <C>
THOMAS C. JANSON, JR. WAYNE M. WHITAKER, ESQ. NEIL T. ANDERSON, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM MICHENER, LARIMORE, SWINDLE, WHITAKER, SULLIVAN & CROMWELL
300 SOUTH GRAND AVENUE, SUITE 3400 FLOWERS, SAWYER, REYNOLDS & CHALK, L.L.P. 125 BROAD STREET
LOS ANGELES, CALIFORNIA 90071 3500 CITY CENTER TOWER II NEW YORK, NEW YORK 10004
(213) 687-5000 301 COMMERCE STREET (212) 558-4000
FORT WORTH, TEXAS 76102
(817) 335-4417
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement and the
effective time of the merger (the "Merger") of a wholly owned subsidiary of
Paracelsus Healthcare Corporation ("Paracelsus") into Champion Healthcare
Corporation ("Champion"), as described in the Agreement and Plan of Merger,
dated as of April 12, 1996, as amended and restated as of May 29, 1996 and as it
may be amended, supplemented or modified from time to time (the "Merger
Agreement"), attached as Exhibit A to the Proxy Statement/Prospectus forming a
part of this Registration Statement.
------------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE
SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE
<S> <C> <C> <C>
Common Stock, no stated value per share, with one
associated 14,966,283 shares(1) N.A. $153,404,401(3)
Share Purchase Right...................................... 5,211,428 shares(2) N.A. $ 23,451,426(4)
Total...................................................... 20,177,711 shares $176,855,827
<CAPTION>
AMOUNT OF
TITLE OF EACH CLASS OF REGISTRATION FEE
SECURITIES TO BE REGISTERED (5)
<S> <C>
Common Stock, no stated value per share, with one
associated
Share Purchase Right......................................
Total...................................................... $60,985
</TABLE>
(1) Up to 14,966,283 shares of common stock, no stated value per share, of the
registrant (the "Paracelsus Common Stock") (with associated share purchase
rights attached ("Rights")) are to be offered (i) in exchange for up to
14,463,997 shares of common stock, par value $0.01 per share, of Champion
upon consummation of the Merger, (ii) upon the exercise of rights of
Champion that will become subscribable for up to 80,000 shares of Paracelsus
Common Stock as a result of the Merger and (iii) upon the exercise of
warrants of Champion that will become exercisable for up to 422,286 shares
of Paracelsus Common Stock as a result of the Merger.
(2) Up to 5,211,428 shares of Paracelsus Common Stock (and associated Rights)
are to be offered in exchange for up to 2,605,714 shares of Preferred Stock
(as defined below).
(3) Estimated solely for the purpose of calculating the registration fee
required by Section 6(b) of the Securities Act of 1933, as amended (the
"Securities Act"), and computed pursuant to Rule 457(f)(1) and Rule 457(g)
by multiplying $10.25, the average of the high and low sale prices of a
share of Champion Common Stock as reported on the AMEX on July 17, 1996, by
14,966,283.
(4) Estimated solely for the purpose of calculating the registration fee
required by Section 6(b), and computed pursuant to Rule 457(f)(2) by
multiplying $4.50, the equivalent book value of each share of the Preferred
Stock, by 5,211,428. The Champion Series C Preferred Stock and Champion
Series D Preferred Stock (together, the "Preferred Stock") were originally
issued at $18.00 per share. Subsequently, there was a 2 for 1 Preferred
Stock split, resulting in an adjusted book value of $9.00 per share. Each
preferred share will be exchanged upon consummation of the Merger for two
shares of Paracelsus Common Stock. Thus, the equivalent book value of each
share of Preferred Stock is $4.50 per share of Paracelsus Common Stock to be
issued upon consummation of the Merger.
(5) The registration fee of $60,985 has been calculated pursuant to Rule 457
under the Securities Act as follows: 1/29 of one percent of $176,855,827,
computed as described in Note (2). Pursuant to Rule 457(b) under the
Securities Act and Section 14(g) of the Securities Exchange Act of 1934, as
amended, and Rule 0-11 thereunder, the total registration fee of $60,985 is
offset by the filing fee of $12,750 paid on May 31, 1996 in connection with
the filing of the preliminary proxy materials by Champion on that date. The
difference of $48,235 has been paid to the Commission with the filing of
this Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PARACELSUS HEALTHCARE CORPORATION
SHARES OF PARACELSUS COMMON STOCK TO BE ISSUED IN
CONNECTION WITH THE MERGER OF A WHOLLY OWNED SUBSIDIARY
OF PARACELSUS HEALTHCARE CORPORATION INTO
CHAMPION HEALTHCARE CORPORATION
------------------------
CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B) OF
REGULATION S-K SHOWING THE LOCATION IN THE PROSPECTUS
OF THE INFORMATION REQUIRED BY PART I OF FORM S-4
<TABLE>
<CAPTION>
ITEM OF FORM S-4 CAPTION OR LOCATION IN PROXY STATEMENT/PROSPECTUS
- --------------------------------------------------------------- ----------------------------------------------------
<C> <S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus........................... Facing Page of the Registration Statement; Cross
Reference Sheet; Outside Front Cover of Proxy
Statement/Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Available Information; Incorporation of Certain
Documents by Reference; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information.................................. Summary; Risk Factors; The Merger; The Merger
Agreement; Unaudited Pro Forma Condensed Combining
Financial Statements; Business of Paracelsus;
Business of Champion
4. Terms of the Transaction............................ Summary; The Merger; The Merger Agreement; Certain
Related Agreements; Comparison of Rights of
Stockholders of Champion and Shareholders of
Paracelsus; The Plan Proposals; Annex D -- Opinion
of DLJ
5. Pro Forma Financial Information..................... Summary; Unaudited Pro Forma Condensed Combined
Financial Statements
6. Material Contracts With the Company Being
Acquired........................................... Summary; The Merger; The Merger Agreement; Certain
Related Agreements; Paracelsus Shareholder
Arrangements; Description of Paracelsus Securities;
Paracelsus Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business of Paracelsus; Business of Champion;
Security Ownership of Management and Certain
Beneficial Owners; The Plan Proposals; Stockholder
Proposals; Annex A -- Agreement and Plan of Merger;
Annex F -- Text of the Plan Proposal to Amend the
Directors' Stock Option Plan; Annex G -- Text of
the Plan Proposal to Amend the Selected Executive
Stock Option Plan; Annex H -- Text of the Plan
Proposal to Amend the Founders' Stock Option Plan
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM OF FORM S-4 CAPTION OR LOCATION IN PROXY STATEMENT/PROSPECTUS
- --------------------------------------------------------------- ----------------------------------------------------
<C> <S> <C>
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to Be Underwriters...... Not applicable
8. Interests of Named Experts and Counsel.............. Not applicable
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities..................... Not applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information With Respect to S-3 Registrants......... Not applicable
11. Incorporation of Certain Information by Reference... Incorporation by Reference of Certain Documents
12. Information With Respect to S-2 or S-3
Registrants........................................ Not applicable
13. Incorporation of Certain Information by Reference... Not applicable
14. Information With Respect to Registrants Other Than
S-3 or S-2 Registrants............................. Not applicable
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information With Respect to S-3 Companies........... Not applicable
16. Information With Respect to S-2 or S-3 Companies.... Not applicable
17. Information With Respect to Companies Other Than S-2
or S-3 Companies................................... Not applicable
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations
are to be Solicited................................ Summary; The Special Meeting; The Merger; The Merger
Agreement; Certain Related Transactions; Comparison
of Rights of Stockholders of Champion and
Shareholders of Paracelsus; Certain Differences
Between California and Delaware Corporate Laws;
Management of Paracelsus Following the Merger
19. Information if Proxies, Consents or Authorizations
Are Not to be Solicited, or in an Exchange Offer... Not applicable
</TABLE>
<PAGE>
[LOGO]
July 19, 1996
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Champion Healthcare Corporation ("Champion") to be held at 10:00 a.m. local
time, on August 9, 1996 at the principal executive offices of Champion, 515 West
Greens Road, Suite 800, Houston, Texas 77067. I hope that you will be present or
represented by proxy at this important meeting.
Champion has entered into an agreement with Paracelsus Healthcare
Corporation ("Paracelsus") pursuant to which a subsidiary of Paracelsus will be
merged into Champion, resulting in Champion becoming a wholly owned subsidiary
of Paracelsus (the "Merger"). The Merger, which has been approved by the Boards
of Directors of both Champion and Paracelsus, will create a publicly held
hospital management company that operates 31 hospitals in 11 states, including
Utah, California, North Dakota, Tennessee and Texas (in addition to skilled
nursing facilities, home healthcare agencies and medical office buildings).
The purpose of the Special Meeting is to approve the Amended and Restated
Agreement and Plan of Merger among Champion, Paracelsus and a wholly owned
subsidiary of Paracelsus (the "Merger Agreement"). Your Board of Directors has
determined that the Merger is fair to and in the best interests of Champion and
its stockholders. YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT.
At the Special Meeting you will also be asked to consider and approve
certain amendments (the "Stock Option Plan Amendments") to each of the following
option arrangements: (i) the Champion Healthcare Corporation Directors' Stock
Option Plan (the "Directors' Stock Option Plan"), (ii) the Champion Healthcare
Corporation Selected Executive Stock Option Plan No. 5 (the "Selected Executive
Stock Option Plan") and (iii) certain stock option agreements between Champion
and each of Messrs. Charles R. Miller and James G. VanDevender (such option
agreements are together referred to as the "Founders' Stock Option Plan").
Consummation of the Merger is not conditioned on approval of the Stock Option
Plan Amendments. The amendment to the Founders' Stock Option Plan is being
submitted for stockholder approval pursuant to a separate vote. However,
approval of the Merger Agreement will be deemed to constitute approval of the
amendments to the Directors' Stock Option Plan and the Selected Executive Stock
Option Plan. YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED EACH OF THE STOCK
OPTION PLAN AMENDMENTS AND RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF EACH OF
THE STOCK OPTION PLAN AMENDMENTS.
The Merger, the Stock Option Plan Amendments and related matters are
described in greater detail in the accompanying Proxy Statement/Prospectus,
which you are urged to read carefully and in its entirety.
Approval and adoption of the Merger Agreement to be voted on at the Special
Meeting, which will be deemed to constitute approval of the amendments to the
Directors' Stock Option Plan and the Selected Executive Stock Option Plan,
requires (i) the affirmative vote of the holders of a majority of the total
voting power represented by the outstanding shares of Champion Common Stock,
Champion Series C Cumulative Convertible Preferred Stock and Champion Series D
Cumulative Convertible Preferred Stock, voting together as a single class, (ii)
the affirmative vote of the holders of at least 90% of the outstanding shares of
Champion Series C Cumulative Convertible Preferred Stock, voting as a separate
class and (iii) the affirmative vote of the holders of at least 90% of the
outstanding shares of
<PAGE>
Champion Series D Cumulative Convertible Preferred Stock, voting as a separate
class. Approval of the amendment to the Founders' Stock Option Plan, pursuant to
a separate vote, requires the affirmative vote of holders of a majority of the
total voting power of Champion Common Stock, Champion Series C Cumulative
Convertible Preferred Stock and Champion Series D Cumulative Convertible
Preferred Stock present in person or represented by proxy and entitled to vote
at the Special Meeting, voting together as a single class. Stockholders are
entitled to vote all shares of Champion Common Stock, Champion Series C
Cumulative Convertible Preferred Stock and Champion Series D Cumulative
Convertible Preferred Stock held of record by them on July 15, 1996, which is
the record date for the Special Meeting.
Holders of Champion Common Stock will not be entitled to appraisal rights in
connection with the Merger; however, holders of Champion Series C Cumulative
Convertible Preferred Stock and Champion Series D Cumulative Convertible
Preferred Stock who do not vote for the approval and adoption of the Merger
Agreement and otherwise comply with the applicable procedures will be entitled
to appraisal rights.
WE URGE YOU TO CONSIDER THESE IMPORTANT MATTERS, WHICH ARE DESCRIBED IN THE
ENCLOSED PROXY STATEMENT/ PROSPECTUS. In order to ensure that your vote is
represented at the Special Meeting, whether or not you plan to attend the
Special Meeting, PLEASE INDICATE YOUR CHOICE ON THE ENCLOSED PROXY CARD, DATE
AND SIGN IT, AND RETURN IT IN THE ENCLOSED ENVELOPE. Your prompt response will
be greatly appreciated. If you are able to attend the Special Meeting, you may
revoke your proxy at any time before its exercise and may, of course, vote your
shares in person.
Sincerely,
[/S/ CHARLES R. MILLER]
Charles R. Miller
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND CHAIRMAN OF THE BOARD OF
DIRECTORS
------------------------
THE BOARD OF DIRECTORS OF CHAMPION RECOMMENDS THAT STOCKHOLDERS VOTE FOR
EACH OF THE PROPOSALS TO BE PRESENTED AT THE SPECIAL MEETING.
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY CARD PROMPTLY, WHETHER OR NOT
YOU PLAN TO ATTEND THE SPECIAL MEETING. YOUR PROXY WILL BE REVOCABLE, EITHER IN
WRITING OR BY VOTING IN PERSON AT THE SPECIAL MEETING, AT ANY TIME PRIOR TO ITS
EXERCISE.
YOUR VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR PROXY
2
<PAGE>
CHAMPION HEALTHCARE CORPORATION
515 WEST GREENS ROAD, SUITE 800
HOUSTON, TEXAS 77067
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 9, 1996
------------------------
NOTICE HEREBY IS GIVEN that a special meeting of Stockholders (the "Special
Meeting") of Champion Healthcare Corporation, a Delaware corporation
("Champion"), has been called by the Board of Directors of Champion and will be
held at the principal executive offices of Champion, 515 West Greens Road, Suite
800, Houston, Texas 77067 at 10:00 a.m. local time on August 9, 1996 to consider
and vote upon the following matters described in the accompanying Proxy
Statement/ Prospectus:
1. To consider and vote upon a proposal to adopt and approve an
Agreement and Plan of Merger, dated as of April 12, 1996, as amended and
restated as of May 29, 1996 and as it may be amended, supplemented or
modified from time to time (the "Merger Agreement"), by and among Champion,
Paracelsus Healthcare Corporation, a California corporation ("Paracelsus"),
and PC Merger Sub, Inc., a Delaware corporation and a wholly owned
subsidiary of Paracelsus (the "Merger Proposal"), pursuant to which such
subsidiary of Paracelsus will be merged into Champion, resulting in Champion
becoming a wholly owned subsidiary of Paracelsus (the "Merger");
2. To consider and vote upon proposals (the "Plan Proposals" and,
together with the Merger Proposal, the "Proposals") to approve certain
amendments to each of the following option arrangements (i) the Champion
Healthcare Corporation Directors' Stock Option Plan (the "Directors' Stock
Option Plan"), (ii) the Champion Healthcare Corporation Selected Executive
Stock Option Plan No. 5 (the "Selected Executive Stock Option Plan") and
(iii) certain stock option agreements between Champion and each of Messrs.
Charles R. Miller and James G. VanDevender (such option agreements are
together referred to as the "Founders' Stock Option Plan"); and
3. Such other business as may properly come before the meeting or any
adjournments or postponements thereof.
Notwithstanding stockholder approval of the Proposals, Champion reserves the
right to abandon the Merger at any time prior to the consummation of the Merger,
subject to the terms and conditions of the Merger Agreement and applicable law.
Only holders of Champion Common Stock, Champion Series C Cumulative
Convertible Preferred Stock and Champion Series D Cumulative Convertible
Preferred Stock of record at the close of business on July 15, 1996 are entitled
to notice of and to vote at such meeting or any adjournments or postponements
thereof.
Approval of the Merger Proposal, which will be deemed to constitute approval
of the Plan Proposals to amend the Directors' Stock Option Plan and the Selected
Executive Stock Option Plan, requires (i) the affirmative vote of the holders of
a majority of the total voting power represented by the outstanding shares of
Champion Common Stock, Champion Series C Cumulative Convertible Preferred Stock
and Champion Series D Cumulative Convertible Preferred Stock, voting together as
a single class, (ii) the affirmative vote of the holders of at least 90% of the
outstanding shares of Champion Series C Cumulative Convertible Preferred Stock,
voting as a separate class and (iii) the affirmative vote of the holders of at
least 90% of the outstanding shares of Champion Series D Cumulative Convertible
Preferred Stock, voting as a separate class. Approval of the Plan Proposal to
amend the Founders' Stock Option Plan, pursuant to a separate stockholder vote,
requires the affirmative vote of holders of a majority of the total voting power
of Champion Common Stock,
<PAGE>
CONFIDENTIAL, FOR USE OF
THE COMMISSION ONLY
Champion Series C Cumulative Convertible Preferred Stock and Champion Series D
Cumulative Convertible Preferred Stock present in person or represented by proxy
and entitled to vote at the Special Meeting, voting together as a single class.
Holders of Champion Common Stock will not be entitled to appraisal rights in
connection with the Merger. However, holders of Champion Series C Cumulative
Convertible Preferred Stock and Champion Series D Cumulative Convertible
Preferred Stock who do not vote for the approval and adoption of the Merger
Proposal and who otherwise comply with the applicable statutory procedures of
Section 262 of the General Corporation Law of the State of Delaware (the "DGCL")
will be entitled to appraisal rights under Section 262 of the DGCL. A summary of
the provisions of Section 262 of the DGCL, including a summary of the
requirements with which holders of Champion Series C Cumulative Convertible
Preferred Stock and Champion Series D Cumulative Convertible Preferred Stock
desiring to assert appraisal rights must comply, is contained in the
accompanying Proxy Statement/ Prospectus under the heading "The Merger --
Appraisal Rights." The entire text of Section 262 of the DGCL is attached as
Annex E to the Proxy Statement/Prospectus.
A proxy card and a Proxy Statement/Prospectus containing more detailed
information with respect to the matters to be considered at the Special Meeting
(including the Merger Agreement attached as Annex A thereto) accompany and form
a part of this notice.
By Order of the Board of Directors,
[/S/ JAMES G. VANDEVENDER]
James G. VanDevender
SECRETARY
Houston, Texas
July 19, 1996
------------------------
THE BOARD OF DIRECTORS OF CHAMPION RECOMMENDS THAT STOCKHOLDERS VOTE FOR
EACH OF THE PROPOSALS TO BE PRESENTED AT THE SPECIAL MEETING.
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY CARD PROMPTLY, WHETHER OR NOT
YOU PLAN TO ATTEND THE SPECIAL MEETING. YOUR PROXY WILL BE REVOCABLE, EITHER IN
WRITING OR BY VOTING IN PERSON AT THE SPECIAL MEETING, AT ANY TIME PRIOR TO ITS
EXERCISE.
YOUR VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR PROXY
2
<PAGE>
PARACELSUS HEALTHCARE CORPORATION
PROSPECTUS
---------------------
CHAMPION HEALTHCARE CORPORATION
PROXY STATEMENT
---------------------
This Proxy Statement and Prospectus (the "Proxy Statement/Prospectus") is
being furnished by Champion Healthcare Corporation, a Delaware corporation
("Champion"), to holders of shares of Champion's Common Stock, par value $0.01
per share (the "Champion Common Stock"), and to holders of shares of Champion's
Series C Cumulative Convertible Preferred Stock, par value $0.01 per share (the
"Champion Series C Preferred Stock"), and Series D Cumulative Convertible
Preferred Stock, par value $0.01 per share (the "Champion Series D Preferred
Stock" and, together with the Champion Series C Preferred Stock, the "Champion
Preferred Stock"), in connection with the solicitation of proxies by the Board
of Directors of Champion (the "Champion Board") for use at the special meeting
of stockholders of Champion (the "Special Meeting") to be held on August 9,
1996, or any adjournment or postponement thereof.
The Special Meeting has been called to consider and vote upon (i) a proposal
(the "Merger Proposal") to adopt and approve the Agreement and Plan of Merger,
dated as of April 12, 1996, as amended and restated on May 29, 1996, and as it
may be amended, supplemented or modified from time to time (the "Merger
Agreement"), by and among Champion, Paracelsus Healthcare Corporation, a
California corporation ("Paracelsus"), and PC Merger Sub, Inc., a Delaware
corporation and a wholly owned subsidiary of Paracelsus ("Merger Sub"), pursuant
to which Merger Sub will be merged into Champion, resulting in Champion becoming
a wholly owned subsidiary of Paracelsus (the "Merger"); and (ii) proposals (the
"Plan Proposals" and, together with the Merger Proposal, the "Proposals") to
approve certain amendments to each of (a) the Champion Healthcare Corporation
Directors' Stock Option Plan (the "Directors' Stock Option Plan"), (b) the
Champion Healthcare Corporation Selected Executive Stock Option Plan No. 5 (the
"Selected Executive Stock Option Plan") and (c) certain stock option agreements
between Champion and each of Messrs. Charles R. Miller and James G. VanDevender
(such option agreements are together referred to as the "Founders' Stock Option
Plan"). Approval of the Merger Proposal will be deemed to constitute approval of
the Plan Proposals to amend the Directors' Stock Option Plan and the Selected
Executive Stock Option Plan. The Plan Proposal to amend the Founders' Stock
Option Plan is being submitted for stockholder approval pursuant to a separate
vote.
Under the Merger Agreement, upon consummation of the Merger each share of
Champion Common Stock will be converted into the right to receive one share of
common stock, no stated value per share (the "Paracelsus Common Stock"), of
Paracelsus, and each share of Champion Preferred Stock will be converted into
the right to receive two shares of Paracelsus Common Stock. In addition, upon
consummation of the Merger, options to purchase shares of Champion Common Stock,
warrants to purchase shares of Champion Common Stock (the "Champion Warrants")
and rights to subscribe for or convert into shares of Champion Common Stock
issued by Champion and outstanding at the Effective Time (as hereinafter
defined) will be assumed by Paracelsus and converted into substantially similar
options, warrants ("Paracelsus Warrants") and subscription or conversion rights
with respect to Paracelsus Common Stock. As a result of the Merger, Champion
will become a wholly owned subsidiary of Paracelsus.
This Proxy Statement/Prospectus also constitutes the Prospectus of
Paracelsus with respect to the shares of Paracelsus Common Stock (i) to be
issued to holders of outstanding shares of Champion Common Stock and Champion
Preferred Stock (collectively, the "Champion Capital Stock") upon consummation
of the Merger and (ii) issuable upon exercise of Champion Warrants and
subscription rights with respect to Champion Common Stock assumed by Paracelsus
in the Merger. Paracelsus has filed a Registration Statement on Form S-4 under
the Securities Act of 1933, as amended, with the Securities and Exchange
Commission covering such shares of Paracelsus Common Stock and the shares of
Paracelsus Common Stock issuable upon exercise of such Paracelsus Warrants and
such subscription rights to which this Proxy Statement/Prospectus relates.
This Proxy Statement/Prospectus and the enclosed form of Proxy are first
being mailed to holders of Champion Capital Stock on or about July 19, 1996.
--------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 21 FOR A DISCUSSION OF CERTAIN MATTERS
WHICH SHOULD BE CONSIDERED BY THE STOCKHOLDERS OF CHAMPION WITH RESPECT TO THE
MERGER PROPOSAL.
---------------------
THE SHARES OF PARACELSUS COMMON STOCK OFFERED HEREBY HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS JULY 19, 1996.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION.............................. 4
INCORPORATION BY REFERENCE OF CERTAIN DOCUMENTS.... 4
SUMMARY............................................ 6
General.......................................... 6
The Companies.................................... 6
The Special Meeting.............................. 7
The Merger....................................... 7
Risk Factors..................................... 11
Certain Related Agreements....................... 11
Certain Paracelsus Shareholder Arrangements...... 12
The Plan Proposals............................... 13
Paracelsus Healthcare Corporation Summary
Historical Consolidated Financial and Operating
Data............................................ 14
Champion Healthcare Corporation Summary
Historical Consolidated Financial and Operating
Data............................................ 16
Summary Paracelsus and Champion Unaudited Pro
Forma Financial and Operating Data.............. 18
Comparative Per Share Data....................... 20
RISK FACTORS....................................... 21
Competition...................................... 21
Business Expansion............................... 21
Limits on Reimbursement.......................... 22
Extensive Regulation............................. 22
Healthcare Reform Legislation.................... 23
Dependence on Key Personnel and Physicians....... 23
Concentration of Operations...................... 24
Principal Shareholder............................ 24
Certain Anti-Takeover Effects.................... 25
Significant Leverage............................. 25
Consummation of the Refinancing Transactions..... 26
Professional Liability Insurance................. 26
Shares Eligible for Future Issuance
and Sale........................................ 26
Lack of Public Market............................ 27
Forward-Looking Statements....................... 27
THE SPECIAL MEETING................................ 29
General.......................................... 29
Time, Date and Place of the Special Meeting...... 29
Matters to be Considered at the
Special Meeting................................. 29
Record Date...................................... 29
Votes Required................................... 29
Issuance of Paracelsus Common Stock in the
Merger.......................................... 31
Voting and Revocation of Proxies................. 31
Solicitation of Proxies.......................... 31
Appraisal Rights................................. 31
THE MERGER......................................... 32
Background of the Merger......................... 32
Approval of the Champion Board; Reasons for the
Merger.......................................... 34
Opinion of Champion Financial Advisor............ 35
Interests of Certain Persons in the Merger....... 40
Effect of the Merger on Employee Compensation
Arrangements.................................... 46
Effect of the Merger on Champion Warrants and
Convertible Securities.......................... 52
Accounting Treatment............................. 52
Certain Federal Income Tax Consequences.......... 52
Regulatory Approvals............................. 54
Certain Litigation............................... 54
Stock Exchange Listing........................... 55
Appraisal Rights................................. 55
THE MERGER AGREEMENT............................... 57
The Merger....................................... 57
Paracelsus Stock Split........................... 57
Exchange of Certificates......................... 57
Governance of Paracelsus......................... 58
Representations and Warranties................... 58
Certain Conditions............................... 58
Business of Paracelsus and Champion Pending the
Merger.......................................... 59
Takeover Proposals............................... 60
Termination...................................... 61
Termination Payment.............................. 61
Other Fees and Expenses.......................... 62
Indemnification and Insurance.................... 62
Amendment........................................ 63
Waiver........................................... 63
CERTAIN RELATED AGREEMENTS......................... 64
Shareholder Agreement............................ 64
Rights Agreement................................. 72
Right of First Refusal Agreement................. 75
Paracelsus Shareholder Registration Rights
Agreement....................................... 75
Champion Investors Registration Rights
Agreements...................................... 75
Participants Agreement........................... 76
Voting Agreement................................. 79
CERTAIN PARACELSUS SHAREHOLDER ARRANGEMENTS........ 79
Dividend; Dividend and Note Agreement............ 79
Services Agreement............................... 80
Insurance Agreement.............................. 80
Non-Compete Agreement............................ 80
DESCRIPTION OF PARACELSUS SECURITIES............... 82
Paracelsus Preferred Stock....................... 82
Paracelsus Common Stock.......................... 83
Description of Paracelsus Rights................. 83
COMPARISON OF RIGHTS OF STOCKHOLDERS OF CHAMPION
AND SHAREHOLDERS OF PARACELSUS.................... 84
Board of Directors............................... 84
Business Combinations............................ 84
Other Special Voting Requirements................ 85
Amendment of Certificate of Incorporation........ 86
Amendment of Bylaws.............................. 86
Rights........................................... 86
CERTAIN DIFFERENCES BETWEEN CALIFORNIA AND DELAWARE
CORPORATE LAWS.................................... 87
Size of the Board of Directors................... 87
Cumulative Voting................................ 87
Classified Board of Directors.................... 88
Power to Call Special Shareholders' Meetings..... 88
Shareholder Approval of Certain Business
Combinations.................................... 88
Fair Price Provision............................. 89
Removal of Directors............................. 90
Filling Vacancies on the Board of Directors...... 90
Loans to Officers and Employees.................. 91
Indemnification.................................. 91
Limitation of Liability.......................... 92
</TABLE>
2
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<TABLE>
<S> <C>
Inspection of Shareholder List................... 92
Dividends and Repurchases of Shares.............. 93
Shareholder Voting............................... 93
Interested Director Transactions................. 94
Stockholder Derivative Suits..................... 94
Dissenters' and Appraisal Rights................. 94
Dissolution...................................... 95
FINANCING IN CONNECTION WITH THE MERGER AND RELATED
TRANSACTIONS...................................... 96
Financing........................................ 96
New Credit Facility.............................. 96
Public Offerings................................. 96
CAPITALIZATION..................................... 98
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND
INFORMATION....................................... 99
UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL
STATEMENTS........................................ 100
Paracelsus and Champion Unaudited Pro Forma
Condensed Combining Financial Statements........ 100
Paracelsus Unaudited Pro Forma Condensed
Combining Financial Statements.................. 113
Champion Unaudited Pro Forma Condensed Combining
Statements of Income and Unaudited Historical
Condensed Balance Sheet......................... 121
PARACELSUS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..... 129
Pending Transaction.............................. 129
Results of Operations............................ 129
Liquidity and Capital Resources.................. 132
Recent Pronouncements............................ 133
Impact of Inflation and Changing Prices.......... 133
Effect of Proposed Legislation................... 133
CHAMPION MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..... 134
Pending Transactions............................. 134
Impact of Acquisitions........................... 134
Recapitalization................................. 134
Results of Operations............................ 135
Liquidity and Capital Resources.................. 139
Recent Acquisitions and Other Investments........ 140
Debt............................................. 141
Redeemable Preferred Stock....................... 142
Subsequent Events................................ 142
Inflation........................................ 142
Recent Pronouncements............................ 143
BUSINESS OF PARACELSUS............................. 144
General.......................................... 144
Recent Transactions.............................. 144
Business Strategy................................ 145
Operating Strategy............................... 145
Acquisition Strategy............................. 146
Operations....................................... 148
Selected Operating Statistics.................... 149
Sources of Revenue............................... 149
Medical Staff and Employees...................... 149
Competition...................................... 150
Liability Insurance.............................. 150
Regulation and Other Factors..................... 151
Medicare Program -- General...................... 151
Medicaid Program................................. 152
Hospital Inspections and Reviews................. 153
Regulatory Compliance............................ 153
Other Federal Statutes and Regulations........... 153
State Statutes and Regulations................... 154
Environmental Matters............................ 154
Healthcare Reform Legislation.................... 154
Properties....................................... 155
Litigation....................................... 156
BUSINESS OF CHAMPION............................... 157
General.......................................... 157
Recent Acquisitions.............................. 157
Pending Acquisitions............................. 157
Sources of Revenue............................... 157
Payment Mix...................................... 158
Bed Utilization and Occupancy Rates.............. 158
Properties....................................... 159
Medical Staff and Employees...................... 159
Competition...................................... 160
Regulation and Other Factors..................... 161
Healthcare Reform................................ 161
Reimbursement.................................... 161
Professional Liability........................... 164
Accreditation and Reviews........................ 164
Environmental Matters............................ 164
Litigation....................................... 164
MANAGEMENT OF PARACELSUS FOLLOWING THE MERGER...... 165
Directors and Executive Officers of Paracelsus
After the Effective Time........................ 165
New Paracelsus Board............................. 167
Committees of the New Paracelsus Board........... 168
Executive Compensation........................... 169
Certain Relationships and Related Transactions... 174
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN
BENEFICIAL OWNERS................................. 175
Ownership of Paracelsus Common Stock............. 175
Ownership of Champion Securities................. 175
THE PLAN PROPOSALS................................. 185
Amendment of the Directors' Stock Option Plan.... 185
Amendment of the Selected Executive Stock Option
Plan............................................ 188
Amendment of the Founders' Stock Option Plan..... 190
VALIDITY OF PARACELSUS COMMON STOCK................ 192
EXPERTS............................................ 192
STOCKHOLDER PROPOSALS.............................. 193
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES............................... F-1
ANNEX A -- Amended and Restated Agreement and Plan
of Merger
ANNEX B -- Form of Amended and Restated Articles of
Incorporation of Paracelsus Healthcare
Corporation
ANNEX C -- Form of Amended and Restated Bylaws of
Paracelsus Healthcare Corporation
ANNEX D -- Opinion of Donaldson, Lufkin & Jenrette
Securities Corporation
ANNEX E -- Section 262 of the Delaware General
Corporation Law
ANNEX F -- Text of the Plan Proposal to Amend the
Directors' Stock Option Plan
ANNEX G -- Text of the Plan Proposal to Amend the
Selected Executive Stock Option Plan
ANNEX H -- Text of the Plan Proposal to Amend the
Founders' Stock Option Plan
</TABLE>
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<PAGE>
AVAILABLE INFORMATION
Champion and Paracelsus are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy statements (in the case of Champion
only) and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information filed by
Paracelsus and Champion with the Commission can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the Commission's
Regional Offices at Seven World Trade Center, Suite 1300, New York, New York
10048 and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material also can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549, at prescribed rates. Such material may also be accessed
electronically at the Commission's site on the World Wide Web located at
http://www.sec.gov.
The shares of Champion Common Stock are currently listed on the American
Stock Exchange (the "AMEX"), and such material relating to Champion may also be
inspected at the offices of the AMEX, 86 Trinity Place, New York, New York
10006. However, the Champion Common Stock has been approved for listing on the
New York Stock Exchange (the "NYSE") under the symbol "CHC," subject to official
notice of issuance. It is anticipated that, prior to the Special Meeting, the
Champion Common Stock will be delisted from the AMEX and listed on the NYSE.
Material relating to Champion may after such time also be inspected at the
offices of the NYSE, 20 Broad Street, New York, New York 10005. After
consummation of the Merger, Champion will no longer file reports, proxy
statements or other information with the Commission. Instead, such information
would be provided, to the extent required, in filings made by Paracelsus. The
Paracelsus Common Stock has been approved for listing on the NYSE under the
symbol "PLS," subject to official notice of issuance and consummation of the
Merger. Accordingly, after consummation of the Merger such material may also be
inspected at the offices of the NYSE at 20 Broad Street, New York, New York
10005.
This Proxy Statement/Prospectus is included as part of a Registration
Statement on Form S-4 (together with all amendments, exhibits and schedules
thereto, including documents and information incorporated therein by reference,
the "Registration Statement") filed with the Commission by Paracelsus relating
to the registration under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the shares of Paracelsus Common Stock (i) to
be issued to holders of outstanding shares of Champion Common Stock and Champion
Preferred Stock upon consummation of the Merger and (ii) issuable upon exercise
of Champion Warrants and certain rights to subscribe for or convert into
Champion Common Stock that will be assumed by Paracelsus in the Merger. This
Proxy Statement/Prospectus does not contain all of the information set forth in
the Registration Statement, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. Such additional
information is available for inspection and copying at the offices of the
Commission. Statements contained in this Proxy Statement/Prospectus as to the
contents of any contract or other document referred to herein are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement or
such other document, each such statement being qualified in all respects by such
reference.
All information contained herein with respect to Champion and its
subsidiaries and controlled partnerships has been supplied by Champion, and all
information contained herein with respect to Paracelsus and its subsidiaries and
controlled partnerships prior to the Effective Time has been supplied by
Paracelsus.
INCORPORATION BY REFERENCE OF CERTAIN DOCUMENTS
All documents and reports subsequently filed by Champion pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof
shall be deemed to be incorporated by reference herein and shall be a part
hereof from the date of filing of such documents. These documents (other
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<PAGE>
than the exhibits to such documents, unless such exhibits are specifically
incorporated by reference into such documents) are available without charge, on
oral or written request by any person to whom this Proxy Statement/Prospectus is
delivered, from Champion, 515 West Greens Road, Suite 800, Houston, Texas 77067,
telephone number (713) 873-6623, Attention: Deborah Frankovich, Vice President.
In order to ensure timely delivery of the documents, any request should be made
by August 2, 1996.
Any statement contained herein or in any document deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Proxy Statement/Prospectus to the extent that a statement contained herein
or in any subsequently filed document which also is deemed to be incorporated
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed to constitute a part of this Proxy
Statement/Prospectus, except as so modified or superseded.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES MADE
BY THIS PROXY STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PARACELSUS
OR CHAMPION. THIS PROXY STATEMENT/ PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES, BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH
SOLICITATION.
5
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF INFORMATION CONTAINED ELSEWHERE IN THIS PROXY
STATEMENT/PROSPECTUS. THIS SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION
APPEARING ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS, THE ANNEXES HERETO AND
THE DOCUMENTS REFERRED TO HEREIN. REFERENCES HEREIN TO PARACELSUS (AS DEFINED
BELOW) AFTER THE MERGER (AS DEFINED BELOW) REFER TO AND INCLUDE THE COMBINED
OPERATIONS OF PARACELSUS AND CHAMPION (AS DEFINED BELOW). UNLESS OTHERWISE
DEFINED HEREIN, CAPITALIZED TERMS USED IN THIS SUMMARY AND NOT OTHERWISE DEFINED
SHALL HAVE THE RESPECTIVE MEANINGS ASCRIBED TO THEM ELSEWHERE IN THIS PROXY
STATEMENT/PROSPECTUS. CERTAIN STATEMENTS IN THIS PROXY STATEMENT/PROSPECTUS
CONSTITUTE "FORWARD-LOOKING" STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT (THE "REFORM ACT"). SEE "RISK FACTORS -- FORWARD-LOOKING STATEMENTS."
STOCKHOLDERS OF CHAMPION ARE URGED TO REVIEW THIS ENTIRE PROXY STATEMENT/
PROSPECTUS CAREFULLY, INCLUDING SUCH ANNEXES AND SUCH OTHER DOCUMENTS.
GENERAL
This Proxy Statement/Prospectus is being provided to stockholders of
Champion Healthcare Corporation, a Delaware corporation ("Champion"), in
connection with the proposed merger (the "Merger") of PC Merger Sub, Inc., a
Delaware corporation ("Merger Sub") that is a newly formed, wholly owned
subsidiary of Paracelsus Healthcare Corporation, a California corporation
("Paracelsus"), with and into Champion. The Merger will be effected pursuant to
the Agreement and Plan of Merger, dated as of April 12, 1996, as amended and
restated as of May 29, 1996 and as it may be amended, supplemented or modified
from time to time (the "Merger Agreement"), by and among Champion, Paracelsus
and Merger Sub, a copy of which is attached hereto as Annex A. See "The Merger."
THE COMPANIES
PARACELSUS HEALTHCARE CORPORATION. Paracelsus currently owns and operates
18 acute care hospitals with a total of 1,685 licensed beds in California, Utah,
Tennessee, Texas, Florida, Georgia and Mississippi. Paracelsus' acute care
hospitals provide a broad array of general medical and surgical services on an
inpatient, outpatient and emergency basis. In addition, certain hospitals and
their related facilities offer rehabilitative medicine, substance abuse
treatment, psychiatric care and Acquired Immune Deficiency Syndrome ("AIDS")
care. In California, Paracelsus also owns and operates three psychiatric
hospitals with 218 licensed beds, four skilled nursing facilities with a total
of 232 licensed beds and a 60-bed rehabilitative hospital. In addition,
Paracelsus owns and operates 11 home health agencies and 16 medical office
buildings adjacent to certain of its hospitals. Paracelsus was organized in
February 1981. All of the shares of capital stock of Paracelsus are owned by
Park Hospital GmbH, a German corporation (the "Paracelsus Shareholder") that is
wholly owned by Dr. Manfred George Krukemeyer, the Chairman of the Board of
Paracelsus. See "Business of Paracelsus."
Paracelsus' principal executive offices are located at 155 North Lake
Avenue, Suite 1100, Pasadena, California 91101, and its telephone number is
(818) 792-8600.
CHAMPION HEALTHCARE CORPORATION. Champion owns and operates five acute care
hospitals and related health care facilities with a total of 722 licensed beds
in Utah, Texas and Virginia. Champion's acute care hospitals generally offer the
same types of services provided by Paracelsus' acute care hospitals. Champion
also owns and operates two psychiatric hospitals with a total of 219 licensed
beds in Missouri and Louisiana. In addition, Champion owns a 50% interest in,
and operates, Dakota/ Heartland Partnership, a partnership that owns two
additional acute care hospitals with a total of 341 beds in North Dakota under
the name Dakota Heartland Health System ("DHHS"). Champion was organized as
AmeriHealth, Inc. ("AmeriHealth") in November 1985. See "Business of Champion."
Champion's principal executive offices are located at 515 West Greens Road,
Suite 800, Houston, Texas 77067, and its telephone number is (713) 873-6623.
6
<PAGE>
THE SPECIAL MEETING
TIME, PLACE AND DATE. The special meeting of the stockholders of Champion
(the "Special Meeting") will be held on August 9, 1996 at 10:00 a.m., local
time, at the principal executive offices of Champion at 515 West Greens Road,
Suite 800, Houston, Texas 77067.
RECORD DATE, SHARES ENTITLED TO VOTE. Holders of record of shares of
Champion Common Stock, par value $0.01 per share (the "Champion Common Stock"),
Champion Series C Cumulative Convertible Preferred Stock, par value $0.01 per
share (the "Champion Series C Preferred Stock"), and Champion Series D
Cumulative Convertible Preferred Stock, par value $0.01 per share (the "Champion
Series D Preferred Stock" and, together with the Champion Series C Preferred
Stock, the "Champion Preferred Stock"), as of the close of business on July 15,
1996 (the "Record Date"), are entitled to notice of and to vote at the Special
Meeting. On the Record Date, there were outstanding 14,463,997 shares of
Champion Common Stock, 448,811 shares of Champion Series C Preferred Stock and
2,156,903 shares of Champion Series D Preferred Stock (collectively, the
"Champion Capital Stock"). Each share of Champion Common Stock is entitled to
one vote and each share of Champion Preferred Stock is entitled to two votes at
the Special Meeting.
VOTES REQUIRED. Approval of the Merger Proposal, which will be deemed to
constitute approval of the Plan Proposals to amend the Directors' Stock Option
Plan and the Selected Executive Stock Option Plan (the "Directors' and Selected
Executive Stock Option Plan Proposals"), requires (i) the affirmative vote of
the holders of a majority of the total voting power represented by the
outstanding shares of the Champion Capital Stock, voting together as a single
class, (ii) the affirmative vote of the holders of at least 90% of the
outstanding shares of Champion Series C Preferred Stock, voting as a separate
class and (iii) the affirmative vote of the holders of at least 90% of the
outstanding shares of Champion Series D Preferred Stock, voting together as a
separate class. Certain holders of Champion Preferred Stock have entered into an
agreement with Champion to vote all shares of Champion Preferred Stock
beneficially owned by them in favor of the Merger. The parties to such agreement
hold, in the aggregate, Champion Preferred Stock representing 26% of the total
voting power of the outstanding shares of Champion Capital Stock, all of the
outstanding shares of Champion Series C Preferred Stock and all of the
outstanding shares of Champion Series D Preferred Stock. As of May 28, 1996, the
directors and executive officers of Champion and their affiliates, some of whom
are parties to the above-referenced agreement, beneficially owned approximately
43% of the outstanding shares of Champion Common Stock, 32% of the outstanding
shares of Champion Series C Preferred Stock, 22% of the outstanding shares of
Champion Series D Preferred Stock and 38% of the total voting power represented
by the outstanding shares of Champion Capital Stock. Approval of the Plan
Proposal to amend the Founders' Stock Option Plan (the "Founders' Stock Option
Plan Proposal") requires the affirmative vote, pursuant to a separate
stockholder vote, of the holders of a majority of the total voting power of the
Champion Capital Stock present in person or represented by proxy and entitled to
vote, voting together as a single class. See "The Special Meeting -- Votes
Required" and "Certain Related Agreements -- Participants Agreement."
THE MERGER
GENERAL. Pursuant to the Merger Agreement, Merger Sub will be merged with
and into Champion. As a result of the Merger, Champion will become a wholly
owned subsidiary of Paracelsus.
PARACELSUS STOCK SPLIT. Prior to the Effective Time (as defined below),
each of the 450 outstanding shares of Paracelsus Common Stock, no stated value
per share (the "Paracelsus Common Stock"), will be split into, and will become
and thereafter represent, 66,159.426 shares of Paracelsus Common Stock (the
"Paracelsus Stock Split"). See "The Merger Agreement -- Paracelsus Stock Split."
EXCHANGE OF CHAMPION CAPITAL STOCK. At the Effective Time, as a result of
the Merger (i) each share of Champion Common Stock (other than shares of
Champion Common Stock that are owned by Paracelsus or any of its direct or
indirect subsidiaries, that are held in the treasury of Champion or that are
owned by any direct or indirect subsidiary of Champion) will be converted into
the right to receive one share of Paracelsus Common Stock (the "Exchange Ratio")
and (ii) each share of Champion Preferred Stock (other than shares of Champion
Preferred Stock that are owned by Paracelsus or any of its direct or indirect
subsidiaries, that are held in the treasury of Champion or that are owned
7
<PAGE>
by any direct or indirect subsidiary of Champion and shares of Champion
Preferred Stock as to which appraisal rights are properly exercised) will be
converted into the right to receive two shares of Paracelsus Common Stock. See
"The Merger Agreement -- The Merger."
RECOMMENDATIONS OF CHAMPION BOARD. At a meeting held on April 11, 1996, the
Champion Board unanimously approved, among other things, the Merger Agreement
and the Merger and determined that the Merger is fair to and in the best
interests of the stockholders of Champion. The Champion Board also unanimously
approved each of the Plan Proposals. The Champion Board recommends that holders
of Champion Capital Stock vote FOR the Merger Proposal and FOR each of the Plan
Proposals. See "The Merger -- Approval of the Champion Board; Reasons for the
Merger" and "The Plan Proposals."
OPINION OF FINANCIAL ADVISOR. Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ"), financial advisor to Champion, has delivered to the
Champion Board its written opinion, dated July 18, 1996, to the effect that the
Exchange Ratio pursuant to the Merger Agreement is fair to the holders of
Champion Common Stock from a financial point of view. The full text of the
opinion of DLJ, which sets forth the assumptions made, procedures followed,
other matters considered and limits of the review by DLJ, is attached hereto as
Annex D. Each Champion stockholder should read such opinion carefully in its
entirety. The summary of the opinion of DLJ set forth in this Proxy
Statement/Prospectus is qualified in its entirety by reference to the full text
of such opinion. The opinion of DLJ was prepared for the Champion Board and is
directed only to the fairness of the Exchange Ratio from a financial point of
view to the holders of Champion Common Stock. The opinion of DLJ does not
constitute a recommendation to any holder of Champion Capital Stock as to how
such stockholder should vote with respect to the Merger Proposal. See "The
Merger -- Opinion of Champion Financial Advisor."
EFFECTIVE TIME OF THE MERGER. The Merger will become effective at the time
and on the date that a certificate of merger is filed with the Delaware
Secretary of State or at such later time as is specified in the certificate of
merger (the "Effective Time"). It is presently anticipated that the Effective
Time will occur promptly after the requisite stockholder approvals have been
obtained and all other conditions specified in the Merger Agreement have been
satisfied or waived in accordance with the provisions of the Merger Agreement.
See "The Merger Agreement -- Certain Conditions."
EXCHANGE OF CHAMPION STOCK CERTIFICATES. As soon as reasonably practicable
after the Effective Time, instructions with regard to the surrender of stock
certificates, together with a letter of transmittal to be used for this purpose,
will be furnished by mail to all Champion stockholders for use in exchanging
their stock certificates for the shares of Paracelsus Common Stock they will be
entitled to receive as a result of the Merger. STOCKHOLDERS OF CHAMPION ARE
INSTRUCTED NOT TO SUBMIT THEIR STOCK CERTIFICATES FOR EXCHANGE UNTIL SUCH
INSTRUCTIONS AND LETTER OF TRANSMITTAL ARE RECEIVED OR ARE AVAILABLE FOR
DELIVERY. See "The Merger Agreement -- Exchange of Certificates."
CONDITIONS TO CONSUMMATION OF THE MERGER. The obligations of Paracelsus and
Champion to consummate the Merger are subject to the satisfaction of certain
conditions, including, among other things, obtaining the requisite stockholder
or shareholder approvals. See "The Merger Agreement -- Certain Conditions."
ANTITRUST MATTERS. On April 26, 1996, the Notification and Report Forms for
the Merger required pursuant to the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules and regulations promulgated thereunder (the
"HSR Act") were filed by the Paracelsus Shareholder and Champion. The HSR Act
waiting period expired with respect to the Merger on May 26, 1996. In addition,
on May 15, 1996, Champion petitioned the Federal Trade Commission (the "FTC")
for approval to transfer the Salt Lake Regional Medical Center (the "SLRMC") as
part of the Merger in accordance with certain provisions of an Asset Purchase
Agreement dated January 25, 1995, pursuant to which Champion acquired SLRMC. On
June 17, 1996, the public comment period with respect to the application expired
with no public comments being filed, Champion expects that the required prior
approval will be obtained prior to the date of the Special Meeting without any
material conditions. However, despite Champion's expectation, it is possible
that such approval may not be obtained or that such approval may be conditioned
on Champion taking certain actions, including actions that could result in,
among other things, material alteration of Champion's business in the Salt Lake
City, Utah region or a delay in the effectiveness of the Merger. See "The Merger
- -- Regulatory Approvals."
8
<PAGE>
TAKEOVER PROPOSALS. The Merger Agreement provides that neither Paracelsus
nor Champion will solicit or otherwise facilitate any proposal with respect to a
merger, reorganization, consolidation or other similar business combination, or
any transaction involving the purchase of a significant portion of its assets,
or the purchase or issuance of 30% or more of its equity securities, or any
transaction which would result in a person becoming the beneficial owner of 30%
or more of its equity securities (a "Takeover Proposal"), except as contemplated
by the Merger Agreement. See "The Merger Agreement -- Takeover Proposals."
TERMINATION OF THE MERGER AGREEMENT. The Merger Agreement may be terminated
(i) by mutual written consent of the parties; (ii) if either the stockholders of
Champion or the Paracelsus Shareholder do not approve the Merger by the
requisite vote; (iii) if the Merger has not been consummated on or before
December 31, 1996 (the "Termination Date"); (iv) if any one of the conditions of
the terminating party's obligations to effect the Merger has not been satisfied,
cured or waived by the Termination Date; or (v) if the board of directors of
either party concurrently approves, and such party concurrently enters into, a
binding written agreement concerning a Takeover Proposal. See "The Merger
Agreement -- Termination."
TERMINATION FEE. Under certain circumstances, and subject to certain
limitations, if the Merger Agreement is terminated, one party shall pay the
other a $7,500,000 termination fee (a "Termination Fee") and reimbursement for
all documented out-of-pocket expenses (including all fees and expenses of a
party's counsel, advisors, accountants and consultants) incurred by or on behalf
of such party in connection with the transactions contemplated by the Merger
Agreement up to an additional $2,500,000 ("Termination Expenses" and, together
with a Termination Fee, a "Termination Payment"), subject to reduction in
certain circumstances. A Termination Payment will be made when (i) the Merger
Agreement is terminated by either party and that party concurrently enters into
another agreement concerning a Takeover Proposal or (ii) (a) the party's
stockholders or shareholder, as the case may be, do not approve the Merger, (b)
the Merger is not consummated by the Termination Date, PROVIDED that a closing
condition did not remain unsatisfied through no fault of the party who is to pay
the Termination Payment, or (c) the party is in breach of any representation,
warranty, covenant or agreement which would prevent a closing condition from
occurring and the other party terminates the Merger Agreement and, in the case
of any of (a) through (c) above, within one year of such termination, the party
consummates another Takeover Proposal. See "The Merger Agreement -- Termination
Payment."
APPRAISAL RIGHTS. Holders of shares of Champion Common Stock will not have
appraisal rights with respect to the Merger. Holders of shares of Champion
Preferred Stock issued and outstanding immediately prior to the Effective Time
who do not vote such shares in favor of the Merger are entitled, in accordance
with the provisions of the Delaware General Corporation Law (the "DGCL"), to
seek appraisal of the fair value of such shares of Champion Preferred Stock.
When such stockholders have properly demanded in writing appraisal for such
shares of Champion Preferred Stock in accordance with Section 262 of the DGCL
(collectively, the "Dissenting Shares"), such Dissenting Shares will not be
converted or represent rights to receive shares of Paracelsus Common Stock in
the Merger. All shares of Champion Preferred Stock for which no proper demand
for appraisal has been made or for which such demand has been withdrawn shall be
deemed to be converted into Champion Common Stock and to be exchangeable, at the
Effective Time, for shares of Paracelsus Common Stock pursuant to the Merger.
See "The Merger -- Appraisal Rights" and "Certain Differences Between California
and Delaware Corporate Laws -- Dissenters' and Appraisal Rights."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The Merger has been structured
with the intent that it be a tax-free reorganization for Federal income tax
purposes. In the opinion of Sullivan & Cromwell, special counsel to Champion,
the Merger will qualify as a reorganization under section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), and, as further described in such
opinion, no gain or loss will be recognized for Federal income tax purposes by
holders of Champion Capital Stock upon the receipt solely of shares of
Paracelsus Common Stock in exchange therefor pursuant to the Merger. See "The
Merger -- Certain Federal Income Tax Consequences."
RESALE RESTRICTIONS. All shares of Paracelsus Common Stock received by
Champion stockholders in the Merger will be freely transferable, except that the
approximately 15,700,000 shares of Paracelsus Common Stock received by persons
that may be deemed to be "affiliates" (as defined under
9
<PAGE>
the Securities Act of 1933, as amended (the "Securities Act")) of Champion at
the Effective Time may be resold by them only in certain permitted
circumstances. Paracelsus currently intends to offer and sell, promptly after
the consummation of the Merger, up to 5,200,000 newly-issued shares of
Paracelsus Common Stock in an underwritten public offering (the "Primary Equity
Offering"), the registration statement for which is also expected to include up
to 2,695,000 additional shares (excluding 1,184,250 shares of Common Stock
subject to the underwriters' over-allotment option) to be offered and sold in a
secondary offering by certain of such affiliates of Champion (the "Secondary
Equity Offering" and, together with the Primary Equity Offering, the "Equity
Offering"). See "Financing in Connection with the Merger and Related
Transactions."
ACCOUNTING TREATMENT. The Merger will be accounted for using the "purchase"
method of accounting, under which the total consideration paid to the
stockholders of Champion will be allocated based on the fair market value of the
assets acquired and the liabilities assumed. See "The Merger -- Accounting
Treatment."
COMPARATIVE RIGHTS OF STOCKHOLDERS OF CHAMPION AND SHAREHOLDERS OF
PARACELSUS. The rights of holders of Champion Capital Stock are currently
governed by Delaware law and the Restated Certificate of Incorporation (the
"Champion Certificate") and Bylaws (the "Champion Bylaws") of Champion. Upon
consummation of the Merger, holders of Champion Capital Stock will become
holders of Paracelsus Common Stock, and their rights as holders of Paracelsus
Common Stock will be governed by California law and the Amended and Restated
Articles of Incorporation of Paracelsus (the "Paracelsus Articles") and the
Amended and Restated Bylaws of Paracelsus (the "Paracelsus Bylaws") to be
adopted prior to the Effective Time, forms of which are attached hereto as Annex
B and Annex C, respectively. There are various differences between the rights of
Champion stockholders and the rights of Paracelsus shareholders, including,
among others, those resulting from certain provisions of the Paracelsus Articles
that may have the effect of deterring or making it more difficult for a third
party to acquire control of Paracelsus. See "Comparison of Rights of
Stockholders of Champion and Shareholders of Paracelsus" and "Certain
Differences Between California and Delaware Corporate Laws."
MANAGEMENT OF PARACELSUS AFTER THE MERGER. The number of directors on the
Board of Directors of Paracelsus (before the Merger, the "Paracelsus Board" and,
after the Merger, the "New Paracelsus Board") will initially be nine, comprised
of (i) four persons designated by the Paracelsus Shareholder, (ii) two persons
who are currently executive officers of Champion and (iii) three independent
directors designated as provided in the Merger Agreement. Dr. Krukemeyer,
currently the Chairman of the Paracelsus Board and the beneficial owner of all
of the shares of Paracelsus Common Stock, will be the Chairman of the New
Paracelsus Board after the Merger; Mr. R.J. Messenger, currently the President
and Chief Executive Officer and a director of Paracelsus, will be the Vice
Chairman, Chief Executive Officer and a director of Paracelsus after the Merger;
Mr. Charles R. Miller, currently the Chairman, President and Chief Executive
Officer of Champion, will be the President and Chief Operating Officer and a
director of Paracelsus after the Merger; Mr. James G. VanDevender, currently the
Executive Vice President and Chief Financial Officer and a director of Champion,
will be the Executive Vice President and Chief Financial Officer and a director
of Paracelsus after the Merger; Mr. Ronald R. Patterson, currently the Executive
Vice President and Chief Operating Officer of Champion, will be the Executive
Vice President and President, Healthcare Operations of Paracelsus after the
Merger; and Mr. Robert C. Joyner, currently the Vice President and General
Counsel of Paracelsus, will be the Senior Vice President, Secretary and General
Counsel of Paracelsus after the Merger. See "Management of Paracelsus Following
the Merger." Paracelsus has entered into employment agreements (which will be
terminated if the Merger is not consummated) with Messrs. Messenger, Miller,
VanDevender, Patterson and Joyner. See "The Merger -- Effect of the Merger on
Employee Compensation Arrangements."
FINANCING IN CONNECTION WITH THE MERGER AND RELATED TRANSACTIONS. The
Merger Agreement provides that Champion and Paracelsus will use their respective
reasonable best efforts to, among other things, effect a refinancing of certain
debt of Champion and Paracelsus in connection with the consummation of the
Merger and to facilitate the combined operations of the companies, including
without limitation through a public offering of debt and/or equity securities of
Paracelsus. Paracelsus currently expects to offer and sell, through separate
underwritten public offerings to be consummated
10
<PAGE>
promptly after the consummation of the Merger, $275,000,000 aggregate principal
amount of senior subordinated notes (including a $25,000,000 aggregate principal
amount of additional Notes subject to an underwriters' over-allotment option)
(the "Debt Offering" and, together with the Equity Offering, the "Public
Offerings"), and 5,200,000 newly-issued shares of Paracelsus Common Stock in the
Primary Equity Offering in order, among other things, to prepay certain
currently outstanding debt of Champion. In addition, Paracelsus currently
intends to refinance the outstanding indebtedness under both Paracelsus' and
Champion's existing credit facilities with borrowings under a new credit
facility that will provide for borrowings of up to $400,000,000 (the "Credit
Facility Refinancing").
While the consummation of each of the Public Offerings and the Credit
Facility Refinancing is expected to occur promptly after the consummation of the
Merger, the Merger is not conditioned upon the consummation of any of such
transactions and there can be no assurance that any of such transactions will be
consummated. See "Risk Factors -- Consummation of the Refinancing Transactions,"
"Certain Related Agreements -- Participants Agreement," "Financing in Connection
with the Merger and Related Transactions" and "Unaudited Pro Forma Condensed
Combining Financial Statements -- Notes to Paracelsus and Champion Unaudited Pro
Forma Condensed Combining Financial Statements (Note 5)."
INTERESTS OF CERTAIN PERSONS. In considering the recommendation of the
Champion Board with respect to the Merger, Champion stockholders should be aware
that certain directors and executive officers of Champion may have certain
interests in the transaction in addition to the interests of other holders of
Champion Capital Stock. See "The Merger -- Interests of Certain Persons in the
Merger."
EFFECT ON EMPLOYEE COMPENSATION ARRANGEMENTS. The Merger will have an
effect on certain employee compensation arrangements of Champion and Paracelsus.
See "The Merger -- Effect of the Merger on Employee Compensation Arrangements."
TRADING MARKET. Shares of Champion Common Stock are currently traded on the
AMEX under the symbol "CHC." The Champion Comon Stock has been approved for
listing on the NYSE under the symbol "CHC," subject to official notice of
issuance. It is anticipated that, prior to the Special Meeting, Champion Common
Stock will be delisted from the AMEX and listed on the NYSE. After the Effective
Time, the Champion Common Stock will be delisted from the NYSE and the shares of
Paracelsus Common Stock will be traded on the NYSE under the symbol "PLS." See
"The Merger -- Stock Exchange Listing." On April 12, 1996, the last full trading
day before announcement of the Merger, the last reported closing price per share
of Champion Common Stock was $10 1/2. On July 18, 1996, the last reported
closing price per share of Champion Common Stock was $10 3/4. See "Comparative
Per Share Market Price and Dividend Information." The Paracelsus Common Stock
has been approved for listing on the NYSE upon consummation of the Merger under
the symbol "PLS," subject to official notice of issuance.
RISK FACTORS
THE INFORMATION SET FORTH UNDER "RISK FACTORS" SHOULD BE REVIEWED AND
CAREFULLY CONSIDERED IN EVALUATING THE MERGER AND THE OWNERSHIP OF PARACELSUS
COMMON STOCK TO BE ISSUED IN THE MERGER.
CERTAIN RELATED AGREEMENTS
SHAREHOLDER AGREEMENT. It is a condition to the Merger that prior to the
Effective Time Paracelsus enter into a shareholder agreement with the Paracelsus
Shareholder (the "Shareholder Agreement") pursuant to which the Paracelsus
Shareholder will agree, among other things; (i) to certain "standstill"
provisions; (ii) to certain transfer restrictions with respect to Paracelsus'
voting securities; (iii) not to acquire additional Paracelsus voting securities
if, after giving effect to such acquisition, such shareholder would beneficially
own more than 66 2/3% of the total voting power of Paracelsus, except under
certain circumstances; and (iv) to sell in, tender into and vote in favor of, as
the case may be, certain acquisition proposals involving Paracelsus. The
Shareholder Agreement will also provide the Paracelsus Shareholder with the
right to designate four nominees to the New Paracelsus Board and a right of
first refusal in connection with certain acquisition proposals for Paracelsus.
Dr. Krukemeyer will be the guarantor of the obligations of the Paracelsus
Shareholder under the Shareholder Agreement. See "Certain Related Agreements --
Shareholder Agreement."
11
<PAGE>
RIGHTS AGREEMENT. Pursuant to the Merger Agreement, prior to the Effective
Time Paracelsus and Champion will present to the New Paracelsus Board a
Shareholder Protection Rights Agreement (the "Rights Agreement") for approval by
the New Paracelsus Board, subject to fiduciary duties and applicable law. The
Rights Agreement will have customary terms and conditions, but will exempt the
beneficial ownership of shares of Paracelsus Common Stock beneficially owned by
the Paracelsus Shareholder at the Effective Time and all acquisitions of
Paracelsus Common Stock made in compliance with the Shareholder Agreement. See
"Certain Related Agreements -- Rights Agreement."
RIGHT OF FIRST REFUSAL AGREEMENT. At or prior to the Effective Time, Dr.
Krukemeyer, the Paracelsus Shareholder and Messrs. Messenger, Miller,
VanDevender and Patterson will enter into an agreement (the "Right of First
Refusal Agreement") pursuant to which Dr. Krukemeyer and the Paracelsus
Shareholder will have certain rights to purchase shares of Paracelsus Common
Stock beneficially owned by each such person which he may from time to time
determine to sell. See "Certain Related Agreements -- Right of First Refusal
Agreement."
REGISTRATION RIGHTS AGREEMENTS. Pursuant to the Merger Agreement,
Paracelsus will enter into a registration rights agreement (the "Paracelsus
Shareholder Registration Rights Agreement") with the Paracelsus Shareholder.
Such agreement will provide the Paracelsus Shareholder with certain demand and
"piggyback" registration rights with respect to shares of Paracelsus Common
Stock owned beneficially or of record by such shareholder and certain
transferees. See "Certain Related Agreements -- Paracelsus Shareholder
Registration Rights Agreement." Also pursuant to the Merger Agreement,
Paracelsus will enter into registration rights agreements (the "Champion
Investors Registration Rights Agreements") with certain of the existing holders
of Champion Capital Stock and holders of Champion Warrants (collectively, the
"Champion Investors"). Such agreements will provide the Champion Investors with
certain demand and "piggyback" registration rights with respect to shares of
Paracelsus Common Stock owned beneficially or of record by them. See "Certain
Related Agreements -- Champion Investors Registration Rights Agreements."
PARTICIPANTS AGREEMENT. Champion has entered into an Agreement in
Contemplation of Merger, dated as of April 12, 1996, with certain holders of
Champion securities (the "Participants Agreement") pursuant to which, among
other things: (i) holders of all of Champion's outstanding 11% Series D Senior
Subordinated Notes due December 31, 2003 (the "Series D Notes") and all of
Champion's 11% Series E Senior Subordinated Notes due December 31, 2003 (the
"Series E Notes" and, together with the Series D Notes, the "Champion Notes")
have agreed to waive their rights to require Champion to repurchase the Champion
Notes as a result of the "change of control" (as defined in the Participants
Agreement) of Champion occurring as a result of the Merger; (ii) at such time as
Paracelsus completes a debt offering of at least $100,000,000 that also meets
certain other conditions (a "Qualified Debt Offering"), Paracelsus or Champion
will have the right to repay, and such noteholders will have the right to demand
repayment of their Champion Notes at specified prices; (iii) holders of Champion
Warrants who also hold such Champion Notes will agree to the assumption by
Paracelsus of Champion's obligations with respect to such Champion Warrants; and
(iv) a stockholders' agreement among certain holders of Champion Capital Stock
will be terminated. The Debt Offering, if completed, will be a Qualified Debt
Offering under the Participants Agreement, and, upon completion of the Debt
Offering, Paracelsus intends to apply a portion of the proceeds therefrom to
prepay all of the outstanding Champion Notes in accordance with the terms
thereof, as amended by the Participants Agreement. See "Certain Related
Agreements -- Participants Agreement."
CERTAIN PARACELSUS SHAREHOLDER ARRANGEMENTS
DIVIDEND; DIVIDEND AND NOTE AGREEMENT. Prior to the Effective Time,
Paracelsus will declare a dividend (the "Dividend") payable on a date not later
than 60 days after the consummation of the Merger to the Paracelsus Shareholder
(the shareholder of record prior to the Effective Time of the Merger), subject
to compliance with the provisions of the Indenture, dated as of October 15,
1993, related to Paracelsus' 9 7/8% Subordinated Notes due 2003 (the "Existing
Senior Subordinated Notes"). The amount of the Dividend will be $21,113,387,
plus $3,574.26 for each day from and including July 31, 1996 to the date the
Dividend is paid. Pursuant to a dividend and note agreement (the "Dividend and
Note Agreement") between the Paracelsus Shareholder and Paracelsus to be entered
into prior to the Effective Time, at the Effective Time the Paracelsus
Shareholder will purchase a 6.51% subordinated note due 2006 of Paracelsus (the
"Shareholder Subordinated Note") for $7,185,467. The Shareholder Subordinated
Note
12
<PAGE>
will have a term of 10 years and will provide for annual payments of principal
and accrued interest in an aggregate amount of $1,000,000. The Shareholder
Subordinated Note will be subordinated in right of payment to certain
indebtedness of Paracelsus as provided in the Shareholder Subordinated Note. See
"Certain Paracelsus Shareholder Arrangements -- Dividend; Dividend and Note
Agreement."
OTHER ARRANGEMENTS. Prior to the date of this Proxy Statement/Prospectus,
Paracelsus and Dr. Krukemeyer have entered into (i) a services agreement (the
"Services Agreement") pursuant to which Dr. Krukemeyer has agreed, subject to
the closing of the Merger, to provide management and strategic advisory services
to Paracelsus following the Merger and (ii) an insurance agreement (the
"Insurance Agreement") pursuant to which Paracelsus has agreed, subject to the
closing of the Merger, to maintain an insurance policy or other death and
permanent disability benefit for the benefit of Dr. Krukemeyer on the terms
provided therein. In addition, it is a condition to the Merger that prior to the
Effective Time Dr. Krukemeyer enter into a non-compete agreement (the "Non-
Compete Agreement") with Paracelsus. See "Certain Paracelsus Shareholder
Arrangements -- Services Agreement," "-- Insurance Agreement" and "--
Non-Compete Agreement."
THE PLAN PROPOSALS
At the Special Meeting, the stockholders of Champion will also be asked to
consider and vote upon the Plan Proposals.
The Plan Proposal to amend the Directors' Stock Option Plan provides,
subject to stockholder approval, for an increase in the number of shares
issuable thereunder from 60,000 to 100,000. Such increase has been proposed in
order to provide for the grant of options to each of Messrs. Manuel M. Ferris
and David S. Spencer, currently directors of Champion, to purchase 20,000 shares
of Champion Common Stock at a price of $8.00 per share. Such Plan Proposal also
provides that all options outstanding under the Directors' Stock Option Plan
held by a director whose service as a director of Champion terminates in
connection with a merger of Champion (including without limitation the Merger)
will remain exercisable until the date specified in such options, rather than
expire 90 days following such merger. The text of the Plan Proposal to amend the
Directors' Stock Option Plan is attached hereto as Annex F. See "The Plan
Proposals -- Amendment of the Directors' Stock Option Plan."
The Plan Proposal to amend the Selected Executive Stock Option Plan
provides, subject to stockholder approval, that options and stock appreciation
rights outstanding thereunder will no longer automatically be terminated upon a
merger or consolidation of Champion in which Champion is not the surviving
corporation or in which Champion becomes a wholly owned subsidiary of a
corporation party to a plan or agreement of merger, but will instead become an
obligation of the surviving corporation or such corporation party to the plan or
agreement of merger, if the plan or agreement of merger or consolidation
provides for the assumption by the surviving or consolidated corporation of such
options and stock appreciation rights. The text of the Plan Proposal to amend
the Selected Executive Stock Option Plan is attached hereto as Annex G. See "The
Plan Proposals -- Amendment of the Selected Executive Stock Option Plan."
The Plan Proposal to amend the Founders' Stock Option Plan, under which
Messrs. Miller and VanDevender hold outstanding options to purchase 108,000 and
72,000 shares of Champion Common Stock, respectively, adds, subject to
stockholder approval, a cashless exercise procedure as a means for the option
holder to pay the option exercise price and/or any tax withholding obligations
incurred upon the exercise of options outstanding thereunder. The text of the
Plan Proposal to amend the Founders' Stock Option Plan is attached hereto as
Annex H. See "The Plan Proposals -- Amendment of the Founders' Stock Option
Plan."
Approval of the Merger Proposal will be deemed to constitute approval of the
Plan Proposals to amend the Directors' Stock Option Plan and the Selected
Executive Stock Option Plan. The Plan Proposal to amend the Founders' Stock
Option Plan will be subject to a separate stockholder vote. The Champion Board,
at a meeting held on April 11, 1996, unanimously approved the Merger Proposal
and unanimously approved the Plan Proposals and recommends that the Champion
stockholders vote for the approval and adoption of the Merger Proposal and the
approval of the Plan Proposals. See "The Special Meeting -- Votes Required,"
"The Merger -- Approval of the Champion Board; Reasons for the Merger" and "The
Plan Proposals."
13
<PAGE>
PARACELSUS HEALTHCARE CORPORATION SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND
OPERATING DATA
The following tables set forth summary historical financial and other
operating data for Paracelsus for the five fiscal years ended September 30, 1995
and for the six months ended March 31, 1995 and 1996. The summary historical
financial data for the five fiscal years ended September 30, 1995 has been
derived from the audited consolidated financial statements of Paracelsus and
from the underlying accounting records of Paracelsus. The summary historical
financial data for the six months ended March 31, 1995 and 1996 has been derived
from the unaudited condensed consolidated financial statements of Paracelsus and
reflects all adjustments (consisting of normal recurring adjustments) that, in
the opinion of the management of Paracelsus, are necessary for a fair
presentation of such information. Operating results for the six months ended
March 31, 1996 are not necessarily indicative of the results that may be
expected for fiscal 1996. All information set forth below should be read in
conjunction with "Paracelsus Management's Discussion and Analysis of Financial
Condition and Results of Operations" and with the consolidated financial
statements and related notes of Paracelsus included elsewhere this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED SEPTEMBER 30, ENDED MARCH 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total operating revenues (1)........... $ 366,959 $ 411,211 $ 435,102 $ 507,864 $ 509,729 $ 252,356 $ 260,590
Costs and expenses:
Salaries and benefits................ 150,053 163,970 174,849 209,772 209,672 108,575 113,162
Supplies............................. 26,229 31,110 34,245 42,890 40,780 21,432 19,363
Purchased services................... 43,657 50,801 48,951 55,078 58,113 28,118 34,174
Provision for bad debts.............. 19,493 25,784 26,629 33,110 39,277 19,283 20,191
Other operating expenses............. 83,088 95,438 100,287 114,096 99,777 46,730 46,906
Depreciation and amortization........ 11,808 12,833 14,587 16,565 17,276 8,734 7,972
Interest............................. 12,043 10,496 10,213 12,966 15,746 7,652 7,685
Restructuring and unusual charges
(2)................................. -- -- -- -- 5,150 -- --
Settlement costs (3)................. -- -- -- -- -- -- 22,356
--------- --------- --------- --------- --------- --------- ---------
Total costs and expenses............... 346,371 390,432 409,761 484,477 485,791 240,524 271,809
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before minority
interests, income taxes, cumulative
effect of accounting change and
extraordinary loss.................... 20,588 20,779 25,341 23,387 23,938 11,832 (11,219)
Minority interests (4)................. (2,697) (3,393) (2,683) (2,517) (1,927) (1,204) (1,072)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes,
cumulative effect of accounting change
and extraordinary loss................ 17,891 17,386 22,658 20,870 22,011 10,628 (12,291)
Income taxes (benefit)................. 7,337 7,128 10,196 8,567 9,024 4,357 (5,040)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before cumulative effect
of accounting change and extraordinary
loss.................................. 10,554 10,258 12,462 12,303 12,987 6,271 (7,251)
Cumulative effect of accounting change
(5)................................... 4,377 -- -- -- -- -- --
Extraordinary loss (6)................. -- -- -- (497) -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)...................... $ 14,931 $ 10,258 $ 12,462 $ 11,806 $ 12,987 $ 6,271 $ (7,251)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
OPERATING DATA:
Adjusted EBITDA (7).................... $ 41,205 $ 42,025 $ 47,458 $ 50,401 $ 51,157 $ 27,014 $ 25,722
Adjusted EBITDA margin................. 11.2% 10.2% 10.9% 9.9% 10.0% 10.7% 9.9%
Capital expenditures................... $ 12,398 $ 15,695 $ 14,676 $ 14,342 $ 15,835 $ 5,322 $ 7,123
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF MARCH 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......... $ 2,972 $ 773 $ 1,204 $ 1,452 $ 2,949 $ 2,107 $ 3,149
Working capital................... 30,040 67,381 41,355 62,860 60,381 67,649 73,415
Net property and equipment........ 150,718 157,582 174,931 173,837 165,666 171,464 165,729
Total assets...................... 267,785 288,924 296,097 330,001 344,632 342,113 368,216
Total debt........................ 122,306 120,004 104,548 117,718 121,728 125,940 144,661
Shareholder's equity.............. 68,039 77,466 88,714 97,515 104,949 102,149 96,365
</TABLE>
- ------------------------------
(1) Total operating revenues were comprised of patient revenue (net of
contractual adjustments) and other revenue, including gains (losses) from
disposal of facilities of $537, ($1,310), and $9,026 for the fiscal years
ended September 30, 1991, 1992, and 1995, respectively.
(2) Restructuring and unusual charges in 1995 consisted of (i) a $973 charge
for employee severance benefits and contract termination costs related to
the closure of Bellwood Health Center psychiatric facility and (ii) special
bonuses of $4,177 paid to certain executive officers for services provided.
(3) Settlement costs of $22,356 in the six months ended March 31, 1996
consisted of settlement payments, legal fees and the write-off of certain
accounts receivable in connection with the settlement of two lawsuits.
(4) Represents the participation of physicians or physician groups in the
profits of Paracelsus' majority-owned joint venture arrangements.
(5) Paracelsus adopted the liability method of accounting for income taxes in
its financial statements for the fiscal year ended September 30, 1991. The
cumulative effect of adopting the liability method for periods prior to
October 1, 1991 resulted in a benefit of $4,377.
(6) Represents an extraordinary loss of $497 (net of income tax benefit) as a
result of the early extinguishment of debt.
(7) Adjusted EBITDA represents income before income taxes, depreciation and
amortization, interest, cumulative effect of accounting change,
restructuring and unusual charges, settlement costs, gains (losses) from
disposal of facilities and extraordinary items ("Adjusted EBITDA"). While
Adjusted EBITDA is not a substitute for operating cash flows determined in
accordance with generally accepted accounting principles, it is a commonly
used tool for measuring a company's ability to service debt.
15
<PAGE>
CHAMPION HEALTHCARE CORPORATION SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND
OPERATING DATA
The following tables set forth summary historical financial data and other
operating information for Champion for the five years ended December 31, 1995
and for the three months ended March 31, 1995 and 1996. The summary historical
financial data for the five years ended December 31, 1995 has been derived from
the audited consolidated financial statements of Champion and from the
underlying accounting records of Champion. The summary historical financial
information for the three months ended March 31, 1995 and 1996 has been derived
from the unaudited condensed consolidated financial statements of Champion and
reflects all adjustments (consisting of normal recurring adjustments) that, in
the opinion of the management of Champion, are necessary for a fair presentation
of such information. Operating results for the three months ended March 31, 1996
are not necessarily indicative of the results that may be expected for 1996. All
information set forth below should be read in conjunction with "Champion
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with the consolidated financial statements and related notes of
Champion included elsewhere in this Proxy Statement/Prospectus. Certain amounts
derived from the consolidated statements of operations have been reclassified to
conform with the presentation below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue (1)..................... $24,307 $45,073 $ 89,832 $104,193 $167,520 $ 28,727 $ 50,681
Expenses:
Salaries and benefits............. 9,875 19,642 36,698 41,042 72,188 12,762 22,006
Supplies.......................... 2,884 6,022 11,641 12,744 21,113 3,237 6,368
Purchased services................ 3,092 5,671 9,606 15,190 23,595 3,897 6,534
Provision for bad debts........... 2,489 3,520 5,669 7,812 12,016 2,073 3,670
Other operating expenses.......... 3,687 7,682 14,427 14,277 20,999 3,779 6,330
Depreciation and amortization..... 725 1,361 3,524 4,010 9,290 1,532 3,016
Interest.......................... 723 1,404 2,725 6,375 13,618 2,630 4,587
Equity in earnings of DHHS........ -- -- -- -- (8,881) (1,478) (3,973)
Restructuring and unusual
charges.......................... -- 1,300(2) 15,456(3) 300(4) -- -- --
------- --------- ---------- ---------- -------- -------- ---------
Total expenses...................... 23,475 46,602 99,746 101,750 163,938 28,432 48,538
------- --------- ---------- ---------- -------- -------- ---------
Income (loss) before income taxes... 832 (1,529) (9,914) 2,443 3,582 295 2,143
Income tax expense.................. 326 63 1,009 200 150 118 750
------- --------- ---------- ---------- -------- -------- ---------
Income (loss) before extraordinary
items.............................. 506 (1,592) (10,923) 2,243 3,432 177 1,393
Extraordinary items (5)............. 200 -- (1,230) -- (1,118) -- --
------- --------- ---------- ---------- -------- -------- ---------
Net income (loss)................... $ 706 $(1,592) $(12,153) $ 2,243 $ 2,314 $ 177 $ 1,393
------- --------- ---------- ---------- -------- -------- ---------
------- --------- ---------- ---------- -------- -------- ---------
Income (loss) applicable to common
stock.............................. $ 343 $(2,451) $(13,805) $ (2,467) $ (9,017) $ (1,312) $ 1,344
------- --------- ---------- ---------- -------- -------- ---------
------- --------- ---------- ---------- -------- -------- ---------
Income (loss) per share (6):
Primary:
Income (loss) before
extraordinary items............ $ 0.12 $ (2.23) $ (11.21) $ (1.69) $ (1.86) $ (0.31) $ 0.10
Extraordinary items, net........ 0.17 -- (1.10) -- (0.26) -- --
------- --------- ---------- ---------- -------- -------- ---------
Income (loss) per share....... $ 0.29 $ (2.23) $ (12.31) $ (1.69) $ (2.12) $ (0.31) $ 0.10
------- --------- ---------- ---------- -------- -------- ---------
------- --------- ---------- ---------- -------- -------- ---------
Fully diluted:
Income before extraordinary
items.......................... -- -- -- -- -- -- $ 0.08
Extraordinary items, net........ -- -- -- -- -- -- --
------- --------- ---------- ---------- -------- -------- ---------
Income per share.............. -- -- -- -- -- -- $ 0.08
------- --------- ---------- ---------- -------- -------- ---------
------- --------- ---------- ---------- -------- -------- ---------
Cash dividends per common share..... -- -- -- -- -- -- --
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OPERATING DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Adjusted EBITDA (7)................. $ 2,280 $ 2,536 $ 11,791 $ 13,128 $ 26,490 $ 4,457 $ 9,746
Adjusted EBITDA margin.............. 9.4% 5.6% 13.1% 12.6% 15.8% 15.5% 19.2%
Capital expenditures................ $ 1,422 $ 1,637 $ 4,726 $ 12,561 $ 42,822 $ 7,060 $ 2,697
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
---------------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........... $ 919 $ 6,204 $ 66,686 $ 48,424 $ 7,583 $ 32,908 $ 5,670
Working capital..................... 1,665 9,420 69,138 51,275 9,841 40,772 15,750
Net property, plant and equipment... 7,789 33,859 26,011 81,913 158,382 88,353 166,997
Total assets........................ 15,444 57,574 118,947 216,553 291,260 212,839 308,022
Total debt.......................... 7,431 26,246 62,084 110,065 164,914 108,807 184,046
Redeemable preferred stock (8)...... 3,726 21,746 56,861 76,294 46,029(9) 77,918 46,078
Stockholders' equity (deficit)...... 293 (2,352) (16,157) (2,167) 31,869(9) (3,450) 33,798
</TABLE>
- ------------------------------
(1) Net revenue is comprised of patient revenue (net of contractual adjustments)
and other revenue.
(2) In 1992, Champion expensed approximately $1,300 in fees and other costs
related to its unsuccessful attempt to acquire 12 hospitals from Humana,
Inc.
(3) On September 1, 1992, Champion acquired Gulf Coast Hospital ("GCH"), a
competing hospital located approximately three miles from Champion's
Baytown, Texas facility. Subsequent to the purchase, Champion consolidated
the operations of GCH onto the campus of its existing Baytown hospital and,
in June 1994, sold the former GCH property with restrictions limiting its
use to non-competitive activities without Champion's permission. As a result
of the consolidation, Champion incurred a charge of approximately $15,456
against earnings in 1993.
(4) In 1994, Champion incurred approximately $300 in fees and other costs
related to its efforts to acquire Methodist Medical Center ("MMC") in
Jacksonville, Florida. On March 6, 1995, Champion notified MMC's management
that it would cease all actions related to this transaction; accordingly,
such amounts were expensed in the fourth quarter of 1994.
(5) The extraordinary gain in 1991 relates to the utilization of net income tax
benefits arising from the carryforward of a net operating loss. Champion
recognized extraordinary losses of $1,230 and $1,118 in 1993 and 1995,
respectively, on early extinguishment of debt. The extraordinary loss for
1993 was net of a tax benefit of $634, and no tax benefit was allocated to
the extraordinary losses in 1995.
(6) In years 1991 through 1995 and the three months ended March 31, 1995, no
fully diluted calculation was performed due to anti-dilutive effects of such
calculation.
(7) Adjusted EBITDA represents income before income taxes, depreciation and
amortization, interest, cumulative effect of accounting change,
restructuring and unusual charges, settlement costs, gains (losses) from
disposal of facilities and extraordinary items. While Adjusted EBITDA is not
a substitute for operating cash flows determined in accordance with
generally accepted accounting principles, it is a commony used tool for
measuring a company's ability to service debt.
(8) At December 31, 1991, 1992, 1993, 1994, 1995, March 31, 1995 and 1996,
Champion had outstanding 3,769, 7,557, 9,565, 10,401, 2,606, 10,408 and
2,608 shares of Champion Preferred Stock that were redeemable and
convertible into 1,017, 4,217, 8,233, 9,905, 5,211, 9,920 and 5,216 shares
of Champion Common Stock, respectively.
(9) Effective December 31, 1995, Champion entered into a recapitalization
agreement which provided for the conversion of certain redeemable preferred
stock to Champion Common Stock and eliminated the accrual of future
dividends on its remaining Champion Preferred Stock. See "Champion
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
17
<PAGE>
SUMMARY PARACELSUS AND CHAMPION UNAUDITED PRO FORMA FINANCIAL AND OPERATING DATA
The Summary Unaudited Pro Forma Financial and Operating Data set forth below
have been derived from the Unaudited Pro Forma Condensed Combining Financial
Statements included elsewhere in this Proxy Statement/Prospectus. The Summary
Unaudited Pro Forma Financial and Operating Data reflect the combined effect of
the Merger as if such transaction had occurred at the beginning of each period
presented for purposes of the pro forma income statement and operating data and
on March 31, 1996 for purposes of the pro forma balance sheet data. Certain
footnotes to the Paracelsus and Champion Unaudited Pro Forma Condensed Combining
Financial Statements included elsewhere in this Proxy Statement/Prospectus also
set forth the impact, where appropriate, of the consummation of each of the
Public Offerings.
The Summary Unaudited Pro Forma Balance Sheet Data set forth below also
gives effect, in each case as if such transactions had occurred as of the date
of such balance sheet, to the amendment or termination of the currently
outstanding arrangements between Paracelsus and Dr. Krukemeyer, the payment of
the Dividend and the consummation of the transactions contemplated by the
Dividend and Note Agreement. See "Certain Paracelsus Shareholder Arrangements
- --Dividend; Dividend and Note Agreement."
The Summary Unaudited Pro Forma Financial and Operating Data set forth below
also gives effect to the acquisitions and dispositions completed by Paracelsus
and Champion since the beginning of the periods presented. See "Unaudited Pro
Forma Condensed Combining Financial Statements -- Paracelsus Unaudited Pro Forma
Condensed Combining Financial Statements" and "-- Champion Unaudited Pro Forma
Condensed Combining Statements of Income and Unaudited Historical Condensed
Balance Sheet." See "Business of Paracelsus -- Recent Transactions" and
"Business of Champion -- Recent Acquisitions."
The Summary Unaudited Pro Forma Financial and Operating Data set forth below
and the Unaudited Pro Forma Condensed Combining Financial Statements included
elsewhere herein do not purport to present the financial position or results of
operations of Paracelsus and Champion had the transactions and events assumed
therein occurred on the dates specified, nor are they necessarily indicative of
the results of operations that may be expected in the future. The Summary
Unaudited Pro Forma Financial and Operating Data set forth below is qualified in
its entirety by reference to, and should be read in conjunction with, the
Unaudited Pro Forma Condensed Combining Financial Statements included elsewhere
in this Proxy Statement/Prospectus.
Paracelsus currently intends to adopt a December 31 year end after the
Merger. Paracelsus currently reports its financial information on the basis of a
September 30 fiscal year. Champion currently reports its financial information
on the basis of a December 31 year. The Summary Unaudited Pro Forma Financial
and Operating Data for the fiscal year ended September 30, 1995 includes
Paracelsus' historical results of operations for the fiscal year ended September
30, 1995 and Champion's historical results of operations for the year ended
December 31, 1995. The Summary Unaudited Pro Forma Financial and Operating Data
for the six months ended March 31, 1995 and 1996 includes Paracelsus' and
Champion's historical results of operations for the same six-month periods. The
Summary Unaudited Pro Forma Balance Sheet Data includes the historical balance
sheets of Paracelsus and Champion as of March 31, 1996. See "Financing in
Connection with the Merger and Related Transactions," "Unaudited Pro Forma
Condensed Combining Financial Statements -- Paracelsus and Champion Unaudited
Pro Forma Condensed Combining Financial Statements," "Paracelsus Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Champion Management's Discussion and Analysis of Financial Condition and
Results of Operations."
18
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
FISCAL YEAR ENDED --------------------
SEPTEMBER 30, 1995 1995 1996
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Total operating revenues (1)................................................ $ 696,899 $ 347,240 $ 368,555
Costs and expenses:
Salaries and benefits....................................................... 288,075 148,207 155,927
Supplies.................................................................. 70,828 35,785 34,717
Purchased services........................................................ 85,990 39,615 47,543
Provision for bad debts................................................... 55,616 27,004 27,845
Other operating expenses.................................................. 117,911 57,419 59,328
Depreciation and amortization............................................. 31,635 15,338 17,137
Interest.................................................................. 36,803 17,099 19,686
Equity in earnings of DHHS (2)............................................ (8,881) (2,363) (6,609)
Restructuring and unusual charges (3)..................................... 4,177 -- --
Settlement costs (4)...................................................... -- -- 22,356
---------- --------- ---------
Total costs and expenses.................................................... 682,154 338,104 377,930
---------- --------- ---------
Income (loss) before minority interests and income taxes.................... 14,745 9,136 (9,375)
Minority interests.......................................................... (1,927) (1,204) (1,072)
---------- --------- ---------
Income (loss) before income taxes........................................... 12,818 7,932 (10,447)
Income taxes (benefit)...................................................... 5,346 4,237 (3,741)
---------- --------- ---------
Net income (loss)........................................................... $ 7,472 $ 3,695 $ (6,706)
---------- --------- ---------
---------- --------- ---------
Income (loss) per share..................................................... $ 0.15 $ 0.07 $ (0.14)
---------- --------- ---------
---------- --------- ---------
Weighted average number of common and common equivalent shares
outstanding................................................................ 50,324 50,327 47,001
---------- --------- ---------
---------- --------- ---------
OPERATING DATA:
Adjusted EBITDA (5)......................................................... $ 85,433 $ 40,369 $ 48,732
Adjusted EBITDA margin...................................................... 12.3% 11.6% 13.2%
Capital expenditures (6).................................................... $ 62,553 $ 18,170 $ 21,388
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1996
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 8,819
Working capital........................................... 105,775
Total assets.............................................. 828,816
Total debt................................................ 417,273
Shareholders' equity...................................... 218,368
</TABLE>
- ------------------------------
(1) Includes pro forma interest income of $2,375, $1,429 and $1,144 for the
fiscal year ended September 30, 1995 and the six months ended March 31, 1995
and 1996, respectively.
(2) Champion operates DHHS pursuant to an operating agreement and accounts for
its investment in DHHS under the equity method. DHHS began operations on
December 31, 1994.
(3) Restructuring and unusual charges consisted of special bonuses of $4,177 (or
$0.05 per share, net of taxes) paid to certain executive officers of
Paracelsus.
(4) Settlement costs of $22,356 (or $0.28 per share, net of taxes) consisted of
settlement payments, legal fees and the write-off of certain accounts
receivable in connection with the settlement of two lawsuits.
(5) "Adjusted EBITDA" represents income before income taxes, depreciation and
amortization, interest, cumulative effect of accounting change,
restructuring and unusual charges, settlement costs, gains (losses) from
disposal of facilities and extraordinary items. While Adjusted EBITDA is not
a substitute for operating cash flows determined in accordance with
generally accepted accounting principles, it is a commonly used tool for
measuring a company's ability to service debt.
(6) Includes capital expenditures for special construction projects at BayCoast
Medical Center and Westwood Medical Center of $38,047, $9,449 and $10,496
for the fiscal year ended September 30, 1995 and the six months ended March
31, 1995 and 1996, respectively.
19
<PAGE>
COMPARATIVE PER SHARE DATA
Set forth below are historical earnings per share, cash dividends per share
and book value per share data of Champion and adjusted historical and pro forma
combined per share data of Paracelsus. The data with respect to the Champion
Preferred Stock have been computed on a Champion Common Stock equivalent basis
based upon the assumed conversion in the Merger of each share of Champion
Preferred Stock into two shares of Paracelsus Common Stock. The data set forth
below should be read in conjunction with the Champion Summary Historical
Consolidated Financial and Operating Data and the Paracelsus Summary Historical
Consolidated Financial and Operating Data, including the notes thereto, which
are included elsewhere in this Proxy Statement/Prospectus. The data should also
be read in conjunction with the Unaudited Pro Forma Condensed Combining
Financial Statements included elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER THREE MONTHS ENDED
31, 1995 MARCH 31, 1996
<S> <C> <C>
CHAMPION PER SHARE EQUIVALENT -- HISTORICAL
Champion Common Stock
Income (loss) before extraordinary item per common and common
equivalent share
Primary (1)........................................................ $ (1.86) $ 0.10
Fully Diluted (2).................................................. -- $ 0.08
Cash dividends per share............................................. -- --
Book value per share (3)............................................. $ 2.69 $ 2.81
Champion Preferred Stock
Book value per share (4)............................................. $ 8.83 $ 8.83
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, 1995 MARCH 31, 1996
<S> <C> <C>
PARACELSUS -- ADJUSTED HISTORICAL (5)
Net income (loss) per share.......................................... $ 0.44 $ (0.24)
Cash dividends per share............................................. $ 0.19 $ 0.04
Book value per share................................................. $ 3.53 $ 3.24
PARACELSUS -- ADJUSTED PRO FORMA (6)
Net income (loss) per share (7)...................................... $ 0.15 $ (0.14)
Cash dividends per share............................................. $ 0.12 $ 0.03
Book value per share................................................. n/a $ 4.65
</TABLE>
- ------------------------
(1) Calculated based on the weighted average common and common equivalent shares
of Champion outstanding during the periods presented. The loss per share for
the year ended December 31, 1995 reflects noncash dividends with respect to
Champion Preferred Stock of approximately $11,331,000.
(2) Calculated based on 18,184,000 weighted average shares of Champion Capital
Stock at March 31, 1996, based on Champion common and common equivalent
shares outstanding during the period and the assumed conversion of all
shares of Champion Preferred Stock into Champion Common Stock. Fully diluted
loss from continuing operations is not presented for the year ended December
31, 1995, due to the anti-dilutive effect of such calculation.
(3) Calculated by dividing the historical stockholders' equity by the number of
outstanding shares of Champion Common Stock. The outstanding shares of
Champion Common Stock do not include shares issuable upon exercise of
Champion Options or Champion Warrants, Champion Subscription Shares or
conversion of outstanding Champion Convertible Securities.
(4) Calculated by dividing the historical book value of the Champion Preferred
Stock by the number of shares of Champion Common Stock into which the
outstanding shares of Champion Preferred Stock are convertible.
(5) Adjusted to give effect to the Paracelsus Stock Split.
(6) Adjusted to give effect to the Paracelsus Stock Split and the Merger.
(7) Calculated based on 50,324,000 and 47,001,000 pro forma common and common
equivalent shares of Paracelsus at September 30, 1995 and March 31, 1996,
respectively.
20
<PAGE>
RISK FACTORS
THE FOLLOWING ARE CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY THE HOLDERS
OF CHAMPION CAPITAL STOCK IN EVALUATING THE MERGER AND THE INVESTMENT IN
PARACELSUS COMMON STOCK. CERTAIN STATEMENTS UNDER THIS CAPTION "RISK FACTORS"
CONSTITUTE "FORWARD-LOOKING STATEMENTS" UNDER THE REFORM ACT. SEE "--
FORWARD-LOOKING STATEMENTS."
COMPETITION
The healthcare industry has been characterized in recent years by increased
competition for patients and quality staff physicians, excess inpatient capacity
at hospitals, a shift from inpatient to outpatient settings and increased
consolidation. The principal factors contributing to these trends are advances
in medical technology, cost-containment efforts by managed care plans, employers
and traditional health insurers, changes in regulations and reimbursement
policies, increases in the number and type of physicians and competing
healthcare providers and changes in physician practice patterns.
Paracelsus' future success will depend, in part, on the ability of
Paracelsus' hospitals to continue to attract quality physicians, to enter into
managed care contracts and to organize and structure integrated healthcare
delivery systems with other healthcare providers and physician practice groups.
Most of Paracelsus' hospitals compete with other hospitals which provide
comparable services. Some of these hospitals may have significantly greater
financial resources than Paracelsus and some offer a wider range of services
than those offered by Paracelsus' hospitals. Some of these hospitals are owned
by governmental agencies that may be supported by Federal and/or state funding
and others by tax-exempt entities supported by endowments and charitable
contributions, which support is not available to Paracelsus' hospitals. The
competitive position of Paracelsus is also affected by the growth of managed
care organizations, including health maintenance organizations ("HMOs"),
preferred provider organizations ("PPOs") and other purchasers of group
healthcare services. Such managed care organizations negotiate with hospitals
and other healthcare providers to obtain discounts from established charges.
Paracelsus' ability to compete for managed care business in the future will
depend, in part, on its ability to operate profitably in a capitated payment or
negotiated price environment. There can be no assurance that Paracelsus'
hospitals will be able, on terms favorable to Paracelsus, to attract quality
physicians to their staffs, to enter into managed care contracts or to organize
and structure integrated healthcare delivery systems for which other healthcare
companies (including those with greater financial resources or a wider range of
services) may be competing.
Payor organizations have changed their payment methodologies and have
increased their monitoring of the utilization of services, which has resulted
in, among other things, a significant shift from inpatient to outpatient care.
This shift from inpatient to outpatient care, which typically results in more
cost effective care, has also resulted in substantial unused inpatient hospital
capacity and a concurrent increase in the utilization of outpatient services and
outpatient revenues. Partially as a result of these changes in the industry,
there has been significant consolidation in the hospital industry over the past
decade and many hospitals have closed, merged with a competitor or reduced their
services. While Paracelsus has added to its outpatient services, there can be no
assurance that such additions will adequately compensate for the shift away from
inpatient services. Although the occupancy rates and facility utilization for
Paracelsus' acute care facilities have remained fairly stable over the last
three fiscal years, a number of the foregoing factors could cause Paracelsus to
experience a decrease in occupancy rates or overall facility utilization.
Paracelsus cannot predict with any degree of certainty the effect such changes
or reforms or further changes or reforms might have on the business of
Paracelsus, and no assurance can be given that such changes or reforms will not
have a material adverse effect on Paracelsus' financial condition or results of
operations.
BUSINESS EXPANSION
Paracelsus' ability to compete successfully for managed care contracts or to
form or participate in integrated healthcare delivery systems may depend upon,
among other things, Paracelsus' ability to increase the number of its facilities
and services offered. Part of Paracelsus' business strategy is to
21
<PAGE>
expand its facilities and services through the acquisition of hospitals, other
healthcare businesses and ancillary healthcare providers and recruitment of
additional physicians. There can be no assurance that suitable acquisitions, for
which other healthcare companies (including those with greater financial
resources than Paracelsus) may be competing, can be accomplished on terms
favorable to Paracelsus or that financing, if necessary, can be obtained for
such acquisitions. See "-- Significant Leverage." In addition, there can be no
assurance that Paracelsus will be able to operate profitably any hospital
facility, business or other asset it may acquire, effectively integrate the
operations of such acquisitions or otherwise achieve the intended benefits of
such acquisitions.
LIMITS ON REIMBURSEMENT
Paracelsus' hospitals are licensed under applicable state law and certified
as providers under the Federal Medicare program and state Medicaid programs,
from which Paracelsus and Champion derived in total approximately 57% and 61%,
respectively, of their respective historical gross operating revenues for the
fiscal year ended 1995. Such programs are highly regulated and subject to
frequent and substantial changes. In recent years, basic changes in Medicare
reimbursement programs have resulted, and are expected to continue to result, in
reduced levels of reimbursement for a substantial portion of hospital procedures
and costs. In addition, further changes are anticipated that are likely to
result in further limitations on reimbursement levels. There can be no assurance
that reimbursement will continue to be available for those procedures and costs
of Paracelsus and Champion currently reimbursed by Medicare and Medicaid.
In addition, private payors, including managed care payors, increasingly are
demanding discounted fee structures or the assumption by healthcare providers of
all or a portion of the financial risk of delivering healthcare to their members
through prepaid capitation arrangements. Inpatient utilization, admissions and
occupancy rates continue to be negatively affected by payor-required pre-
admission authorization and utilization review and by payor pressure to
substitute less expensive outpatient and alternative healthcare services for
inpatient procedures for less acutely ill patients. See "-- Competition." In
addition, efforts to impose reduced allowances, greater discounts and more
stringent cost controls by government and other payors are expected to continue.
These changes could adversely affect Paracelsus' financial condition and results
of operations. In particular, as the number of patients covered by managed care
payors increases, significant limits on the scope of services reimbursed and on
reimbursement rates and fees could have a material adverse effect on Paracelsus'
financial condition and results of operations.
EXTENSIVE REGULATION
The healthcare industry is subject to extensive Federal, state and local
regulation relating to licensing, conduct of operations, ownership of
facilities, addition of facilities and services and prices for services. In
particular, Medicare and Medicaid antifraud and abuse amendments codified under
Section 1128B(b) of the Social Security Act (the "Antifraud Amendments")
prohibit certain business practices and relationships that might affect the
provision and cost of healthcare services reimbursable under Medicare and
Medicaid. Sanctions for violating the Antifraud Amendments include criminal
penalties and civil sanctions, including fines and possible exclusion from the
Medicare and Medicaid programs. Pursuant to the Medicare and Medicaid Patient
and Program Protection Act of 1987, the Department of Health and Human Services
("HHS") has issued regulations that describe some of the conduct and business
relationships permissible under the Antifraud Amendments (the "Safe Harbors").
The fact that a given business arrangement does not fall within a Safe Harbor
does not render the arrangement PER SE illegal. Business arrangements of
healthcare service providers that fail to satisfy the applicable Safe Harbor
criteria, however, risk increased scrutiny by enforcement authorities.
Paracelsus has joint ventures with physician investors that are subject to
regulation under the Antifraud Amendments. None of such joint ventures falls
within any of the Safe Harbors. Under Paracelsus' joint venture arrangements,
physician investors are not and will not be under any obligation to refer or
admit their patients, including Medicare or Medicaid beneficiaries, to receive
22
<PAGE>
services at Paracelsus' facilities, nor are distributions to those physician
investors contingent upon or calculated with reference to referrals by the
investors. On the basis thereof, Paracelsus does not believe the ownership of
interests in or receipt of distributions from Paracelsus' joint ventures would
be construed to be knowing and willful payments to the physician investors to
induce them to refer patients in violation of the Antifraud Amendments. There
can be no assurance, however, that government officials charged with
responsibility for enforcing the prohibitions of the Antifraud Amendments will
not assert that one or more of Paracelsus' joint ventures is in violation of
such provisions. To date, none of Paracelsus' current joint ventures has been
reviewed by any governmental authority for compliance with the Antifraud
Amendments.
In addition, Section 1877 of the Social Security Act was amended effective
January 1, 1995 (such amendments being hereinafter referred to as "Stark II") to
broaden significantly the scope of prohibited physician referrals under the
Medicare and Medicaid programs to providers with which they have financial
arrangements. Many states have adopted or are considering legislative proposals
similar to Stark II, some of which extend beyond the Medicaid program to all
healthcare services. Paracelsus' participation in and development of joint
ventures and other financial arrangements with physicians could be adversely
affected by these amendments and similar state enactments.
Certificates of need ("CONs"), which are issued by certain state
governmental agencies with jurisdiction over healthcare facilities, are at times
required for the construction of new facilities, the expansion of old
facilities, capital expenditures exceeding a prescribed amount, changes in bed
capacity or services and certain other matters. After consummation of the
Merger, Paracelsus will operate facilities in seven states that require state
approval under CON programs. No assurance can be given that Paracelsus will be
able to obtain additional CONs in any jurisdiction where such CONs are required.
Paracelsus is unable to predict the future course of Federal, state and
local regulation or legislation, including Medicare and Medicaid statutes and
regulations. Changes in the regulatory framework could have a material adverse
effect on Paracelsus' financial condition and results of operations.
HEALTHCARE REFORM LEGISLATION
In recent years, an increasing number of legislative initiatives have been
introduced or proposed in Congress and in state legislatures that would effect
major changes in the healthcare system, either nationally or at the state level.
Among the proposals under consideration are price controls on hospitals,
insurance market reforms to increase the availability of group health insurance
to small businesses, requirements that all businesses offer health insurance
coverage to their employees and the creation of a government health insurance
plan or plans that would cover all citizens. There continue to be efforts at the
Federal level to introduce various insurance market reforms, expanded fraud and
abuse and anti-referral legislation and further reductions in Medicare and
Medicaid reimbursement. A broad range of both similar and more comprehensive
healthcare reform initiatives is likely to be considered at the state level. In
an effort to reduce the Federal budget deficit, Congress is considering
reductions to Medicaid spending that could reduce payments to Paracelsus'
hospitals for services provided to Medicaid recipients, including, among others,
payments to teaching hospitals and hospitals providing a disproportionate amount
of care to indigent patients. A reduction in these payments could adversely
affect Paracelsus' total operating revenues and operating margins. It is
uncertain what action Congress or state legislatures may take or if any such
action would become law. Paracelsus cannot predict whether any of the above
proposals or any other proposals will be adopted, and, if adopted, no assurance
can be given that the implementation of such legislation will not have a
material adverse effect on Paracelsus' financial condition or results of
operations.
DEPENDENCE ON KEY PERSONNEL AND PHYSICIANS
Paracelsus' operations are dependent on the efforts, ability and experience
of its key executive officers. In addition, Paracelsus' continued growth depends
on its ability to attract and retain skilled employees, on the ability of its
officers and key employees to manage growth successfully and on Paracelsus'
ability to attract and retain quality physicians and management teams at its
facilities. Further, since physicians generally control the majority of hospital
admissions, the success of
23
<PAGE>
Paracelsus is, in part, dependent upon the number, specialties and quality of
physicians on its hospitals' medical staffs, most of whom have no long-term
contractual relationship with Paracelsus and may terminate their association
with Paracelsus' hospitals at any time. No assurance can be given that the loss
of some or all of these key executive officers or an inability to attract or
retain sufficient numbers of qualified physicians or hospital management teams
will not have a material adverse effect on Paracelsus' financial condition or
results of operations.
CONCENTRATION OF OPERATIONS
Of the 31 hospital facilities to be operated by Paracelsus after
consummation of the Merger, five will be located in the Salt Lake City
metropolitan area. On a pro forma combined basis, excluding the effect of
Paracelsus' acquisition of assets relating to FHP Hospital, a 125-bed acute care
hospital, and its surrounding campus, in Salt Lake City (the "PHC Salt Lake
Hospital"), these hospitals would have accounted for 25% and 34% of Paracelsus'
total hospital operating revenues and Adjusted EBITDA, respectively, for the 12
months ended March 31, 1996. Paracelsus expects that total hospital operating
revenues and Adjusted EBITDA anticipated to be received by Paracelsus in
connection with the operation of the PHC Salt Lake Hospital will further
increase the contribution of the Utah operations to Paracelsus' total hospital
operating revenues and Adjusted EBITDA. See "Business of Paracelsus -- Recent
Transactions." Paracelsus' management believes that its strategy of acquiring
hospitals in the Salt Lake City area will enhance its ability to compete for
managed care contracts and organize and structure an integrated healthcare
delivery system in that market, although there can be no assurance that such
strategy will be successful. In addition, Paracelsus has eight hospitals in the
Los Angeles metropolitan area, a competitive and overbedded environment. On a
pro forma combined basis, these hospitals would have accounted for 23% and 9% of
Paracelsus' total hospital operating revenues and Adjusted EBITDA, respectively,
for the 12 months ended March 31, 1996. Paracelsus may be particularly sensitive
to economic, competitive and regulatory conditions in these metropolitan areas,
and the future success of Paracelsus may be substantially affected by its
ability to compete effectively in these markets.
PRINCIPAL SHAREHOLDER
Immediately following the Merger, Dr. Krukemeyer will, through his ownership
of the Paracelsus Shareholder, beneficially own approximately 60% of the
outstanding shares of Paracelsus Common Stock. Assuming consummation of the
Primary Equity Offering, Dr. Krukemeyer will beneficially own approximately 54%
of the outstanding shares of Paracelsus Common Stock. Upon the consummation of
the Merger, the Paracelsus Shareholder will enter into the Shareholder Agreement
pursuant to which the Paracelsus Shareholder will agree, among other things: (i)
to certain "standstill" provisions; (ii) to certain transfer restrictions with
respect to Paracelsus' voting securities; (iii) not to acquire additional voting
securities of Paracelsus if, after giving effect to such acquisition, such
shareholder would beneficially own more than 66 2/3% of the total voting power
of Paracelsus, except under certain circumstances; and (iv) to sell in, tender
into and vote in favor of, as the case may be, certain acquisition proposals
involving Paracelsus. The Shareholder Agreement will also provide the Paracelsus
Shareholder with the right to designate four nominees to the New Paracelsus
Board and a right of first refusal in connection with certain acquisition
proposals for Paracelsus. After the Merger, Dr. Krukemeyer and the Paracelsus
Shareholder also have right of first refusal to acquire the Paracelsus Common
Stock of the four most senior officers of the Company. See "Certain Related
Agreements -- Shareholder Agreement" and "Right of First Refusal Agreement."
Given Dr. Krukemeyer's level of beneficial ownership of Paracelsus Common
Stock and his right to designate four nominees to the New Paracelsus Board, Dr.
Krukemeyer will have the ability to influence the policies and affairs of
Paracelsus to a greater extent than other shareholders of Paracelsus. In
addition, Dr. Krukemeyer's level of beneficial ownership, as well as his right
of first refusal in connection with certain acquisition proposals for
Paracelsus, could have the effect of delaying or making more difficult a change
of control of Paracelsus.
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CERTAIN ANTI-TAKEOVER EFFECTS
Certain provisions of the Paracelsus Articles and the Paracelsus Bylaws may
have the effect of making an unsolicited acquisition of control of Paracelsus
more difficult or expensive. Furthermore, it is anticipated that prior to the
Effective Time, the New Paracelsus Board will adopt the Rights Agreement, which
could have the effect of making an unsolicited acquisition of Paracelsus more
difficult or more expensive. Dr. Krukemeyer's level of beneficial ownership, as
well as his right of first refusal in connection with certain acquisition
proposals for Paracelsus, could also have the effect of delaying or making more
difficult a change of control of Paracelsus.
SIGNIFICANT LEVERAGE
As of May 31, 1996, as adjusted on a pro forma basis to give effect to the
Merger, Paracelsus' total indebtedness, including the current portion of
long-term indebtedness and capital lease obligations, would have been
$492,800,000, which represents 69% of its total capitalization; as adjusted on a
pro forma basis to give effect to the Merger and the Debt Offering, Paracelsus'
total indebtedness, including the current portion of long-term indebtedness and
capital lease obligations, would have been $508,700,000, which represents 70% of
its total capitalization; and as adjusted on a pro forma basis to give effect to
the Merger and the Public Offerings, Paracelsus' total indebtedness, including
the current portion of long-term indebtedness and capital lease obligations,
would have been $452,800,000, which represents 63% of its total capitalization.
See "Capitalization." In addition, upon consummation of the Public Offerings and
the Credit Facility Refinancing, Paracelsus expects to have $296,000,000
available credit under its new credit facility (the "New Credit Facility")
(before reduction of approximately $9,700,000 for commitments outstanding under
letters of credit), all of which will be permitted to be borrowed under the New
Credit Facility and the indenture (the "New Indenture") governing the
$250,000,000 aggregate principal amount of Senior Subordinated Notes to be
issued pursuant to the Debt Offering (the "New Senior Subordinated Notes") in
accordance with their terms. On a pro forma basis, after giving effect to the
Merger, the Public Offerings and the application of the net proceeds therefrom,
Paracelsus' earnings would have been insufficient to cover fixed charges by
$9,300,000 for the six months ended March 31, 1996. The pro forma earnings
deficiency is primarily the result of an unusual charge recorded in March 1996
of $22,400,000 related to the settlement of two lawsuits. See "Unaudited Pro
Forma Condensed Combining Financial Statements." Paracelsus believes that cash
flows from operations will be sufficient to meet debt service requirements for
interest and scheduled payments of principal under Paracelsus' indebtedness,
including the New Credit Facility and the New Senior Subordinated Notes.
However, there can be no assurance that Paracelsus will be able to generate the
cash flows necessary to permit Paracelsus to meet such debt service
requirements.
Paracelsus expects that the New Credit Facility will include covenants that
prohibit or limit, among other things, the sale of assets, the making of
acquisitions and other investments, the incurrence of additional debt and liens
and the payment of dividends, and that require Paracelsus to maintain a minimum
consolidated net worth and to comply with certain financial ratio tests. See
"Financing in Connection with the Merger and Related Transactions -- New Credit
Facility." In addition, the New Indenture will include covenants that limit,
among other things, the ability of Paracelsus and its subsidiaries to incur
additional indebtedness, make prepayment of certain indebtedness, pay dividends
or redeem capital stock, create certain liens, sell certain assets, engage in
certain transactions with affiliates, engage in certain mergers and enter a new
line of business. Paracelsus' failure to comply with any of these covenants
could result in an event of default, thereby permitting acceleration of such
indebtedness as well as indebtedness under other instruments that contain
cross-acceleration or cross-default provisions, including the New Credit
Facility, the indenture pursuant to which the Existing Senior Subordinated Notes
were issued (the "Existing Indenture") and the New Indenture, which in turn
could have a material adverse effect on Paracelsus' financial condition and
results of operations.
The degree to which Paracelsus is leveraged and the covenants described
above may adversely affect Paracelsus' ability to finance its future operations
and could limit its ability to pursue business
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opportunities that may be in the interest of Paracelsus and its security
holders. In particular, changes in medical technology, existing, proposed and
future legislation, regulations and the interpretation thereof, and the
increasing importance of managed care contracts and integrated healthcare
delivery systems may require significant investment in facilities, equipment,
personnel or services. Although Paracelsus expects that cash generated from
operations and amounts available under the New Credit Facility will be
sufficient to allow it to make such investments, there can be no assurance that
Paracelsus will be able to obtain the funds necessary to make such investments.
Furthermore, tax-exempt or government-owned competitors have certain financial
advantages such as endowments, charitable contributions, tax-exempt financing
and exemption from sales, property and income taxes not available to Paracelsus,
providing them with a potential competitive advantage in making such
investments.
CONSUMMATION OF THE REFINANCING TRANSACTIONS
Paracelsus has filed registration statements with respect to the Public
Offerings. In addition, Paracelsus intends to refinance as soon as practicable
after the Effective Time, through borrowings under the New Credit Facility, all
amounts outstanding under the existing Paracelsus credit facility (the "Existing
Paracelsus Credit Facility"). While the closings of the Public Offerings and the
Credit Facility Refinancing are currently expected to occur promptly following
the Effective Time and will be conditioned upon the closing of Merger, the
closing of the Merger is not conditioned upon the closing of any of the Public
Offerings or the Credit Facility Refinancing. There can be no assurances that
any of the Public Offerings or the Credit Facility Refinancing will be
consummated. In the event that any of the Public Offerings or the Credit
Facility Refinancing is not consummated, Paracelsus would pursue any other
alternatives available to it at that time. However, if either the Debt Offering
or the Credit Facility Refinancing is not consummated, Champion and Paracelsus
will be required to obtain certain consents and waivers under their respective
existing credit facilities in order to consummate the Merger and certain related
transactions. In addition, in connection with the consummation of the Merger and
the related financing transactions Paracelsus intends to seek certain consents
under the Existing Senior Subordinated Notes. The failure to obtain any such
consents or waivers may be deemed to give rise to a default under certain of
such indebtedness and perhaps cause other defaults under other outstanding
obligations of Champion and Paracelsus. Although Paracelsus currently expects
that such consents or waivers will be obtained prior to the Effective Time,
there can be no assurance as to the terms on which, or whether, such consents or
waivers would be obtained. The companies do not currently intend to consummate
the Merger until any necessary consents or waivers in connection with the Merger
under outstanding indebtedness of Paracelsus and Champion are obtained. See
"Certain Related Agreements -- Participants Agreement," "Financing in Connection
with the Merger and Related Transactions" and "Notes to Paracelsus and Champion
Unaudited Pro Forma Condensed Combining Financial Statements (Note 5)."
PROFESSIONAL LIABILITY INSURANCE
As is typical in the healthcare industry, Paracelsus is subject to claims
and legal actions by patients and others in the ordinary course of business. In
the past, Paracelsus established self-insurance programs and related trust funds
for the settlement of claims not covered by third-party insurance. In October
1992, Paracelsus established an insurance subsidiary to insure Paracelsus and
its other subsidiaries against liability for future general liability and
malpractice claims. Such subsidiary insures Paracelsus' hospitals for the first
$500,000 per occurrence of general and professional liability risks occurring
after October 1, 1987 and the first $250,000 per occurrence of workers'
compensation liability risks occurring after October 1, 1992. Although
management expects that Paracelsus' self-insurance and related-party insurance,
together with its third-party insurance coverage, will be adequate to provide
for liability claims, there can be no assurance that such insurance will prove
to be adequate.
SHARES ELIGIBLE FOR FUTURE ISSUANCE AND SALE
Sales of substantial amounts of Paracelsus Common Stock in the open market
or the availability of such shares for sale could adversely affect prevailing
market prices for Paracelsus Common Stock.
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Upon consummation of the Merger, 49,447,167 shares of Paracelsus Common
Stock will be outstanding. In addition, 7,515,740 shares of Paracelsus Common
Stock are currently expected to be reserved for issuance to holders of
outstanding options to purchase shares of Paracelsus Common Stock ("Paracelsus
Options") and Paracelsus Warrants and other rights to acquire shares, including
for issuance to the holders of Paracelsus Options outstanding prior to
consummation of the Merger and to the holders of outstanding options to purchase
shares of Champion Common Stock ("Champion Options"), Champion Warrants,
Champion Subscription Shares (as hereinafter defined) and Champion Convertible
Securities (as hereinafter defined) assumed by Paracelsus in the Merger.
Following the Merger, certain holders of shares of Paracelsus Common Stock and
of Paracelsus Warrants will have certain rights to require Paracelsus to
register Paracelsus Common Stock under the Securities Act under registration
rights agreements with Paracelsus. The shares of Paracelsus Common Stock covered
by these registration rights will include 29,771,742 shares beneficially owned
by the Paracelsus Shareholder, approximately 11,756,000 shares beneficially
owned by certain Champion Investors (approximately 9,061,000 upon consummation
of the Secondary Equity Offering and 7,876,750 if the underwriters'
over-allotment option is exercised) and an aggregate of 414,690 shares issuable
upon the exercise of Paracelsus Warrants held by certain Champion Investors.
Paracelsus plans to offer and sell 5,200,000 newly issued shares of
Paracelsus Common Stock in the Primary Equity Offering. Certain shareholders of
Paracelsus will also be selling an aggregate of 2,695,000 shares of Paracelsus
Common Stock in connection with the Secondary Equity Offering (with 1,184,250
additional shares subject to the underwriters' over-allotment option).
Paracelsus will also register on the Registration Statement of which this Proxy
Statement/Prospectus forms a part (i) 422,286 shares of Paracelsus Common Stock
issuable upon exercise of Paracelsus Warrants resulting from the assumption of
Champion Warrants by Paracelsus in the Merger and (ii) 80,000 shares of
Paracelsus Common Stock subject to issuance as a result of the assumption of
Champion Subscription Shares by Paracelsus in the Merger. In addition,
Paracelsus currently intends to register up to 10,087,137 shares of Paracelsus
Common Stock to be issued in connection with certain employee benefit programs.
LACK OF PUBLIC MARKET
Prior to the Merger, Paracelsus has been wholly owned by the Paracelsus
Shareholder and there has been no public trading market for the Paracelsus
Common Stock. The Paracelsus Common Stock has been approved for listing on the
NYSE upon consummation of the Merger under the symbol "PLS," subject to official
notice of issuance. However, there can be no assurance as to the liquidity of
any market that may develop for the Paracelsus Common Stock, the ability of
holders to sell their Paracelsus Common Stock or the price at which holders
would be able to sell their Paracelsus Common Stock. See "The Merger -- Stock
Exchange Listing."
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Proxy Statement/Prospectus, including
without limitation statements containing the words "believes," "anticipates,"
"intends," "expects" and words of similar import, constitute "forward-looking
statements" within the meaning of the Reform Act. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, performance or achievements of Paracelsus or
industry results to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general economic and business
conditions, both nationally and in the regions in which Paracelsus and Champion
operate; industry capacity; demographic changes; existing government regulations
and changes in, or the failure to comply with, government regulations;
legislative proposals for healthcare reform; the ability to enter into managed
care provider arrangements on acceptable terms; changes in Medicare and Medicaid
reimbursement levels; liability and other claims asserted against Paracelsus or
Champion; competition; the loss of any significant customers; changes in
business strategy or development plans; the ability to attract and retain
qualified personnel, including physicians; the significant indebtedness of
Paracelsus after the Merger; the availability and terms of capital to fund the
expansion of
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Paracelsus' business, including the acquisition of additional facilities; and
other factors referenced in this Proxy Statement/Prospectus. Certain of these
factors are discussed in more detail elsewhere in this Proxy
Statement/Prospectus, including without limitation under the captions "Summary,"
"Risk Factors," "Paracelsus Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Champion Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business of
Paracelsus" and "Business of Champion." GIVEN THESE UNCERTAINTIES, PROSPECTIVE
INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING
STATEMENTS. Each of Paracelsus and Champion 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.
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THE SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to the holders of
Champion Capital Stock in connection with the solicitation of proxies by the
Champion Board for use at the Special Meeting, and at any adjournments or
postponements thereof, to consider and vote upon the Proposals.
Each copy of this Proxy Statement/Prospectus mailed to holders of Champion
Capital Stock is accompanied by a proxy card for use at the Special Meeting.
This Proxy Statement/Prospectus is also furnished to Champion stockholders as a
prospectus in connection with the issuance by Paracelsus of shares of Paracelsus
Common Stock in the Merger.
As soon as reasonably practicable after the Effective Time, instructions
with regard to the surrender of stock certificates, together with a letter of
transmittal to be used for this purpose, will be furnished by mail to all
Champion stockholders for use in exchanging their stock certificates for the
shares of Paracelsus Common Stock they will be entitled to receive as a result
of the Merger. STOCKHOLDERS OF CHAMPION ARE INSTRUCTED NOT TO SUBMIT THEIR STOCK
CERTIFICATES FOR EXCHANGE UNTIL SUCH INSTRUCTIONS AND LETTER OF TRANSMITTAL ARE
RECEIVED OR ARE AVAILABLE FOR DELIVERY. See "The Merger Agreement -- Exchange of
Certificates."
TIME, DATE AND PLACE OF THE SPECIAL MEETING
The Special Meeting will be held on August 9, 1996, at the principal
executive offices of Champion, 515 West Greens Road, Suite 800, Houston, Texas
77067, commencing at 10:00 a.m., local time.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
PROPOSALS. At the Champion Special Meeting, holders of Champion Capital
Stock will consider and vote upon (i) the Merger Proposal; (ii) the Plan
Proposals; and (iii) such other matters as may properly be brought before the
Champion Special Meeting or any adjournment(s) or postponement(s) thereof.
APPROVAL OF THE MERGER PROPOSAL WILL BE DEEMED TO CONSTITUTE APPROVAL OF THE
PLAN PROPOSALS TO AMEND THE DIRECTORS' STOCK OPTION PLAN AND THE SELECTED
EXECUTIVE STOCK OPTION PLAN. THE PLAN PROPOSAL TO AMEND THE FOUNDERS' STOCK
OPTION PLAN WILL BE SUBJECT TO A SEPARATE VOTE OF THE STOCKHOLDERS OF CHAMPION.
BOARD OF DIRECTORS' RECOMMENDATIONS. THE CHAMPION BOARD, AT A MEETING HELD
ON APRIL 11, 1996, HAS UNANIMOUSLY APPROVED THE MERGER PROPOSAL AND THE PLAN
PROPOSALS. THE CHAMPION BOARD RECOMMENDS THAT CHAMPION'S STOCKHOLDERS VOTE FOR
THE APPROVAL AND ADOPTION OF THE MERGER PROPOSAL AND FOR THE APPROVAL OF THE
PLAN PROPOSALS.
RECORD DATE
Champion has established July 15, 1996 as the Record Date for the
determination of stockholders entitled to notice of and to vote at the Special
Meeting. Only holders of record of Champion Capital Stock at the close of
business on the Record Date are entitled to vote at the Special Meeting.
VOTES REQUIRED
On the Record Date, Champion had outstanding and entitled to vote 14,463,997
shares of Champion Common Stock, each of which is entitled to one vote per share
on matters properly submitted at the Special Meeting. On such date, there were
approximately 774 holders of record of Champion Common Stock. On the Record
Date, Champion had outstanding and entitled to vote 448,811 shares of Champion
Series C Preferred Stock, each of which is entitled to two votes per share on
matters properly submitted at the Special Meeting. On such date, there were
approximately 15 holders of record of Champion Series C Preferred Stock. On the
Record Date, Champion had outstanding and entitled to vote 2,156,903 shares of
Champion Series D Preferred Stock, each of which is entitled to two votes per
share on matters properly submitted at the Special Meeting. On such date, there
were approximately 54 holders of record of Champion Series D Preferred Stock.
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The presence in person or by proxy of the outstanding shares of Champion
Common Stock and the outstanding shares of the Champion Preferred Stock
representing a majority of the vote which could be cast by the holders of all
Champion Capital Stock, voting together as a single class, is necessary to
constitute a quorum for the transaction of business. Abstentions will be counted
as present for the purposes of determining whether a quorum is present. Any
abstention with respect to the approval of the Merger Proposal (and, thereby,
with respect to approval of the Directors' and Selected Executive Stock Option
Plan Proposals) or the approval of the Founders' Stock Option Plan Proposal will
have the effect of a vote against such Proposal. Any broker nonvote will not
affect the outcome of the Founders' Stock Option Plan Proposal, but a broker
nonvote will have the effect of a vote against the Merger Proposal (and,
thereby, against the Directors' and Selected Executive Stock Option Plan
Proposals). The failure of holders of Champion Capital Stock to sign and return
their proxy will have the same effect as voting against the Merger Proposal
(and, thereby, against the Directors' and Selected Executive Stock Option Plan
Proposals). HOLDERS OF SHARES OF CHAMPION CAPITAL STOCK ARE REQUESTED TO
COMPLETE, SIGN, DATE AND RETURN PROMPTLY THE ENCLOSED PROXY CARD IN THE POSTAGE
PAID ENVELOPE PROVIDED FOR THIS PURPOSE IN ORDER TO ENSURE THAT THEIR SHARES ARE
VOTED.
Approval of the Merger Proposal (and, therewith, the Directors' and Selected
Executive Stock Option Plan Proposals) requires (a) the affirmative vote of the
holders of a majority of the total voting power represented by the outstanding
shares of Champion Capital Stock, voting together as a single class, (b) the
affirmative vote of the holders of at least 90% of the outstanding shares of
Champion Series C Preferred Stock, voting as a separate class, and (c) the
affirmative vote of at least 90% of the outstanding shares of Champion Series D
Preferred Stock, voting as a separate class.
Approval of the Founders' Stock Option Plan Proposal, pursuant to a separate
stockholder vote, requires the affirmative vote of the holders of a majority of
the total voting power of Champion Capital Stock, voting together as a single
class, present in person or represented by proxy and entitled to vote at the
Special Meeting.
Consummation of the Merger is not subject to or conditioned upon stockholder
approval of the Founders' Stock Option Plan Proposal. If approved by the
stockholders of Champion, the Founders' Stock Option Plan Proposal will be
implemented whether or not the Merger is consummated. In addition, pursuant to
the Voting Agreement, if the Founders' Stock Option Plan Proposal is not
approved by the stockholders of Champion, Dr. Krukemeyer and Messrs. Miller and
VanDevender have agreed to use their respective best efforts to cause to be
presented at the next shareholder meeting of Paracelsus a proposal similar to
the Founders' Stock Option Plan Proposal and to vote for such proposal.
Holders of the Champion Series C Preferred Stock and the Champion Series D
Preferred Stock who are parties to the Participants Agreement have agreed to
vote their respective shares of Champion Preferred Stock for the approval and
adoption of the Merger Proposal at the Special Meeting. Such holders represent
all of the outstanding shares of Champion Series C Preferred Stock, all of the
outstanding shares of Champion Series D Preferred Stock, and approximately 26%
of the total voting power represented by all of the outstanding shares of
Champion Capital Stock entitled to vote at the Special Meeting. Accordingly, the
required class vote of each of the Champion Series C Preferred Stock and
Champion Series D Preferred Stock in favor of the Merger Proposal is assured.
See "Certain Related Agreements -- Participants Agreement."
As of the Record Date, the directors and executive officers of Champion and
their affiliates, some of whom are also parties to the Participants Agreement,
beneficially owned approximately 6,239,000 shares of Champion Common Stock
entitled to vote at the Special Meeting, 142,290 shares of Champion Series C
Preferred Stock entitled to vote at the Special Meeting, and 472,965 shares of
Champion Series D Preferred Stock entitled to vote at the Special Meeting. As of
the Record Date, such shares beneficially owned by the directors and executive
officers of Champion and their affiliates represented approximately 43% of such
outstanding shares of Champion Common Stock, 32% of such outstanding shares of
Champion Series C Preferred Stock, 22% of such outstanding shares of Champion
Series D
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Preferred Stock and 38% of the total voting power represented by all of the
outstanding shares of Champion Capital Stock entitled to vote at the Special
Meeting. Each such director and executive officer has advised Champion that he
or she intends to vote or direct the vote of all shares of Champion Capital
Stock over which he or she has voting control for all of the Proposals.
ISSUANCE OF PARACELSUS COMMON STOCK IN THE MERGER
Assuming no change in the number of shares of Champion Common Stock and
Champion Preferred Stock outstanding at the Effective Time from the number
outstanding on the Record Date, approximately 19,675,425 shares of Paracelsus
Common Stock will be issued in the Merger in exchange for Champion Capital Stock
and 49,447,167 shares of Paracelsus Common Stock will be outstanding after the
consummation of the Merger. A total of up to approximately 7,515,740 additional
shares of Paracelsus Common Stock will be reserved for issuance upon the
exercise of outstanding Paracelsus Options, Paracelsus Warrants and other
convertible securities and subscription rights to acquire shares of Paracelsus
Common Stock, including the outstanding Champion Options, Champion Warrants,
Champion Subscription Shares and Champion Convertible Securities to be assumed
by Paracelsus in the Merger and the Paracelsus Options outstanding prior to
consummation of the Merger. See "The Merger -- Effect of the Merger on Employee
Compensation Arrangements" and "-- Effect of the Merger on Champion Warrants and
Convertible Securities."
VOTING AND REVOCATION OF PROXIES
A proxy card for the Special Meeting accompanies this Proxy
Statement/Prospectus. A stockholder may use the proxy card if he or she is
unable to attend the Special Meeting or wishes to have his or her shares voted
by proxy even if he or she does attend the Special Meeting. A proxy may be
revoked by the person giving it at any time before it is exercised by providing
written notice of such revocation to the Secretary of Champion, by submitting a
proxy having a later date or by appearing at the Special Meeting and electing to
vote in person. Presence at the Special Meeting of a stockholder who signed a
proxy does not in itself revoke the proxy. Any proxy validly submitted and not
revoked will be voted in the manner specified therein by the stockholder. IF NO
SPECIFICATION IS MADE, SHARES OF CHAMPION CAPITAL STOCK REPRESENTED BY PROXIES
RECEIVED BY CHAMPION PRIOR TO OR AT THE SPECIAL MEETING WILL BE VOTED FOR THE
APPROVAL OF EACH OF THE PROPOSALS.
The Champion Board is not aware of any matters to be presented at the
Special Meeting other than those described in this Proxy Statement/Prospectus.
If other matters are properly brought before the Special Meeting, it is the
intention of the persons named in the proxies, or their substitutes, to vote the
shares to which such proxies relate in accordance with their judgment.
Stockholders of Champion will not be entitled to present any matter for
consideration at the Special Meeting.
SOLICITATION OF PROXIES
Champion will bear the cost of soliciting proxies from its stockholders,
except that Champion and Paracelsus will share equally the costs of printing and
mailing this Proxy Statement/Prospectus. In addition to solicitation by mail,
the directors, officers and regular employees of Champion and its subsidiaries,
who will receive no compensation in excess of their regular salaries for their
services but may be reimbursed for their out-of-pocket expenses in connection
with the solicitation, may solicit proxies by telephone, telegram, in person or
otherwise. Champion will also reimburse brokers and other custodians, nominees
and fiduciaries for their reasonable expenses in communicating with the persons
for whom they hold Champion Capital Stock.
APPRAISAL RIGHTS
Holders of Champion Common Stock are not entitled to appraisal rights under
Section 262 of the DGCL in connection with the Merger. However, holders of
Champion Preferred Stock are entitled to appraisal rights under Section 262 of
the DGCL in connection with the Merger. See "The Merger -- Appraisal Rights."
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THE MERGER
BACKGROUND OF THE MERGER
The terms of the Merger Agreement and the related agreements are the result
of arm's-length negotiations held over several months between representatives,
legal advisors and financial advisors of Paracelsus and Champion. The following
is a brief discussion of the background of these negotiations, the Merger and
related transactions.
The United States healthcare industry has, for the last several years, been
in a period of great uncertainty. The trend towards forming "provider networks"
for the delivery of healthcare has greatly accelerated with the increasing
penetration by managed care systems such as HMOs and PPOs, the rise in direct
contracting between providers and employers and the development of pilot
Medicare and Medicaid managed care plans where HMOs contract with Federal and
state governments to serve a large, widespread population base. These factors,
among others, have led to numerous acquisitions, mergers and other strategic
alliances among healthcare providers and payors. Both Champion and Paracelsus
have actively reviewed the dynamic healthcare business environment to determine
how best to strengthen their respective positions for the future, recognizing
the rapid pace of change in the industry and the variety of strategic
transactions occurring within the industry.
The Champion Board from time to time since Champion's inception has
considered strategic alternatives for accelerating Champion's rate of growth and
enhancing stockholder value, including becoming a larger public company through
a merger or other business combination. Beginning in the winter of 1993,
Champion undertook a series of actions designed to enhance its value and
strengthen its standing as a recognized hospital management company while
preserving various strategic options. These actions included: (i) becoming an
AMEX-listed publicly held company as the result of a merger with AmeriHealth in
December 1994; (ii) undertaking a recapitalization of its capital structure in
December 1995; (iii) increasing its senior credit facility from $50,000,000 to
$100,000,000; and (iv) hiring personnel for, and restructuring, its acquisitions
department. Champion also began developing plans for deleveraging its balance
sheet, raising capital for acquisition purposes and increasing the public float
of its common stock, thereby making Champion a more attractive potential merger
partner.
During the same period, commencing in the winter of 1993, the Paracelsus
Board together with its senior management determined to actively pursue
candidates for acquisitions through merger. Paracelsus representatives, since
March 1994, conducted preliminary evaluations of, and held preliminary
discussions regarding possible business combinations with, various potentially
compatible publicly held healthcare companies.
In the fall of 1995, Champion contacted Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ") for advice and assistance in locating a
multi-hospital chain with which some form of business combination would be
possible. Thereafter, representatives of DLJ approached Mr. Messenger regarding
a possible business combination or strategic alliance with Champion. During
November and December of 1995, a series of meetings were held among Messrs.
Messenger, Miller, VanDevender and other members of Champion's senior management
team and the Paracelsus Board to consider the possibility of a business
combination between Champion and Paracelsus. In connection therewith, on
November 8, 1995, representatives of Paracelsus and Champion executed
confidentiality agreements relating to non-public information exchanged between
Paracelsus and Champion.
From December 1995 through February 1996, the members of the Paracelsus
Board visited certain facilities owned by Champion and representatives of
Champion visited certain facilities of Paracelsus.
During the first full week of February 1996, Mr. Messenger and Mr. David R.
Topper, Senior Vice President, Development, of Paracelsus and Mr. George Asbell,
Senior Vice President, Operations of
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Paracelsus, met with Messrs. VanDevender and Patterson to discuss various issues
with respect to a possible business combination, including issues relating to
possible valuation methodologies and the operation of a combined company.
During the last week of February 1996, a series of meetings were held during
which Messrs. Messenger and Miller and members of the Champion and Paracelsus
senior management teams (including Messrs. Asbell, Patterson and Joyner, Mr.
James Rush, Vice President, Finance and Chief Financial Officer of Paracelsus,
and Mr. Gary Hubschman, Senior Vice President of Paracelsus) and representatives
of DLJ met to discuss various issues relating to the potential business
combination, including without limitation the healthcare industry in general,
the merits of combining the two companies and the business objectives and
management strategies of the respective companies, and to review in depth the
individual facility operations for both Champion and Paracelsus.
During the first full week of March 1996, Messrs. Miller and Messenger met
to discuss potential organizational issues that could arise in a possible
combination of the two companies, including possible reporting responsibilities
of various members of their respective senior management teams. During the
second full week of March 1996, a preliminary non-binding term sheet outlining
various corporate issues regarding a possible business combination was prepared
by Messrs. Messenger and Miller.
On March 21, 1996, Messrs. Rush, Joyner and VanDevender and representatives
of DLJ, together with the legal advisors to Paracelsus and the legal advisors to
Champion, met to discuss the preliminary non-binding term sheet and various
structural and legal issues in order to proceed with the consideration of a
proposed business combination. The parties directed their respective legal
advisors to commence due diligence and the drafting and negotiation of
agreements appropriate for the proposed transaction and to identify and suggest
the resolution of various legal and financial issues. Thereafter, the parties'
legal advisors proceeded with their respective due diligence investigations.
From March 21 through April 11, 1996, the parties and their respective legal
and financial representatives discussed at various times the legal and financial
issues of the potential business combination and certain matters concerning the
fully diluted equity ownership of the combined company.
On March 22, 1996, Dr. Krukemeyer and Messrs. Messenger and Miller met to
discuss governance issues for the combined company and to determine if they
mutually desired to proceed with a possible business combination of the two
companies.
On March 28, 1996, the Champion Board met to discuss the terms of a possible
combination as set forth in a revised non-binding term sheet that outlined the
various corporate governance and stockholder issues identified by Champion's
legal and financial advisors. At that meeting the Champion Board, after
extensive discussions involving Champion's management and financial and legal
advisors and among the directors, and after a presentation made by DLJ,
unanimously approved the continuation of discussions and negotiations and the
preparation of draft definitive documentation for submission to the Champion
Board for consideration when applicable.
During the first week of April 1996, the Paracelsus Board met with members
of Paracelsus' senior management team, Paracelsus' legal and financial advisors
and Dr. Krukemeyer's personal advisors to discuss various issues in connection
with the contemplated business combination between Paracelsus and Champion,
including financial, tax, structural and management/operating issues.
Thereafter, Champion, Paracelsus and their respective legal and financial
advisors negotiated the terms of the various agreements relating to the
contemplated transaction.
On April 11, 1996, the Paracelsus Board met to consider the terms of the
proposed business combination. Both prior to and during such meeting, members of
the Paracelsus Board consulted with Paracelsus management, as well as
Paracelsus' financial advisors, BA Partners, a division of BA Securities, Inc.,
and legal advisors, and considered a number of factors with respect to the
possible transaction, including without limitation the following: (i) that by
providing Paracelsus with the
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opportunity to combine with a company having a portfolio of hospitals known for
high quality care and strong financial performance, the proposed Merger would
support a major strategic objective of Paracelsus to become a significant
provider of healthcare services in certain geographic areas throughout the
United States; (ii) the potential efficiencies and synergies expected to be
realized as a result of the proposed combination of the operations of Paracelsus
and Champion, the integration of office facilities and support functions and the
increased purchasing power of the combined companies; (iii) that the addition of
Champion's facilities in complementary geographic areas would improve
Paracelsus' ability to develop and offer more attractive networks and provide
more comprehensive coverage to group purchasers and to enter into comprehensive
healthcare delivery networks; (iv) the improved ability of Paracelsus to pursue
acquisitions where there is an opportunity to enhance Paracelsus' network of
hospitals; (v) that the proposed Merger would better position a combined company
to deal with uncertainties which may face the industry due to healthcare reform;
(vi) that, as a combined entity, Paracelsus would be better positioned to
develop an integrated healthcare delivery network with physicians and other
healthcare providers in certain of Paracelsus' markets; (vii) that the proposed
Merger would improve the combined company's ability to access the capital
markets and otherwise increase its financial flexibility; (viii) the management
strengths of Paracelsus and Champion and the fact that, when combined, such
managements would add significantly to the depth and breadth of the
organization; (ix) information with respect to the financial condition,
business, operations and prospects of both Paracelsus and Champion on a
historical and prospective basis, including certain information reflecting the
two companies on a pro forma combined basis; (x) the financial presentations
prepared by DLJ, and discussions among DLJ and the managements of both
Paracelsus and Champion, during late February and March 1996, with the knowledge
that DLJ was acting in its capacity as the financial advisor to Champion; (xi)
the terms of the Merger Agreement and the Shareholder Agreement; and (xii) the
opportunity to create a combined company with greater financial resources and
flexibility, competitive strengths and business opportunities than would be
possible for Paracelsus alone. These factors were considered collectively by the
Paracelsus Board, without giving specific weight to any particular factor.
At its meeting on April 11, 1996, the Paracelsus Board unanimously approved
the terms of the proposed Merger and instructed management and Paracelsus' legal
advisors to resolve the remaining open issues in order to reach an agreement on
the terms of the definitive agreements.
Also on April 11, 1996, the Champion Board met and, after a presentation
made by DLJ in connection with the delivery of its opinion to the effect that
the Exchange Ratio was fair to the holders of Champion Common Stock from a
financial point of view, unanimously approved the proposed forms of the Merger
Agreement and the Participants Agreement and the transactions contemplated by
the Merger Agreement. See "-- Approval of the Champion Board; Reasons for the
Merger."
Thereafter, throughout the day on April 12 and the early morning on April
13, 1996, the parties and their legal advisors resolved the remaining terms of
the Merger Agreement and related agreements, and Champion, Paracelsus and Merger
Sub executed and delivered the Merger Agreement. On April 15, 1996, Paracelsus
and Champion issued a joint press release announcing the execution of the Merger
Agreement.
APPROVAL OF THE CHAMPION BOARD; REASONS FOR THE MERGER
The Champion Board believes that the terms of the Merger Agreement and the
transactions contemplated thereby are fair to and in the best interests of
Champion and its stockholders. Accordingly, the Champion Board has approved the
Merger Agreement and recommended approval and adoption thereof by the
stockholders of Champion. In reaching its determination, the Champion Board
consulted with Champion management, as well as its legal counsel and financial
advisors, and considered a number of factors, including without limitation the
following:
(i) an assessment of Champion's strategic alternatives, including remaining
a separate company, making acquisitions or asset swaps and divesting certain
assets. In this respect, the Champion Board concluded, following extensive
analyses and discussions with Champion's management and
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financial and legal advisors and among the directors, that the transactions
contemplated by the Merger Agreement provided the best means for holders of
Champion Capital Stock to maximize the value of their holdings;
(ii) information concerning the financial performance, financial condition,
business operations and prospects of each of Paracelsus and Champion;
(iii) the opportunities for economies of scale and operating efficiencies
that are anticipated to result from the Merger, particularly in terms of the
integration of office facilities, information systems, support functions and the
combined purchasing power of the combined corporations;
(iv) that, as a combined entity with Paracelsus, Champion would be better
positioned to develop a new comprehensive integrated healthcare delivery network
with physicians and other healthcare providers in certain of Champion's markets;
(v) the management strengths of Champion and Paracelsus;
(vi) that the Merger would simplify Champion's capital structure and improve
the combined company's ability to access the capital markets and otherwise
increase its financial flexibility;
(vii) the terms and conditions of the Merger Agreement, including the right
of Champion to negotiate with and provide information to third parties and
terminate the Merger Agreement in the event of an unsolicited bona fide written
alternative proposal, if such action is required by the Champion Board's
fiduciary duties to Champion's stockholders (if such termination provision is
exercised, Champion will be obligated to make a Termination Payment to
Paracelsus (see "The Merger Agreement -- Termination Payment"), which provision
Paracelsus required of Champion and which the Champion Board did not view as
unreasonably precluding any third party from proposing an alternative
transaction);
(viii) the terms of the Shareholder Agreement and the Non-Compete Agreement;
(ix) the provisions in the Merger Agreement that require either Champion or
Paracelsus to make the Termination Payment to the other party if the Merger
Agreement is terminated under certain other circumstances and certain other
business combinations are consummated within a specified time, which the
Champion Board, based in part on the advice of Champion's financial advisor,
determined was comparable in type and amount to the termination fees payable in
transactions of similar size and nature;
(x) the belief that the Merger will better position the combined company to
deal with uncertainties which face the industry;
(xi) the Exchange Ratio and recent trading prices for Champion Common Stock
and the belief of the Champion Board, following extensive analyses and
discussions with Champion's management and financial and legal advisors and
among the directors, that the Exchange Ratio was fair and in the best interests
of the stockholders; and
(xii) the opinion of DLJ to the effect that the Exchange Ratio is fair to the
holders of Champion Common Stock from a financial point of view.
The Champion Board believes that the Merger offers the opportunity to create
a combined company that will have greater competitive strengths, business
opportunities, financial resources and flexibility than Champion could achieve
alone.
In view of the wide variety of factors considered in connection with its
evaluation of the proposed Merger, the Champion Board did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weight to the specific factors considered in reaching its determination.
OPINION OF CHAMPION FINANCIAL ADVISOR
DLJ, as part of its investment banking services, is regularly engaged in the
valuation of businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other
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purposes. The Champion Board selected DLJ as its financial advisor because it is
an internationally recognized investment banking firm and the principals of DLJ
have substantial experience in transactions similar to the Merger and are
familiar with Champion and its businesses.
As part of its role as financial advisor to Champion, DLJ was asked by
Champion to render an opinion to the Champion Board as to the fairness, from a
financial point of view, of the Exchange Ratio to the holders of Champion Common
Stock. On April 11, 1996, DLJ delivered to the Champion Board a written opinion
that, as of such date, based upon and subject to the matters set forth in such
opinion, the Exchange Ratio for the Champion Common Stock pursuant to the Merger
Agreement is fair, from a financial point of view, to the holders of Champion
Common Stock. At the request of the Champion Board, on July 18, 1996, DLJ
delivered to the Champion Board an updated version of its written opinion (the
"DLJ Opinion") to the effect that, as of the date of such updated opinion, based
upon and subject to the matters set forth in such opinion, the Exchange Ratio
for the Champion Common Stock pursuant to the Merger Agreement is fair, from a
financial point of view, to the holders of Champion Common Stock.
THE FULL TEXT OF THE DLJ OPINION IS ATTACHED HERETO AS ANNEX D. STOCKHOLDERS
OF CHAMPION ARE URGED TO READ THE DLJ OPINION IN ITS ENTIRETY FOR ASSUMPTIONS
MADE, PROCEDURES FOLLOWED, OTHER MATTERS CONSIDERED AND THE LIMITS OF THE REVIEW
BY DLJ. THE SUMMARY OF SUCH OPINION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
The DLJ Opinion was prepared for the Champion Board and is directed only to
the fairness, from a financial point of view, of the Exchange Ratio to the
holders of Champion Common Stock. The DLJ Opinion does not constitute a
recommendation to any stockholder of Champion as to how such stockholder should
vote with regard to the Merger. DLJ was not requested by the Champion Board to
make, nor did DLJ make, any recommendation as to the form or amount of
consideration to be received by Champion's stockholders in the Merger, which
issues were resolved through negotiations between Champion and Paracelsus, in
which DLJ assisted Champion. No restrictions or limitations were imposed by the
Champion Board upon DLJ with respect to the investigation made or the procedures
followed by DLJ in rendering its opinion. DLJ was not requested to, nor did DLJ,
solicit the interest of any other party in acquiring Champion.
It should be understood that, although subsequent developments may affect
the opinion of DLJ, DLJ does not have any obligation to update, revise or
reaffirm its opinion. The DLJ Opinion does not address the relative merits of
the Merger or a merger or any other transaction between Champion and any other
party. Moreover, DLJ is expressing no opinion as to the prices at which shares
of Paracelsus Common Stock will trade at any time.
In arriving at the DLJ Opinion, DLJ reviewed the Proxy Statement/Prospectus,
the Merger Agreement, including the exhibits and schedules attached thereto,
including the form of the Shareholder Agreement and certain related documents.
DLJ also reviewed financial and other information that was publicly available or
furnished to DLJ by Champion and Paracelsus, including information provided
during discussions with their respective managements. Included in the
information provided during discussions with the respective managements were
certain financial projections for Champion prepared by the management of
Champion and certain financial projections of Paracelsus prepared by the
management of Champion based on financial assumptions provided by the management
of Paracelsus. In addition, DLJ compared certain financial and securities data
of Champion and Paracelsus with various other companies whose securities are
traded in public markets, reviewed the historical stock prices and trading
volumes of Champion Common Stock, reviewed prices and premiums paid in other
business combinations and conducted such other financial studies, analyses and
investigations as DLJ deemed appropriate for purposes of its opinion.
In rendering its opinion, DLJ relied upon and assumed, without independent
verification, the accuracy, completeness and fairness of all of the financial
and other information that was available to
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it from public sources, that was provided to it by Champion and Paracelsus or
their representatives or that was otherwise reviewed by it. In addition, DLJ
relied upon the estimates of the management of Champion of the operating
synergies achievable as a result of the Merger and upon its discussion of such
synergies with the management of Paracelsus. With respect to the financial
projections supplied to it, DLJ assumed that they were reasonably prepared and
reflected the best currently available estimates and judgments of the
managements of Champion and Paracelsus as to the future operating and financial
performance of Champion and Paracelsus. Neither Champion nor Paracelsus publicly
discloses internal management projections of the type provided to the Champion
Board and to DLJ in connection with their review of the Merger. Such projections
were not prepared with a view towards public disclosure. The projections were
based on numerous variables and assumptions which are inherently uncertain,
including without limitation factors related to general economic and competitive
conditions. Accordingly, actual results could vary significantly from those set
forth in such projections. DLJ did not assume any responsibility for making an
independent evaluation of the assets or liabilities of Champion or Paracelsus or
for making any independent verification of any of the information reviewed by
it. DLJ relied as to all legal matters on advice of counsel to Champion. The DLJ
Opinion is necessarily based on economic, market, financial and other conditions
as they existed on, and on the information made available to it as of, the date
of such opinion.
DLJ performed certain procedures, including each of the financial analyses
described below, and reviewed with the managements of Champion and Paracelsus
the assumptions on which such analyses were based and other factors, including
the actual and pro forma historical financial results and projected financial
results of such companies. The purpose of these analyses was to assist in
determining the fairness, from a financial point of view, of the Exchange Ratio
to the holders of Champion Common Stock.
The following is a summary of the report presented by DLJ to the Champion
Board in connection with its written opinion dated April 11, 1996. DLJ performed
substantially the same analysis in connection with the delivery of the DLJ
Opinion.
CONTRIBUTION ANALYSIS. DLJ reviewed certain historical and estimated future
operating and financial information related to the equity values of Champion and
Paracelsus (including, among other things, pretax income and net income). Based
on such review, DLJ analyzed the contribution of each of Champion and Paracelsus
to the combined company, assuming the terms and conditions in the Merger
Agreement and without giving effect to any potential operating synergies. Such
analysis indicated that for the twelve months ended December 31, 1995 (the "LTM
Period"), Champion would have contributed to the combined company 12.0% of
pretax income and 17.8% of net income. For the LTM Period giving effect to all
acquisitions and divestitures that had occurred or were announced before April
11, 1996 (the "Pro Forma LTM Period"), Champion would have contributed to the
combined company 24.2% of pretax income and 23.9% of net income. For the
projected calendar years 1996 through 2000, Champion would have contributed to
the combined company between 37.1% and 42.7% of pretax income and between 36.9%
and 42.5% of net income. Contribution based on book value was not considered
since it was determined that the historical book value of the companies was not
a good indicator of current or future equity value. The results of this
contribution analysis are not necessarily indicative of the contributions that
the respective businesses might have in the future.
RELATIVE EQUITY CONTRIBUTION BASED ON SELECTED COMPANIES. DLJ reviewed and
compared certain actual and estimated financial and operating information of
Champion and Paracelsus to the corresponding information of certain publicly
traded hospital companies (the "Selected Companies"). DLJ then applied the
averages of certain relevant financial multiples of the Selected Companies to
certain financial data of Champion and Paracelsus in order to calculate
estimated relative equity contributions of Champion and Paracelsus to the
combined company, without giving any effect to any potential operating
synergies. The multiples used to calculate the relative equity contribution
included (i) the total equity value of a company, calculated as the public stock
price multiplied by the number of shares outstanding as of the latest available
date, as a multiple of net income for the latest twelve months for which
information was available ("LTM net income") and (ii) the total enterprise value
of a company,
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calculated as the total equity value of a company plus its long-term debt and
preferred stock less its cash and cash equivalents, as a multiple of (a)
earnings before interest, taxes, depreciation and amortization for the latest
twelve months for which information was available ("LTM EBITDA") and (b)
earnings before interest and taxes for the latest twelve months for which
information was available ("LTM EBIT").
To calculate relative equity contribution, the multiples of total equity
value to LTM net income and total enterprise value to LTM EBITDA and LTM EBIT
were applied to the relevant operating results for Champion and Paracelsus for
the LTM Period, the Pro Forma LTM Period and the estimated year ending December
31, 1996 (the "Estimated Year 1996" ). After using the multiples of total
enterprise value to LTM EBITDA and LTM EBIT to calculate total enterprise values
for Champion and Paracelsus, (a) the long-term debt (including any off-balance
sheet debt) and preferred stock less cash and cash equivalents held by each
company at December 31, 1995 (the "Actual Net Debt") for each company was
subtracted from the valuations based on the LTM Period and (b) Actual Net Debt
as adjusted for certain acquisitions and divestitures that occurred after
December 31, 1995 or were announced before April 11, 1996 and for certain merger
adjustments (the "Pro Forma Net Debt") for each company was subtracted from the
valuation based on the Pro Forma LTM Period and the Estimated Year 1996, in
order to calculate each company's equity value. Each company's relative equity
contribution was calculated as the percentage of its equity value to the total
of both companies' equity values.
Although DLJ used the Selected Companies for purposes of calculating
relative equity contribution, none of such companies are directly comparable to
Champion or Paracelsus. Such analysis indicated that (i) for the LTM Period,
Champion's relative equity contribution ranged from 12.0% to 18.0%, (ii) for the
Pro Forma LTM Period, Champion's relative equity contribution ranged from 23.9%
to 35.5% and (iii) for the Estimated Year 1996, Champion's relative equity
contribution ranged from 37.8% to 41.6%.
RELATIVE EQUITY CONTRIBUTION BASED ON SELECTED TRANSACTIONS. DLJ reviewed
publicly available information for selected transactions involving the
acquisition of hospital companies since January 1, 1992 (the "Selected
Transactions"). In reviewing the Selected Transactions, several factors were
considered including: (i) the lack of public information for subsidiary and
private company transactions which represent a significant portion of the
relevant merger and acquisition activity; (ii) the lack of directly comparable
transactions; and (iii) the generally larger size of several of the
transactions. DLJ then used the averages of certain relevant financial ratios of
the Selected Transactions to calculate the estimated relative equity
contributions of Champion and Paracelsus to the combined company, without giving
any effect to any potential operating synergies. The multiplier used to
calculate the relative equity contributions included (i) the purchase price of
the equity of a company as a multiple of net income for the latest twelve months
immediately prior to the announcement of the transaction ("LTMP net income") and
(ii) the total purchase price of a company, which includes the purchase price of
the equity plus all debt and preferred stock assumed or refinanced less its cash
and cash equivalents, as a multiple of (a) earnings before interest, taxes,
depreciation and amortization for the latest twelve months immediately prior to
the announcement of the transaction ("LTMP EBITDA") and (b) earnings before
interest and taxes for the latest twelve months immediately prior to the
announcement of the transaction ("LTMP EBIT").
To calculate relative equity contribution, the multiples were applied to the
relevant operating results for Champion and Paracelsus for the LTM Period, the
Pro Forma LTM Period and the Estimated Year 1996. After using the ratios of
total enterprise value to LTMP EBITDA and LTMP EBIT to calculate total
enterprise values for Champion and Paracelsus, (a) Actual Net Debt for each
company was subtracted from the valuations based on the LTM Period and (b) Pro
Forma Net Debt for each company was subtracted from the valuations based on the
Pro Forma LTM Period and the
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Estimated Year 1996, in order to calculate each company's equity value. Each
company's relative equity contribution was calculated as the percentage of its
equity value to the total of both companies' equity values.
Although DLJ used the selected transactions for the purposes of calculating
relative equity contribution, none of such transactions are directly comparable
to the Merger. Such analysis indicated that (i) for the LTM Period, Champion's
relative equity contribution ranged from 9.3% to 18.0%, (ii) for the Pro Forma
LTM Period, Champion's relative equity contribution ranged from 23.9% to 35.4%
and (iii) for the Estimated Year 1996, Champion's relative equity contribution
ranged from 37.8% to 41.9%.
No Selected Company or Selected Transaction used in the analysis summarized
above was directly comparable to Champion, Paracelsus or the proposed
transaction. Accordingly, an analysis of the results of the foregoing was
neither simply mathematical nor necessarily precise; rather it involved complex
considerations and judgments concerning differences in financial and operating
characteristics of companies and other factors that could affect such results.
RELATIVE EQUITY CONTRIBUTION BASED ON DISCOUNTED CASH FLOWS. DLJ also
performed discounted cash flow analyses of Champion and Paracelsus in order to
calculate the estimated relative equity contributions of Champion and Paracelsus
to the combined company, without giving effect to any potential operating
synergies. In conducting its analyses, DLJ relied on certain projections
provided by Champion's and Paracelsus' managements to determine a valuation
range for both Champion and Paracelsus. This analysis calculated the free cash
flows generated by each company on a stand-alone basis, without giving any
effect to any potential operating synergies or other merger adjustments, for
five years, and, at the end of five years, assumed that each company would be
sold for a multiple of the fifth year's EBITDA ranging from 7.6x to 9.6x (the
"Exit Multiple"). These free cash flows and sales proceeds were then discounted
back to the present at various discount rates ranging from 10% to 14% (the
"Discount Rates").
After using this methodology to calculate total enterprise values for
Champion and Paracelsus, the Pro Forma Net Debt of each company was subtracted
to calculate their respective equity values. Each company's relative equity
contribution was calculated as the percentage of its equity value to the total
of both companies' equity values. Based on the ranges of Exit Multiples and
Discount Rates, the analysis indicated that the relative equity contribution of
Champion to the combined company ranged from 36.6% to 37.1%.
PRO FORMA MERGER ANALYSIS. DLJ analyzed certain financial information for
the combined company resulting from the Merger. Such analysis included
assumptions regarding the potential for revenue enhancements and cost savings as
provided by Champion management. The analysis indicated that earnings per share
("EPS") for the Pro Forma LTM Period for the combined company would have been
75.9% higher than for Champion as a stand-alone company. In addition, for the
projected years 1996 through 2000, EPS for the combined company would be between
8.1% lower and 12.8% higher than for Champion as a stand-alone company. The
results of the combination analysis are not necessarily indicative of future
operating results.
The summary set forth above does not purport to be a complete description of
the analyses performed by DLJ. The preparation of a fairness opinion involves
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of these methods to the particular
circumstances and, therefore, such an opinion is not readily summarized.
Furthermore, DLJ did not attribute any particular weight to any analysis or
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly,
notwithstanding the separate factors summarized above, DLJ believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and the factors considered by it, without considering all analyses and
factors, could create an incomplete or misleading view of the
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evaluation process underlying its opinion. In performing its analyses, DLJ made
numerous assumptions with respect to industry performance, business and economic
conditions and other matters. The analyses performed by DLJ are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than suggested by such analyses.
Pursuant to the terms of an engagement letter dated April 10, 1996 (the "DLJ
Engagement Letter"), Champion has paid to DLJ an opinion fee of $500,000 upon
the delivery of its opinion to the Champion Board and has agreed to pay an
update fee of $50,000 for each additional or updated opinion, excluding the
first such additional or updated opinion, delivered by DLJ. In addition, as a
financial advisory fee, on the date of the closing of the Merger, DLJ will
receive cash compensation of $3,500,000 less the $500,000 opinion fee and any
update fees previously paid. Such financial advisory fee will be payable only if
the Merger is consummated, a factor of which the Champion Board was aware. Also,
Champion has agreed to reimburse DLJ for all out-of-pocket expenses (including
the reasonable fees and expenses of counsel) incurred by DLJ in connection with
the provision of its services. In addition to the foregoing, Champion has agreed
to indemnify and hold harmless DLJ, its affiliates, its agents and certain other
parties from and against certain potential liabilities relating to its services
provided to Champion.
DLJ has performed investment banking and other services for Champion in the
past and has received usual and customary compensation for such services. As
reported in Amendment No. 3 to the Schedule 13D of Donaldson, Lufkin & Jenrette,
Inc. filed with respect to Champion on May 2, 1996, DLJ and its affiliates
beneficially own 2,785,453 shares of Champion Common Stock, or approximately 16%
of the outstanding shares, calculated on a fully diluted basis for the purposes
of Schedule 13D. In addition, DLJ and its affiliates are parties to the
Participants Agreement and hold in the aggregate approximately $5,214,000
aggregate principal amount of the Series D Notes. Also, Ms. Janet A. Hickey, a
general partner of Sprout Group, an affiliate of DLJ, serves on the Champion
Board. In addition, the DLJ Engagement Letter pursuant to which Champion engaged
DLJ to act as its exclusive financial advisor in connection with the Merger
provides that DLJ has the right to act as sole placement agent or lead managing
underwriter in connection with any debt or equity financing which is used to
finance all or a portion of the Merger or which is effected at any time within
nine months of consummation of the Merger. DLJ is acting as the lead managing
underwriter for the Debt Offering and the Equity Offering. Affiliates of DLJ do
not currently intend to sell any of the 2,785,453 shares of Paracelsus Common
Stock received by them in the Merger. DLJ has performed investment banking and
other services for Paracelsus in the past including acting as a lead manager in
the sale of $75,000,000 of the Existing Senior Subordinated Notes in October
1993. DLJ was paid usual and customary fees for such services. In the ordinary
course of its business, DLJ may trade securities of Champion or Paracelsus for
its own account or for the account of its customers and, accordingly, may at any
time hold long or short positions in such securities.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Champion
In considering the recommendations of the Champion Board, stockholders
should be aware that certain members of management and of the Champion Board may
be deemed to have certain interests in the Merger that are in addition to the
interests of stockholders generally.
The following description of various agreements is qualified in its entirety
by reference to the complete text of the relevant agreements, copies of which
are filed as exhibits to the Registration Statement of which this Proxy
Statement/Prospectus forms a part and are incorporated by reference herein.
COMPOSITION OF NEW PARACELSUS BOARD. Pursuant to the Merger Agreement,
Paracelsus has agreed to take all actions as shall be necessary to cause Messrs.
Miller and VanDevender to be elected to the New Paracelsus Board at or prior to
the Effective Time of the Merger. Paracelsus has also agreed to take all actions
necessary to cause Mr. James A. Conroy, who is a director of Champion and also a
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general partner of Olympus Private Placement Fund, L.P. ("Olympus"), which is a
major stockholder in Champion, to be elected as one of the Independent Directors
(as hereinafter defined) to the New Paracelsus Board. After the Merger, Messrs.
Miller and VanDevender will be members of the Executive Committee and Mr. Conroy
will be a member of the Audit Committee. All nominations and elections after the
Merger will be governed in accordance with the Shareholder Agreement, the
Paracelsus Articles, the Paracelsus Bylaws and applicable law, each as amended
from time to time. See "Certain Related Agreements -- Shareholder Agreement" and
"Management of Paracelsus Following the Merger -- New Paracelsus Board" and "--
Committees of the New Paracelsus Board."
CHAMPION SENIOR EXECUTIVE EMPLOYMENT AGREEMENTS. Messrs. Miller,
VanDevender and Patterson (collectively, the "Champion Senior Executives") have
each entered into an Employment Agreement (as hereinafter defined) with
Paracelsus to replace his current employment agreement with Champion upon
consummation of the Merger. Under their respective Employment Agreements, the
Champion Senior Executives are entitled to an annual salary and bonus, along
with participation in the stock option plans and other equity-based incentive
compensation plans generally available to officers of Paracelsus and certain
other benefits. The Employment Agreements will be terminated in the event that
the Merger is not consummated, in which case no termination benefits will accrue
or be payable thereunder.
In consideration of each of the Champion Senior Executives agreeing to (i)
the termination of his existing employment agreement with Champion, (ii) the
waiver of certain rights contained in such agreement that would otherwise
entitle him to voluntarily resign following a "change of control" of Champion
(which would occur upon consummation of the Merger) and receive certain
severance benefits and (iii) the extension of his non-compete provision from one
year to two years during the initial term of his Employment Agreement, the
Employment Agreements of the Champion Senior Executives provide for the
following cash bonuses to be paid upon consummation of the Merger: Mr. Miller:
$1,200,000; Mr. VanDevender: $750,000; and Mr. Patterson: $500,000. See "--
Effect of the Merger on Employee Compensation Arrangements -- New Employment
Agreements" and "Management of Paracelsus Following the Merger -- Executive
Compensation -- Employment Contracts and Termination of Employment Agreements --
Champion."
CHAMPION ANNUAL BONUS PLAN AND OTHER EXECUTIVE BONUSES. Messrs. Miller,
VanDevender, Patterson, Wilkey, Humphrey and Brooks are participants in the
annual bonus plan maintained by Champion for 1996 (the "Champion Annual Bonus
Plan"). Upon consummation of the Merger, executive officers of Champion who
participate in the Champion Annual Bonus Plan will receive cash bonuses, with
the performance targets prorated for the period from January 1, 1996 to the date
of consummation of the Merger and bonus amounts otherwise payable thereunder
prorated for the period from January 1, 1996 to September 30, 1996. If the
Merger had been consummated on, and all bonuses prorated to, June 30, 1996, the
following bonuses would have become payable under the Champion Annual Bonus
Plan: Mr. Miller: $189,000; Mr. VanDevender: $104,000; Mr. Patterson: $104,000;
Mr. Wilkey: $64,000; Mr. Humphrey: $56,000; and Mr. Brooks: $45,000. See "--
Effect of the Merger on Employee Compensation Arrangements -- Champion Annual
Bonus Plan."
Upon consummation of the Merger, Mr. Wilkey will receive an additional bonus
in the amount of $280,000 and Mr. Humphrey will receive an additional bonus in
the amount of $157,500.
THE PLAN PROPOSALS AND CHAMPION OPTIONS. If the Proposal to amend the
Directors' Stock Option Plan is approved, Messrs. Ferris and Spencer, who
currently serve as directors of Champion, will each receive Champion Options to
purchase 20,000 shares of Champion Common Stock at an exercise price of $8.00
per share. In addition, if the Directors' Stock Option Plan Proposal is
approved, the exercisability period with respect to all of their Champion
Options outstanding under the Directors' Stock Option Plan will be extended. See
"-- Effect of the Merger on Employee Compensation Arrangements -- Amendment to
Champion's Directors' Stock Option Plan." If the Founders' Stock Option Plan
Proposal is approved, a cashless exercise procedure will be added to each stock
option agreement under the Founders' Stock Option Plan, under which Messrs.
Miller and VanDevender
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hold options to purchase 108,000 and 72,000 shares of Champion Common Stock,
respectively. See "-- Effect of the Merger on Employee Compensation Arrangements
- -- Amendment to Champion's Founders' Stock Option Plan."
The Merger Agreement provides that, at the Effective Time, all outstanding
Champion Options will be assumed by Paracelsus and will be converted into
Paracelsus Options. See "-- Effect of the Merger on Employee Compensation
Arrangements -- Assumption of Champion Options and Champion Subscription
Shares." Messrs. Miller, VanDevender, Patterson, Wilkey, Humphrey, Brooks,
Ferris and Spencer hold outstanding Champion Options to purchase 211,876,
350,000, 270,690, 20,000, 30,000, 90,000, 30,000 and 30,000 shares of Champion
Common Stock, respectively (with Messrs. Ferris and Spencer each holding
outstanding Champion Options to purchase a total of 50,000 shares of Champion
Common Stock upon approval of the Directors' Stock Option Plan Proposal).
SUBSCRIPTION AGREEMENT. In connection with the Merger, the Subscription
Agreement between Champion and Mr. VanDevender dated February 10, 1990, as
amended (the "Subscription Agreement"), and all rights to purchase shares of
Champion Common Stock thereunder (the "Champion Subscription Shares")
outstanding at the Effective Time will be assumed by Paracelsus. See "-- Effect
of the Merger on Employee Compensation Arrangements -- Assumption of Champion
Options and Champion Subscription Shares." Under the Subscription Agreement,
Champion currently has reserved for issuance to Mr. VanDevender 80,000 shares of
Champion Common Stock at a per share subscription price of $0.50. Paracelsus is
registering on the Registration Statement of which this Proxy
Statement/Prospectus forms a part the shares of Paracelsus Common Stock that
will be subscribable under the Subscription Agreement.
NEW OPTION GRANTS UNDER THE 1996 STOCK INCENTIVE PLAN. The Paracelsus Board
has adopted, and the Paracelsus Shareholder has approved, the Paracelsus
Healthcare Corporation 1996 Stock Incentive Plan (the "1996 Stock Incentive
Plan") under which the stock option grants to the Champion Senior Executives set
forth below have been approved.
Pursuant to their respective Employment Agreements, Messrs. Miller,
VanDevender and Patterson have been granted Paracelsus Options with a term of 10
years and an exercise price of $0.01 per share of Paracelsus Common Stock (the
"Value Options") (which will be immediately vested and exercisable upon
consummation of the Merger) to purchase 336,000, 180,000 and 180,000 shares,
respectively, of Paracelsus Common Stock. In addition, pursuant to their
respective Employment Agreements, Messrs. Miller, VanDevender and Patterson have
been granted Paracelsus Options with a term of ten years and an exercise price
equal to the fair market value of the Paracelsus Common Stock on the date the
Merger is consummated (the "Market Options") to purchase 1,000,000, 540,000 and
240,000 shares, respectively, of Paracelsus Common Stock (which will generally
vest and become exercisable in equal annual installments of 25% on each of the
first four anniversaries of the Effective Time).
None of the Value Options or the Market Options will become exercisable in
the event that the Merger is not consummated. See "-- Effect of the Merger on
Employee Compensation Arrangements -- 1996 Stock Incentive Plan."
PERFORMANCE BONUS PLAN. Effective as of January 1, 1997, Messrs. Miller,
VanDevender, Patterson, Wilkey, Humphrey, Brooks and other Champion officers
will become participants in the Paracelsus Healthcare Corporation Executive
Officer Performance Bonus Plan (the "Performance Bonus Plan") covering eligible
executive officers of Paracelsus. See "-- Effect of the Merger on Employee
Compensation Arrangements -- Performance Bonus Plan."
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The respective Employment
Agreements of the Champion Senior Executives provide that each of the Champion
Senior Executives will become a participant in the Paracelsus Healthcare
Corporation Supplemental Executive Retirement Plan, as amended (the "SERP"),
immediately following the consummation of the Merger, taking into account,
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for the purposes of eligibility, vesting and benefit accrual under the SERP, all
service by such individual with Champion as if such service had been with
Paracelsus. Messrs. Miller, VanDevender and Patterson will receive 6, 6 and 4
years of service credit under the SERP, respectively. See "-- Effect of the
Merger on Employee Compensation Arrangements -- Paracelsus Supplemental
Executive Retirement Plan" and "Management of Paracelsus Following the Merger --
Executive Compensation -- Supplemental Executive Retirement Plan."
CHAMPION INVESTORS REGISTRATION RIGHTS AGREEMENTS AND THE SECONDARY EQUITY
OFFERING. Pursuant to the Champion Investors Registration Rights Agreements to
be entered into upon consummation of the Merger, certain associated entities of
Mr. Conroy, Mr. Nolan Lehmann and Ms. Hickey (all of whom are directors of
Champion) and their affiliates will have certain demand and "piggyback"
registration rights with respect to their shares of Paracelsus Common Stock
issued in the Merger. See "Certain Related Agreements -- Champion Investors
Registration Rights Agreements." As part of the Secondary Equity Offering to
take place in connection with the Equity Offering that Paracelsus currently
expects to consummate promptly following the consummation of the Merger, such
entities and their affiliates will have the opportunity to sell certain shares
of Paracelsus Common Stock they receive in the Merger. See "Certain Related
Agreements -- Champion Investors Registration Rights Agreements."
PARTICIPANTS AGREEMENT. Ms. Hickey, currently a director of Champion, has
been employed by and is currently a general partner of Sprout Group, a major
stockholder in Champion and a venture capital affiliate of DLJ; Mr. Lehmann,
currently a director of Champion, is the president of Equus Capital Management
Corporation ("Equus Corp."); and Mr. Conroy, currently a director of Champion,
is a general partner of Olympus. DLJ and its affiliates are parties to the
Participants Agreement and hold in the aggregate approximately $5,214,000 in
aggregate principal amount of Series D Notes and 279,541 shares of Champion
Series D Preferred Stock. Certain affiliates of Equus Corp. are parties to the
Participants Agreement and hold in the aggregate approximately $1,157,000
aggregate principal amount of the Series D Notes, 4,901 shares of Champion
Series C Preferred Stock and 83,333 shares of Champion Series D Preferred Stock.
Olympus and its affiliate are parties to the Participants Agreement and hold in
the aggregate approximately $417,000 aggregate principal amount of Series D
Notes, 103,773 shares of Champion Series C Preferred Stock and 83,334 shares of
Champion Series D Preferred Stock. Under the Participants Agreement, Champion
and the other parties thereto have made certain agreements with respect to
securities of Champion owned by such parties. See "Certain Related Agreements --
Participants Agreement."
DLJ ENGAGEMENT LETTER. Ms. Hickey, currently a director of Champion, has
been employed by and is currently a general partner of Sprout Group, a major
stockholder in Champion and a venture capital affiliate of DLJ. Pursuant to the
DLJ Engagement Letter, Champion has engaged DLJ to act as its exclusive
financial advisor in connection with the Merger and has agreed to pay DLJ
certain fees and expenses in connection therewith. The DLJ Engagement Letter
also provides DLJ with the right to act as the sole placement agent or lead
managing underwriter in connection with any debt or equity financing which is
effected at any time within nine months of the Effective Time. DLJ is acting as
the lead managing underwriter for the Public Offerings and will be paid usual
and customary fees for such services. See "-- Opinion of Champion Financial
Advisor."
INDEMNIFICATION AGREEMENTS. Upon consummation of the Merger, Paracelsus
will enter into indemnification agreements (the "Indemnification Agreements")
with certain officers and directors of Champion who will become officers or
directors of Paracelsus following the Effective Time (including the Champion
Senior Executives) providing for rights of indemnification, in accordance with
the Paracelsus Articles, the Paracelsus Bylaws and applicable law, with respect
to certain activities following the Effective Time. See "-- Effect of the Merger
on Employee Compensation Arrangements -- Indemnification Agreements."
INDEMNIFICATION AND INSURANCE FOR CHAMPION DIRECTORS AND OFFICERS. Pursuant
to the Merger Agreement, from and after the Effective Time Paracelsus will
indemnify and hold harmless, to the fullest extent permitted by law, each
present and former director, officer and employee of Champion
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and its subsidiaries against all costs, expenses, judgments, fines, losses,
claims, damages and liabilities for acts or omissions occurring at or prior to
the Effective Time; PROVIDED that Paracelsus is not obligated to indemnify any
such person unless such person acted in good faith and in a manner reasonably
believed to be in, or not opposed to, the best interests of Champion and, with
respect to any criminal action, had no reasonable cause to believe his or her
conduct was unlawful. For a period of six years after the Effective Time,
Paracelsus will cause directors' and officers' liability insurance to be
maintained for acts or omissions occurring prior to the Effective Time covering
those persons currently covered by Champion's directors' and officers' liability
insurance policy on terms no less favorable than those in effect on the date of
the Merger Agreement. In no event, however, will Paracelsus be required to pay
annually more than 175% of the premium paid by Champion as of the date of the
Merger Agreement. Paracelsus will advance all expenses, including reasonable
attorneys fees, incurred by any person to enforce successfully the
indemnification and insurance obligations of Paracelsus under the Merger
Agreement. See "The Merger Agreement -- Indemnification and Insurance."
Paracelsus
Certain members of Paracelsus' management and of the Paracelsus Board may
have certain interests in the Merger that are in addition to the interests of
Paracelsus shareholders generally.
The following description of various agreements is qualified in its entirety
by reference to the complete text of the relevant agreements, copies of which
are filed as exhibits to the Registration Statement of which this Proxy
Statement/Prospectus forms a part and are incorporated by reference herein.
COMPOSITION OF NEW PARACELSUS BOARD. After the Merger, Dr. Krukemeyer,
Messrs. Messenger, Michael D. Hofmann and Christian A. Lange, each currently a
director of Paracelsus, will be directors on the New Paracelsus Board. In
addition, Dr. Krukemeyer will be Chairman of the Board and Chairman of the
Compensation and Stock Option Committee (the "Compensation Committee"), Mr.
Messenger will be Chairman of the Executive Committee, and Messrs. Hofmann and
Lange will be members of the Finance and Strategic Planning Committee. See
"Management of Paracelsus Following the Merger -- New Paracelsus Board" and "--
Committees of the New Paracelsus Board."
PARACELSUS SENIOR EXECUTIVE EMPLOYMENT AGREEMENTS. Messrs. Messenger and
Joyner (collectively, the "Paracelsus Senior Executives") have each entered into
an Employment Agreement with Paracelsus to replace, upon consummation of the
Merger, his current employment agreement or letter agreement relating to
employment with Paracelsus. Under their respective Employment Agreements, the
Paracelsus Senior Executives are entitled to an annual salary and bonus, along
with participation in the stock option plans and other equity-based incentive
compensation plans generally available to officers of Paracelsus and certain
other benefits. The Employment Agreements will be terminated in the event that
the Merger is not consummated. See "-- Effect of the Merger on Employee
Compensation Arrangements -- New Employment Agreements" and "Management of
Paracelsus Following the Merger -- Directors and Executive Officers of
Paracelsus After the Effective Time" and "-- Executive Compensation --
Employment Contracts and Termination of Employment Agreements -- Paracelsus."
PARACELSUS ANNUAL BONUS PLAN. Messrs. Messenger, Joyner, Topper, Asbell and
Rush are participants in the annual bonus plan maintained by Paracelsus for
fiscal 1996 (the "Paracelsus Annual Bonus Plan"). Upon consummation of the
Merger, executive officers of Paracelsus who participate in the Paracelsus
Annual Bonus Plan will receive cash bonuses for the plan year beginning October
1, 1995 and ending September 30, 1996, determined as if all performance goals
thereunder had been satisfied at maximum. The bonuses payable under the
Paracelsus Annual Bonus Plan to certain executive officers are as follows: Mr.
Messenger: $627,000; Mr. Joyner: $184,000; Mr. Topper: $188,000; Mr. Asbell:
$180,000; and Mr. Rush: $160,000. See "-- Effect of the Merger on Employee
Compensation Arrangements -- Paracelsus Annual Bonus Plan."
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TREATMENT OF PHANTOM STOCK APPRECIATION RIGHTS. Under the terms of the
Merger Agreement, phantom stock appreciation rights (the "PSARs") and/or
preferred stock units (the "PSUs") held by executives and directors of
Paracelsus under the Paracelsus Healthcare Corporation Phantom Equity Long-Term
Incentive Plan (the "Phantom Equity Plan") will be cancelled in exchange for the
grant of Value Options (which will be immediately vested and exercisable upon
consummation of the Merger) to purchase a specified number of shares of
Paracelsus Common Stock and the payment of a lump sum amount in cash which, in
the aggregate, are intended to have a value substantially equivalent to the
accrued value of the cancelled PSARs and/or PSUs. The Value Options and cash to
be provided to certain executives and directors of Paracelsus are as follows:
<TABLE>
<CAPTION>
NUMBER OF VALUE OPTIONS AMOUNT OF LUMP
TO SUM CASH PAYMENT
BE GRANTED IN LIEU OF IN LIEU OF ACCRUED
ACCRUED PHANTOM PHANTOM EQUITY
NAME EQUITY PLAN BENEFITS PLAN BENEFITS
- -------------------------------------------------------- ------------------------- ------------------
<S> <C> <C>
R.J. Messenger.......................................... 513,000 $ 6,881,000
Robert C. Joyner........................................ 160,933 2,510,361
David R. Topper......................................... 200,000 2,196,993
George Asbell........................................... 104,000 1,121,835
James T. Rush........................................... 107,000 1,218,991
Michael D. Hofmann...................................... 56,000 750,000
Christian A. Lange...................................... 56,000 750,000
</TABLE>
NEW OPTION GRANTS UNDER THE 1996 STOCK INCENTIVE PLAN. Pursuant to his
Employment Agreement, Mr. Messenger has been granted additional Value Options
(which will be immediately vested and exercisable upon consummation of the
Merger) to purchase 487,000 shares of Paracelsus Common Stock. Pursuant to his
Employment Agreement, Mr. Messenger has been granted Market Options to purchase
1,000,000 shares of Paracelsus Common Stock (which will generally vest and
become exercisable in equal annual installments of 25% on each of the first four
anniversaries of the Effective Time.) See "-- Effect of the Merger on Employee
Compensation Arrangements -- 1996 Stock Incentive Plan."
None of the Value Options or the Market Options will become exercisable in
the event that the Merger is not consummated.
PERFORMANCE BONUS PLAN. Effective as of January 1, 1997, Messrs. Messenger,
Joyner, Topper, Asbell, Rush and other Paracelsus officers will become
participants in the Performance Bonus Plan. See "-- Effect of the Merger on
Employee Compensation Arrangements -- Performance Bonus Plan."
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. Messrs. Messenger, Joyner, Topper,
Asbell and Rush participate in the SERP and currently have 12, 10, 15, 11 and 11
years of service credit under the SERP, respectively. Upon consummation of the
Merger, all of such executives will become fully vested in and entitled to full
benefits under the SERP in the event of a termination of their respective
employment other than a termination by Paracelsus with cause. See "-- Effect of
the Merger on Employee Compensation Arrangements -- Paracelsus Supplemental
Executive Retirement Plan" and "Management of Paracelsus Following the Merger --
Executive Compensation -- Supplemental Executive Retirement Plan."
SERVICES AGREEMENT. Paracelsus has entered into the Services Agreement with
Dr. Krukemeyer pursuant to which Dr. Krukemeyer has agreed, subject to the
closing of the Merger, to provide management and strategic advisory services to
Paracelsus following the Merger. The term of the Services Agreement is the
lesser of 10 years or until Dr. Krukemeyer's death or permanent disability, and
under the Services Agreement Paracelsus has agreed to pay Dr. Krukemeyer a
consulting fee of $1,000,000 per year. See "Certain Paracelsus Shareholder
Arrangements -- Services Agreement."
INSURANCE AGREEMENT. Paracelsus has entered into the Insurance Agreement
pursuant to which Paracelsus has agreed, subject to the closing of the Merger,
to provide insurance benefits in the event
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of Dr. Krukemeyer's death or permanent disability during the 10-year term of the
Insurance Agreement in an amount equal to $1,000,000 per year from the date of
such permanent disability or death until the end of the term of the Insurance
Agreement. See "Certain Paracelsus Shareholder Arrangements -- Insurance
Agreement."
DIVIDEND; DIVIDEND AND NOTE AGREEMENT. Prior to the Merger, Paracelsus will
declare the Dividend payable to the Paracelsus Shareholder and, in accordance
with the Dividend and Note Agreement, the Paracelsus Shareholder will purchase
the Shareholder Subordinated Note. See "Certain Paracelsus Shareholder
Arrangements -- Dividend; Dividend and Note Agreement."
PARACELSUS SHAREHOLDER REGISTRATION RIGHTS AGREEMENT. Under the terms of
the Paracelsus Shareholder Registration Rights Agreement, the Paracelsus
Shareholder and certain transferees will be entitled, for 10 years from the
Effective Time or until such earlier date when all shares of Paracelsus Common
Stock covered under such agreement have been sold or registered, to five demand
rights and customary "piggyback" rights, subject to certain hold-back
provisions. See "Certain Related Agreements -- Paracelsus Shareholder
Registration Rights Agreement."
RIGHT OF FIRST REFUSAL AGREEMENT. At or prior to the Effective Time, Dr.
Krukemeyer and the Paracelsus Shareholder will enter into the Right of First
Refusal Agreement pursuant to which they will have certain rights to purchase
shares of Paracelsus Common Stock beneficially owned by each of Messrs.
Messenger, Miller, VanDevender and Patterson. See "Certain Related Agreements --
Right of First Refusal Agreement."
SHAREHOLDER AGREEMENT. Under the terms of the Shareholder Agreement, the
Paracelsus Shareholder will, among other things, be entitled to designate up to
four nominees to the New Paracelsus Board and will have a right of first refusal
in connection with certain acquisition proposals for Paracelsus. Dr. Krukemeyer
will guarantee the obligations of the Paracelsus Shareholder under the
Shareholder Agreement. See "Certain Related Agreements -- Shareholder
Agreement."
INDEMNIFICATION AGREEMENTS. Upon consummation of the Merger, Paracelsus
will enter into Indemnification Agreements with certain officers and directors
of Paracelsus (including the Paracelsus Senior Executives) providing for rights
of indemnification, in accordance with the Paracelsus Articles, the Paracelsus
Bylaws and applicable law, with respect to certain activities following the
Effective Time. See "-- Effect of the Merger on Employee Compensation
Arrangements -- Indemnification Agreements."
EFFECT OF THE MERGER ON EMPLOYEE COMPENSATION ARRANGEMENTS
Each of Paracelsus and Champion has previously entered into and maintained
for the benefit of certain employees employment agreements and other
compensation plans and arrangements. In addition, certain new employment
agreements and compensation arrangements will be implemented in connection with
the Merger. The effect of the Merger on certain of such prior agreements and
arrangements and the general terms of certain of such new agreements and
arrangements is described below.
The following description of various agreements is qualified in its entirety
by reference to the complete text of the relevant agreements, copies of which
are filed as exhibits to the Registration Statement of which this Proxy
Statement/Prospectus forms a part and are incorporated by reference herein.
CHAMPION EMPLOYMENT AGREEMENTS. Champion is currently a party to an
employment agreement with each of the Champion Senior Executives. The terms of
these agreements are described in "Management of Paracelsus Following the Merger
- -- Executive Compensation -- Employment Contracts and Termination of Employment
Agreements -- Champion." Each of the Champion Senior Executives has also entered
into an Employment Agreement (as defined below) with Paracelsus in
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connection with which the executive's existing employment agreement will be
terminated upon consummation of the Merger. The terms of such Employment
Agreements are described in "-- New Employment Agreements."
Champion also maintains employment agreements with certain other employees.
It is expected that these employment agreements will continue in effect
following the Merger.
PARACELSUS EMPLOYMENT AGREEMENTS. Paracelsus is currently a party to an
employment agreement or letter agreement with each of the Paracelsus Senior
Executives. The terms of these agreements are described in "Management of
Paracelsus Following the Merger -- Executive Compensation -- Employment
Contracts and Termination of Employment Agreements -- Paracelsus." Each of the
Paracelsus Senior Executives has also entered into an Employment Agreement with
Paracelsus in connection with which the executive's existing employment
agreement will be terminated upon consummation of the Merger. The terms of such
Employment Agreements are described in "-- New Employment Agreements."
Paracelsus also maintains letter agreements with certain other employees. It
is expected that these agreements will continue in effect following the Merger.
CHAMPION ANNUAL BONUS PLAN. Upon consummation of the Merger, the Champion
Annual Bonus Plan will be terminated and the annual bonuses due thereunder will
be paid to the participating Champion officers and employees. These bonuses will
be calculated by prorating the performance criteria thereunder for the time
period for January 1, 1996 to the date the Merger is consummated and the amount
of the target bonuses provided for thereunder for the time period from January
1, 1996 to September 30, 1996.
PARACELSUS ANNUAL BONUS PLAN. Upon consummation of the Merger, the
Paracelsus Annual Bonus Plan will be terminated and the annual bonuses due
thereunder will be paid to the participating Paracelsus officers and employees.
These bonuses will be calculated by assuming maximum performance with respect to
the plan year commencing October 1, 1995 and ending September 30, 1996.
ASSUMPTION OF CHAMPION OPTIONS AND CHAMPION SUBSCRIPTION SHARES. Champion
currently maintains the following stock option plans (the "Champion Stock Option
Plans") under which certain employees and directors of Champion hold outstanding
options: the AmeriHealth Amended and Restated 1988 Non-Qualified Stock Option
Plan; the Champion Healthcare Corporation Employee Stock Option Plan; the
Champion Healthcare Corporation Employee Stock Option Plan No. 2; the Champion
Healthcare Corporation Employee Stock Option Plan No. 3; the Champion Healthcare
Corporation Senior Executive Stock Option Plan No. 4; the Selected Executive
Stock Option Plan; the Directors' Stock Option Plan; the Champion Healthcare
Corporation Physicians Stock Option Plan; and the Founders' Stock Option Plan.
Each of the Champion Stock Option Plans (except the Champion Healthcare
Corporation Physicians Stock Option Plan and the Founders' Stock Option Plan)
also provides for the issuance of stock appreciation rights ("SARs"). However,
no SARs are currently outstanding. As of the Record Date, there were outstanding
Champion Options to purchase 1,337,204 shares of Champion Common Stock.
Pursuant to the terms of the Merger Agreement, each Champion Option
outstanding at the Effective Time will be assumed by Paracelsus and converted
into a Paracelsus Option; PROVIDED that the conversion of Champion Options
outstanding under the Selected Executive Stock Option Plan into Paracelsus
Options will be subject to approval of the Selected Executive Stock Option Plan
Proposal. See "-- Amendment to Champion's Selected Executive Stock Option Plan."
The number of shares of Paracelsus Common Stock subject to each such Paracelsus
Option will be the same as the number of shares of Champion Common Stock subject
to each assumed Champion Option, and the exercise price of each such Paracelsus
Option will also be the same as that of the assumed Champion Option. The
remaining terms and conditions of the assumed Champion Options, including the
vesting
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<PAGE>
schedule thereof, will also generally apply to such Paracelsus Options. It is
expected that no new option grants will be made under the Champion Stock Option
Plans following the Effective Time of the Merger.
Pursuant to the Subscription Agreement, Champion has reserved for issuance
80,000 Champion Subscription Shares upon the exercise by Mr. VanDevender of his
subscription rights for 80,000 shares of Champion Common Stock at a subscription
price of $0.50 per Champion Subscription Share. By a letter dated July 12, 1996,
Champion confirmed with Mr. VanDevender that in the event Champion merges with
another corporation the Champion Subscription Shares will be rolled-over into
subscription rights with respect to the consideration the holder of the Champion
Subscription Shares would have received if such shares had been subscribed for
immediately prior to, and converted into the consideration received in, the
Merger.
Pursuant to the terms of the Merger Agreement and the Subscription
Agreement, at the Effective Time, all Champion Subscription Shares then
outstanding will be assumed by Paracelsus and become subscribable for 80,000
shares of Paracelsus Common Stock. Such shares of Paracelsus Common Stock will
be registered on the Registration Statement of which this Proxy
Statement/Prospectus forms a part. The remaining terms and conditions of the
assumed Champion Subscription Shares will generally continue to apply.
AMENDMENT TO CHAMPION'S FOUNDERS' STOCK OPTION PLAN. The Founders' Stock
Option Plan does not currently provide for a cashless exercise procedure by
means of which to satisfy the option exercise price and/or tax withholding
obligations incurred upon the exercise of options outstanding thereunder.
Subject to stockholder approval, the Champion Board has adopted an amendment to
the Founders' Stock Option Plan making such a cashless exercise feature
available to optionees thereunder. See "The Plan Proposals -- Amendment of the
Founders' Stock Option Plan." THE FOUNDERS' STOCK OPTION PLAN PROPOSAL IS
SUBJECT TO A SEPARATE STOCKHOLDER VOTE AT THE SPECIAL MEETING. See "The Special
Meeting -- Votes Required."
AMENDMENT TO CHAMPION'S SELECTED EXECUTIVE STOCK OPTION PLAN. The Selected
Executive Stock Option Plan currently provides that all Champion Options
outstanding thereunder will terminate as of the Effective Time and that such
Champion Options must be exercised, if at all, prior to the Effective Time. In
order to permit holders of Champion Options outstanding under the Selected
Executive Stock Option Plan to benefit, among other things, from any potential
appreciation in the value of Paracelsus Common Stock following the Merger, the
Champion Board has adopted, subject to approval by the Champion stockholders, an
amendment to the Selected Executive Stock Option Plan which would permit such
options to remain outstanding following consummation of the Merger and be
assumed by Paracelsus pursuant to the procedures set forth above in "--
Assumption of Champion Options and Champion Subscription Shares." See "The Plan
Proposals -- Amendment of the Selected Executive Stock Option Plan." APPROVAL OF
THE MERGER PROPOSAL AT THE SPECIAL MEETING WILL BE DEEMED TO CONSTITUTE APPROVAL
OF THE PROPOSED AMENDMENT TO THE SELECTED EXECUTIVE STOCK OPTION PLAN. See "The
Special Meeting -- Votes Required."
AMENDMENT TO CHAMPION'S DIRECTORS' STOCK OPTION PLAN. In February 1996, the
Champion Board determined that it was in the best interests of Champion to grant
to each of Messrs. Ferris and Spencer Champion Options to purchase 20,000 shares
of Champion Common Stock at an exercise price of $8.00 per share. There
currently are no shares reserved and available for issuance pursuant to new
grants under the Directors' Stock Option Plan. Accordingly, the Champion Board
has adopted, subject to stockholder approval, an amendment to the Directors'
Stock Option Plan that would increase the number of shares of Champion Common
Stock reserved for issuance under the Directors' Stock Option Plan by 40,000. In
addition, the Champion Board has adopted, subject to stockholder approval, an
amendment to the Directors' Stock Option Plan that would permit options granted
thereunder to remain outstanding until the end of the stated option term, rather
than expiring upon termination of the optionee's service as a director. See "The
Plan Proposals -- Amendment of the
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Directors' Stock Option Plan." APPROVAL OF THE MERGER PROPOSAL WILL BE DEEMED TO
CONSTITUTE APPROVAL OF THE PROPOSED AMENDMENTS TO THE DIRECTORS' STOCK OPTION
PLAN. See "The Special Meeting -- Votes Required."
PARACELSUS PHANTOM EQUITY PLAN. Paracelsus currently maintains the Phantom
Equity Plan pursuant to which Paracelsus has granted certain executives PSARs
and PSUs. Under the terms of the Merger Agreement, the Phantom Equity Plan will
be terminated and PSARs and/or PSUs held by Paracelsus executives and directors
will be cancelled in exchange for the grant of Value Options to purchase a
specified number of shares of Paracelsus Common Stock and payment of a lump sum
in cash. The aggregate value of such Value Options and cash is intended to be
substantially equivalent to the aggregate accrued value of the PSARs and PSUs
being cancelled. See "Interests of Certain Persons in the Merger -- Paracelsus
- -- Treatment of Phantom Stock Appreciation Rights."
1996 STOCK INCENTIVE PLAN. The 1996 Stock Incentive Plan will be
administered by the Compensation Committee. All officers (including officers who
are also directors), employees, consultants and advisors of Paracelsus are
eligible for discretionary awards under the 1996 Stock Incentive Plan. The 1996
Stock Incentive Plan provides for stock-based incentive awards, including
incentive stock options, non-qualified stock options, restricted stock,
performance shares, stock appreciation rights and deferred stock. The 1996 Stock
Incentive Plan permits the Compensation Committee to select eligible persons to
receive awards and to determine certain terms and conditions of such awards,
including the vesting schedule and exercise price of each award, and whether the
vesting of such award will accelerate upon the occurrence of a change in control
of Paracelsus. Under the 1996 Stock Incentive Plan, Paracelsus Options may be
granted with an option exercise price that is less than the then current market
value of such stock. Under the 1996 Stock Incentive Plan, Paracelsus Options,
restricted stock, performance shares or SARs covering no more than 80% of the
shares reserved for issuance under the 1996 Stock Incentive Plan may be granted
to any participant in any one year. A total of 8,749,933 shares have been
reserved for issuance under the 1996 Stock Incentive Plan.
The 1996 Stock Incentive Plan may be amended, suspended or terminated at any
time. However, the maximum number of shares that may be sold or issued under the
1996 Stock Incentive Plan may not be increased, nor may the class of persons
eligible to participate in the 1996 Stock Incentive Plan be altered, without the
approval of Paracelsus' shareholders; PROVIDED, HOWEVER, that adjustments to the
number of shares subject to the 1996 Stock Incentive Plan and to individual
awards thereunder and/or to the exercise price of awards previously granted are
permitted without shareholder approval upon the occurrence of certain events
affecting the capital structure of Paracelsus. With respect to any other
amendments to the 1996 Stock Incentive Plan, the New Paracelsus Board may, in
its discretion, determine that such amendment will become effective only upon
approval by the shareholders of Paracelsus if the New Paracelsus Board
determines that such shareholder approval may be advisable, such as for the
purpose of obtaining or retaining any statutory or regulatory benefits under
Federal or state securities laws, Federal or state tax laws or any other laws or
for the purpose of satisfying applicable stock exchange listing requirements.
In connection with the termination of PSARs previously granted under the
Phantom Equity Plan, Paracelsus has granted Value Options under the 1996 Stock
Incentive Plan to certain executives and directors of Paracelsus. See "--
Paracelsus Phantom Equity Plan." Pursuant to their respective Employment
Agreements, Paracelsus has granted Value Options and Market Options under the
1996 Stock Incentive Plan to Mr. Messenger and the Champion Senior Executives.
See "-- New Employment Agreements." None of the Value Options or Market Options
will become exercisable in the event that the Merger is not consummated.
PERFORMANCE BONUS PLAN. The Paracelsus Board has adopted the Performance
Bonus Plan covering eligible officers of Paracelsus. The Performance Bonus Plan
will be administered by the Compensation Committee, which each year, beginning
on January 1, 1997 will select the officers of Paracelsus who will be eligible
to receive awards under the Performance Bonus Plan. Upon achievement by
Paracelsus of certain targeted operating results or other performance goals,
such as operating
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income, pre-tax income or net income, Paracelsus will pay performance bonuses,
the aggregate amounts of which will be determined annually based upon an
objective formula. The Employment Agreements provide for the payment of certain
minimum bonuses upon the achievement of targeted performance criteria under the
Performance Bonus Plan. See "-- New Employment Agreements."
PARACELSUS SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. Benefits under the SERP
generally accrue and vest ratably over a 15-year period and provide an annual
retirement benefit in the maximum amount of 55% for officer participants (35%
for nonofficer participants) of final average compensation, subject to an offset
for social security benefits. The SERP provides, however, that in the event of a
change in control, which includes the consummation of the transactions
contemplated by the Merger Agreement, officers and other employees of Paracelsus
who were participants in the SERP prior to the Merger will immediately become
fully vested in 15 years of benefits under the SERP in the event of a
termination of their employment other than a termination by Paracelsus for
cause. See "Management of Paracelsus Following the Merger -- Executive
Compensation -- Supplemental Executive Retirement Plan." In addition,
immediately following consummation of the Merger certain executive officers of
Champion will become participants in the SERP. For purposes of eligibility,
vesting and benefit accrual under the SERP, the Champion SERP participants will
receive credit for their years of service with Champion as if such years of
service had been with Paracelsus.
NEW EMPLOYMENT AGREEMENTS. Pursuant to the Merger Agreement, Paracelsus has
entered into employment agreements (the "Employment Agreements") with each of
Messrs. Messenger, Miller, VanDevender, Patterson and Joyner (collectively, the
"Senior Officers"). The Employment Agreements will be terminated in the event
that the Merger is not consummated. The Senior Officers' respective Employment
Agreements provide that they will serve in the following capacities: Mr.
Messenger as Chief Executive Officer and, for so long as he is a Shareholder
Director (as hereinafter defined), Vice Chairman of the New Paracelsus Board and
Chairman of the Executive Committee; Mr. Miller as President and Chief Operating
Officer, a director on the New Paracelsus Board and, for so long as he is a
director, a member of the Executive Committee; Mr. VanDevender as Executive Vice
President and Chief Financial Officer, a director on the New Paracelsus Board
and, for so long as he is a director, a member of the Executive Committee; Mr.
Patterson as Executive Vice President and President, Healthcare Operations; and
Mr. Joyner as Senior Vice President, Secretary and General Counsel.
Each of the Employment Agreements of Messrs. Messenger, Miller and
VanDevender will have an initial term of five years, and each of the Employment
Agreements of Messrs. Patterson and Joyner will each have an initial term of
three years. Each of the Employment Agreements of Messrs. Messenger, Miller and
VanDevender will be renewed automatically upon expiration of its initial term
and any subsequent five-year term unless Paracelsus or any of Messrs. Messenger,
Miller or VanDevender, as applicable, gives 12 months prior notice that such
agreement will not be renewed. Upon expiration of their initial terms, each of
the Employment Agreements of Messrs. Patterson and Joyner will be renewed
automatically one time only for three and two additional years, respectively,
unless Paracelsus or either of Messrs. Patterson or Joyner, as applicable, gives
12 months prior notice that such agreement will not be renewed.
Under the Employment Agreements, each such Senior Officer will be entitled
to receive a base salary and an annual bonus and will be entitled to participate
in the employee benefit plans of Paracelsus that are generally available to the
executives of Paracelsus. In addition, each such officer will be entitled to
receive certain fringe benefits as provided for in his Employment Agreement. The
initial base salary of each of the Senior Officers under his respective
Employment Agreement is as follows: Mr. Messenger: $750,000; Mr. Miller:
$500,000; Mr. VanDevender: $350,000; Mr. Patterson: $350,000; and Mr. Joyner:
$240,000. The maximum bonuses payable upon the achievement of targeted
performance criteria under the Performance Bonus Plan, expressed as a percentage
of base salary, will be as follows: Mr. Messenger: 100%; Mr. Miller: 85%; Mr.
VanDevender: 70%; Mr. Patterson: 70%; and Mr. Joyner: 60%. Mr. Messenger and the
Champion Senior Executives will be granted Value Options and Market Options as
described in "-- Interests of Certain Persons in the
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Merger -- Paracelsus -- New Option Grants Under the 1996 Stock Incentive Plan"
and "-- Champion -- New Option Grants Under the 1996 Stock Incentive Plan." Each
of the Champion Senior Executives will also receive credit for eligibility,
vesting and benefit accrual purposes under the SERP with respect to their
respective years of prior service with Champion. See "-- Paracelsus Supplemental
Executive Retirement Plan." In addition, each of the Champion Senior Executives
will receive bonuses upon consummation of the Merger as described under "--
Interests of Certain Persons in the Merger -- Champion -- Champion Senior
Executive Employment Agreements" and "-- Champion Annual Bonus Plan and Other
Executive Bonuses." Each of the Paracelsus Senior Executives will also receive
bonuses upon the consummation of the Merger as described under "-- Interests of
Certain Persons in the Merger -- Paracelsus -- Paracelsus Annual Bonus Plan."
The Employment Agreements provide that each Senior Officer is generally
prohibited from competing with Paracelsus while employed by Paracelsus. The
Employment Agreements also provide that, in the event of termination of his
employment by Paracelsus for "Cause" or by such Senior Officer other than for
"Good Reason" (each as defined in his Employment Agreement), each of the
Champion Senior Executives will be prohibited from so competing for a period of
two years following such termination, and Messrs. Messenger and Joyner each will
be prohibited from so competing for a period of one year following such
termination. The Employment Agreements for all Senior Officers also provide that
each such officer will be prohibited from so competing for a period of one year
following such a termination during successive terms of his agreement.
The employment of Messrs. Messenger, Miller and VanDevender cannot be
terminated by Paracelsus without the prior approval of 80% of the New Paracelsus
Board and 2/3 of the Independent Directors (as hereinafter defined). If any of
Messrs. Messenger, Miller or VanDevender is terminated without Cause or resigns
for Good Reason, such Senior Officer's outstanding options will immediately vest
and become exercisable and such Senior Officer will be entitled to receive a
lump sum payment equal to the greater of (x) his current base salary and annual
target bonus payable over the remaining term of employment or (y) three times
his current base salary plus annual target bonus.
If Mr. Patterson is terminated by Paracelsus without Cause or resigns for
Good Reason, his outstanding options will immediately vest and become
exercisable and he will be entitled to receive a lump sum payment equal to the
greater of (x) his current base salary and annual target bonus payable over the
remainder of his contract term or (y) 2.5 times his current annual salary plus
annual target bonus. If Mr. Joyner is terminated by Paracelsus without Cause or
resigns for Good Reason, his outstanding options will immediately vest and
become exercisable and he will be entitled to receive a lump sum payment equal
to the greater of (x) his current base salary and annual target bonus payable
over the remainder of his contract term or (y) two times his current annual
salary plus annual target bonus.
Upon termination of a Senior Officer's employment by Paracelsus without
Cause or by such Senior Officer for Good Reason, such Senior Officer would be
entitled to receive an additional lump sum in an amount sufficient to offset the
effect of any excise and other taxes to which such Senior Officer may become
subject by reason of section 4999 of the Code.
The definition of Good Reason in the Employment Agreements generally
includes a reduction in compensation, titles, duties, authority and reporting
relationships, as well as notice by Paracelsus that it does not wish to extend
the terms of the Employment Agreements for the periods described above. In
addition, for purposes of the Employment Agreements for Messrs. Messenger,
Miller and VanDevender, Good Reason includes their failure to be nominated and
elected to serve as members of the Board of Directors and the Executive
Committee. The definition of Good Reason for Messrs. Messenger and Miller
further includes the breach of the managerial rights provisions as set forth in
their Employment Agreements. Mr. Miller's Employment Agreement also provides
that he will have Good Reason to terminate his employment if, in the event Mr.
Messenger shall at any time cease to serve as Chief Executive Officer, Mr.
Miller is not chosen to serve as his successor. In addition, the Employment
Agreements provide each of the Senior Officers with the right, exercisable
within the
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12-month period following a "change in control" of Paracelsus, to terminate
their employment for any reason and receive the benefits described above that
would otherwise be payable upon termination of their employment with Good
Reason.
The term "change in control" is generally defined in the Employment
Agreements to include (i) the acquisition by any person of 25% or more of the
undiluted total voting power of Paracelsus' then outstanding voting securities
(the "Paracelsus Voting Securities"); (ii) certain changes in the majority of
the New Paracelsus Board within any two-year period; (iii) a merger resulting in
the holders of voting securities of Paracelsus immediately prior to such merger
retaining less than 60% of the voting securities of the surviving corporation;
and (iv) the liquidation of Paracelsus or the sale of all or substantially all
its assets.
INDEMNIFICATION AGREEMENTS. Upon consummation of the Merger, Paracelsus
will enter into indemnification agreements with certain officers and directors
of Paracelsus providing for rights of indemnification, in accordance with the
Paracelsus Articles, the Paracelsus Bylaws and applicable law, with respect to
activities conducted following the Effective Time.
EFFECT OF THE MERGER ON CHAMPION WARRANTS AND CONVERTIBLE SECURITIES
The following description of various agreements is qualified in its entirety
by reference to the complete text of the relevant agreements, copies of which
are filed as exhibits to the Registration Statement of which this Proxy
Statement/Prospectus forms a part and are incorporated by reference herein.
CHAMPION WARRANTS. Champion has outstanding Champion Warrants under certain
agreements, including the Series D Note and Stock Purchase Agreement dated as of
December 31, 1993, as amended, and the Series E Note Purchase Agreement dated as
of May 1, 1995, as amended. As of the Record Date, Champion had outstanding
Champion Warrants to purchase 422,286 shares of Champion Common Stock.
Pursuant to the terms of the Merger Agreement, all Champion Warrants
outstanding at the Effective Time shall, at the Effective Time, be assumed by
Paracelsus and converted into Paracelsus Warrants with respect to the number of
shares of Paracelsus Common Stock equal to the number of shares of Champion
Common Stock subject to such Champion Warrants at an exercise price equal to the
per share exercise price of the relevant Champion Warrant. The terms and
conditions of the Champion Warrants at the Effective Time shall apply to the
Paracelsus Warrants.
CHAMPION CONVERTIBLE SECURITIES. As of the Record Date, Champion had
subject to issuance upon the conversion or exchange of certain rights or
securities an aggregate of 146,317 shares of Champion Common Stock
(collectively, the "Champion Convertible Securities"). Pursuant to the terms of
the Merger Agreement, all Champion Convertible Securities outstanding at the
Effective Time will, at the Effective Time, be assumed by Paracelsus and become
convertible into that number of shares of Paracelsus Common Stock that the
holders of such Champion Convertible Securities would have been entitled to
receive had they converted such securities immediately prior to the Effective
Time and exchanged in the Merger the shares of Champion Common Stock received
upon such conversion for shares of Paracelsus Common Stock.
ACCOUNTING TREATMENT
The Merger will be accounted for using the "purchase" method of accounting,
under which the total consideration paid to the stockholders of Champion will be
allocated based on the fair market value of the assets acquired and the
liabilities assumed. See "Unaudited Pro Forma Condensed Combining Financial
Statements."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary discusses certain of the material Federal income tax
consequences of the Merger. The summary is based upon the Code, applicable
Treasury Regulations thereunder and administrative rulings and judicial
authority as of the date hereof. All of the foregoing are subject to
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change, possibly with retroactive effect, and any such change could affect the
continuing validity of the discussion. The discussion assumes that holders of
shares of Champion Common Stock or Champion Preferred Stock hold such shares as
capital assets. Further, the discussion does not address the tax consequences
that may be relevant to a particular shareholder subject to special treatment
under Federal income tax law, such as dealers in securities, financial
institutions, insurance companies, tax-exempt organizations, non-United States
persons, and persons who hold shares in a hedging transaction or as part of a
straddle or conversion transaction. This discussion does not address any Federal
income tax consequences of the Merger to shareholders who acquired shares of
Champion Common Stock through the exercise of employee stock options or rights
or otherwise as compensation or through the cashless exercise of Champion
Warrants, to persons who hold Champion Options, Champion Warrants, SARs,
Champion Subscription Shares or Champion Convertible Securities at the Effective
Time or to holders of Champion Common Stock who also hold Dissenting Shares. In
addition, this discussion does not address any tax consequences arising under
the laws of any state, local or foreign jurisdiction. Champion stockholders are
urged to consult their tax advisors as to the specific tax consequences to them
of the Merger, including tax return reporting requirements, the applicability
and effect of Federal, state, local and other applicable tax laws and the effect
of any proposed changes in the tax laws.
Neither Champion nor Paracelsus has requested a ruling from the Internal
Revenue Service (the "IRS") with regard to any of the Federal income tax
consequences of the Merger and the opinions of counsel as to such Federal income
tax consequences set forth below will not be binding on the IRS.
The Merger has been structured with the intent that it be tax-free to
Champion and its stockholders for Federal income tax purposes. Subject to the
foregoing limitations, in the opinion of Sullivan & Cromwell, special counsel to
Champion, the Merger will qualify as a reorganization within the meaning of
section 368(a) of the Code. Accordingly, for Federal income tax purposes:
(i) no gain or loss will be recognized by holders of Champion Common
Stock or Champion Preferred Stock who exchange their Champion stock solely
for Paracelsus Common Stock pursuant to the Merger;
(ii) the aggregate tax basis of the shares of Paracelsus Common Stock
received in the Merger will be the same as the aggregate tax basis of the
Champion Common Stock or Champion Preferred Stock exchanged therefor;
(iii) the holding period of the Paracelsus Common Stock in the hands of
the Champion stockholders will include the holding period of their Champion
Common Stock or Champion Preferred Stock exchanged therefor; and
(iv) no gain or loss will be recognized by Champion as a result of the
Merger.
The obligations of Champion and Paracelsus, respectively, to consummate the
Merger are conditioned upon, among other things, the receipt by (i) Champion of
an opinion of Sullivan & Cromwell substantially to the effect that the Merger
will qualify as a reorganization within the meaning of section 368(a) of the
Code with the Federal income tax consequences to the Champion stockholders noted
above, and (ii) Paracelsus of an opinion of Skadden, Arps, Slate, Meagher &
Flom, special counsel to Paracelsus, substantially to the effect that the Merger
will qualify as a reorganization within the meaning of section 368(a) of the
Code. See "The Merger Agreement -- Certain Conditions."
The opinion of Sullivan & Cromwell set forth above and the opinions to be
rendered as a condition to the consummation of the Merger, in each case, is or
will be based on certain customarily assumed facts and certain customary
representations to be received from Champion, Paracelsus and certain Champion
stockholders. At the present time, Sullivan & Cromwell and Skadden, Arps, Slate,
Meagher & Flom expect that they will be able to render the opinions that are
required to be rendered as a condition to the consummation of the Merger.
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DISSENTING HOLDERS OF CHAMPION PREFERRED STOCK. A holder of Champion
Preferred Stock that receives solely cash in exchange for such stock, pursuant
to the exercise of appraisal rights under Section 262 of the DGCL, and does not
exchange Champion Common Stock for Paracelsus Common Stock in the Merger, will
recognize gain or loss equal to the difference between the tax basis of the
Champion Preferred Stock surrendered and the amount of cash received therefor.
Such gain or loss will constitute capital gain or loss, and will be long-term
capital gain or loss if such stock has been held for more than one year at the
Effective Time. See "-- Appraisal Rights."
REGULATORY APPROVALS
Under the HSR Act, the Merger may not be consummated until notifications
have been given and certain information has been furnished to the FTC or the
Antitrust Division of the Department of Justice (the "Antitrust Division") and
specified waiting period requirements have been satisfied. Champion and the
Paracelsus Shareholder have each filed their respective notification and report
forms under the HSR Act on April 26, 1996. The HSR Act waiting period expired on
May 26, 1996.
On May 15, 1996, Champion petitioned the FTC for approval to transfer SLRMC
as part of the Merger, in accordance with certain provisions of the Asset
Purchase Agreement dated January 25, 1995, pursuant to which Champion acquired
SLRMC. Under certain circumstances, a subsequent disposition of SLRMC by
Paracelsus to a person or entity that owns similar facilities in the Salt Lake,
Davis, or Weber counties in Utah, may require prior approval of the FTC. On June
17, 1996, the public comment period with respect to the application expired with
no public comments being filed. Champion expects that the required prior
approval will be obtained prior to the date of the Special Meeting without any
material conditions. However, despite Champion's expectations, it is possible
that such approval may not be obtained or that consummation of the Merger may be
conditioned on Champion taking certain actions, including actions resulting,
among other things, in a material alteration of Champion's business in the Salt
Lake, Utah region or a delay in the effectiveness of the Merger.
Federal and state antitrust enforcement authorities frequently scrutinize
the legality under the antitrust laws of mergers such as the Merger. At any time
before or after the Effective Time, and notwithstanding that the HSR Act waiting
period has expired, any such agency could take any action under Federal and/or
state antitrust laws that it deems necessary or desirable in the public
interest. Such action could include seeking to enjoin the consummation of the
Merger or seeking divestiture of businesses of Champion and Paracelsus. Under
certain limited circumstances private parties may also bring legal actions under
the antitrust laws.
Based on information available to them, Champion and Paracelsus believe that
the Merger can be effected in compliance with Federal and state antitrust laws.
However, there can be no assurance that a challenge to the consummation of the
Merger on antitrust grounds will not be made or that, if such a challenge were
made, Champion and Paracelsus would prevail or would not be required to accept
certain conditions in order to consummate the Merger.
CERTAIN LITIGATION
Certain holders of Champion Common Stock have filed a purported class action
lawsuit in the Chancery Court of the State of Delaware, naming as defendants
certain members and a former member of the Champion Board, Messrs. Miller,
VanDevender, Conroy, Ferris, Spencer and Lehmann, Mr. Paul Queally, Mr. Scott F.
Meadow, Mr. William G. White and Mr. Richard D. Sage (collectively, the
"Individual Defendants"), and Champion and Paracelsus. The plaintiffs claim,
among other things, that the Merger and the Exchange Ratio for the Champion
Common Stock pursuant thereto are unfair and inadequate, that the Individual
Defendants violated their fiduciary duties to Champion and its public
stockholders by failing to actively pursue the acquisition of Champion by other
companies or conduct an adequate market check, and that Paracelsus knowingly
aided and abetted the breaches of fiduciary duty committed by the Individual
Defendants. Plaintiffs seek preliminary and permanent injunctions against the
proposed Merger. In addition, plaintiffs seek an accounting of all profits
realized by the defendants, as well as monetary damages for an unspecified
amount, and costs and attorneys' and experts' fees.
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STOCK EXCHANGE LISTING
The Champion Common Stock, which is currently listed on the AMEX but is
expected to be delisted from the AMEX and listed on the NYSE prior to the
Special Meeting, will be delisted from the NYSE. The Paracelsus Common Stock has
been approved for listing on the NYSE upon consummation of the Merger under the
symbol "PLS," subject to official notice of issuance.
APPRAISAL RIGHTS
Record holders of Champion Common Stock are not entitled to appraisal rights
under Section 262 of the DGCL ("Section 262").
Record holders of Champion Preferred Stock are entitled to appraisal rights
under Section 262. This discussion is not a complete statement of the law
pertaining to appraisal rights under the DGCL and is qualified in its entirety
by the full text of Section 262, which is reprinted in its entirety as Annex E
to this Proxy Statement/Prospectus. A PERSON HAVING A BENEFICIAL INTEREST IN
SHARES OF CHAMPION PREFERRED STOCK HELD OF RECORD IN THE NAME OF ANOTHER PERSON,
SUCH AS A BROKER OR NOMINEE, MUST ACT PROMPTLY TO CAUSE THE RECORD HOLDER TO
FOLLOW THE STEPS SUMMARIZED BELOW PROPERLY AND IN A TIMELY MANNER TO PERFECT THE
APPRAISAL RIGHTS PROVIDED UNDER SECTION 262.
Under Section 262, when a merger is to be submitted for approval at a
meeting of stockholders, as in the case of the Special Meeting, not less than 20
days prior to the meeting, a constituent corporation must notify each of the
holders of its stock for which appraisal rights are available that such
appraisal rights are available and include in each such notice a copy of Section
262. THIS PROXY STATEMENT/ PROSPECTUS SHALL CONSTITUTE SUCH NOTICE TO THE RECORD
HOLDERS OF CHAMPION PREFERRED STOCK. ANY SUCH STOCKHOLDER WHO WISHES TO EXERCISE
SUCH APPRAISAL RIGHTS SHOULD REVIEW THE FOLLOWING DISCUSSION AND ANNEX E
CAREFULLY, BECAUSE FAILURE TO TIMELY AND PROPERLY COMPLY WITH THE PROCEDURES
SPECIFIED WILL RESULT IN THE LOSS OF APPRAISAL RIGHTS UNDER THE DGCL.
Under the DGCL, record holders of Champion Preferred Stock who follow the
procedures set forth in Section 262 will be entitled to have their shares of
Champion Preferred Stock appraised by the Delaware Court of Chancery and to
receive payment of the "fair value" of such shares, exclusive of any element of
value arising from the accomplishment or expectation of the Merger, together
with a fair rate of interest, if any, as determined by such court. Such holders
are, in such circumstances, entitled to appraisal rights because they hold stock
of a constituent corporation to the Merger that is not listed on a national
securities exchange or traded on the National Association of Securities Dealers,
Inc. automated quotation system ("NASDAQ") or held of record by more than 2,000
holders. A holder of shares of Champion Preferred Stock wishing to exercise his
or her appraisal rights must deliver to the Secretary of Champion, before the
vote on the Merger Agreement at the Special Meeting, a written demand for
appraisal of his or her shares of Champion Preferred Stock. In addition, a
holder of shares of Champion Preferred Stock wishing to exercise his or her
appraisal rights must hold such shares of record on the date the written demand
for appraisal is made and must hold such shares continuously through the
Effective Time. Stockholders who hold their shares of Champion Preferred Stock
in brokerage accounts or other nominee forms and who wish to exercise appraisal
rights must take all necessary steps in order that a demand for appraisal is
made by the record holder of such shares and are urged to consult with their
brokers to determine the appropriate procedures for the making of a demand for
appraisal by the record holder.
Within 10 days after the Effective Time of the Merger, Champion, as the
surviving corporation in the Merger with Merger Sub, must send a notice as to
the effectiveness of the Merger to each person who has satisfied the appropriate
provisions of Section 262 and who is entitled to appraisal rights under Section
262. Within 120 days after the Effective Time, but not thereafter, Champion or
any holder of shares of Champion Preferred Stock who has complied with the
foregoing procedures and who is entitled to appraisal rights under Section 262
may file a petition in the Delaware Court of Chancery demanding a determination
of the "fair value" of such shares. Champion is not under any obligation, and
has no present intention, to file a petition with respect to the appraisal of
the "fair value" of the shares of Champion Preferred Stock. Accordingly, it is
the obligation of the stockholders
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to initiate all necessary action to perfect their appraisal rights within the
time prescribed in Section 262. A holder of shares of Champion Preferred Stock
will fail to perfect, or effectively lose, his or her right to appraisal if no
petition for appraisal of shares of Champion Preferred Stock is filed within 120
days after the Effective Time.
A holder may withdraw his or her demand for appraisal by delivering to
Champion a written withdrawal of his or her demand for appraisal and acceptance
of the Merger, except that any such attempt to withdraw made more than 60 days
after the Effective Time will require the written approval of Champion. Failure
to follow the steps required by Section 262 of the DGCL for perfecting appraisal
rights may result in the loss of such rights.
Any holder of shares of Champion Preferred Stock who has duly demanded an
appraisal in compliance with Section 262 will not, after the Effective Time, be
entitled to vote the shares of Champion Preferred Stock subject to such demand
for any purpose or be entitled to the payment of dividends or other
distributions on those shares (except dividends or other distributions payable
to holders of record of shares of Champion Preferred Stock as of a date prior to
the Effective Time). Pursuant to the Merger Agreement, Champion shall not,
except with the prior written consent of Paracelsus, voluntarily make any
payment with respect to any demands for appraisals of Champion Preferred Stock,
offer to settle or settle any such demands or approve any withdrawal of any such
demands.
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THE MERGER AGREEMENT
Set forth below is a brief description of certain terms of the Merger
Agreement. This description does not purport to be complete and is qualified in
its entirety by reference to the Merger Agreement, which is attached as Annex A
and is incorporated herein by reference.
THE MERGER
Subject to the satisfaction or waiver of certain conditions, at the
Effective Time, Merger Sub will be merged with and into Champion. At the
Effective Time (i) each share of Champion Common Stock issued and outstanding
immediately prior to the Effective Time (other than any such shares owned by
Paracelsus or any of its subsidiaries, held in Champion's treasury or owned by
any subsidiary of Champion) will automatically be converted into one share of
Paracelsus Common Stock and (ii) each share of Champion Preferred Stock issued
and outstanding immediately prior to the Effective Time (other than any such
shares owned by Paracelsus or any of its subsidiaries, held in Champion's
treasury or owned by any subsidiary of Champion, and other than Dissenting
Shares) will automatically be converted into two shares of Paracelsus Common
Stock. All shares of Champion Capital Stock owned by Paracelsus or any of its
subsidiaries, held in Champion's treasury or owned by any of its subsidiaries,
will be cancelled and cease to exist. As a result of the Merger, the separate
corporate existence of Merger Sub will cease and Champion will continue as the
surviving corporation (the "Surviving Subsidiary") in the Merger, will become a
wholly owned subsidiary of Paracelsus and will succeed, without any other
transfer, to all the rights, properties, debts and liabilities of Merger Sub.
PARACELSUS STOCK SPLIT
Prior to the Effective Time, pursuant to the Paracelsus Stock Split, each of
the 450 issued and outstanding shares of Paracelsus Common Stock will be split
into, and each share will become and thereafter represent 66,159.426 shares of
Paracelsus Common Stock, for an aggregate of 29,771,742 shares.
EXCHANGE OF CERTIFICATES
As of the Effective Time, Paracelsus will deposit with an exchange agent to
be appointed by Paracelsus (the "Exchange Agent"), for the benefit of holders of
shares of Champion Capital Stock, for exchange in accordance with the provisions
of the Merger Agreement, certificates representing shares of Paracelsus Common
Stock issuable pursuant to the Merger in exchange for outstanding shares of
Champion Capital Stock. As soon as reasonably practicable after the Effective
Time, the Exchange Agent will mail to each person who was, immediately prior to
the Effective Time, a holder of record of shares of Champion Capital Stock whose
shares of Champion Capital Stock were converted into shares of Paracelsus Common
Stock, letters of transmittal to be used in forwarding their certificates
representing shares of Champion stock for surrender and exchange for (i)
certificates representing the number of shares of Paracelsus Common Stock into
which their shares of Champion Capital Stock were converted in the Merger and
(ii) cash for any fractional share interests in Paracelsus Common Stock to which
such holders otherwise would be entitled. Until such surrender and until the
submission of any other documents required in accordance with the Merger
Agreement, certificates representing shares of Champion Capital Stock will be
deemed to represent the number of shares of Paracelsus Common Stock into which
such Champion shares were converted in the Merger, except that holders of
certificates will not be entitled to receive dividends or any other distribution
from Paracelsus until such certificates are so surrendered. When such
certificates are surrendered, the holders of Paracelsus certificates issued in
exchange therefor will be paid, without interest, any dividends or other
distributions which may have become payable with respect to such shares of
Paracelsus Common Stock since the Effective Time. Notwithstanding the foregoing,
certificates surrendered for exchange by any "affiliate" of Champion (as
determined pursuant to Rule 145 of the Securities Act) will not be exchanged
until Paracelsus has received a written agreement that such person will comply
with the applicable provisions of the Securities Act, as provided in the Merger
Agreement.
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GOVERNANCE OF PARACELSUS
The Merger Agreement sets forth certain matters related to the New
Paracelsus Board, certain committees of the New Paracelsus Board and the
executive officers of Paracelsus, from and after the Effective Time. For a
description of such matters, see "Management of Paracelsus Following the
Merger."
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties of Paracelsus and Champion relating to, among other things, (a) each
party's and its respective subsidiaries' organization and similar corporate
matters, (b) each party's capital structure, (c) the authorization, execution,
delivery, performance and enforceability of the Merger Agreement and related
agreements, (d) certain consents and approvals, (e) documents filed by each
party with the Commission and the accuracy of information contained therein, (f)
compliance with law, (g) tax matters, (h) litigation matters, (i) the accuracy
of representations and warranties contained in the Merger Agreement, (j) the
accuracy of information supplied by each party in connection with the
Registration Statement and this Prospectus, (k) employee benefit plans and other
ERISA matters, (l) transactions with affiliates, (m) opinions of financial
advisors, (n) the absence of certain changes or events, (o) the absence of
brokers or finders entitled to a commission or fee as a result of the Merger
other than the financial advisors of each of Paracelsus and Champion, (p) the
votes required to approve the Merger, (q) compliance with Medicare and Medicaid
laws, rules and regulations, (r) Medicare participation/ accreditation, (s)
medical staff matters and (t) inapplicability of certain antitakeover statutes.
CERTAIN CONDITIONS
The respective obligations of each party to effect the Merger shall be
subject to the fulfillment or waiver, at or prior to the Effective Time, of the
following conditions: (a) the Merger Agreement and the transactions contemplated
thereby will have been approved and adopted by the Champion requisite votes and
the Paracelsus requisite vote; (b) the waiting period applicable to the
consummation of the Merger under the HSR Act will have expired or been
terminated; (c) the Registration Statement will have become effective in
accordance with the provisions of the Securities Act, and no stop order
suspending such effectiveness will have been issued and remain in effect; (d) no
temporary restraining order, preliminary or permanent injunction or other order
or decree by any court or governmental entity of competent jurisdiction which
prevents the consummation of the Merger or the transactions contemplated thereby
will have been issued and remain in effect; (e) no action will have been taken,
and no statute, rule or regulation will have been enacted, by the Federal or any
state government or governmental agency which would prevent the consummation of
the Merger or the transactions contemplated thereby; (f) the shares of
Paracelsus Common Stock will have been approved for listing on the AMEX or the
NYSE, subject to official notice of issuance; and (g) the Employment Agreements
will have been executed and delivered.
The obligation of Champion to effect the Merger shall be subject to the
fulfillment or waiver, at or prior to the Effective Time, of the following
additional conditions: (a) Paracelsus will have performed in all material
respects its agreements contained in the Merger Agreement required to be
performed by the Effective Time and the representations and warranties of
Paracelsus contained in the Merger Agreement will be true and correct as of the
date of the Merger Agreement and as of the Effective Time as if made as of such
date, except as permitted by the Merger Agreement, and Champion will have
received a certificate of the chief executive officer and the chief financial
officer of Paracelsus to that effect; (b) Paracelsus will have obtained the
consent or approval of each person whose consent or approval is required in
connection with the transactions contemplated by the Merger Agreement under any
loan or credit agreement, note, mortgage, indenture, lease, license or other
agreement or instrument (collectively, "Contracts"), except those for which the
failure to obtain such consents and approvals would not, individually or in the
aggregate, have a material adverse effect on the business, assets, financial or
other condition or results of operation ("Material Adverse Effect") of
Paracelsus, or upon the consummation of the transactions contemplated by the
Merger Agreement; (c) Champion will have received the letter of Ernst & Young
LLP referred to in the Merger Agreement; (d) Champion
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will have received an opinion from Sullivan & Cromwell to the effect that (i)
the Merger will qualify as a reorganization under section 368(a) of the Code and
(ii) no gain or loss will be recognized by Champion stockholders who receive
shares of Paracelsus Common Stock in the Merger in exchange for shares of
Champion Capital Stock, except with respect to cash received for Champion
Preferred Stock in connection with the proper exercise of appraisal rights; (e)
(i) Paracelsus and the Paracelsus Shareholder or Dr. Krukemeyer will have
executed and delivered (x) the Shareholder Agreement, (y) the Non-Compete
Agreement and (z) the Dividend and Note Agreement; and (ii) Paracelsus will have
executed and delivered the Champion Investors Registration Rights Agreements;
and (f) Champion will have received an opinion from Skadden, Arps, Slate,
Meagher & Flom substantially to the effect that the Paracelsus Articles do not
violate the applicable provisions of the California General Corporation Law.
The obligation of Paracelsus to effect the Merger shall be subject to the
fulfillment or waiver, at or prior to the Effective Time, of the following
additional conditions: (a) Champion will have performed in all material respects
its agreements contained in the Merger Agreement required to be performed on or
prior to the Effective Time and the representations and warranties of Champion
contained in the Merger Agreement will be true and correct as of the date of the
Merger Agreement and as of the Effective Time as if made as of such date, except
as permitted by the Merger Agreement, and Champion will have received a
certificate of the chief executive officer and the chief financial officer of
Champion to that effect; (b) Champion will have obtained the consent or approval
of each person whose consent or approval is required in connection with the
transactions contemplated by the Merger Agreement under any Contracts, except
those for which the failure to obtain such consents and approvals would not,
individually or in the aggregate, have a Material Adverse Effect on Champion, or
upon the consummation of the transactions contemplated by the Merger Agreement;
(c) Paracelsus will have received the letter of Coopers & Lybrand L.L.P.
referred to in the Merger Agreement; (d) Paracelsus will have received an
opinion from Skadden, Arps, Slate, Meagher & Flom to the effect that the Merger
will qualify as a reorganization under section 368(a) of the Code; and (e) the
Voting Agreement (as defined below) and the Paracelsus Shareholder Registration
Rights Agreement (as defined below) will have been executed and delivered by the
relevant parties thereto (other than Paracelsus and the Paracelsus Shareholder).
BUSINESS OF PARACELSUS AND CHAMPION PENDING THE MERGER
Paracelsus has agreed that, among other things, prior to the Effective Time,
unless Champion shall otherwise agree in writing or unless otherwise
contemplated by the Merger Agreement, it will conduct its business and the
businesses of its subsidiaries only in the ordinary course of business and
consistent with past practice and it will not: sell, pledge or agree to sell or
pledge any stock owned by it in any of its subsidiaries; amend the Paracelsus
Articles of Incorporation or the Paracelsus ByLaws, except as provided in the
Merger Agreement, or split, combine or reclassify any shares of its outstanding
capital stock or declare, set aside or pay any dividends or other distributions
payable in cash, stock or property (other than certain dividends declared or
paid to, or on behalf of the Paracelsus Shareholder); or redeem or otherwise
acquire any shares of its capital stock or shares of the capital stock of any of
its subsidiaries. Paracelsus has further agreed that neither it nor any of its
subsidiaries shall: authorize for issuance, issue or sell or agree to issue or
sell any additional shares of, or rights of any kind to acquire any shares of,
its capital stock of any class (except as pursuant to the termination of the
Phantom Equity Plan); acquire, dispose of or encumber any fixed assets or any
other substantial assets other than in the ordinary course of business and
consistent with past practices; incur, assume, or prepay any indebtedness or any
other material liabilities other than in the ordinary course of business and
consistent with past practices; authorize capital expenditures in excess of the
amounts currently contemplated therefor and as previously disclosed to Champion
or its advisors; enter into any contract, agreement, commitment or arrangement
with respect to any of the foregoing; or make any material tax election or
settle any material tax audit or controversy. Paracelsus has further agreed that
neither it nor any of its subsidiaries will enter into any new employment
agreements with any of
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their respective officers or employees or grant any increases in the
compensation of their respective officers and employees other than increases in
the ordinary course of business and consistent with past practice, or enter
into, adopt or amend any employee benefit plan.
Champion has agreed that, among other things, prior to the Effective Time,
unless Paracelsus shall otherwise agree in writing or unless contemplated by the
Merger Agreement, it will conduct its businesses and the business of its
subsidiaries only in the ordinary course and consistent with past practice and
it will not: sell, pledge or agree to sell or pledge any stock owned by it in
any of its subsidiaries; amend the Champion Certificate or the Champion Bylaws;
split, combine or reclassify any shares of its outstanding capital stock;
declare, set aside or pay any dividend or other distribution payable in cash,
stock or property; or redeem or otherwise acquire any shares of its capital
stock or shares of the capital stock of any subsidiary. Champion has also agreed
that neither it nor any of its subsidiaries will: authorize for issuance, issue
or sell or agree to issue or sell any additional shares of, or rights of any
kind to acquire any shares of, its capital stock of any class (except for up to
40,000 Champion Options pursuant to the Directors' Stock Option Plan); acquire,
dispose of or encumber any fixed assets or any other substantial assets other
than in the ordinary course of business and consistent with past practices; or
incur, assume or prepay any indebtedness or any other material liabilities,
other than in the ordinary course of business and consistent with past
practices. In addition, Champion will not: take any action to cause the
transactions contemplated by the Merger Agreement to result in the acceleration
of payment, vesting or exercisability of any benefit under any Champion Options,
Champion Warrants or other rights to acquire Champion Common Stock or any other
incentive compensation arrangement or agreement other than as permitted by the
Merger Agreement; authorize any capital expenditures in excess in amounts
currently contemplated therefor and as previously disclosed by Champion or its
advisors; make any material tax election or settle any material tax audit or
controversy; or enter into any contract, agreement, commitment or arrangement
with respect to any of the foregoing. Champion has further agreed that it will
use its best efforts to cause each principal executive officer and each director
of Champion and each other person who may be deemed to be an "affiliate" of
Champion for purposes of Rule 145 under the Securities Act to deliver to
Paracelsus, on or prior to the Effective Time, a written agreement to the effect
that such person will not offer to sell or otherwise dispose of any shares of
Paracelsus Common Stock issued pursuant to the Merger, except, in each case,
pursuant to an effective registration statement or in compliance with Rule 145
under the Securities Act, or in a transaction which, in the opinion of legal
counsel satisfactory to Paracelsus, is exempt from the registration requirements
of the Securities Act.
Each of Paracelsus and Champion will use its best efforts, whether before or
after the Effective Time, to cause the Merger to qualify as a "reorganization"
within the meaning of section 368(a) of the Code and to obtain the opinions of
counsel referred to in the Merger Agreement and to provide counsel with such
representations as are customarily necessary to issue such opinions.
Paracelsus and Champion have agreed to use their reasonable best efforts to
refinance, including without limitation through a public offering of equity
and/or debt securities as promptly as practicable after the Merger, or to obtain
reasonable amendments or waivers to, the currently outstanding debt of
Paracelsus and Champion, as appropriate, in order to effect the closing and to
facilitate the combined operations of the companies after the Effective Time.
Paracelsus will guarantee, from and after the Effective Time, the then
outstanding debt obligations of Champion if and to the extent required by the
Participants Agreement.
TAKEOVER PROPOSALS
The Merger Agreement provides that neither Paracelsus nor Champion, nor
their respective subsidiaries or representatives, will solicit, initiate,
encourage or otherwise facilitate any inquiries or the making of any proposal or
offer with respect to a Takeover Proposal, except as permitted by the Merger
Agreement, enter into any agreement with respect to any Takeover Proposal or
participate in any discussions or negotiations regarding, or furnish to any
person any nonpublic information with respect to, a Takeover Proposal or
otherwise facilitate any effort or attempt to make or implement any
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Takeover Proposal; PROVIDED, HOWEVER, that each party may furnish nonpublic
information to, or enter into discussions or negotiations with, any person in
connection with an unsolicited bona fide written Takeover Proposal to such party
or its shareholders, or recommend such unsolicited bona fide written Takeover
Proposal to the shareholders of such party, if and only to the extent that (x)
the board of directors of such party determines in good faith based on the
written advice of its special outside legal counsel that such action is
necessary for such party's directors to comply with their fiduciary duties to
their stockholders or shareholder under applicable law and (y) prior to
furnishing such nonpublic information to, or entering into discussions or
negotiations with, such person, the board of directors of such party receives
from such person or entity an executed confidentiality agreement, with terms no
less favorable to such party that those contained in the confidentiality
agreements entered into by Paracelsus and Champion on November 10, 1995 (it
being understood that such confidentiality agreement may permit the making by
such person or entity of a Takeover Proposal). Each party will advise the other
party orally and in writing of any Takeover Proposal or any inquiry or request
for information with respect to or which could lead to any Takeover Proposal and
the identity of the person making such Takeover Proposal or inquiry. Each party
shall keep the other party promptly and fully informed in all material respects
of the status and details of any such Takeover Proposal or inquiry.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval by the Paracelsus Shareholder or the
stockholders of Champion (i) by the mutual written consent of Paracelsus and
Champion, or (ii) by either Paracelsus or Champion if (a) Champion's
stockholders will not have approved the Merger by a requisite vote; (b) the
Paracelsus Shareholder will not have approved the Merger by a requisite vote;
(c) the Merger will not have been consummated on or before the Termination Date,
PROVIDED that the right to terminate the Merger Agreement will not be available
to any party whose willful and material failure to fulfill any obligation under
the Merger Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before the Termination Date; (d) if the other
party breaches any representation, warranty, covenant or agreement that would
give rise to a failure of a closing condition under the Merger Agreement that
cannot be cured within 30 days of being given notice (provided that the
terminating party is not in breach of any of its representations, warranties,
covenants or agreements that would give rise to a failure of a closing condition
under the Merger Agreement); or (e) any one of the conditions to their
respective obligations to effect the Merger has not been satisfied, cured or
waived prior to or at such time as such condition can no longer be satisfied in
accordance with the provisions of the Merger Agreement.
The Merger Agreement may also be terminated by either Paracelsus or Champion
if the board of directors of the terminating party, pursuant to its fiduciary
obligations, concurrently approves, and such party concurrently enters into, a
binding written agreement concerning a Takeover Proposal; PROVIDED, HOWEVER,
that (i) the board of directors of the terminating party must have complied with
the notice and other termination provisions of the Merger Agreement in
connection with such Takeover Proposal; (ii) no termination pursuant to the
Merger Agreement will be effective unless such party has simultaneously made the
termination payments required by the Merger Agreement; and (iii) the right to
terminate the Merger Agreement pursuant to the Merger Agreement will not be
available to such party if such party at the time is in material breach of any
of the terms of the Merger Agreement.
TERMINATION PAYMENT
Under certain circumstances (described below), if the Merger Agreement is
terminated without consummation of the proposed transaction, one party must pay
the other the Termination Payment, comprised of a Termination Fee of $7,500,000
and reimbursement for Termination Expenses incurred by or on behalf of such
party in connection with transactions contemplated by the Merger Agreement up to
an additional $2,500,000. Such Termination Payment will be the sole and
exclusive remedy with respect to the breach of any covenant or agreement giving
rise to such payment, other than with respect to any claims for willful breach
or bad faith.
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The Termination Payment must be paid (i) when the Merger Agreement is
terminated by either party and that party concurrently enters into another
agreement concerning a Takeover Proposal, or (ii) (x) if the party's
stockholders or shareholder, as the case may be, do not approve the transaction,
(y) if the Merger is not consummated by the Termination Date, PROVIDED that a
closing condition did not remain unsatisfied through no fault of the party who
is obligated to pay the Termination Payment or (z) if the party is in breach of
any representation, warranty, covenant or agreement which would prevent a
closing condition from occurring and which is not cured within 30 days and the
other party terminates the Merger Agreement and, in the case of any of the
foregoing (x) through (z), within one year, the party consummates another
Takeover Proposal.
If a Termination Payment is required in connection with the Takeover
Proposal that is intended to be accounted for as a "pooling of interests" under
Accounting Principles Board Opinion No. 16, "Business Combinations," and any
applicable interpretations thereof and, but for such payment of the Termination
Payment, such accounting treatment would be available for the transaction
involved in such Takeover Proposal, then, subject to certain conditions, such
Termination Payment will be reduced to the maximum amount that would permit such
accounting treatment.
OTHER FEES AND EXPENSES
The Surviving Subsidiary will pay all charges and expenses of Champion and
the Exchange Agent, in connection with the transactions contemplated by the
Merger Agreement, and Paracelsus will reimburse the Surviving Subsidiary for
such charges and expenses. Except as otherwise provided in the Merger Agreement,
whether or not the Merger is consummated, all costs and expenses incurred in
connection with the Merger Agreement, the Shareholder Agreement and the other
agreements and transactions contemplated by the Merger Agreement will be paid by
the party incurring such costs or expenses, except that expenses incurred in
connection with the filing fee for the Registration Statement, printing and
mailing this Proxy Statement/Prospectus and the Registration Statement and
actions required to be taken under applicable state securities and blue sky laws
will be shared equally by Paracelsus and Champion.
INDEMNIFICATION AND INSURANCE
From and after the Effective Time, Paracelsus will indemnify and hold
harmless, to the fullest extent permitted under applicable law (and Paracelsus
will also advance reasonable expenses as incurred to the fullest extent
permitted under applicable law, provided that prior to any such advance, the
person to whom expenses are so advanced provides to Paracelsus an undertaking to
repay such advances if it is ultimately determined that such person is not
entitled to indemnification), each present and former director, officer and
employee of Champion and its subsidiaries (collectively, the "Indemnified
Parties") against any costs or expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages or liabilities (collectively, "Costs")
incurred in connection with any action, suit or proceeding, whether civil,
criminal, administrative, arbitrative or investigative, arising out of or
pertaining to matters existing or occurring at or prior to the Effective Time,
including the transactions contemplated by the Merger Agreement; PROVIDED that
Paracelsus will not be required to indemnify any Indemnified Party pursuant
thereto unless the Indemnified Party acted in good faith and in a manner such
Indemnified Party reasonably believed to be in, or not opposed to, the best
interests of Champion and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful.
For a period of six years after the Effective Time, Paracelsus will cause to
be maintained in effect policies of directors and officers' liability insurance
maintained by Champion for the benefit of those persons who are currently
covered by such policies on terms no less favorable than the terms of such
current insurance coverage; PROVIDED, HOWEVER, that Paracelsus will not be
required to expend in any year an amount in excess of 175% of the annual
aggregate premiums currently paid by Champion for such insurance, as disclosed
in the Merger Agreement; and PROVIDED, FURTHER, that if the annual
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premiums of such insurance coverage exceed such amount, Paracelsus will be
obligated to obtain a policy with the best coverage available, in the reasonable
judgment of the New Paracelsus Board, for a cost not exceeding such amount.
Any Indemnified Party wishing to claim indemnification pursuant to the
Merger Agreement, upon learning of any such claim, action, suit, proceeding or
investigation, will promptly notify Paracelsus thereof, but the failure to so
notify will not relieve Paracelsus of any liability it may have to such
Indemnified Party if such failure does not materially prejudice the indemnifying
party. In the event of any such claim, action, suit, proceeding or investigation
(whether arising before or after the Effective Time), (i) Paracelsus or the
Surviving Subsidiary will have the right to assume the defense thereof and
Paracelsus will not be liable to such Indemnified Parties for any legal expenses
of other counsel or any other expenses subsequently incurred by such Indemnified
Parties in connection with the defense thereof, except that if Paracelsus or the
Surviving Subsidiary elects not to assume such defense or if Paracelsus is a
party to any such action, suit or proceeding and counsel for the Indemnified
Parties advises Paracelsus in writing that there are issues which raise
conflicts of interest between Paracelsus or the Surviving Subsidiary and the
Indemnified Parties, the Indemnified Parties may retain counsel, and, subject to
the provisions of the Merger Agreement and applicable law and with respect to
the advancement of expenses, Paracelsus or the Surviving Subsidiary will pay all
reasonable fees and expenses of such counsel for the Indemnified Parties as
statements therefor are received; PROVIDED, HOWEVER, that Paracelsus will be
obligated pursuant to this paragraph to pay for only one firm of counsel for all
Indemnified Parties, which counsel will be reasonably satisfactory to
Paracelsus; (ii) the Indemnified Parties will cooperate in the defense of any
such matter; and (iii) neither Paracelsus nor the Surviving Subsidiary will be
liable for any settlement effected without their prior written consent (which
will not be unreasonably withheld). Neither Paracelsus nor the Surviving
Subsidiary will have any obligation hereunder to any Indemnified Party if and
when a court of competent jurisdiction will ultimately determine, and such
determination will have become final, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by applicable
law.
If Paracelsus or the Surviving Subsidiary or any of its successors or
assigns (i) shall consolidate with or merge into any other corporation or entity
and shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) shall transfer all or substantially all of its
properties and assets or any individual, corporation or other entity, then, and
in each such case, proper provisions will be made so that the successors and
assigns of Paracelsus or the Surviving Subsidiary will assume all of the
obligations set forth in the Merger Agreement. The foregoing provisions relating
to indemnification of directors, officers and employees under the Merger
Agreement are intended to be for the benefit of, and will be enforceable by,
each Indemnified Party, his or her heirs and his or her representatives.
AMENDMENT
The Merger Agreement may be amended by the parties thereto at any time
before or after approval hereof by the shareholders of Paracelsus or Champion,
PROVIDED that after any such approval, no amendment will be made which (a)
changes the number of shares of Paracelsus Common Stock into which shares of
Champion Capital Stock are converted pursuant to the terms of the Merger
Agreement or (b) in any way materially adversely affects the rights of holders
of shares of Paracelsus Common Stock or Champion Capital Stock. The Merger
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties thereto.
WAIVER
At any time prior to the Effective Time, the parties to the Merger Agreement
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties thereto, (b) waive
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any inaccuracies in the representations and warranties contained therein or in
any document delivered pursuant thereto and (c) waive compliance with any of the
agreements or conditions contained therein. Any agreement on the part of a party
thereto to any such extension or waiver will be valid if set forth in an
instrument in writing signed on behalf of such party.
CERTAIN RELATED AGREEMENTS
Described below are certain related agreements to be entered into prior to
or in connection with the Merger. The following descriptions are qualified in
their entirety by reference to the complete text of the relevant agreements,
copies of which are filed as exhibits to the Registration Statement of which
this Proxy Statement/Prospectus forms a part and are incorporated by reference
herein.
SHAREHOLDER AGREEMENT
The consummation of the Merger is conditioned upon the Paracelsus
Shareholder and Paracelsus entering into the Shareholder Agreement. The
Paracelsus Shareholder, which term is defined under the Shareholder Agreement to
include any wholly owned entity or any entity that wholly owns the Paracelsus
Shareholder, and all Permitted Transferees (as defined in the Shareholder
Agreement) are together referred to in the following discussion and in the
Shareholder Agreement as the "Investor."
COMPOSITION OF THE NEW PARACELSUS BOARD. Pursuant to the Shareholder
Agreement, as of the Effective Time, the New Paracelsus Board will consist of
nine members, which number may only be increased as described below. The New
Paracelsus Board will be divided into three classes with the number of directors
divided as equally as possible among the three classes. At the Paracelsus
Shareholder's request, Paracelsus will include, as nominees for the New
Paracelsus Board slate recommended by the New Paracelsus Board, up to four
directors (the "Shareholder Directors"), one of whom will be a member of Class
I, one of whom will be a member of the Class II and two of whom will be members
of Class III. In addition, three members of the New Paracelsus Board will be
Independent Directors (as defined below) and each of such Independent Directors
will be elected to one of the three classes. Independent Directors to be
nominated for election will be nominated by a vote of 75% of the entire New
Paracelsus Board or, if the New Paracelsus Board cannot so agree, by the
unanimous vote of the Independent Directors then in office. As used herein, an
"Independent Director" is a director of the New Paracelsus Board who is not a
Shareholder Director, a Transferee Director (as defined in the Shareholder
Agreement) or an officer of Paracelsus or any of its subsidiaries; PROVIDED
that, only for the purpose of determining an individual's qualification to vote
on a particular matter, each such individual also must not have (and must not be
an Affiliate (as defined the the Shareholder Agreement) of any person who has)
any material financial interest with respect to the particular matter under
consideration. In addition, the Shareholder Agreement provides that two persons
who are not Shareholder Directors, Transferee Directors or Independent Directors
may be nominated to the New Paracelsus Board.
The New Paracelsus Board size may be increased, but to no more than 12
members, upon the Paracelsus Shareholder, together with its Affiliates and
Associates (as defined in the Shareholder Agreement), ceasing to own certain
threshold percentages of the non-diluted aggregate number of votes that may be
cast by the holders of outstanding Voting Securities (the "Total Voting Power")
of Paracelsus. As used herein, "Voting Securities" means all securities entitled
to vote in the ordinary course in the election of directors or of persons
serving in a similar governing capacity, including the voting rights attached to
such securities and rights or options to acquire such securities. Specifically,
the Investor agrees to vote, and to use its best efforts to cause its respective
Shareholder Directors or Transferee Directors, as the case may be, to vote,
immediately to increase the size of the New Paracelsus Board if the Paracelsus
Shareholder together with its Affiliates and Associates ceases to beneficially
own (i) 35% of the Total Voting Power, to ten directors, (ii) 32.5% of the Total
Voting Power, to 11 directors and (iii) 30% of the Total Voting Power, to 12
directors. The nominees to
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vacancies created as a result of such increase shall be Independent Directors.
As used herein, any reference to beneficial ownership by any person of Voting
Securities has the meaning set forth in the Shareholder Agreement.
Vacancies among the Independent Directors occurring prior to the expiration
of their respective terms of office or created for Independent Directors as a
result of increasing the size of the New Paracelsus Board as described above,
will be filled by a vote of 75% of the entire remaining New Paracelsus Board or,
if the New Paracelsus Board cannot so agree, by the unanimous vote of the
Independent Directors then in office. The Shareholder Agreement also provides
that the Investor will vote, or cause any of its Affiliates or Associates to
vote, any Voting Securities of Paracelsus beneficially owned by such Investor or
its Affiliates or Associates against the removal of any directors without cause
other than Shareholder Directors or Transferee Directors.
The Shareholder Agreement provides that Paracelsus will nominate and will
use its best efforts to take and cause to be taken all necessary action
(corporate and other) to elect to the New Paracelsus Board the individuals
required to be nominated for election as directors in accordance with the
provisions of the Shareholder Agreement described above. In addition, the
Shareholder Agreement provides that the Investor will nominate and use its best
efforts, and will use its best efforts to cause the Shareholder Directors and
Transferee Directors, as the case may be, and the Investor's Affiliates and
Associates to use their respective reasonable efforts, to take and cause to be
taken all necessary action (corporate and other), which efforts will include the
voting of all Voting Securities of Paracelsus beneficially owned by the Investor
and the Investor's Affiliates and Associates and voting, subject to his or her
fiduciary duties, as a Shareholder Director or Transferee Director, to nominate
and elect to the New Paracelsus Board the individuals nominated by the New
Paracelsus Board in accordance with the provisions of the Shareholder Agreement
and the terms of any employment contracts between Paracelsus and its executive
officers so long as such employment agreements remain in effect.
The quorum required for the transaction of business by the New Paracelsus
Board will include at least one Shareholder Director or one Transferee Director
and one director who is an Independent Director, or their respective designees.
The Shareholder Agreement also provides that, for so long as such agreement
remains in effect, each committee of the New Paracelsus Board (other than the
Audit Committee and the Compensation Committee) will contain such numbers of
Shareholder Directors or Transferee Directors so that the number of Shareholder
Directors and Transferee Directors, when taken together, on each such committee
shall be as nearly as possible proportional to the total number of Shareholder
Directors and Transferee Directors on the New Paracelsus Board. In addition, the
Shareholder Agreement provides that the Audit Committee will be comprised solely
of Independent Directors and, for so long as the Paracelsus Shareholder is
entitled to nominate any Shareholder Directors, the Compensation Committee will
be comprised of one Shareholder Director, one Independent Director and one
additional non-employee director. The parties have agreed to the initial
composition of the Executive Committee and the Finance and Strategic Planning
Committee as described under "Management of Paracelsus Following the Merger --
Committees of the New Paracelsus Board" and Paracelsus will waive the
proportionality requirement with respect to the initial members of the Finance
and Strategic Planning Committee.
Under the terms of the Shareholder Agreement, upon the Paracelsus
Shareholder ceasing to beneficially own, together with its Affiliates and
Associates, at least 10% of the Total Voting Power of Paracelsus, Paracelsus may
request that all or any of the Shareholder Directors then on the New Paracelsus
Board resign, and upon such request the Paracelsus Shareholder will use its best
efforts to cause such Shareholder Directors, except for Dr. Krukemeyer (who will
resign at the next annual shareholder meeting for election of directors to his
class), to resign immediately and relinquish all rights and privileges as a
member of the New Paracelsus Board. In addition, upon the Paracelsus Shareholder
ceasing to beneficially own, together with his Affiliates and Associates, at
least 25% of the Total Voting Power, Paracelsus may request that all or any of
the Shareholder Directors then on the
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New Paracelsus Board resign at the next annual shareholder meeting for election
of directors to their respective classes, and upon such request the Paracelsus
Shareholder shall use its best efforts to cause such Shareholder Directors to
resign at such respective times and thereupon relinquish all rights and
privileges as a member of the New Paracelsus Board. Upon termination of the
Shareholder Agreement with respect to any Permitted Transferee thereunder,
Paracelsus may request that all of the Transferee Directors then on the New
Paracelsus Board resign, and upon such request the Permitted Transferee shall
use its best efforts to cause such Transferee Directors to resign immediately
and relinquish all rights and privileges as a member of the New Paracelsus
Board.
Under the terms of the Shareholder Agreement, if an Investor consummates any
direct or indirect sale, transfer, assignment, pledge, hypothecation, mortgage
or other disposition, including those by operation or succession of law, merger
or otherwise, or any encumbrance (other than encumbrances arising by operation
of law) (a "Transfer") to a Permitted Transferee, such Investor will have the
right, upon written notice to Paracelsus, to enter into such agreements and
understandings with such Permitted Transferee so that such Investor relinquishes
the right to nominate directors, and such Permitted Transferee will be entitled
to nominate, in place of the relinquished directors, such number of Transferee
Directors for whom the Investor has in such written notice relinquished the
right to nominate. However, the Shareholder Agreement provides that (i) the
number of directors entitled to be nominated by such Investor under the
Shareholder Agreement will be reduced by the number of directors so relinquished
and (ii) in no event will all or any one or any combination of Investors,
together with their respective Affiliates and Associates, at any time have more
than four representatives on the New Paracelsus Board, whether pursuant to the
terms of the Shareholder Agreement, any right of director appointment as set
forth in any employment agreement between any such representative and Paracelsus
or otherwise.
LIMITATION ON ACQUISITIONS OF PARACELSUS VOTING SECURITIES. The Shareholder
Agreement prohibits, except as described below, an Investor from acquiring, or
agreeing or offering to purchase or otherwise acquiring, or suffering or
permitting any Affiliates or Associates of the Investor to so acquire, or agree
or offer to purchase or otherwise acquire, in a transaction or group of related
transactions, any Voting Securities of Paracelsus, such that the Investor,
together with its Affiliates and Associates, after giving effect to such
transaction or transactions, will beneficially own 66 2/3% or more of the Total
Voting Power of Paracelsus.
ACQUISITIONS IN A FAIR PROPOSAL. The Shareholder Agreement will allow an
Investor, together with its Affiliates and Associates, to beneficially own up to
66 2/3% or more of the Total Voting Power of Paracelsus pursuant to a Fair
Proposal. A "Fair Proposal" is defined as (i) an Acquisition Proposal (as
hereinafter defined) by such Investor (or such Investor's Affiliates or
Associates) that is approved by the unanimous vote of the Independent Directors
or (ii) a transaction to acquire all of the outstanding shares that complies
with all of the procedures described below. An "Acquisition Proposal" is defined
as any BONA FIDE offer or proposal for (a) a merger or other business
combination (other than a Surviving Company Merger) involving Paracelsus, (b)
the acquisition of any Voting Securities representing more than 50% of the Total
Voting Power after giving effect to such Acquisition Proposal or (c) the
acquisition of all or substantially all of the assets of Paracelsus. As used
herein, a "Surviving Company Merger" means any merger or other business
combination or reorganization (x) where the transaction has been approved by a
unanimous vote of the entire New Paracelsus Board or (y) where the holders of
Voting Securities of Paracelsus prior to such transaction will beneficially own
(as determined pursuant to Rule 13d-3 or Rule 13d-5 of the Exchange Act) in the
aggregate at least 60% of the surviving corporation's Total Voting Power
immediately upon giving effect to such transaction.
In order for a transaction to qualify as a Fair Proposal under clause (ii)
of the immediately preceding paragraph, the transaction must comply with all the
following procedures. First, the Investor must make a written request to the New
Paracelsus Board expressing the Investor's desire to acquire beneficial
ownership of Voting Securities. Promptly after the New Paracelsus Board's
receipt of such request, the Independent Directors, as a group, and the Investor
will each designate an investment banking firm of recognized national standing
that does not beneficially own (excluding securities held on behalf of third
parties) a material amount of Paracelsus' securities (the "Paracelsus
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Appraiser" and the "Investor Appraiser," respectively) (the date of designation,
the "Initiation Date"), in each case to determine the fair value per share.
Pursuant to the terms of the Shareholder Agreement, the consideration that
constitutes fair value per share is the price per share (including control
premium) that an unrelated third party would pay if it were to acquire all
outstanding shares (including the shares held by the Investor and Affiliates and
its Associates) in an arm's-length transaction, assuming that Paracelsus was
being sold in a manner reasonably designed to solicit all possible participants
and to permit all interested parties an opportunity to participate and to
achieve the best value reasonably available to the shareholders at that time,
taking into account all then existing circumstances.
Within 30 days after the Initiation Date, each appraiser will determine its
initial view as to the fair value per share and consult with one another with
respect thereto. By the 45th day after the Initiation Date, the appraisers will
each have determined its final view as to the fair value per share. At that
point, if the difference between the higher and lower views of such appraisers
is not greater than 10% of the higher amount, the price per share (the "Price")
will be the average of those two views. Otherwise, the appraisers will each
designate a third investment banking firm of recognized national standing that
does not beneficially own (excluding securities held on behalf of third parties)
a material amount of the securities of Paracelsus (the "Mutually Designated
Appraiser") to determine such fair value. The Mutually Designated Appraiser
will, no later than the 60th day after the Initiation Date, determine such fair
value, and the Price will be (i) the amount determined by the Mutually
Designated Appraiser, if such amount falls within the range of values that is
greater than one-third and less than two-thirds of the way between the lower and
the higher amount, or (ii) the average of the amount determined by the Mutually
Designated Appraiser and the other appraised amount (lower or higher) that is
closest to such amount, if the amount determined by the Mutually Designated
Appraiser does not fall within that range. If the Price so determined is less
than the lower amount or more than the higher amount, the Price will be the
lower amount or the higher amount, as the case may be. During such 60-day
period, Paracelsus will not, subject to fiduciary duties and applicable law,
enter into or recommend to its shareholders any other Acquisition Proposal.
After the Price is determined, the Investor will have 15 days to notify the
New Paracelsus Board of a decision to proceed with a Fair Proposal at the Price.
If the Investor decides not to proceed, (i) the Investor will promptly notify
the New Paracelsus Board in writing and (ii) the Investor and its Affiliates and
Associates will not make a written request for an Acquisition Proposal to the
New Paracelsus Board under the Fair Proposal provisions for a period of six
months from the date the Investor notifies the New Paracelsus Board of his
intent not to proceed, PROVIDED that the Investor and its Affiliates and
Associates will not at any time be restricted from making a written request for
an Acquisition Proposal to the New Paracelsus Board under the Fair Proposal
provisions at a price that is equal to or in excess of the last determined Price
or from exercising their right of first offer, if any, as described below.
If the Investor decides to proceed with a Fair Proposal, the Investor may
pay or cause to be paid the Price in cash or non-cash consideration or any
combination of cash and non-cash consideration that the Investor Appraiser and
Paracelsus Appraiser mutually agree upon within 15 days will have an aggregate
market value, on a fully distributed basis, of not less than the Price. However,
if such appraisers fail to reach agreement, they will within five business days
designate the Mutually Designated Appraiser to make such determination within 10
days after such designation, whose determination will be final.
If the Investor determines to proceed with a Fair Proposal, the Investor and
Paracelsus will enter into an agreement (containing customary terms and
conditions applicable in a situation in which the acquiror has an ownership
position comparable to the Investor's ownership interest in Paracelsus) and, if
the Fair Proposal is not to be consummated pursuant to a tender or exchange
offer for all of the outstanding shares, will cause a meeting of shareholders of
Paracelsus to be held as soon as practicable to consider and vote thereon.
However, for a period of one year following the Effective Time, no Fair Proposal
may be consummated unless (i) if the Fair Proposal is not a tender or exchange
offer, it is approved by the affirmative vote of the holders of a majority of
the Minority Shares (as defined below)
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at a meeting duly called therefor, in addition to any vote required by law, or
(ii) if the Fair Proposal is a tender or exchange offer, a majority of the
Minority Shares have been validly tendered and not withdrawn and are accepted
for payment as of the expiration date (as may be extended) of the offer. If the
Fair Proposal is not approved or insufficient shares of Paracelsus Common Stock
are tendered to consummate the Fair Proposal in accordance with the terms of the
Shareholder Agreement described herein within 180 days from the Initiation Date
(which period may be extended by a vote of 75% of the entire New Paracelsus
Board and a majority of the Independent Directors), the Investor will terminate
the Fair Proposal and will not make a written request for an Acquisition
Proposal to the New Paracelsus Board under the Fair Proposal provisions for a
period of one year from the Initiation Date; PROVIDED that the Investor and its
Affiliates and Associates will not at any time be restricted from exercising
their right of first offer, if any, as described below. Paracelsus has agreed,
subject to fiduciary duties and in accordance with applicable law, to promptly
call and to take all other action necessary to hold the shareholder meeting
referred to above.
As used herein, "Minority Shares" means the shares beneficially owned by
Minority Shareholders, and "Minority Shareholders" means the beneficial owners
of Voting Securities of Paracelsus who are not Investors, their Affiliates or
Associates or any member of a group of which an Investor, or its Affiliates or
Associates are members (in each case for each Investor and its Affiliates and
Associates only for so long as the Shareholder Agreement is in effect with
respect to the respective Investor).
Finally, notwithstanding anything to the contrary in the provisions of the
Shareholder Agreement described above, if the Independent Directors unanimously
determine, in the good faith exercise of their fiduciary duties, based upon the
facts and the circumstances existing at the time of such determination, that it
is in the best interests of Paracelsus and its shareholders that the Independent
Directors approve and recommend, in accordance with the terms hereof, an
Acquisition Proposal at a price lower than the Price, then such unanimously
"Approved Acquisition Proposal" will be a Fair Proposal and the price at which
the Investor may consummate the Acquisition Proposal hereunder will be the price
so determined. At the Effective Time, Paracelsus Shareholder and Messrs. Miller
and VanDevender will enter into an agreement to vote, or cause to be voted, any
shares of Paracelsus Common Stock beneficially owned by each of them and their
respective affiliates with the Paracelsus Shareholder with respect to any
Approved Acquisition Proposal. See "-- Voting Agreement."
STANDSTILL LIMITATIONS. Under the Shareholder Agreement, an Investor is
subject to customary standstill provisions, whether acting alone or in concert
with others, except as otherwise permitted by the Shareholder Agreement,
including without limitation restrictions on:
(a) soliciting proxies or any Voting Securities of Paracelsus in any way
that is inconsistent with the provisions of the Shareholder Agreement;
(b) becoming a participant in any election contest in opposition to a
slate of director nominees nominated by the New Paracelsus Board;
(c) proposing a director nominees proposal with respect to Paracelsus as
described in Rule 14a-8 under the Exchange Act;
(d) seeking election to or to place a representative on the New
Paracelsus Board or remove any member of the New Paracelsus Board;
(e) taking any action, including providing non-public information to any
other person, with respect to any form of business combination transaction
involving Paracelsus or the acquisition of a substantial portion of the
equity securities or assets of Paracelsus or any subsidiary of Paracelsus,
including a merger, consolidation, tender offer, exchange offer or
liquidation of Paracelsus' assets, or any restructuring, recapitalization or
similar transaction with respect to Paracelsus or any material subsidiary of
Paracelsus; or
(f) forming a group with respect to any Voting Securities of Paracelsus,
other than a group consisting solely of the Investors, Paracelsus and their
respective Affiliates and Associates.
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LIMITATIONS ON TRANSFERS OF VOTING SECURITIES. The Shareholder Agreement
contains certain customary transfer restrictions that prohibit an Investor from
Transferring, or permitting any Affiliates or Associates to Transfer, in any
single transaction or group of related transactions, any Voting Securities of
Paracelsus, except for certain Transfers, including without limitation the
following:
(a) to any person who owns 100% of the Total Voting Power of the
Investor and to any wholly owned subsidiary of the Investor or any such
person; PROVIDED that such transferee must become a party to the Shareholder
Agreement as an Investor and, in the case of a Transfer to a wholly owned
subsidiary, the Transferring Investor guarantees to Paracelsus the
performance of all obligations of such transferee under the Shareholder
Agreement;
(b) to any person such that, after such Transfer, such person, together
with its Affiliates and Associates, will not beneficially own, after giving
effect to such Transfer, Voting Securities of Paracelsus constituting 25% or
more of the Total Voting Power of Paracelsus;
(c) in a BONA FIDE pledge of such Voting Securities to a financial
institution to secure borrowings as permitted by applicable laws, rules and
regulations;
(d) to underwriters in connection with an underwritten public offering
of such Voting Securities on a firm commitment basis registered under the
Securities Act, pursuant to which the sale of such Voting Securities will be
in a manner to effect a broad distribution;
(e) to Paracelsus or a wholly owned subsidiary of Paracelsus;
(f) to a person so long as either immediately after or simultaneously
with the acquisition of such Voting Securities, such person or an Affiliate
of such person makes an Acquisition Proposal to acquire all outstanding
shares at the same price and on equivalent terms offered to the Investor and
its Affiliates and Associates that is made in compliance with the Exchange
Act and the rules and regulations thereunder; PROVIDED that: (i) other than
with respect to the shares to be transferred by the Investor or its
Affiliates or Associates, such person may not purchase any shares in the
Acquisition Proposal and the Acquisition Proposal may not otherwise be
consummated unless it is approved and recommended (and, immediately prior to
consummation of the Acquisition Proposal, continues to be recommended) by a
majority of the Independent Directors; (ii) if the Acquisition Proposal is a
tender or exchange offer that is approved and recommended (and, immediately
prior to consummation of the Acquisition Proposal, continues to be
recommended) by a majority of the Independent Directors, the terms of such
tender will provide that such person will, and such person will be required
to, accept for payment and purchase all shares validly tendered and not
withdrawn upon expiration of the offer if a majority of the Minority Shares
are validly tendered and not withdrawn upon expiration of the offer; and
(iii) such person will agree to be bound as an Investor by all obligations
of the Investor under the Shareholder Agreement and will remain so obligated
notwithstanding the termination of the Shareholder Agreement pursuant to its
terms with respect to any other Investor. In addition to the foregoing, for
a period of one year from the Effective Time, other than with respect to the
shares of Paracelsus Common Stock to be transferred by the Investor or its
Affiliates or Associates, (x) if the Acquisition Proposal is not a tender or
exchange offer, the Acquisition Proposal may not be consummated unless it is
approved by holders of a majority of the Minority Shares at a meeting duly
called therefor, in addition to any vote required by law, or (y) if the
Acquisition Proposal is a tender or exchange offer, such person may not
accept for payment or purchase any shares in connection with the offer
unless a majority of the Minority Shares have been tendered and not
withdrawn upon expiration of the offer; and
(g) to any person in connection with an Approved Acquisition Proposal or
a Surviving Company Merger.
RIGHT OF FIRST OFFER. The Shareholder Agreement provides that after the
Effective Time Paracelsus will not enter into or recommend any Approved
Acquisition Proposal without first notifying the Paracelsus Shareholder in
writing (a "Proposal Notice") and providing the Paracelsus Shareholder
(including its Affiliates) the opportunity to consummate an Acquisition Proposal
on terms
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substantially equivalent to and, if the Approved Acquisition Proposal is a cash
offer, at a cash price or, if the Approved Acquisition Proposal includes
non-cash consideration, at a price (in either case, the "Offer Price") equal to
the sum of the amount of any cash plus the fair market value of any other
consideration offered in such prospective Approved Acquisition Proposal, as the
same may be amended or modified from time to time (a "Shareholder Proposal").
The Proposal Notice will set forth the identity of the proposed purchaser and
the material terms of the proposed Approved Acquisition Proposal. If the
proposed Approved Acquisition Proposal is amended or modified, Paracelsus will
promptly notify the Paracelsus Shareholder in writing (an "Amended Proposal
Notice"). However, if the Paracelsus Shareholder does not provide an Acceptance
Notice (as defined below) after receipt of a Proposal Notice or any required
Amended Proposal Notice, no Amended Proposal Notice will be required unless the
terms of such amendments or modifications are less favorable in any material
respect to Paracelsus than those contained in the Proposal Notice or any prior
Amended Proposal Notices. Any required Amended Proposal Notice will set forth
the identity of the proposed purchaser and the material terms of the amended or
modified proposed Approved Acquisition Proposal.
The Paracelsus Shareholder has further agreed that within six business days
after receipt of the Proposal Notice or any required Amended Proposal Notice,
the Paracelsus Shareholder will notify (an "Acceptance Notice") the New
Paracelsus Board in writing of its good faith intention to enter into
negotiations regarding a Shareholder Proposal. The failure to so notify will
constitute notice of the Paracelsus Shareholder's intention not to pursue a
Shareholder Proposal. If the Paracelsus Shareholder fails to deliver an
Acceptance Notice after the Proposal Notice or, if applicable, the Amended
Proposal Notice, (i) the Independent Directors and the New Paracelsus Board will
have the right to approve and recommend the Approved Acquisition Proposal to
Paracelsus' shareholders and (ii) Paracelsus will have the right to enter into
such agreements and take such actions in furtherance of consummating, and to
consummate, the Approved Acquisition Proposal at the Offer Price at any time
within one year from the date the Approved Acquisition Proposal was first made
to Paracelsus.
For a period of 15 days from the date of the last Acceptance Notice, the
Paracelsus Shareholder will have the non-exclusive right to negotiate the
Shareholder Proposal in good faith with the Independent Directors of the New
Paracelsus Board and their representatives. However, if at the end of that
15-day period, a majority of the Independent Directors in the good faith
exercise of their fiduciary duties determine that the competing Approved
Acquisition Proposal is superior to the Shareholder Proposal or if the
Shareholder Proposal is accepted and is then terminated in accordance with its
terms, (i) the Independent Directors and the New Paracelsus Board will have the
right to approve and recommend such competing Approved Acquisition Proposal to
Paracelsus' shareholders and (ii) Paracelsus will have the right to enter into
such agreements and take such actions in furtherance of consummating, and to
consummate, such competing Approved Acquisition Proposal at the Offer Price at
any time within one year from the date the Acquisition Proposal was first made
to Paracelsus.
The Shareholder Agreement also provides that if the consideration offered by
the prospective purchaser or transferee or, if permitted, offered by the
Paracelsus Shareholder, includes non-cash consideration, Paracelsus and the
Paracelsus Shareholder will in good faith seek to agree upon the value of such
non-cash consideration. If Paracelsus and the Paracelsus Shareholder fail to
agree on such value within 15 days following receipt by the Paracelsus
Shareholder of the Proposal Notice, then the Independent Directors and the
Paracelsus Shareholder will appoint a nationally recognized investment banking
firm mutually acceptable to the Independent Directors and the Paracelsus
Shareholder which will resolve the issues in dispute. However, if the
Independent Directors and the Paracelsus Shareholder cannot agree on an
investment banking firm then each will appoint a nationally recognized
investment banking firm which together will within five business days mutually
agree on another nationally recognized investment banking firm which will make a
final and binding determination within 10 days. The value of any securities will
be the fair market value of such securities, and the value of any property other
than securities will be the fair market value of such property. If a
determination under the provisions of the Shareholder Agreement described in
this
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paragraph is required, any deadline for acceptance described in this paragraph
will be postponed until the third business day after the date of such
determination; and any such determination will be final and binding on
Paracelsus and the Paracelsus Shareholder.
The Shareholder Agreement provides that the foregoing right of first offer
of the Paracelsus Shareholder will not inure to the benefit of any Permitted
Transferees. At the Effective Time, the Paracelsus Shareholder and Messrs.
Miller and VanDevender will enter into an agreement to vote, or cause to be
voted, any shares of Paracelsus Common Stock beneficially owned by each of them
and their respective affiliates to approve any Shareholder Proposal contemplated
by the Shareholder Agreement. See "-- Voting Agreement."
AGREEMENT TO SELL VOTING SECURITIES. Subject to the rights of the
Paracelsus Shareholder to propose, negotiate and consummate a Shareholder
Proposal in accordance with the provisions of the Shareholder Agreement, the
Paracelsus Shareholder has agreed that the Paracelsus Shareholder will, and will
cause any Affiliates or Associates of the Paracelsus Shareholder to, sell in,
tender into and vote in favor of, as the case may be, any Approved Acquisition
Proposal and any Shareholder Proposal approved by the Independent Directors in
accordance with the provisions of the Shareholder Agreement all Voting
Securities of Paracelsus beneficially owned by the Paracelsus Shareholder or any
Affiliate or Associate of the Paracelsus Shareholder.
The Shareholder Agreement provides that the foregoing obligation to vote and
sell Voting Securities of Paracelsus will not be binding upon any Permitted
Transferees so long as, if the Paracelsus Shareholder continues to be subject to
the Shareholder Agreement, such Permitted Transferee is not an Affiliate or
Associate of the Paracelsus Shareholder.
TERMINATION. With respect to a particular Investor (but not with respect to
any other person who may at such time be bound by the terms of the Shareholder
Agreement), the Shareholder Agreement shall terminate automatically without any
action by any party upon the earliest to occur of (i) the Investor, together
with all of its Affiliates and Associates, ceasing to beneficially own at least
25% of the Total Voting Power of Paracelsus (but certain provisions described
under "Management of Paracelsus Following the Merger -- New Paracelsus Board"
will not, with respect to the Paracelsus Shareholder, terminate until the
Paracelsus Shareholder, together with all of its Affiliates and Associates,
ceases to beneficially own at least 10% of the Total Voting Power of Paracelsus)
and (ii) the Investor, together with all of its Affiliates and Associates,
beneficially owning at least 90% of the Total Voting Power of Paracelsus.
However, in the event of a termination pursuant to clause (ii) above, the
Investor will remain obligated to and will promptly acquire all of the remaining
Voting Securities of Paracelsus (other than any such Voting Securities properly
exercising any appraisal or dissenters' rights) at a price equal to or in excess
of any price paid by the Investor or Affiliates or Associates of such Investor
for such Voting Securities in the 90-day period preceding such acquisition. In
addition, in the event of a termination pursuant to clause (i) above, the
Investor shall remain subject to certain provisions of the Shareholder Agreement
described above under the caption "-- Composition of the New Paracelsus Board."
VOTING ON CERTAIN MATTERS. The Shareholder Agreement provides that unless
such action is recommended by the New Paracelsus Board, an Investor will not,
and will cause its Affiliates and Associates not to, vote any Voting Securities
of Paracelsus to amend or repeal the Articles or the Bylaws or to call or
request any special meeting of Paracelsus' shareholders. In addition, the
Investor has agreed to cause all Voting Securities of Paracelsus beneficially
owned by the Investor and all of its Affiliates and Associates to be
represented, in person or by proxy, at all meetings of holders of Voting
Securities of Paracelsus of which the Investor has actual notice, so that such
Voting Securities may be counted for the purpose of determining the presence of
a quorum at such meetings.
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RIGHTS AGREEMENT
Pursuant to the Merger Agreement, prior to the Effective Time Paracelsus and
Champion will present to the New Paracelsus Board the Rights Agreement for
approval by the New Paracelsus Board, subject to fiduciary duties and applicable
law. Certain terms of the Rights (as defined in the Rights Agreement) and
Participating Preferred (as hereinafter defined) are also described below in
"Description of Paracelsus Securities -- Paracelsus Preferred Stock" and "--
Description of Paracelsus Rights." The terms of the Rights Agreement and the
Rights set forth below are subject to change, with the final terms thereof to be
set forth in a Registration Statement on Form 8-A to be filed with the
Commission promptly after the adoption of the Rights Plan.
RIGHTS DISTRIBUTION. At such time as the Rights Agreement is adopted by the
Paracelsus Board, pursuant thereto a dividend (a "Rights Distribution") of one
Right will be declared for each outstanding share of Paracelsus Common Stock
held of record at the close of business on the record date set by the New
Paracelsus Board (the "Rights Record Time"), or issued thereafter and prior to
the Separation Time (as defined below), including those shares to be issued in
the Merger, and thereafter pursuant to options, warrants and convertible
securities outstanding at the Separation Time. Each Right will entitle its
registered holder to purchase from Paracelsus, after the Separation Time, one
one-hundredth of a share of Participating Preferred Stock par value $0.01 per
share (the "Participating Preferred") for an exercise price to be determined by
the New Paracelsus Board (the "Exercise Price"). As a result of the Rights
Distribution, one Right will be distributed in respect of each share of
Paracelsus Common Stock then outstanding or thereafter as issued by Paracelsus,
including the shares of Paracelsus Common Stock to be issued to holders of
Champion Capital Stock in the Merger.
EVIDENCE OF RIGHTS. The Rights will be evidenced by the Paracelsus Common
Stock certificates until the close of business on the earlier of (either, the
"Separation Time") (i) the tenth business day (or such later date as Paracelsus
may from time to time fix by resolution adopted prior to the Separation Time
that would otherwise have occurred) after the date on which any Person (as
defined in the Rights Agreement) commences a tender or exchange offer which, if
consummated, would result in such Person's becoming an Acquiring Person (as
hereinafter defined) and (ii) the first date (the "Flip-in Date") of public
announcement by Paracelsus or any Person that such Person has become an
Acquiring Person, other than as a result of a Flip-over Transaction or Event (as
defined below); PROVIDED that if the foregoing results in the Separation Time
being prior to the Rights Record Time, the Separation Time shall be the Rights
Record Time; and PROVIDED, FURTHER, that if a tender or exchange offer referred
to in clause (i) is cancelled, terminated or otherwise withdrawn prior to the
Separation Time without the purchase of any shares of stock pursuant thereto,
such offer shall be deemed never to have been made. An Acquiring Person is any
Person having Beneficial Ownership (as defined in the Rights Agreement) of 25%
or more of the Total Voting Power of Paracelsus, which term shall not include
(i) Paracelsus, any wholly owned subsidiary of Paracelsus or any employee stock
ownership or other employee benefit plan of Paracelsus, (ii) any Person who is
the Beneficial Owner of 25% or more of the Total Voting Power of Paracelsus as
of the date of the Rights Agreement or who shall become the beneficial owner of
25% or more of the Total Voting Power of Paracelsus solely as a result of an
acquisition of Voting Securities of Paracelsus by Paracelsus, until such time as
such Person acquires additional Voting Securities of Paracelsus, other than
through a dividend or stock split, (iii) any Person who becomes an Acquiring
Person without any plan or intent to seek or affect control of Paracelsus if
such Person, upon notice by Paracelsus, promptly divests sufficient securities
such that such 25% or greater Beneficial Ownership ceases, (iv) any Person who
Beneficially Owns Voting Securities of Paracelsus consisting solely of (A)
shares acquired pursuant to the grant or exercise of an option granted by
Paracelsus in connection with an agreement to merge with, or acquire, Paracelsus
at a time at which there is no Acquiring Person, (B) shares owned by such Person
and its Affiliates and Associates (as such terms are defined in the Rights
Agreement) at the time of such grant and (C) shares, amounting to less than 1%
of the outstanding Voting Securities of Paracelsus, acquired by Affiliates and
Associates of such Person after the time of such grant or (v) any Person who
shall become the Beneficial Owner of 25% or more of the Total Voting Power of
Paracelsus solely as a result of an acquisition of Voting Securities of
Paracelsus pursuant to the Shareholder Agreement, until such
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time as such Person acquires additional Voting Securities of Paracelsus (other
than in accordance with the Shareholder Agreement), other than through a
dividend or stock split. Dr. Krukemeyer, as the owner of all of the outstanding
shares of Paracelsus prior to the Effective Time, will not be an Acquiring
Person under the Rights Agreement as a result of such ownership immediately
after the Merger.
The Rights Agreement will provide that, until the Separation Time, the
Rights will be transferred with and only with the Paracelsus Common Stock.
Paracelsus Common Stock certificates issued after the Rights Record Time but
prior to the Separation Time shall evidence one Right for each share of
Paracelsus Common Stock represented thereby. The Rights Agreement will further
provide that promptly following the Separation Time separate certificates
evidencing the Rights ("Rights Certificates") will be mailed to holders of
record of Paracelsus Common Stock at the Separation Time.
EXERCISABILITY OF RIGHTS. The Rights will not be exercisable until the
business day following the Separation Time. The Rights will expire on the
earliest of (i) the Exchange Time (as defined below), (ii) the close of business
on the expiration date of the Rights Agreement and (iii) the date on which the
Rights are redeemed as described below (in any such case, the "Expiration
Time").
The Exercise Price and the number of Rights outstanding, or in certain
circumstances the securities purchasable upon exercise of the Rights, are
subject to adjustment from time to time to prevent dilution in certain specified
events.
"FLIP-IN" TRANSACTIONS OR EVENTS. Pursuant to the Rights Agreement,
Paracelsus will agree, in the event that prior to the Expiration Time a Flip-in
Date occurs, to take such action as is necessary to ensure and provide, to the
extent permitted by applicable law, that each Right (other than Rights
beneficially owned by the Acquiring Person or any Affiliate or Associate
thereof, which Rights shall become void) will constitute the right to purchase
from Paracelsus, upon the exercise thereof in accordance with the terms of the
Rights Agreement, that number of shares of Paracelsus Common Stock or Paracelsus
Participating Preferred having an aggregate Market Price (as defined in the
Rights Agreement), on the date of the public announcement of an Acquiring
Person's becoming such (the "Stock Acquisition Date") that gave rise to the
Flip-in Date, equal to twice the Exercise Price for an amount in cash equal to
the then current Exercise Price. Alternatively, the Rights Agreement will
provide that the New Paracelsus Board may, at its option, at any time after a
Flip-in Date and prior to the time that an Acquiring Person becomes the
Beneficial Owner of more than 50% of the Total Voting Power of Paracelsus, elect
to exchange all (but not less than all) of the then outstanding Rights (other
than Rights Beneficially Owned by the Acquiring Person or any Affiliate or
Associate thereof, which Rights shall become void) for shares of Paracelsus
Common Stock at an exchange ratio of one share of Paracelsus Common Stock per
Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date of the Separation Time (the "Flip
Ratio"). Immediately upon such action by the New Paracelsus Board (the "Exchange
Time"), the right to exercise the Rights will terminate and each Right will
thereafter represent only the right to receive a number of shares of Paracelsus
Common Stock equal to the Flip Ratio.
The Rights Agreement will provide that whenever Paracelsus may become
obligated to issue shares of Paracelsus Common Stock upon exercise of or in
exchange for Rights as described in the preceding paragraph, at its option, it
may substitute therefor shares of Participating Preferred at a ratio of one
one-hundredth of a share of Participating Preferred for each share of Paracelsus
Common Stock so issuable.
"FLIP-OVER" TRANSACTIONS OR EVENTS. In the event that prior to the
Expiration Time Paracelsus enters into, consummates or permits to occur a
transaction or series of transactions after the time an Acquiring Person has
become such in which, directly or indirectly, (i) Paracelsus consolidates or
merges or participates in a binding share exchange with any other person if, at
the time of the consolidation, merger or share exchange or at the time
Paracelsus enters into an agreement with respect to such consolidation, merger
or share exchange, the Acquiring Person controls the New Paracelsus Board and
any term of or arrangement concerning the treatment of shares of capital stock
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in such merger, consolidation or share exchange relating to the Acquiring Person
is not identical to the terms and arrangements relating to other holders of
Voting Securities of Paracelsus, (ii) Paracelsus sells or otherwise transfers
(or one or more of its subsidiaries shall sell or otherwise transfer) assets (A)
aggregating more than 50% of the assets (measured by either book value or fair
market value) or (B) generating more than 50% of the operating income or cash
flow of Paracelsus and its subsidiaries (taken as a whole) to any other person
(other than Paracelsus or one or more of its wholly owned subsidiaries) or to
two or more such persons which are affiliated or otherwise acting in concert,
if, at the time of such sale or transfer of assets or at the time Paracelsus (or
any such subsidiary) enters into an agreement with respect to such sale or
transfer, the Acquiring Person controls the New Paracelsus Board or (iii) any
Acquiring Person (A) sells, purchases, leases, exchanges, mortgages, pledges,
transfers or otherwise acquires or disposes of, to, from, or with, as the case
may be, Paracelsus or any of its subsidiaries, over any period of 12 consecutive
calendar months, assets (x) having an aggregate fair market value of more than
$15,000,000 or (y) on terms and conditions less favorable to Paracelsus than
Paracelsus would be able to obtain through arm's-length negotiations with an
unaffiliated third party, (B) receives any compensation for services from
Paracelsus or any of its subsidiaries, other than compensation for full-time
employment as a regular employee at rates in accordance with Paracelsus' (or its
subsidiaries') past practices, (C) receives the benefit, directly or indirectly
(except proportionately as a stockholder), over any period of 12 consecutive
calendar months, of any loans, advances, guarantees, pledges, insurance,
reinsurance or other financial assistance or any tax credits or other tax
advantage provided by Paracelsus or any of its subsidiaries involving an
aggregate principal amount in excess of $5,000,000 or an aggregate cost or
transfer of benefits from Paracelsus or any of its subsidiaries in excess of
$5,000,000 or, in any case, on terms and conditions less favorable to Paracelsus
than Paracelsus would be able to obtain through arm's-length negotiations with a
third party, or (D) increases by more than 1% its proportionate share of the
outstanding shares of any class of Voting Securities of Paracelsus or any of its
subsidiaries as a result of any acquisition from Paracelsus (with or without
consideration), any reclassification of securities (including any reverse stock
split), or recapitalization, of Paracelsus, or any merger or consolidation of
Paracelsus with any of its subsidiaries or any other transaction or series of
transactions (whether or not with or into or otherwise involving an Acquiring
Person) (a "Flip-over Transaction or Event") Paracelsus will take such action as
shall be necessary to ensure, and will not enter into, consummate or permit to
occur such Flip-over Transaction or Event until it will have entered into a
supplemental agreement with the person engaging in such Flip-over Transaction or
Event or the parent corporation thereof (the "Flip-over Entity"), for the
benefit of the holders of the Rights, PROVIDED that upon consummation or
occurrence of the Flip-over Transaction or Event (i) each Right will thereafter
constitute the right to purchase from the Flip-over Entity, upon exercise
thereof in accordance with the terms of the Rights Agreement, that number of
shares of common stock of the Flip-over Entity having an aggregate Market Price
on the date of consummation or occurrence of such Flip-over Transaction or Event
equal to twice the Exercise Price for an amount in cash equal to the then
current Exercise Price and (ii) the Flip-over Entity will thereafter be liable
for, and will assume, by virtue of such Flip-over Transaction or Event and such
supplemental agreement, all the obligations and duties of Paracelsus pursuant to
the Rights Agreement.
For purposes of the foregoing description, the term "Acquiring Person" will
include any Acquiring Person and its Affiliates and Associates counted together
as a single Person.
REDEMPTION OF RIGHTS. The Rights Agreement will also provide that
Paracelsus may, at its option, at any time prior to the close of business on the
Flip-in Date, redeem all (but not less than all) of the then outstanding Rights
at a price of $0.01 per Right (the "Redemption Price"), as provided in the
Rights Agreement. Immediately upon the action of Paracelsus electing to redeem
the Rights, without any further action and without any notice, the right to
exercise the Rights will terminate and each Right will thereafter represent only
the right to receive the Redemption Price in cash for each Right so held.
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NO SHAREHOLDER RIGHTS. The holders of Rights will, solely by reason of
their ownership of Rights, have no rights as shareholders of Paracelsus,
including without limitation the right to vote or to receive dividends.
AMENDMENT. The Rights Agreement will provide that at any time prior to the
Separation Time, the Rights Agreement may be amended in any manner without the
approval of the holders of the Rights, except to amend the Redemption Price and
the Expiration Time.
RIGHT OF FIRST REFUSAL AGREEMENT
At or prior to the Effective Time, Dr. Krukemeyer, the Paracelsus
Shareholder and Messrs. Messenger, Miller, VanDevender and Patterson will enter
into the Right of First Refusal Agreement pursuant to which Dr. Krukemeyer and
the Paracelsus Shareholder will have certain rights to purchase shares of
Paracelsus Common Stock beneficially owned by each such person which he may from
time to time determine to sell.
PARACELSUS SHAREHOLDER REGISTRATION RIGHTS AGREEMENT
Pursuant to the Merger Agreement, prior to the Effective Time, the
Paracelsus Shareholder Registration Rights Agreement will be entered into by
Paracelsus and the Paracelsus Shareholder. For a 10-year period, the Paracelsus
Shareholder shall generally have the right (a "Demand Registration") to require
Paracelsus, on up to five separate occasions, to register for sale under the
Securities Act shares of Paracelsus Common Stock owned beneficially or of record
by the Paracelsus Shareholder (the "Registrable Shares"); PROVIDED that Demand
Registrations may not be exercised more than once in any period of 18 months;
and PROVIDED, FURTHER, on all Demand Registrations, except the last if the
Paracelsus Shareholder shall own a lesser amount of shares, the Paracelsus
Shareholder shall include in any Demand Registration at least $25,000,000 of
Registrable Shares. Subject to certain limitations, any Demand Registration may
be for a shelf registration under Rule 415 under the Securities Act.
The Paracelsus Shareholder will also have customary "piggyback" registration
rights with respect to registrations by Paracelsus or pursuant to registration
rights of other persons.
Paracelsus will be required to pay all costs, fees and expenses incident to
its performance of the Paracelsus Shareholder Registration Rights Agreement,
other than any commissions, fees or discounts payable to brokers, dealers or
underwriters.
The Paracelsus Shareholder Registration Rights Agreement will contain
provisions under which Paracelsus may require the Paracelsus Shareholder to
temporarily refrain from effecting public sales of Registrable Shares. In
addition, under such agreement, Paracelsus and the Paracelsus Shareholder will
indemnify each other against certain liabilities, including liabilities arising
under the Federal securities laws.
CHAMPION INVESTORS REGISTRATION RIGHTS AGREEMENTS
Pursuant to the Merger Agreement, as of the Effective Time, the Champion
Investors will enter into their respective Champion Investors Registration
Rights Agreements with Paracelsus as follows: (i) with the holders of Series D
Champion Warrants, an agreement to file one registration statement at the
request of such holders of warrants exercisable for more than 50% of the shares
of Paracelsus Common Stock issuable upon the exercise of all of such warrants;
(ii) with the holders of the Series E Champion Warrants, an agreement to file
one registration statement at the request of such holders of warrants
exercisable for more than 50% of the shares of Paracelsus Common Stock issuable
upon exercise of all of such warrants; and (iii) with stockholders of Champion
who will immediately following the Effective Time beneficially own more than 1%
of the outstanding shares of Paracelsus Common Stock, an agreement to file one
registration statement upon the request of such holders beneficially owning at
least 25% of the shares of Paracelsus Common Stock.
Pursuant to the terms of each Champion Investors Registration Rights
Agreement, for a two-year period the Champion Investors, as a party to their
respective Champion Investors Registration Rights Agreements, shall generally
have the right (a "Champion Investors Demand Registration") to require
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Paracelsus, as described below, to register for sale under the Securities Act
the shares of Paracelsus Common Stock (the "Champion Investors Registrable
Shares") owned beneficially or of record by such Champion Investors. Subject to
certain limitations, any Champion Investors Demand Registration may be for a
shelf registration under Rule 415 of the Securities Act. Under each such
agreement, the Champion Investors will also have one customary "piggyback"
registration right with respect to registrations by Paracelsus, which
"piggyback" right will expire upon consummation of the Secondary Equity
Offering, and unlimited PARI PASSU "piggyback" registrations with respect to
registrations by Paracelsus and certain selling shareholders, subject to
customary underwriters' cutbacks.
Paracelsus will be required to pay all costs, fees and expenses incident to
its performance of each of the Champion Investors Registration Rights
Agreements, other than any commissions, fees or discounts payable to brokers,
dealers or underwriters.
Each of the Champion Investors Registration Rights Agreements will contain
provisions under which Paracelsus may require the Champion Investors party to
such agreement to temporarily refrain from effecting public sales of Champion
Investors Registrable Shares. In addition, under such agreements, Paracelsus and
the Champion Investors will indemnify each other against certain liabilities,
including liabilities arising under the Federal securities laws.
PARTICIPANTS AGREEMENT
Contemporaneously with the execution of the Merger Agreement, Champion
entered into the Participants Agreement with certain holders (collectively, the
"Participants") of the Champion Preferred Stock, the Series D Notes issued
pursuant to the Series D Note and Stock Purchase Agreement, dated December 31,
1993, as amended (the "Series D Agreement") and the Series E Notes issued
pursuant to the Series E Note Purchase Agreement, dated May 1, 1995, as amended
(the "Series E Agreement").
The Participants beneficially own approximately 415,195 shares of Champion
Series C Preferred Stock, which represents approximately 93% of the shares of
that class entitled to vote as a class at the Special Meeting, and 2,156,903
shares of Champion Series D Preferred Stock, which represents all of the shares
of that class entitled to vote as a class at the Special Meeting, and together
represented, as of the date of the Participants Agreement, approximately 26% of
the total voting power represented by the outstanding Champion Capital Stock
entitled to vote at the Special Meeting. The Participants also hold all of the
outstanding principal amount of the Series D Notes and all of the outstanding
principal amount of the Series E Notes.
VOTING OF PREFERRED SHARES. Pursuant to the Participants Agreement, the
Participants who own shares of Champion Preferred Stock have agreed to vote
their respective shares for the approval and adoption of the Merger Agreement.
WAIVERS AND MODIFICATIONS UNDER THE SERIES D AGREEMENT. Pursuant to the
Participants Agreement, the Participants who are holders of the Series D Notes
(the "D Note Participants") have agreed to waive certain of their rights
contained in the Series D Agreement.
The D Note Participants have agreed to waive their rights to cause Champion
to purchase from them the Series D Notes upon the occurrence of the Change in
Control Event (as defined in the Series D Agreement) resulting from the Merger
until the Standstill Termination Date. The "Standstill Termination Date" is
defined as the first to occur of (i) the business day immediately following
completion by Paracelsus of a Qualified Debt Offering, (ii) a breach of any
covenant of, or occurrence of a default or event of default under, the Series D
Agreement or Series E Agreement by Champion or Paracelsus not waived or amended
pursuant to the Participants Agreement, (iii) a breach by Champion or Paracelsus
of the Participants Agreement or (iv) a Parent Change in Control Event (as
defined in the Participants Agreement).
As amended by the Participants Agreement, the Series D Agreement provides
each holder of Series D Notes with a 90-day period to exercise his or her right
to require repurchase of the Series D
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Notes after notification that the Standstill Termination Date has occurred. If
Champion does not repurchase the Series D Notes as required following the proper
exercise of such right, the Series D Notes will bear interest at the Increased
Applicable Rate (as hereinafter defined) plus 2% until all obligations are paid
in full.
The D Note Participants have also agreed to waive, until the Standstill
Termination Date, any breach of the provisions in the Series D Agreement
prohibiting Champion from merging with another company (which breach would
result from the Merger). The D Note Participants have further agreed to waive
any breach of the provisions in the Series D Agreement prohibiting Champion from
amending the Series E Agreement to improve the relative rights of the holders of
any securities thereunder or to increase the obligations of Champion thereunder
(which breach may result from the receipt by the holders of the Series E Notes
of proceeds from a Qualified Debt Offering).
Additionally, the D Note Participants have agreed to waive any breach of the
provisions in the Series D Note Agreement restricting payments made on account
of fractional shares or upon exercise of dissenters' rights in connection with
the Merger until the Standstill Termination Date.
The D Note Participants have also agreed to modify the definitions of "Bank
Agreement" and "Senior Indebtedness" in the Series D Agreement to include
indebtedness of Paracelsus for which Champion is a guarantor, to the extent such
indebtedness would be Senior Indebtedness if incurred by Champion; PROVIDED
that, in no event may the aggregate Senior Indebtedness under the Series D
Agreement exceed $200,000,000.
The D Note Participants have agreed to surrender their Series D Notes for
prepayment upon the occurrence of a Qualified Debt Offering at a premium
depending upon the year of such prepayment. The prepayment will be the
Prepayment Rate multiplied by the aggregate principal amount of the Series D
Notes being prepaid, plus accrued interest. The "Prepayment Rate" is defined as
(i) 106% through the earlier of (x) the sixth month anniversary date of the date
of the Effective Time or (y) January 31, 1997, and (ii) increasing by 1% at the
beginning of each 30-day period following the expiration of the period in (i),
not to exceed 112% at any time.
Further, the D Note Participants have agreed to amend certain terms of the D
Agreement to increase the interest rate payable on the Series D Notes after the
earlier of (i) July 31, 1997 or (ii) one year after the date of the Effective
Time, to the Increased Applicable Rate. The term "Applicable Rate" for the
Series D Notes is defined as (a) 11% per year until December 31, 2000 and (b)
12% thereafter. The term "Increased Applicable Rate" for the Series D Notes is
defined as the greater of (i) the Applicable Rate plus 2% or (ii) the rate per
year, determined as of the business day immediately preceding the earlier of (x)
July 31, 1997 or (y) one year from the Effective Date of the Merger, which is
the average between two specified High Yield BB Bond Indices with a remaining
average life to maturity which is the same as the Series D Notes, plus 2%; in
either case (i) or (ii), increasing by 1/2% every six months.
The D Note Participants have also agreed to amend the definition of Change
in Control Event in the Series D Agreement to include a Parent Change in Control
Event (as defined in the Participants Agreement).
WAIVERS AND MODIFICATIONS UNDER THE SERIES E AGREEMENT. Pursuant to the
Participants Agreement, the Participants who are holders of the Series E Notes
(the "E Note Participants") have agreed to waive certain of their rights
contained in the Series E Agreement.
The E Note Participants have agreed to waive their rights to cause Champion
to purchase from them the Series E Notes upon the occurrence of the Change of
Control Event (as defined in the Series E Agreement) resulting from the Merger
until the Standstill Termination Date.
As amended by the Participants Agreement, the Series E Agreement provides
each holder of Series E Notes with a 90-day period to exercise his or her right
to require repurchase of the Series E Notes after being notified that the
Standstill Termination Date has occurred. If Champion does not
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repurchase the Notes as required following the proper exercise of such right,
the Series E Notes will bear interest at the Increased Applicable Rate plus 2%
until all obligations under the Series E Notes are paid in full.
The E Note Participants have also agreed to waive, until the Standstill
Termination Date, any breach resulting from the Merger of the provisions in the
Series E Agreement prohibiting Champion from merging with another company. The E
Note Participants have further agreed to waive any breach resulting from the
receipt by the holders of the Series D Notes of proceeds from a Qualified Debt
Offering of the covenant in the Series E Agreement prohibiting Champion from
amending the Series D Agreement to improve the relative rights of the holders of
any securities thereunder or increase the obligations of Champion thereunder.
The E Note Participants have also agreed to waive any breach of the
provisions in the Series E Agreement restricting payments made on account of
fractional shares or upon exercise of dissenters' rights in connection with the
Merger until the Standstill Termination Date.
The E Note Participants have additionally agreed to modify the definitions
of "Bank Agreement" and "Senior Indebtedness" in the Series E Agreement to
include indebtedness of Paracelsus for which Champion is a guarantor, to the
extent such indebtedness would be Senior Indebtedness if incurred by Champion;
PROVIDED, in no event may the aggregate Senior Indebtedness under the Series E
Agreement exceed $200,000,000.
Additionally, the E Note Participants have agreed to surrender their Series
E Notes for prepayment upon the occurrence of a Qualified Debt Offering, at a
premium depending upon the year of such prepayment and upon whether Champion
Warrants are surrendered in connection with such prepayment. The prepayment will
be, at the option of the holder, either (i) the Prepayment Rate multiplied by
the aggregate principal amount of the Series E Notes surrendered for prepayment,
plus accrued interest or (ii) 112.5% multiplied by the aggregate principal
amount of the Series E Notes surrendered for prepayment together with the
surrender to Paracelsus of 15 Champion Warrants (converted into Paracelsus
Warrants in the Merger) for each $1,000 aggregate principal amount of Series E
Notes being prepaid, plus accrued interest.
Further, the E Note Participants have agreed to amend certain terms of the
Series E Agreement to increase the interest rate payable on the Series E Notes
after July 31, 1997 to the Increased Applicable Rate. The term "Applicable Rate"
for the Series E Notes is defined as (a) 11.5% per year until December 31, 2000,
and (b) 12% thereafter. The term "Increased Applicable Rate" for the Series E
Notes is defined as the greater of (i) the Applicable Rate plus 2% or (ii) the
rate per year, determined as of the business day immediately preceding the
earlier of (x) July 31, 1997 or (y) one year from the Effective Date of the
Merger, which is the average between two specified High Yield BB Bond Indices
with a remaining average life to maturity which is the same as the Series E
Notes, plus 2%; in either case (i) or (ii) increasing by 1/2% every six months.
The E Note Participants have also agreed to amend the definition of Change
in Control Event in the Series E Agreement to also include a Paracelsus Change
in Control Event.
WARRANTS. The Participants who are holders of Champion Warrants issued in
connection with the Series D Notes or the Series E Notes (the "Note Warrants")
and Champion have agreed to the replacement of Champion with Paracelsus as a
party to such Note Warrants and the assumption by Paracelsus in place of
Champion of the obligation to issue shares of Paracelsus Common Stock upon
exercise of the Note Warrants upon the same terms and conditions of the Note
Warrants, as amended by the Participants Agreement.
TERMINATION OF SERIES D STOCKHOLDERS AGREEMENT. As of the Effective Time,
the agreement among the holders of the Champion Series D Preferred Stock will be
terminated.
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ASSUMPTION AND GUARANTY BY PARACELSUS. As of the Effective Time, Paracelsus
will guarantee the payment of the Series D Notes and Series E Notes, PARI PASSU
with the existing senior subordinated indebtedness of Paracelsus. It will also
enter into an agreement in favor of each of the Participants, to assume and
perform all of its obligations in the Participants Agreement and to use its
reasonable best efforts to complete a Qualified Debt Offering on the date of the
Effective Time, or as soon thereafter as reasonably possible. Paracelsus will
additionally deliver to any Participant who holds Note Warrants, upon such
Participant's request, Paracelsus Warrants in exchange therefor.
QUALIFIED DEBT OFFERING. Prior to the Effective Time, Champion has agreed
to use its reasonable best efforts to cause Paracelsus to complete a Qualified
Debt Offering on the date of the Effective Time, or as soon thereafter as
reasonably possible, which obligation would be satisfied upon completion of the
Debt Offering.
AMENDMENTS OF THE SERIES D AND E AGREEMENTS. The Participants who are
holders of the Series D Notes and Series E Notes have agreed to consent to the
amendment of any provisions of the Series D Agreement or Series E Agreement, as
the case may be, upon, or immediately prior to, repayment in full of the Series
D Notes or Series E Notes, as the case may be.
VOTING AGREEMENT
At or prior to the Effective Time, the Paracelsus Shareholder and Messrs.
Miller and VanDevender will enter into a voting agreement (the "Voting
Agreement") pursuant to which Messrs. Miller and VanDevender will agree to vote,
or cause to be voted, the shares of Paracelsus Common Stock beneficially owned
by each of them and their respective affiliates (a) with the Paracelsus
Shareholder to approve any Shareholder Proposal contemplated by the Shareholder
Agreement and any related actions (including voting against any action or
agreement that may impede, interfere with or adversely affect any such approved
Shareholder Proposal) and (b) as the Paracelsus Shareholder is required to vote
with respect to any such Shareholder Proposal pursuant to the Shareholder
Agreement and any Approved Acquisition Proposal under the Shareholder Agreement.
See "-- Shareholder Agreement." In addition, the Voting Agreement will provide
that Messrs. Miller and VanDevender agree to sell (including by tender or
otherwise) their shares of Paracelsus Common Stock in any transaction for which
they are required to vote under the terms of the Voting Agreement. The Voting
Agreement will also provide that, if the Founders' Stock Option Plan Proposal is
not approved at the Special Meeting, Messrs. Miller and VanDevender and the
Paracelsus Shareholder will vote for the approval of such amendments to the
Founders' Stock Option Plan if presented at the next meeting of Paracelsus'
shareholders and will use their respective best efforts to cause such amendments
to be presented as shareholder proposals at such meeting. The Voting Agreement
will remain in effect for so long as the provisions of the Shareholder Agreement
relating to Shareholder Proposals or Approved Acquisiton Proposals are in effect
with respect to the Paracelsus Shareholder.
CERTAIN PARACELSUS SHAREHOLDER ARRANGEMENTS
Described below are certain agreements to be entered into by Paracelsus with
the Paracelsus Shareholder or Dr. Krukemeyer in addition to the Paracelsus
Shareholder Registration Rights Agreement. The following descriptions are
qualified in their entirety by reference to the complete text of the relevant
agreements, copies of which are filed as exhibits to the Registration Statement
of which this Proxy Statement/Prospectus forms a part and are incorporated by
reference herein.
DIVIDEND; DIVIDEND AND NOTE AGREEMENT
The consummation of the Merger is conditioned upon Paracelsus and the
Paracelsus Shareholder entering into the Dividend and Note Agreement.
Prior to the Effective Time of the Merger, Paracelsus will declare the
Dividend payable on a date not later than 60 days after the consummation of the
Merger to the Paracelsus Shareholder. The amount of the Dividend will be
$21,113,387, plus $3,574.26 for each day from and including July 31,
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1996 to the date the Dividend is paid. The payment of the Dividend will be
subject to compliance at the date of payment with the provisions of the
Indenture, dated as of October 15, 1993, related to the Existing Senior
Subordinated Notes.
Pursuant to the Dividend and Note Agreement, the Paracelsus Shareholder will
agree to purchase the Shareholder Subordinated Note for $7,185,467 promptly
after receipt of the Dividend. The Shareholder Subordinated Note will have a
term of 10 years, will bear interest at the rate of 6.51% per year and will
provide for payments of principal and accrued interest in an aggregate annual
amount of $1 million. The Shareholder Subordinated Note will be generally
subordinated in right of payment to (i) all senior indebtedness under the
Indenture with respect to Existing Senior Subordinated Notes (including without
limitation the New Credit Facility and the Existing Paracelsus Credit Facility
(as hereinafter defined) and any guarantee of the Champion Credit Facility (as
hereinafter defined) to the extent such facilities remain outstanding after the
Effective Time), (ii) the Existing Senior Subordinated Notes, (iii) all
indebtedness ranking PARI PASSU with such indebtedness and/or refinancing
indebtedness (including without limitation the Senior Subordinated Notes and the
guarantee of the Champion Notes pursuant to the Participants Agreement) and (iv)
any other indebtedness for borrowed money with an initial principal amount in
excess of $50,000,000 that is designated as senior indebtedness by Paracelsus.
In addition, the Paracelsus Shareholder will agree to cause all of the
Voting Securities of Paracelsus that are beneficially owned by it and its
affiliates and associates to be released from any pledge or encumbrance (other
than those arising under or permitted by the Shareholder Agreement) promptly
after receipt of the Dividend.
SERVICES AGREEMENT
Paracelsus and Dr. Krukemeyer have entered into the Services Agreement
pursuant to which Dr. Krukemeyer will provide management and strategic advisory
services to Paracelsus following the Merger. The term of the Services Agreement
is the lesser of 10 years or until Dr. Krukemeyer's death or permanent
disability, and Paracelsus will pay Dr. Krukemeyer a consulting fee of
$1,000,000 per year commencing upon the execution of the Services Agreement. The
Services Agreement may be terminated only by mutual consent of the parties.
INSURANCE AGREEMENT
Paracelsus and Dr. Krukemeyer have entered into the Insurance Agreement
pursuant to which Paracelsus will provide insurance benefits in the event of Dr.
Krukemeyer's death or permanent disability during the 10-year term of the
Insurance Agreement in an amount equal to $1,000,000 per year from the date of
such permanent disability or death until the end of the term of the Insurance
Agreement. The Insurance Agreement may be terminated only by the mutual consent
of the parties.
NON-COMPETE AGREEMENT
The consummation of the Merger is conditioned upon Dr. Krukemeyer and
Paracelsus entering into the Non-Compete Agreement.
The Non-Compete Agreement will provide that, from the date of the
Shareholder Agreement to the date of termination of the Shareholder Agreement
with respect to Dr. Krukemeyer or any Affiliates or Associates of Dr.
Krukemeyer, neither Dr. Krukemeyer nor any of his Affiliates or Associates
shall, without the prior written consent of Paracelsus, (i) directly or
indirectly, compete with Paracelsus and its Subsidiaries in the Business (as
hereinafter defined) in the Restricted Area (as hereinafter defined) or (ii)
have any interest, directly or indirectly, in any entity engaged in the Business
in the Restricted Area. As used in the Non-Compete Agreement, the term
"Business" is defined as owning, leasing or managing hospitals and ambulatory
care centers, excluding any ancillary hospital service businesses related to
such business, including, without limitation, dietary, maintenance, security and
other related service businesses, and the term "Restricted Area" is defined as
each and every county or state of the United States of America.
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Nothing in the Non-Compete Agreement will prohibit Dr. Krukemeyer from (x)
owning, directly or indirectly, control of a person (the "Subject Company") if
the Subject Company is not primarily engaged, directly or indirectly, in the
Business in the Restricted Area and, within 12 months after such acquisition,
the Investor causes the Subject Company to divest any business or assets of the
Subject Company that engage in the Business in the Restricted Area or (y)
owning, directly or indirectly, not more than 5% of any class of voting
securities of a publicly traded person that is engaged, directly or indirectly,
in the Business in the Restricted Area.
The Non-Compete Agreement will also provide that if the length of time or
geographical area set forth in it is deemed too restrictive by a court, then
such time or area shall be reduced to a time or area that such court may deem
reasonable under the circumstances.
Under the Non-Compete Agreement Dr. Krukemeyer will further agree that
following the Effective Time, neither he nor any of his affiliates will, without
the prior written consent of Paracelsus, directly or indirectly, solicit for
employment any current key employee or officer of Paracelsus or any of its
subsidiaries; PROVIDED, that the foregoing restriction shall not apply to
employees no longer employed by Paracelsus or its subsidiaries or to employees
who respond to general solicitations of employment not specifically directed
toward such key employees or officers of Paracelsus or its subsidiaries or, in
the case of certain international projects, to Mr. Messenger.
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DESCRIPTION OF PARACELSUS SECURITIES
PARACELSUS PREFERRED STOCK
Upon adoption of the Paracelsus Articles, Paracelsus will be authorized to
issue up to 25 million shares of preferred stock, par value $0.01 per share,
which may be issued from time to time in one or more series. The New Paracelsus
Board will be specifically authorized to establish the number of shares in any
series and to set the designation of any series and the powers, preferences, and
rights and the qualifications, limitations or restrictions on each series of
preferred stock. The holders of Paracelsus preferred stock will not have any
preemptive rights.
Pursuant to the Merger Agreement, prior to the Effective Time, Paracelsus
and Champion will present to the New Paracelsus Board the Rights Agreement for
approval, subject to fiduciary duties and applicable law. In connection with any
such approval, prior to the Effective Time, the New Paracelsus Board would
authorize the issuance of up to 1,500,000 shares of Participating Preferred.
Upon issuance, each share of Participating Preferred will be entitled to
quarterly cash dividends equal to the greater of 25% of the Exercise Price or
100 times (subject to antidilution adjustments for stock dividends and stock
splits) the aggregate value of all dividends or other distributions declared on
Paracelsus Common Stock (other than distributions of Paracelsus Common Stock)
since the last quarterly dividend payment date. Once issued, the Participating
Preferred will not be redeemable by Paracelsus.
Each share of Participating Preferred will be entitled to 100 votes (subject
to antidilution adjustments) on all matters submitted to a vote of the
shareholders of Paracelsus, voting together as one class with Paracelsus Common
Stock. In addition, if at any time dividends in an amount equal to six quarterly
dividend payments shall have accrued and be unpaid, the New Paracelsus Board
shall be increased by two directors and holders of the Participating Preferred
shall have the right to elect two members to the New Paracelsus Board until
dividends on the Participating Preferred have been declared and paid or set
apart for payment. Except as required by applicable law, holders of
Participating Preferred will have no other special voting rights. Whenever
dividends or distributions on the Participating Preferred are in arrears,
Paracelsus will be prohibited from declaring or paying dividends or
distributions on, and Paracelsus and any subsidiary will be prohibited from
redeeming or acquiring for value, any stock ranking junior to the Participating
Preferred as to dividends or upon liquidation. During any such arrearage,
Paracelsus may declare or pay dividends on stock ranking on a parity with the
Participating Preferred as to dividends or upon liquidation only if declared or
paid ratably with the Participating Preferred. During any such arrearage,
Paracelsus and any subsidiary will be prohibited from redeeming or acquiring for
value any such parity stock or any Participating Preferred, except pursuant to
an exchange of parity stock for stock ranking junior to the Participating
Preferred or pursuant to a purchase offer to the holders of Participating
Preferred and holders of parity stock on terms the New Paracelsus Board
determines to be fair and equitable.
The Participating Preferred will rank junior to all other series of
Paracelsus' preferred stock as to the payment of dividends and the distribution
of assets, unless the terms of any such series shall provide otherwise.
Upon any liquidation, dissolution or winding up of Paracelsus, the
Participating Preferred will be entitled to a liquidation preference of $100 per
share plus any accrued but unpaid dividends, subject to the prior rights of any
series of preferred stock ranking senior in liquidation to the Participating
Preferred. In the event of any shortfall in the assets available for
distribution, any such liquidating distribution shall be made ratably to the
Participating Preferred and any other series of preferred stock ranking on a
parity in proportion to their relative liquidation preferences. Following such
payment, no additional liquidating distributions will be permitted to be made on
the Participating Preferred until each share of Paracelsus Common Stock has
received $1.00 (subject to antidilution adjustments). Thereafter, any remaining
assets shall be distributed to each share of Participating Preferred and each
share of Paracelsus Common Stock in the ratio of 100 to 1 (subject to
antidilution adjustments).
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PARACELSUS COMMON STOCK
Upon adoption of the Paracelsus Articles, Paracelsus will be authorized to
issue up to 150 million shares of Paracelsus Common Stock. Holders of Paracelsus
Common Stock are subject to the prior rights of holders of preferred stock of
Paracelsus which may be issued from time to time in the future. Holders of
Paracelsus Common Stock are entitled to receive such dividends, if any, as may
from time to time be declared by the Board of Directors of Paracelsus out of
funds legally available therefor. Holders of Paracelsus Common Stock are
entitled to one vote per share on all matters on which such holders are entitled
to vote and do not have any cumulative voting rights. Holders of Paracelsus
Common Stock have no preemptive, conversion, redemption or sinking fund rights.
In the event of a liquidation, dissolution or winding up of Paracelsus, holders
of Paracelsus Common Stock are entitled to share equally and ratably in the
assets of Paracelsus, if any, remaining after the payment of all debts and
liabilities of Paracelsus and the liquidation preference of any outstanding
preferred stock of Paracelsus. The outstanding shares of Paracelsus Common Stock
are fully paid and nonassessable.
The Paracelsus Common Stock has been approved for listing on the NYSE upon
consummation of the Merger under the symbol "PLS," subject to official notice of
issuance. The transfer agent and registrar for the Paracelsus Common Stock will
be Chase Mellon Shareholder Services L.L.C.
DESCRIPTION OF PARACELSUS RIGHTS
Pursuant to the Merger Agreement, prior to the Effective Time, Paracelsus
and Champion will present to the New Paracelsus Board the Rights Agreement for
approval, subject to fiduciary duties and applicable law.
As a result of the Paracelsus Stock Split and the issuance of shares of
Paracelsus Common Stock in the Merger, based on the number of outstanding shares
of Champion Common Stock as of the Record Date, there will be 49,447,167 shares
of Paracelsus Common Stock issued (of which all will be outstanding and none
will be held in treasury) and 10,087,137 shares reserved for issuance pursuant
to employee benefit plans and convertible securities. As long as the Rights are
attached to the Paracelsus Common Stock, Paracelsus will automatically issue one
Right with each new share of Paracelsus Common Stock so that all such shares
will have Rights attached. Each share of Paracelsus Common Stock to be issued in
the Merger will have a corresponding Right attached.
The Rights will not prevent a takeover of Paracelsus. However, the Rights
may cause substantial dilution to a person or group that acquires beneficial
ownership of 25% or more of the Total Voting Power of Paracelsus unless the
Rights are first redeemed by the New Paracelsus Board. Nevertheless, the Rights
should not interfere with a transaction that is in the best interests of
Paracelsus and its shareholders because the Rights can be redeemed on or prior
to the close of business on the Flip-in Date, before the consummation of such
transaction, except that a majority of the directors of Paracelsus who are not
Affiliates, Associates, nominees or representatives of an Acquiring Person may
need to approve the redemption.
See "Certain Related Agreements -- Rights Agreement" for a more detailed
description of the terms of the Rights Agreement and the Rights.
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COMPARISON OF RIGHTS OF STOCKHOLDERS
OF CHAMPION AND SHAREHOLDERS OF PARACELSUS
Upon consummation of the Merger, the stockholders of Champion will become
shareholders of Paracelsus and their rights will cease to be defined and
governed by the Champion Certificate and the Champion Bylaws and will be defined
and governed by the Paracelsus Articles and the Paracelsus Bylaws. Certain
provisions of the Paracelsus Articles and the Paracelsus Bylaws will alter the
rights of prospective Paracelsus shareholders from those that Paracelsus
shareholders or Champion stockholders presently have and will also alter certain
powers of management. Certain of these provisions are summarized below.
The following description is qualified in its entirety by reference to the
Champion Certificate, the Champion Bylaws, the Paracelsus Articles and the
Paracelsus Bylaws. Copies of the Paracelsus Articles and Paracelsus Bylaws have
been attached hereto as Annexes B and C, respectively, and are incorporated
herein by reference, and the Champion Certificate and Champion Bylaws have been
filed as exhibits to the Registration Statement of which this Proxy
Statement/Prospectus forms a part and are incorporated herein by reference.
BOARD OF DIRECTORS
CHAMPION. The Champion Certificate provides for the number of directors of
Champion to be specified in the Champion Bylaws. The Champion Bylaws set the
current size of the Board of Directors of Champion at 11. Each Champion director
is elected at the annual meeting of stockholders.
PARACELSUS. The Paracelsus Articles will provide that the number of
directors of the corporation will be fixed from time to time pursuant to the
Paracelsus Bylaws but in no case will be less than nine. The Paracelsus Bylaws
provide that the New Paracelsus Board will consist of not less than nine members
nor more than 12 members.
The Paracelsus Articles will provide that the directors of the corporation
will be divided into three classes, as nearly equal in number as reasonably
possible, as determined by the board of directors, with the initial term of
office of Class I to expire at the first annual meeting of shareholders to be
held after the Special Meeting, the initial term of office of Class II to expire
at the second annual meeting of Paracelsus shareholders to be held after the
Special Meeting and the initial term of office of Class III to expire at the
third annual meeting of Paracelsus shareholders to be held after the Special
Meeting, with each class of directors to hold office until their successors have
been duly elected and qualified. At each annual meeting of Paracelsus
shareholders following such initial classification and election, directors
elected to succeed the directors whose terms expire at such annual meeting will
be elected to hold office for a term expiring at the annual meeting of
shareholders in the third year following the year of their election and until
their successors have been duly elected and qualified. If the number of
directors is changed, any increase or decrease will be apportioned among the
classes so as to maintain or attain a number of directors in each class as
nearly equal as reasonably possible, but no decrease in the number of directors
may shorten the term of any incumbent director. Shareholders are not entitled to
cumulate votes in the election of directors. No directors may be removed except
for cause as set forth in Sections 302 and 304 of the California General
Corporation Law ("CGCL"), except as otherwise provided by Section 303 of the
CGCL.
The Paracelsus Articles will further provide that in the event that the
holders of any class or series of stock of the corporation are entitled, voting
separately as a class, to elect any directors of the corporation, then the
number of directors that may be elected by such holders will be in addition to
the number fixed pursuant to the Paracelsus Bylaws and, except as otherwise
expressly provided in the terms of such class or series, the terms of the
directors elected by such holders will expire at the annual meeting of
shareholders next succeeding their election without regard to the classification
of the remaining directors. See "Management of Paracelsus Following the Merger
- -- New Paracelsus Board."
BUSINESS COMBINATIONS
CHAMPION. The Champion Certificate does not contain a provision with
respect to voting requirements for certain business combinations. Therefore,
approval of business combinations is controlled by appropriate law.
PARACELSUS. The Paracelsus Articles will provide that the corporation
cannot enter into or recommend proposals for certain business combinations
except upon the affirmative vote of not less than 75% of the entire New
Paracelsus Board.
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OTHER SPECIAL VOTING REQUIREMENTS
CHAMPION. The Champion Certificate requires the affirmative vote of the
holders of shares representing at least 75% of the Champion Series C Preferred
Stock or Champion Series D Preferred Stock then outstanding, as the case may be,
in each case voting as a separate class, to authorize the issuance of any new,
or increase the authorized number of shares of any existing, class of Champion
Capital Stock, which would be senior to, or on a parity with, as to dividends,
redemption or upon liquidation to, any of the Champion Series C Preferred Stock
or Champion Series D Preferred Stock, as the case may be.
The Champion Certificate also requires the affirmative vote of the holders
of shares representing at least 90% of the Champion Series C Preferred Stock or
Champion Series D Preferred Stock, then outstanding, as the case may be, in each
case voting as a separate class, to (i) amend the voting powers, designations,
preferences, or relative, participating, optional or other special rights or
qualifications, limitations or restrictions in respect of, (ii) reissue any
shares of (that have been redeemed or repurchased) or (iii) take any action to
cause any amendment, alteration or repeal of any of the provisions of the
Champion Certificate or the Champion Bylaws that would materially adversely
affect the rights of holders of, any series of Champion Preferred Stock.
The Champion Certificate also provides that as long as any of the Champion
Series C Preferred Stock or Champion Series D Preferred Stock remains
outstanding, no dividends or distributions (other than dividends or
distributions on Champion Common Stock payable in Champion Common Stock) may be
paid upon, or declared or set apart for, the Champion Common Stock nor may any
Champion Common Stock be purchased, redeemed, retired or otherwise acquired by
Champion except if approved by the vote of the holders of not less than
two-thirds of all outstanding Champion Series C Preferred Stock or Champion
Series D Preferred Stock, as the case may be, voting in each case as a single
class.
In addition, the Champion Bylaws require the prior approval of at least
five-sevenths of the Champion Board for the following actions: (i) the issuance,
sale or redemption of any equity securities of Champion, (ii) the amendment of
the Champion Certificate or Champion Bylaws, (iii) the consolidation or merger
of Champion with any other corporation, (iv) the sale, lease or other
disposition of all or substantially all of Champion's assets, (v) the
incurrence, assumption or guarantee of any indebtedness or liabilities, subject
to certain specified exceptions and (vi) certain specified acquisitions by
Champion.
PARACELSUS. The Paracelsus Articles will require the affirmative vote of at
least 75% of the whole New Paracelsus Board for the following actions: (i)
nominations and appointments to the New Paracelsus Board, except in the case of
Independent Directors (in which case, in the event the New Paracelsus Board
cannot so agree, appointments or nominations thereof shall be by the unanimous
vote of the Independent Directors then in office), (ii) the declaration of
dividends, (iii) the amendment or repeal of certain specified provisions of the
Paracelsus Bylaws, and (iv) the recommendation of or entering into certain
business combinations. See "-- Amendment of Bylaws."
In addition, the Paracelsus Articles will require the affirmative vote of
the majority of (i) the total voting power attached to the outstanding voting
securities and (ii) the shares of capital stock of Paracelsus not beneficially
owned by any individual or entity that is a member of any group (as defined
under Rule 13d-5 of the Exchange Act) that beneficially owns 25% or more of the
total voting power attached to the voting securities of Paracelsus (the "Public
Shares") for (x) the amendment of the provisions of the Paracelsus Articles
relating to business combinations and (y) the amendment or repeal of certain
specified provisions of the Paracelsus Bylaws. In addition, the Paracelsus
Articles require the affirmative vote of (i) at least 80% of the total voting
power attached to the outstanding voting securities of Paracelsus and a majority
of the outstanding Public Shares for the amendment of the provisions relating to
the number, appointment and liability of directors and (ii) at least 75% of the
total voting power attached to the outstanding voting securities of Paracelsus
and the majority of the outstanding Public Shares for amendments to the
provisions (x) prohibiting shareholder action by written consent, (y) relating
to the declaration of dividends and (z) relating to the appointment of the
Executive Committee.
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AMENDMENT OF CERTIFICATE OF INCORPORATION
CHAMPION. The Champion Certificate does not contain a provision with
respect to amendment of its certificate of incorporation. Therefore, amendment
of its certificate of incorporation is controlled by appropriate law.
PARACELSUS. The Paracelsus Articles will provide that (i) Article Fifth
(Directors) of the Paracelsus Articles may not be amended, modified or repealed
except by the affirmative vote of the holders of not less than 80% of the total
voting power attached to the outstanding voting securities of Paracelsus and the
affirmative vote of the holders of a majority of the voting power of the
outstanding Public Shares, each considered as a single class, (ii) Article Sixth
(Written Consent) may not be amended, modified or repealed except by the
affirmative vote of the holders of not less than 75% of the total voting power
attached to the outstanding voting securities of Paracelsus and the affirmative
vote of the holders of a majority of the voting power of all outstanding Public
Shares, each considered as a single class, (iii) Article Seventh (Amendment;
Related Party Transactions; Dividends; Executive Committee) may not be amended,
modified or repealed by the holders of the capital stock of Paracelsus except by
the affirmative vote of the holders of not less than a majority of the total
voting power attached to the outstanding voting securities of Paracelsus and the
affirmative vote of the holders of a majority of the voting power of all
outstanding Public Shares, each considered as a single class, (iv) Article
Eighth (Acquisition Proposals) may not be amended, modified or repealed except
by the affirmative vote of the holders of not less than a majority of the total
voting power attached to the outstanding voting securities of Paracelsus and the
affirmative vote of the holders of a majority of the voting power of all
outstanding Public Shares, each considered as a single class, and (v) Article
Ninth (Liability of Directors) may not be amended, modified or repealed except
by the affirmative vote of the holders of not less than 80% of the total voting
power attached to the outstanding voting securities of Paracelsus and the
affirmative vote of the holders of a majority of the voting power of all
outstanding Public Shares, each considered as a single class.
AMENDMENT OF BYLAWS
CHAMPION. The Champion Bylaws provide that the bylaws may be altered,
amended or repealed, or new bylaws may be adopted, by the directors at any duly
held meeting or by the holders of a majority of the shares represented at any
duly held meeting of stockholders; PROVIDED that notice of such proposed action
shall have been contained in the notice of any such meeting.
PARACELSUS. The Paracelsus Bylaws will provide that the holders of a
majority of the outstanding shares entitled to vote, as well as a majority of
the New Paracelsus Board, are expressly authorized to adopt, amend or repeal the
Paracelsus Bylaws, except that the shareholders may from time to time specify
particular provisions of the Paracelsus Bylaws which may not be amended by the
New Paracelsus Board. Notwithstanding the foregoing, the Paracelsus Articles and
the Paracelsus Bylaws will provide that the New Paracelsus Board may not alter,
amend or repeal Sections 2.3 (Special Meeting of the Shareholders), 2.4 (Notice
of Shareholders' Meetings), 2.7 (Quorum), 2.11 (Action by Written Consent), 2.12
(Record Date; Voting; Giving Consents), 2.14 (Advance Notice), 2.16 (Counting
Consents), 3.2 (Number of Directors), 3.3 (Election and Term of Office of
Directors and Removal), 3.4 (Class or Series Directors), 3.5 (Resignation and
Vacancies), 3.8 (Special Meetings; Notice), 3.9 (Quorum), 4.1 (Executive
Committee), 4.4 (Composition of Committees), Article VI (Indemnification) or
Article IX (Amendments) of the Bylaws, except upon the affirmative vote of not
less than 75% of the entire New Paracelsus Board.
RIGHTS
CHAMPION. Champion does not have a stockholder protection rights agreement.
PARACELSUS. Pursuant to the Merger Agreement, prior to the Effective Time
Paracelsus and Champion will present to the New Paracelsus Board the Rights
Agreement for approval, subject to fiduciary duties and applicable law, pursuant
to which Rights would be issued to holders of shares of Paracelsus Common Stock
and will thereafter be attached to shares of Paracelsus Common Stock therafter
issued, including the shares to be issued in the Merger. See "Certain Related
Agreements -- Rights Agreement" and "Description of Paracelsus Securities --
Paracelsus Preferred Stock" and "-- Description of Paracelsus Rights."
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CERTAIN DIFFERENCES BETWEEN CALIFORNIA AND
DELAWARE CORPORATE LAWS
Paracelsus is incorporated in the State of California and the rights of its
shareholders are governed by the CGCL. Champion is incorporated in the State of
Delaware and the rights of its stockholders are governed by the DGCL. At the
Effective Time, Paracelsus will be a California corporation and the rights of
the current holders of shares of Paracelsus and Champion will be governed by the
CGCL. The CGCL and the DGCL differ in many respects. Certain of the significant
differences that could materially affect the rights of the Champion stockholders
are discussed below.
SIZE OF THE BOARD OF DIRECTORS
Delaware law permits the board of directors of a Delaware corporation to
change the authorized number of directors by amendment to the corporation's
bylaws or in the manner provided in the bylaws unless the number of directors is
filed in the corporation's certificate of incorporation, in which case a change
in the number of directors may be made only by amendment to the certificate of
incorporation. The Champion Certificate does not fix the number of directors. As
a result, the Board of Directors of Champion may change the authorized number of
directors without stockholder approval by amendment to its bylaws.
Under California law, although changes in the number of directors or
changing from a fixed to a variable board or vice versa may only be adopted by
the affirmative vote of a majority of the outstanding shares entitled to vote
(including class voting if applicable), the articles of incorporation or bylaws
of the corporation may establish that the exact number of directors are within a
stated range, in which case the exact number is to be fixed within the limits
specified, by the board or the affirmative vote of a majority of the shares
represented and voting at a duly held meeting at which a quorum is present in
the manner provided in the bylaws. The Paracelsus Articles will provide that the
New Paracelsus Board will consist of not less than nine members in three
classes, the exact number of which will be as specified in the Paracelsus
Bylaws. The Paracelsus Bylaws will provide that the New Paracelsus Board will
consist of not less than nine members nor more than 12 members, with the exact
number to initially be nine. The number of members may be increased, in
accordance with the provisions of the Paracelsus Bylaws and Paracelsus Articles
up to 12 by approval of 75% of the entire New Paracelsus Board. As a result, the
New Paracelsus Board could amend the Paracelsus Bylaws to change the size of the
New Paracelsus Board.
CUMULATIVE VOTING
In an election of directors under cumulative voting, each share of stock
normally having one vote is entitled to a number of votes equal to the number of
directors to be elected. A shareholder may then cast all such votes for a single
nominee or may allocate among as many nominees as the shareholder may choose.
Without cumulative voting, the holders of a majority of shares present at an
annual meeting or any special meeting held to elect directors would have the
power to elect all of the directors to be elected at that meeting and no nominee
could be elected without the support of a majority of the shares voting at such
meeting.
Under Delaware law, cumulative voting in the election of directors is not
mandatory. While Delaware corporations may include in their certificate of
incorporation a provision allowing for such cumulative voting rights, the
Champion Certificate does not permit cumulative voting.
Under California law, provided that certain notice requirements are met,
cumulative voting is an absolute right for the shareholders of all corporations
unless such corporation (i)(a) has outstanding shares listed on the NYSE or the
AMEX or (b) outstanding securities qualified for trading on The NASDAQ Stock
Market's National Market if the corporation has at least 800 holders of its
equity securities and (ii) such corporation's articles of incorporation or
bylaws specifically eliminate cumulative voting. The Paracelsus Articles will
eliminate cumulative voting in accordance with California law.
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CLASSIFIED BOARD OF DIRECTORS
A classified board is one for which a certain number, but not all, of the
directors are elected on a rotating basis each year. A classified board makes
changes in the composition of the board of directors more difficult, and thus a
potential change in control of a corporation a lengthier and more difficult
process. Delaware law permits, but does not require, a classified board of
directors, divided into as many as three classes with no requirement that the
classes be as even in size as possible. The Champion Certificate does not
provide for a classified board of directors.
California law also permits certain qualifying corporations to provide for a
Board of Directors divided into as many as three classes. Under the CGCL, if a
classified board is divided into two classes, the authorized number of directors
must be at least six; if a classified board is divided into three classes, the
authorized number of directors must be at least nine. The size of the classes
must be as even as possible, and any change in the number of classes must be
approved by the board and majority of the shareholders entitled to vote. The
Paracelsus Articles and the Paracelsus Bylaws will provide that the New
Paracelsus Board will be divided into three classes with any change in the
number of directors to be apportioned among the classes so the number of
directors on each class is as equal as possible.
POWER TO CALL SPECIAL SHAREHOLDERS' MEETINGS
Under Delaware law, a special meeting of stockholders may be called by the
board of directors or by any other person authorized to do so in the certificate
of incorporation or the bylaws. The Champion Bylaws provide that special
meetings may be called by the President or Board of Directors and will be called
upon the written request of one or more stockholders who hold in the aggregate
at least 10% of the shares of capital stock entitled to vote. The Champion
Certificate provides that, except for special meetings concerning certain
matters involving interested stockholders, special meetings of stockholders may
be called by the Chairman of the Board, the president or more than 50% of the
members of its Board of Directors.
Under California law, a special meeting of shareholders may be called by the
board of directors, the chairman of the board, the president, the holders of
shares entitled to cast not less than 10% of the votes at such meeting or such
additional persons as are authorized by the articles of incorporation or the
bylaws. The Paracelsus Bylaws will provide that a special meeting of
shareholders may be called by those persons so designated in the CGCL, but will
not permit the holding of a special meeting during the period of 60 days
preceding or 45 days succeeding the date fixed for the annual meeting of
shareholders.
SHAREHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS
In the last several years, a number of states (including Delaware but not
including California) have adopted special laws designed to make certain kinds
of "unfriendly" corporate takeovers, or other transactions involving a
corporation and one or more of its significant shareholders, more difficult.
Section 203 of the DGCL ("Section 203") prohibits a Delaware corporation
from engaging in a "business combination" (as defined below) with an "interested
stockholder" (as defined below) for three years following the date that such
person becomes an "interested stockholder" unless certain requirements (as
described below) are met. With certain exceptions, an "interested stockholder"
is a person or entity who or which owns 15% or more of the corporation's
outstanding voting stock (including (with certain exceptions) any rights to
acquire stock pursuant to an option, warrant, agreement, arrangement or
understanding, or upon the exercise of conversion or exchange rights, and stock
with respect to which the person has voting rights only), or is an affiliate or
associate of the corporation and was the owner of 15% or more of such voting
stock at any time within the previous three years.
For purposes of Section 203, the term "business combination" is defined
broadly to include mergers of the corporation or a subsidiary with or caused by
the interested stockholder; sales or other
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dispositions to the interested shareholder (except proportionately with the
corporation's other shareholders) of assets of the corporation or a subsidiary
equal to ten percent or more of the aggregate market value of the corporation's
consolidated assets or its outstanding stock; the issuance or transfer by the
corporation or a subsidiary of stock of the corporation or such subsidiary to
the interested stockholder (except for certain transfers in a conversion or
exchange or a pro rata distribution or certain other transactions, none of which
increase the interested stockholder's proportionate ownership of any class or
series of the corporation's or such subsidiary's stock); any transaction
involving the corporation or a subsidiary which has the effect of increasing the
interested stockholder's ownership of the stock (including securities
convertible into such stock) of the corporation or subsidiary; or receipt by the
interested stockholder (except proportionately as a stockholder), directly or
indirectly, of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation or a subsidiary.
The three-year moratorium imposed on business combinations by Section 203
does not apply if: (i) prior to the date at which such stockholder becomes an
interested stockholder the board of directors approves either the business
combination or the transaction which resulted in the person becoming an
interested stockholder; (ii) the interested stockholder owns 85% of the
corporation's voting stock upon consummation of the transaction which made him
or her an interested stockholder (excluding from the number of shares
outstanding those shares owned by directors who are also officers and shares
held by employee stock plans which do not permit employees to decide
confidentially whether to accept a tender or exchange offer); or (iii) on or
after the date such person becomes an interested stockholder, the board approves
the business combination and it is also approved at a stockholder meeting (and
not by written consent) by 66 2/3% of the voting stock not owned by the
interested stockholder. Section 203 does not apply if, among other reasons, the
business combination is proposed prior to the consummation or abandonment of and
subsequent to the earlier of the public announcement or a 20-day notice required
under Section 203 of the proposed transaction which (i) constitutes certain (x)
mergers or consolidations, (y) sales or other transfers of assets having an
aggregate market value equal to 50% or more of the aggregate market value of all
of the assets of the corporation determined on a consolidated basis or the
aggregate market value of all the outstanding stock of the corporation or (z)
proposed tender or exchange offers for 50% or more of the corporation's
outstanding voting stock; (ii) is with or by a person who was either not an
interested stockholder during the last three years or who became an interested
stockholder with the approval of the corporation's board of directors; and (iii)
is approved or not opposed by a majority of the board members elected prior to
any person becoming an interested stockholder during the previous three years
(or their chosen successors).
A Delaware corporation may elect not to be governed by Section 203 by a
provision of its original certificate of incorporation or an amendment thereto
or to the bylaws, which amendment must be approved by a majority of the shares
entitled to vote and may not be further amended by the board of directors. Such
an amendment is not effective until 12 months following its adoption. Champion
has not elected in the Champion Charter not to be governed by Section 203 and,
therefore, Section 203 applies to Champion.
Under California law, there is no such comparable provision to Section 203.
FAIR PRICE PROVISION
California law provides that, except in certain circumstances, when a tender
offer or a proposal for a reorganization or for a sale of assets is made by an
interested party (generally a party to the transaction that controls or is
controlled by the target corporation or its officers or directors or is an
entity in which an executive officer or director of the target corporation has a
material financial interest), an affirmative opinion in writing as to the
fairness of the consideration to be paid to the shareholders must be delivered
to the shareholders or if no shareholder vote is required, to the board of
directors. Furthermore, if a tender of shares or vote is sought pursuant to an
interested party's proposal and a later tender offer or written proposal for a
reorganization or sale of assets that would
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require a vote of shareholders is made by another party at least 10 days prior
to the date for acceptance of the interested party's proposal, the shareholders
must be informed of the later proposal and be afforded a reasonable opportunity
to withdraw any vote, consent or proxy, or to withdraw any tendered shares given
in connection with the earlier proposal.
Other than Section 203, neither the DGCL nor the Champion Certificate
contains a provision similar to the one described above.
REMOVAL OF DIRECTORS
Under Delaware law, subject to certain exceptions, a director of a
corporation may be removed with or without cause, by the holders of a majority
of the shares entitled to vote at an election of directors.
Under California law, any director or the entire board of directors may be
removed, with or without cause, with the approval of a majority of the
outstanding shares entitled to vote; PROVIDED that no individual director may be
removed (unless the entire board is removed) if the number of votes cast against
such removal would be sufficient to elect the director under cumulative voting.
The Paracelsus Articles and the Paracelsus Bylaws will provide that, subject to
California law, a director may be removed only with cause.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Under Delaware law, vacancies may be filled by a majority of the directors
then in office (even though less than a quorum) unless otherwise provided in the
certificate of incorporation or bylaws. As permitted by the DGCL, the Champion
Bylaws provide that vacancies may be filled by a majority of the directors then
in office except that, during certain periods, any vacancy in the office of a
director elected by the holders of each series of Champion Preferred Stock may
be filled by a vote of the remaining directors then in office elected by such
series of Champion Preferred Stock, or if not so filled, by the holders of such
series of Preferred Stock at any meeting held for the election of directors
thereafter. The DGCL provides that if, at the time of filling any vacancy, the
directors then in office constitute less than a majority of the board (as
constituted immediately prior to any such increase), the Delaware Court of
Chancery may, upon application of any holder or holders of at least 10% of the
total number of the shares at the time outstanding having the right to vote for
directors, summarily order a special election to be held to fill any such
vacancy or to replace directors chosen by the board to fill such vacancies.
Under California law, unless otherwise provided in the articles or bylaws,
any vacancy on the board of directors other than one created by removal of a
director may be filled by approval of the board. If the number of directors then
in office is less than a quorum, a vacancy may be filled by the unanimous
written consent of the directors then in office, by the affirmative vote of a
majority of the directors then in office at a properly noticed meeting or by a
sole remaining director. A vacancy created by removal of a director may be
filled by the board only if so authorized by a corporation's articles of
incorporation or by a bylaw approved by a corporation's shareholders; otherwise,
such vacancy may only be filled by the affirmative vote (or written consent) of
a majority of shares represented and voting at a duly held meeting at which a
quorum is present. The CGCL further provides that if, after the filling of any
vacancy by the directors, the directors then in office who have been elected by
the shareholders are less than a majority of the directors then in office, then
any holder or holders of 5% or more of the outstanding voting shares may call a
special meeting of shareholders or cause a court to order such a meeting, to
elect the entire board. The Paracelsus Bylaws will provide that a director
elected to fill a vacancy on the New Paracelsus Board or any newly created
directorship will be elected by a majority of the remaining directors then in
office although less than a quorum, or a sole remaining director; PROVIDED that,
for so long as the Shareholder Agreement shall be in effect, any vacancies on
the New Paracelsus Board shall be filled in accordance with the terms of the
Shareholder Agreement. See "Certain Related Agreements -- Shareholder
Agreement."
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LOANS TO OFFICERS AND EMPLOYEES
Under Delaware law, a corporation may make loans to, guarantee the
obligations of or otherwise assist its officers and its subsidiaries or other
employees (including directors who are also officers or employees) when such
action, in the judgment of the directors, may reasonably be expected to benefit
the corporation.
Under California law, any loan to or guaranty for the benefit of a director
or officer, including pursuant to an employee benefit plan, of the corporation
requires approval of holders of a majority of the outstanding shares of the
corporation entitled to be voted on such action. However, under Section 315 of
the CGCL, the board of any corporation with 100 or more shareholders of record
and with a bylaw provision (approved by the outstanding shares) authorizing the
board of directors alone to approve loans to or guaranties on behalf of an
officer (whether or not such officer is a director), or employee benefit plans
authorizing such loans or guarantees, may alone approve such loans, guaranties
or employee benefit plans without counting the vote of any interested director
if the board determines that any such loan, guaranty or plan may reasonably be
expected to benefit the corporation. The Paracelsus Bylaws contain such a
provision.
INDEMNIFICATION
California and Delaware have similar laws respecting indemnification by a
corporation of its officers, directors, employees and other agents. There are
nonetheless certain differences between the laws of the two states respecting
indemnification.
Delaware law generally permits indemnification of expenses incurred in the
defense or settlement of a derivative or third-party action, provided there is a
determination by a majority vote of disinterested directors, even though less
than a quorum, or if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion, or by the
stockholders, that the person seeking indemnification acted in good faith and in
a manner such person reasonably believed to be in or (in contrast to California
law) not opposed to the best interests of the corporation and, with respect to a
criminal proceeding, which such person had no reasonable cause to believe his
conduct was unlawful. Without court approval, however, no indemnification may be
made in respect of any derivative action in which such person is adjudged liable
to the corporation. Delaware law requires indemnification of expenses when the
individual being indemnified has successfully defended the action on the merits
or otherwise.
California law permits indemnification of expenses incurred in derivative or
third-party actions, except (a) that with respect to derivative actions, no
indemnification may be made when a person is adjudged liable to the corporation
in the performance of that person's duty to the corporation and its
shareholders, unless a court determines such person is entitled to indemnity for
expenses, and then such indemnification may be made only to the extent that such
court shall determine, and (b) no indemnification may be made without court
approval in respect of amounts paid in settling or otherwise disposing of an
action or expenses incurred in defending an action which is settled or otherwise
disposed of without court approval.
Indemnification is permitted by California law only for acts taken by the
person seeking indemnification in good faith and believed by such person to be
in the best interests of the corporation and its shareholders and with respect
to a criminal proceeding, which such person had no reasonable cause to believe
his conduct was unlawful, as determined by a majority vote of a quorum of
disinterested directors, independent legal counsel in a written opinion (if a
quorum of disinterested directors is not obtainable), a majority vote of a
quorum of the shareholders (excluding shares owned by the indemnified party), or
the court handling the action. Under California law, indemnification is required
when the individual has successfully defended the action on the merits.
California corporations may include in their articles of incorporation a
provision which extends the scope of indemnification through agreements, bylaws
or other corporate action beyond that specifically authorized by the CGCL. The
Paracelsus Articles and the Paracelsus Bylaws will include such a provision and
will provide for indemnification of directors and officers to the fullest extent
permitted under California law.
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Paracelsus has entered into Indemnification Agreements with its directors
and the Paracelsus Senior Executives. In addition, pursuant to the Merger
Agreement, prior to the Effective Time Paracelsus will enter into
Indemnification Agreements with those directors of Champion who will become
directors of Paracelsus and the Champion Senior Executives. See "The Merger --
Effect of the Merger on Employee Compensation Arrangements -- Indemnification
Agreements." California law states that the indemnification provided by statute
shall not be deemed exclusive of any other rights under any bylaw, agreement,
vote of shareholders or disinterested directors or otherwise. The
Indemnification Agreements will have customary terms and conditions to the
fullest extent provided under the Paracelsus Articles, the Paracelsus Bylaws or
applicable law.
LIMITATION OF LIABILITY
The laws of both California and Delaware permit corporations to adopt a
provision in their articles of incorporation eliminating, with certain
exceptions, the personal liability of a director to the corporation or its
shareholders for monetary damages for breach of the director's fiduciary duty as
a director.
Under Delaware law a corporation may not eliminate or limit director
monetary liability for (a) breaches of the director's duty of loyalty to the
corporation or its stockholders; (b) acts or omissions not in good faith or
involving intentional misconduct or a knowing violation of law; (c) unlawful
dividends, stock repurchases or redemptions; or (d) transactions from which the
director received an improper personal benefit. Such limitation of liability
provision also may not limit a director's liability for violation of, or
otherwise relieve a corporation or its directors from the necessity of complying
with Federal or state securities laws, or affect the availability of
non-monetary remedies such as injunctive relief or rescission.
California law does not permit the elimination of monetary liability where
such liability is based on: (a) intentional misconduct or a knowing and culpable
violation of law; (b) acts or omissions that a director believes to be contrary
to the best interests of the corporation or its shareholders, or that involve
the absence of good faith on the part of the director; (c) receipt of an
improper personal benefit; (d) acts or omissions that show reckless disregard
for the director's duty to the corporation or its shareholders in circumstances
in which the director was aware, or should have been aware, in the ordinary
course of performing a director's duties, of a risk of serious injury to the
corporation or its shareholders; (e) acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the corporation or its shareholders; (f) contracts or transactions
between the corporation and the director or between the corporation and any
other entity in which the director is a director or has a financial interest;
and (g) liability for improper distributions, loans or guarantees. The
Paracelsus Articles will eliminate the liability of directors to Paracelsus to
the fullest extent permissible under California law.
INSPECTION OF SHAREHOLDER LIST
Both California and Delaware law generally provide any shareholder, upon
written demand, the right to inspect and copy the corporation's shareholder list
for a purpose related to such person's interest as a shareholder. In addition,
California law provides persons holding an aggregate of 5% or more of a
corporation's outstanding voting shares, or shareholders holding an aggregate of
1% or more of such shares who have filed a Schedule 14A with the Commission
relating to the election of directors, an absolute right to inspect and copy the
corporation's shareholder list or obtain a list from the corporation's transfer
agent. Since the DGCL does not provide a similar absolute right of inspection
for specified stockholders, at the Effective Time, certain stockholders of
Champion who will become shareholders of Paracelsus will gain access to the
Paracelsus shareholder list for purposes unrelated to their interests as
Paracelsus shareholders. This could aid such shareholders' ability to coordinate
opposition to management proposals, including proposals with respect to a change
in control of Paracelsus.
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DIVIDENDS AND REPURCHASES OF SHARES
Delaware law permits a corporation to declare and pay dividends out of
statutory surplus or if there is no surplus, out of net profits for the fiscal
year in which the dividend is declared and/or for the preceding fiscal year, as
long as the amount of capital of the corporation following the declaration and
payment of the dividend is not less than the aggregate amount of the capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets. In addition, Delaware law generally
provides that a corporation may redeem or repurchase its shares only if such
redemption or repurchase would not impair the capital of the corporation.
California law dispenses with the concepts of par value of shares as well as
statutory definitions of capital and surplus. The concepts of par value, capital
and surplus are retained under Delaware law.
Under California law a corporation may not make any distribution (including
dividends, whether in cash or other property, and repurchases or redemptions of
its shares) unless either (i) the corporation's retained earnings immediately
prior to the proposed distribution equal or exceed the amount of the proposed
distribution or (ii) immediately after giving effect to such distribution, the
corporation's assets (exclusive of goodwill, capitalized research and
development expenses and deferred charges) would be at least equal to 1.25 times
its liabilities (not including deferred taxes, deferred income and other
deferred credits), and the corporation's current assets would be at least equal
to its current liabilities (or 1.25 times its current liabilities if the average
earnings before interest expense and taxes on income for the preceding two
fiscal years was less than the average interest expense for such years).
SHAREHOLDER VOTING
Both California and Delaware law generally require that a majority of the
stockholders of both acquiring and target corporations approve statutory
mergers. Delaware law does not require a stockholder vote of the surviving
corporation in a merger (unless the corporation provides otherwise in its
certificate of incorporation) if (a) the merger agreement does not amend the
existing certificate of incorporation of such surviving corporation; (b) each
share of stock of the surviving corporation outstanding before the merger is to
be an identical outstanding or treasury share after the merger; and (c) the
number of shares (or securities convertible into such shares) to be issued by
the surviving corporation in the merger does not exceed 20% of the shares
outstanding immediately prior to the merger.
California law contains a similar exception to its voting requirements for
reorganizations where a corporation, or its shareholders immediately before the
reorganization, or both, will own immediately after the reorganization equity
securities (other than any warrant or right to subscribe to or purchase such
equity securities, of the surviving or acquiring corporation or a parent party)
constituting more than five-sixths of the voting power (assuming the conversion
of convertible equity securities) of the surviving or acquiring corporation or
its parent entity.
Both California and Delaware law also generally require that a sale of all
or substantially all of the assets of a corporation be approved by a majority of
the voting shares of the corporation transferring such assets.
Delaware law generally does not require class voting, except for amendments
to the certificate of incorporation that change the number of authorized shares
or the par value of shares of a specific class or that adversely affect such
class of shares.
In contrast, with certain exceptions, California law requires that mergers,
reorganizations, and similar transactions be approved by a majority vote of each
class of shares outstanding. Therefore, if, after the Effective Time, Paracelsus
authorizes and issues shares of a new class of capital stock, the holders of
such stock would vote separately as a class with respect to such transactions.
In such event, such holders, even if in the minority, would be able to control
the outcome of such vote.
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California law also generally requires that holders of nonredeemable common
stock receive nonredeemable common stock in a merger of the corporation where
one of the constituent corporations or its parent owns more than 50% of the
voting power of the other constituent corporation unless all of the holders of
such common stock consent to the transaction. This provision of California law
may have the effect of making a "cash-out" merger by a majority shareholder (who
owns less than 90% of the outstanding shares of each class) more difficult to
accomplish. Although Delaware law does not parallel California law in this
respect, under some circumstances Section 203 does provide similar protection
against coercive two-tiered bids for a corporation in which the stockholders are
not treated equally.
INTERESTED DIRECTOR TRANSACTIONS
Under both California and Delaware law, contracts or transactions between a
corporation and one or more of its directors or between a corporation and any
other entity in which one or more of its directors are directors or have a
financial interest, are not void or voidable because of such interest or because
such director is present at a meeting of the board which authorizes or approves
the contract or transaction, provided that certain conditions, such as obtaining
the required approval and fulfilling the requirements of good faith and full
disclosure, are met. With certain exceptions, the conditions are similar under
California and Delaware law. Under California and Delaware law either (a) the
shareholders or the board of directors must approve any such contract or
transaction in good faith or after full disclosure of the material facts (and,
in the case of board approval other than for a common directorship, California
law requires that the contract or transaction must also be "just and reasonable"
to the corporation), or (b) the contract or transaction must have been "fair"
(in Delaware) or, in the case of a common directorship (in California), "just
and reasonable" as to the corporation at the time it was approved. California
law explicitly places the burden of proof of the just and reasonable nature of
the contract or transaction on the interested director. Under Delaware law, if
board approval is sought, the contract or transaction must be approved by a
majority of the disinterested directors (even though less than a majority of a
quorum). Under California law if shareholder approval is sought, the interested
director is not entitled to vote his or her shares at a shareholder meeting with
respect to any action regarding such contract or transaction. If board approval
is sought, the contract or transaction must be approved by a majority vote of a
quorum of the directors, without counting the vote of any interested directors
(except that interested directors may be counted for purposes of establishing a
quorum). The Paracelsus Articles and Paracelsus Bylaws also contain such a
provision. Paracelsus is not aware of any plans to propose any transaction
involving directors of Paracelsus that could not be so approved under California
law but could be so approved under Delaware law.
STOCKHOLDER DERIVATIVE SUITS
Under Delaware law, a person may only bring a derivative action on behalf of
the corporation if the person was a stockholder of the corporation at the time
of the transaction in question or his or her stock thereafter devolved upon him
or her by operation of law. California law provides that a shareholder bringing
a derivative action on behalf of a corporation need not have been a shareholder
at the time of the transaction in question, provided that certain criteria are
met. California law also provides that the corporation or the defendant in a
derivative suit may, under certain circumstances, make a motion to the court for
an order requiring the plaintiff shareholder to furnish a security bond.
Delaware does not have a similar bonding requirement.
DISSENTERS' AND APPRAISAL RIGHTS
Under both California and Delaware law, a shareholder of a corporation
participating in certain major corporate transactions may, under varying
circumstances, be entitled to dissenters' or appraisal rights pursuant to which
such shareholder may receive cash in the amount of the fair market value of his
or her shares in lieu of the consideration he or she would otherwise receive in
the transaction. Under Delaware law such appraisal rights are not available (a)
with respect to the sale, lease or exchange of all or substantially all of the
assets of a corporation, (b) with respect to a merger or consolidation by a
corporation the shares of which are either (i) listed on a national securities
exchange or designated as a national market system security on an interdealer
quotation system by
94
<PAGE>
the National Association of Securities Dealers, Inc. or (ii) are held of record
by more than 2,000 holders if, in either case, such stockholders receive only
shares of the surviving corporation or shares of any other corporation which are
either listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than 2,000
holders, plus cash in lieu of fractional shares, or (c) to stockholders of a
corporation surviving a merger if no vote of the stockholders of the surviving
corporation is required to approve the merger because the merger agreement does
not amend the existing certificate of incorporation, each share of the surviving
corporation outstanding prior to the merger is an identical outstanding or
treasury share after the merger, and the number of shares to be issued in the
merger does not exceed 20% of the shares of the surviving corporation
outstanding immediately prior to the merger and if certain other conditions are
met.
The limitations on the availability of dissenters' rights under California
law are different from those under Delaware law. Shareholders of a California
corporation (such as Paracelsus) whose shares are listed on a national
securities exchange (as the shares of Paracelsus Common Stock are expected to be
at the Effective Time) or on a list of over-the-counter margin stocks issued by
the Board of Governors of the Federal Reserve System generally do not have such
dissenters' rights unless the holders of at least 5% of the class of outstanding
shares claim the right or the corporation or any law restricts the transfer of
such shares. Dissenters' rights are unavailable, however, if a corporation or
its shareholders, or both, immediately before the reorganization or immediately
after the reorganization will own equity securities constituting more than
five-sixths of the voting power (assuming the conversion of convertible equity
securities) of the surviving or acquiring corporation or its parent entity.
California law affords dissenters' rights for certain sales of asset
reorganizations.
DISSOLUTION
Under Delaware law, a dissolution must be approved (i) by the board of
directors and by holders of a majority of the corporation's outstanding voting
stock or (ii) if no action of the directors is taken, by all of the stockholders
entitled to vote thereon. Under California law, a corporation may elect to wind
up and dissolve by the vote of shareholders holding shares representing 50% or
more of the voting power. In addition, under California law, any corporation (a)
as to which an order for relief under Chapter 7 of the Federal Bankruptcy Law
has been entered, (b) that has disposed of all of its assets and has not
conducted any business for a period of five years preceding the adoption of the
resolution to dissolve the corporation or (c) that has issued no shares, in each
case may elect by approval of the board to wind up and dissolve.
95
<PAGE>
FINANCING IN CONNECTION WITH THE MERGER
AND RELATED TRANSACTIONS
FINANCING
Paracelsus intends to consummate the transactions contemplated by the Debt
Offering, the Equity Offering and the Credit Facility Refinancing promptly after
the Effective Time.
The closing of the Merger is not conditioned upon the closing of any of the
Debt Offering, the Equity Offering or the Credit Facility Refinancing. However,
the closings of each of the Debt Offering, the Equity Offering and the Credit
Facility Refinancing are currently expected to occur promptly following the
Effective Time and will be conditioned upon the consummation of the Merger.
There can be no assurance that any of the Debt Offering, the Equity Offering or
the Credit Facility Refinancing will be consummated. In the event that any of
the Debt Offering, the Equity Offering or the Credit Facility Refinancing is not
consummated, Paracelsus would pursue any other alternatives available to it at
that time. See "-- Public Offerings" and "-- New Credit Facility."
NEW CREDIT FACILITY
Paracelsus currently intends to arrange for the New Credit Facility with
Bank of America National Trust and Savings Association ("Bank of America
NT&SA"), as Administrative Agent, Banque Paribas, as Documentation Agent, and
NationsBank of Texas, N.A., as Managing Agent, and a syndicate of other lenders
promptly following the Effective Time. The New Credit Facility will provide for
borrowings of up to $400,000,000. Paracelsus currently intends to refinance,
through borrowings under the New Credit Facility, all amounts outstanding under
the Existing Paracelsus Credit Facility. At May 31, 1996, the balance
outstanding under the Existing Paracelsus Credit Facility was approximately
$189,000,000. The Merger is not conditioned upon the closing of the Credit
Facility Refinancing. If either of the Debt Offering or the Credit Facility
Refinancing is not consummated, Champion and Parcelsus will be required to
obtain certain consents and waivers under their respective existing credit
facilities in order to consummate the Merger and certain related transactions.
In addition, in connection with the consummation of the Merger and the related
financing transactions Paracelsus intends to seek certain consents under the
Existing Senior Subordinated Notes. The failure to obtain such consents or
waivers may be deemed to give rise to a default under certain of such
indebtedness and perhaps cause other defaults under other outstanding
obligations of Champion and Paracelsus. Although Paracelsus currently expects
that such consents or waivers will be obtained prior to the Effective Time,
there can be no assurance as to the terms on which, or whether, such consents or
waivers would be obtained. The companies do not currently intend to consummate
the Merger until any necessary consents or waivers in connection with the Merger
under outstanding indebtedness of Paracelsus and Champion are obtained. See
"Risk Factors -- Consummation of the Refinancing Transactions" and "Notes to
Paracelsus and Champion Unaudited Pro Forma Condensed Combining Financial
Statements (Note 5)."
Paracelsus' obligations under the New Credit Facility would constitute
senior indebtedness with respect to the Existing Senior Subordinated Notes, the
New Senior Subordinated Notes and any other subordinated debt of Paracelsus
outstanding at any time after the consummation of the Credit Facility
Refinancing. In addition, borrowings under the New Credit Facility would be
secured by a first priority lien on the capital stock of most of Paracelsus'
significant subsidiaries. Such borrowings would also have priority as to such
collateral over the Existing Senior Subordinated Notes and the New Senior
Subordinated Notes. To the extent the New Credit Facility will involve
commitments for future loans, such commitments may be conditioned on continued
compliance by Paracelsus with the terms of the loan agreement and the absence of
any material adverse change in Paracelsus' business. Paracelsus expects that the
New Credit Facility will include covenants that prohibit or limit, among other
things, the sale of assets, the making of acquisitions and other investments,
the incurrence of additional debt and liens and the payment of dividends, and
that require Paracelsus to maintain a minimum consolidated net worth and to
comply with certain requirements with respect to financial ratios.
PUBLIC OFFERINGS
Due to the nature of equity and debt offerings, Paracelsus and its financial
advisors have not finally determined the precise terms of the Public Offerings.
The actual amount of debt and equity securities to be offered and sold may
depend upon a number of factors, including market conditions, the price of
Paracelsus Common Stock and other factors beyond the control of Paracelsus.
96
<PAGE>
THE DEBT OFFERING. Paracelsus has filed a registration statement relating
to the registration of $275,000,000 aggregate principal amount of the New Senior
Subordinated Notes (including $25,000,000 in aggregate principal amount subject
to an underwriters' over-allotment option). The New Senior Subordinated Notes
are expected to mature in 2006. The New Senior Subordinated Notes will rank
junior in right of payment to all senior debt of Paracelsus, including
borrowings under the New Credit Facility, and PARI PASSU with the Existing
Senior Subordinated Notes.
Paracelsus currently intends that a portion of the proceeds of the Debt
Offering will be applied to prepay (i) all of the outstanding Champion Notes,
(ii) amounts outstanding under the existing Champion Credit Facility, (iii)
certain other outstanding Champion debt and (iv) certain amounts outstanding
under the Existing Paracelsus Credit Facility. Although the Merger is not
conditioned on the consummation of the Debt Offering, Paracelsus and Champion
have agreed in the Merger Agreement to use their respective reasonable best
efforts to refinance their currently outstanding debt, including without
limitation by means of a public offering of debt and/or equity securities as
promptly as practicable after the Effective Time. In addition, under the
Participants Agreement the holders of all of the outstanding Champion Notes have
agreed to waive their rights to require Champion to repurchase their notes at a
premium upon a change of control of Champion (which would occur upon the
Merger). However, if Paracelsus does not consummate a Qualified Debt Offering by
July 31, 1997, among other things, the interest rates applicable to the Champion
Notes will increase over time. The holders of all outstanding Champion Notes
have agreed to surrender their respective Champion Notes for an agreed amount in
the event of a Qualified Debt Offering. The Debt Offering will constitute such a
Qualified Debt Offering. "Certain Related Agreements -- Participants Agreement"
and "Notes to Paracelsus and Champion Unaudited Pro Forma Condensed Combining
Financial Statements (Note 5)."
The precise terms of the New Senior Subordinated Notes to be issued in the
Debt Offering are subject to change. Paracelsus expects that the financing will
require prepayments prior to maturity as a result of asset dispositions or a
change of control of Paracelsus. Prepayment at Paracelsus' option may be
prohibited or may require payment of a premium. Paracelsus also expects that
events of default resulting in acceleration of the maturity of the New Senior
Subordinated Notes are likely to include failure to make required payments,
breaches of covenants or representations, payment default with respect to or
acceleration of other debt securities, failure to satisfy judgments and certain
events of bankruptcy or insolvency. Paracelsus expects that the New Senior
Subordinated Notes are likely to include restrictive covenants limiting, among
other things, mergers, sales of assets, transactions with affiliates, entry into
new lines of business, the incurrence of additional debt and liens and the
payment of dividends. Non-compliance could result in the acceleration of such
indebtedness.
THE EQUITY OFFERING. Paracelsus has filed a registration statement relating
to the registration of 9,079,250 shares of Paracelsus Common Stock in the Equity
Offering, of which up to 5,200,000 shares will be newly issued in the Primary
Equity Offering and up to 2,695,000 will be shares of Paracelsus Common Stock
received in the Merger to be offered in the Secondary Equity Offering by certain
Champion Investors (with an additional 1,184,250 secondary shares subject to the
underwriters' over-allotment option). Paracelsus will not receive any proceeds
from the sale of shares of Paracelsus Common Stock offered by such holders in
the Secondary Offering. Paracelsus expects to receive approximately $55,900,000,
net of underwriting discounts and other offering costs, in the Primary Equity
Offering, which is expected to be consummated promptly after the consummation of
the Merger. The assumed price per share in the equity offering is $11.50.
However, the initial offering price for the shares of Paracelsus Common Stock in
the Equity Offering will be determined by negotiations among Paracelsus, the
Selling Shareholders and certain underwriters with reference to the history of
and the prospects for the industry in which Paracelsus and Champion compete, the
ability of management, the past and present operations of Paracelsus and
Champion, the historical results of operations of Paracelsus and Champion, the
historical trading prices for Champion Common Stock, the prospects for future
earnings of Paracelsus, the general condition of the securities markets at the
time of the Equity Offering and the recent market prices of securities of
generally comparable companies. Paracelsus intends to use the net proceeds of
the Primary Equity Offering to prepay certain amounts borrowed under the New
Credit Facility. See "Notes to Paracelsus and Champion Unaudited Pro Forma
Condensed Combining Financial Statements (Note 5)."
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<PAGE>
CAPITALIZATION
The following table sets forth the cash and cash equivalents, short-term
debt and capitalization of Paracelsus at March 31, 1996 and on a
post-transaction basis (i) as adjusted to give effect to the Paracelsus Stock
Split and the Merger and (ii) as further adjusted to give effect to the Public
Offerings and the application of the net proceeds therefrom, in each case as if
such transactions had occurred on March 31, 1996. No assurance can be given that
either the Debt Offering or the Equity Offering will be consummated. See "Risk
Factors -- Consummation of the Refinancing Transactions," "The Merger Agreement
- -- The Merger" and "-- Paracelsus Stock Split" and "Financing in Connection with
the Merger and Related Transactions."
<TABLE>
<CAPTION>
ADJUSTED FOR
THE
ADJUSTED FOR PARACELSUS
THE STOCK SPLIT,
PARACELSUS THE MERGER
STOCK SPLIT AND THE
AND THE PUBLIC
HISTORICAL MERGER OFFERINGS
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents (1).......................................... $ 3,149 $ 8,819 $ 8,819
---------- ------------- -------------
---------- ------------- -------------
Short-term debt (including current maturities of long-term debt)....... $ 5,186 $ 3,292 $ 2,464
---------- ------------- -------------
---------- ------------- -------------
Long-term debt and capital lease obligations (net of current
maturities):
Existing Paracelsus Credit Facility (2).............................. $ 51,000 $ 137,109 $ 22,582
Champion Credit Facility (3)......................................... -- 66,200 --
Mortgages payable, notes and capitalized leases...................... 13,475 37,596 27,516
Existing Senior Subordinated Notes................................... 75,000 75,000 75,000
Champion Notes (4)................................................... -- 98,076 --
New Senior Subordinated Notes........................................ -- -- 250,000
---------- ------------- -------------
Total long-term debt............................................... 139,475 413,981 375,098
---------- ------------- -------------
Shareholders' equity:
Preferred Stock, $.01 par value (5).................................. -- -- --
Common stock, no stated value (6).................................... 4,500 173,370 229,283
Common stock subscribed (80,000 shares)................................ -- 40 40
Common stock subscription receivable................................... -- (40) (40)
Additional paid-in capital............................................. 390 390 390
Unrealized gains on marketable securities.............................. 42 42 42
Retained earnings...................................................... 91,433 44,566 40,169
---------- ------------- -------------
Total shareholders' equity......................................... 96,365 218,368 269,884
---------- ------------- -------------
Total capitalization............................................. $ 235,840 $ 632,349 $ 644,982
---------- ------------- -------------
---------- ------------- -------------
</TABLE>
- --------------------------
(1) As of May 31, 1996, combined historical cash and cash equivalents was
$3,100.
(2) Does not reflect an aggregate of $94,373 of net additional borrowings by the
Company between March 31, 1996 and May 31, 1996 under the Existing
Paracelsus Credit Facility, $86,750 of which was incurred to fund a portion
of the $22,356 in settlement costs and the acquisition of the PHC Salt Lake
Hospital assets for $70,000 in cash. There are no operating results relating
to the acquired PHC Salt Lake Hospital assets included in this Proxy
Statement/Prospectus. The remaining $7,623 of net additional borrowings was
used to reduce amounts outstanding under the accounts receivable financing
program. See "Paracelsus Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations" and "Business
-- Recent Transactions."
(3) Does not reflect net repayments of $12,000 made through May 31, 1996.
(4) Does not reflect a $4,447 reduction in borrowings as a result of certain
warrant holders tendering Champion Series D Notes to exercise such warrants.
(5) On a historical basis, no shares authorized or issued; on a post-transaction
basis, as adjusted for the Paracelsus Stock Split and the Merger, 25,000,000
shares authorized and 1,500,000 shares designated as "Participating
Preferred".
(6) On a historical basis, 1,000 shares authorized and 450 shares issued; on a
post-transaction basis, as adjusted for the Paracelsus Stock Split and the
Merger, 150,000,000 shares authorized and 49,447,167 shares issued; and on a
post-transaction basis, as adjusted for the Paracelsus Stock Split, the
Merger and the Primary Equity Offering, 150,000,000 shares authorized and
54,647,167 shares issued.
98
<PAGE>
COMPARATIVE PER SHARE MARKET PRICE
AND DIVIDEND INFORMATION
The Champion Common Stock is listed on the AMEX under the symbol "CHC."
However, Champion Common Stock has been approved for listing on the NYSE under
the symbol "CHC," subject to official notice of issuance. It is anticipated
that, prior to the Special Meeting, Champion Common Stock will be delisted from
the AMEX and listed on the NYSE. The Champion Preferred Stock is not listed on
any securities exchange or publicly traded. Champion acquired AmeriHealth on
December 6, 1994, through a merger (the "AmeriHealth Merger") recorded as a
reverse acquisition and thereby became a publicly listed company on the AMEX.
Prior to such reverse merger, the Champion Common Stock had no existing trading
market. The shares of AmeriHealth were previously listed on the AMEX and traded
under the symbol "AHH."
For purposes of reporting stock information, AmeriHealth is considered the
predecessor of Champion; accordingly, the following table sets forth the high
and low sales prices for the common stock of AHH through December 6, 1994, the
date of the AmeriHealth Merger, and Champion Common Stock thereafter on the
AMEX, based on published financial sources. The sales prices have been adjusted
to reflect a 5.70358 to 1 reverse stock split effective December 6, 1994. Other
than a $0.085 per share distribution to AmeriHealth stockholders in connection
with the AmeriHealth Merger, Champion has never paid any dividend with respect
to its shares of Champion Common Stock and does not intend to declare any
dividend prior to the Effective Time.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
1994
First Quarter.................................................. $ 4.63 $ 3.21
Second Quarter................................................. 5.70 3.21
Third Quarter.................................................. 6.42 3.21
Fourth Quarter................................................. 10.00 6.42
1995
First Quarter.................................................. 9.13 7.00
Second Quarter................................................. 8.63 6.25
Third Quarter.................................................. 7.88 6.63
Fourth Quarter................................................. 7.13 4.75
1996
First Quarter.................................................. 10.50 5.31
Second Quarter................................................. 12.25 9.50
Third Quarter (through July 18, 1996).......................... 11.88 10.00
</TABLE>
On April 12, 1996, the last full trading day preceding the joint public
announcement by Champion and Paracelsus that they had entered into the Merger
Agreement, the closing price of the Champion Common Stock on the AMEX was
$10 1/2 per share. On July 18, 1996, the most recent practicable date prior to
the date of this Proxy Statement/Prospectus, the closing price of the Champion
Common Stock on the AMEX was $10 3/4 per share. HOLDERS OF CHAMPION COMMON STOCK
ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS PRIOR TO MAKING ANY DECISION WITH
RESPECT TO THE MERGER.
No equity securities of Paracelsus were publicly traded prior to the
Effective Time. The Paracelsus Common Stock has been approved to be listed on
the NYSE upon consummation of the Merger under the symbol "PLS," subject to
official notice of issuance. See "The Merger -- Stock Exchange Listing."
The payment of future dividends on the Paracelsus Common Stock will be a
business decision to be made by the New Paracelsus Board from time to time based
upon the results of operations and financial condition of Paracelsus,
restrictions under debt agreements and such other factors as the New Paracelsus
Board considers relevant.
99
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
PARACELSUS AND CHAMPION UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL
STATEMENTS
The Paracelsus and Champion Unaudited Pro Forma Condensed Combining
Financial Statements set forth below have been derived from the Paracelsus
Unaudited Pro Forma Condensed Combining Financial Statements and the Champion
Unaudited Pro Forma Condensed Combining Statements of Income and Unaudited
Historical Condensed Balance Sheet included elsewhere in this Proxy
Statement/Prospectus. The Paracelsus and Champion Unaudited Pro Forma Condensed
Combining Financial Statements reflect the effect of the Merger and certain
related transactions, in each case as if such transactions had occurred at the
beginning of each period presented for purposes of the pro forma income
statements and operating data and on March 31, 1996 for purposes of the pro
forma balance sheet. The Paracelsus and Champion Unaudited Pro Forma Condensed
Combining Financial Statements also give effect to certain acquisitions and
dispositions completed by Paracelsus and Champion since the beginning of each of
the periods presented.
Paracelsus intends to adopt a December 31 year end after the consummation of
the Merger. Paracelsus currently reports its financial information on the basis
of a September 30 fiscal year. Champion currently reports its financial
information on the basis of a December 31 year. The Paracelsus and Champion
Unaudited Pro Forma Condensed Combining Statement of Income for the fiscal year
ended September 30, 1995 includes Paracelsus' historical results of operations
for the fiscal year ended September 30, 1995 and Champion's historical results
of operations for the year ended December 31, 1995. The Paracelsus and Champion
Unaudited Pro Forma Condensed Combining Statement of Income for the six months
ended March 31, 1995 and 1996 include Paracelsus' and Champion's historical
results of operations for the same six-month periods. The Unaudited Pro Forma
Condensed Combining Balance Sheet includes the historical balance sheets of
Paracelsus and Champion as of March 31, 1996.
The Paracelsus and Champion Unaudited Pro Forma Condensed Combining
Financial Statements set forth below and the Paracelsus Unaudited Pro Forma
Condensed Combining Financial Statements and the Champion Unaudited Pro Forma
Condensed Combining Statements of Income included elsewhere herein do not
purport to present the financial position or results of operations of Paracelsus
and Champion had the transactions and events assumed therein occurred on the
dates specified, nor are they necessarily indicative of the results of
operations that may be expected in the future. The Paracelsus and Champion
Unaudited Pro Forma Condensed Combining Financial Statements set forth below are
qualified in their entirety by reference to, and should be read in conjunction
with, the Paracelsus Unaudited Pro Forma Condensed Combining Financial
Statements and the Champion Unaudited Pro Forma Condensed Combining Statements
of Income and Unaudited Historical Condensed Balance Sheet included elsewhere in
this Prospectus. See "Risk Factors -- Significant Leverage," "Financing in
Connection with the Merger and Related Transactions," "Paracelsus Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Champion Management's Discussion and Analysis of Financial Condition and
Results of Operations."
100
<PAGE>
PARACELSUS AND CHAMPION UNAUDITED PRO FORMA
CONDENSED COMBINING STATEMENT OF INCOME
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ADJUSTMENTS
PARACELSUS CHAMPION FOR THE PRO FORMA FOR
PRO FORMA PRO FORMA MERGER THE MERGER
<S> <C> <C> <C> <C>
Total operating revenues........................................ $ 501,633 $ 195,633 $ (367)(1) $ 696,899
Costs and expenses:
Salaries and benefits......................................... 206,035 82,040 288,075
Supplies...................................................... 44,816 26,012 70,828
Purchased services............................................ 59,302 26,688 85,990
Provision for bad debts....................................... 41,054 14,562 55,616
Other operating expenses...................................... 92,828 25,483 (400)(2) 117,911
Depreciation and amortization................................. 17,167 10,344 4,912(3) 31,635
(788)(4)
Interest...................................................... 17,241 15,738 3,824(5) 36,803
Equity in earnings of DHHS.................................... (8,881) (8,881)
Restructuring and unusual charges............................. 4,177 4,177
----------- ----------- ------------- -------------
Total costs and expenses........................................ 482,620 191,986 7,548 682,154
----------- ----------- ------------- -------------
Income before minority interests and income taxes............... 19,013 3,647 (7,915) 14,745
Minority interests.............................................. (1,927) (1,927)
----------- ----------- ------------- -------------
Income before income taxes...................................... 17,086 3,647 (7,915) 12,818
Income taxes.................................................... 7,005 277 (1,936)(6) 5,346
----------- ----------- ------------- -------------
Net income...................................................... 10,081 3,370 (5,979) 7,472
Preferred dividends accrued..................................... 11,331 (11,331)(7)
----------- ----------- ------------- -------------
Income (loss) applicable to common stock........................ $ 10,081 $ (7,961) $ 5,352 $ 7,472
----------- ----------- ------------- -------------
----------- ----------- ------------- -------------
Income (loss) per share....................................... $ (1.87) $ 0.15
----------- -------------
----------- -------------
Weighted average number of common and common equivalent shares
outstanding.................................................... 4,255 46,069(8) 50,324
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
See notes to Paracelsus and Champion unaudited pro forma condensed combining
financial statements.
101
<PAGE>
PARACELSUS AND CHAMPION UNAUDITED PRO FORMA
CONDENSED COMBINING STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED MARCH 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ADJUSTMENTS
PARACELSUS CHAMPION FOR THE PRO FORMA FOR
PRO FORMA PRO FORMA MERGER THE MERGER
<S> <C> <C> <C> <C>
Total operating revenues........................................ $ 250,331 $ 97,109 $ (200)(1) $ 347,240
Costs and expenses:
Salaries and benefits......................................... 106,039 42,168 148,207
Supplies...................................................... 22,082 13,703 35,785
Purchased services............................................ 27,502 12,113 39,615
Provision for bad debts....................................... 19,061 7,943 27,004
Other operating expenses...................................... 44,796 12,823 (200)(2) 57,419
Depreciation and amortization................................. 8,665 4,413 2,456(3) 15,338
(196)(4)
Interest...................................................... 8,260 6,948 1,891(5) 17,099
Equity in earnings of DHHS.................................... (2,363) (2,363)
----------- ----------- ------------- -------------
Total costs and expenses........................................ 236,405 97,748 3,951 338,104
----------- ----------- ------------- -------------
Income (loss) before minority interests
and income taxes............................................... 13,926 (639) (4,151) 9,136
Minority interests.............................................. (1,204) (1,204)
----------- ----------- ------------- -------------
Income (loss) before income taxes............................... 12,722 (639) (4,151) 7,932
Income taxes (benefit).......................................... 5,215 70 (1,048)(6) 4,237
----------- ----------- ------------- -------------
Net income (loss)............................................... 7,507 (709) (3,103) 3,695
Preferred dividends accrued..................................... 2,727 (2,727)(7)
----------- ----------- ------------- -------------
Income (loss) applicable to common stock........................ $ 7,507 $ (3,436) $ (376) $ 3,695
----------- ----------- ------------- -------------
----------- ----------- ------------- -------------
Income (loss) per share......................................... $ (0.81) $ 0.07
----------- -------------
----------- -------------
Weighted average number of common and common equivalent shares
outstanding.................................................... 4,244 46,083(8) 50,327
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
See notes to Paracelsus and Champion unaudited pro forma condensed combining
financial statements.
102
<PAGE>
PARACELSUS AND CHAMPION UNAUDITED PRO FORMA
CONDENSED COMBINING STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ADJUSTMENTS PRO FORMA
PARACELSUS CHAMPION FOR THE FOR THE
PRO FORMA PRO FORMA MERGER MERGER
<S> <C> <C> <C> <C>
Total operating revenues.................................... $ 265,626 $ 103,089 $ (160)(1) $ 368,555
Costs and expenses:
Salaries and benefits..................................... 111,987 43,940 155,927
Supplies.................................................. 21,604 13,113 34,717
Purchased services........................................ 33,786 13,757 47,543
Provision for bad debts................................... 20,987 6,858 27,845
Other operating expenses.................................. 46,393 13,135 (200)(2) 59,328
Depreciation and amortization............................. 8,275 6,905 2,456(3) 17,137
(499)(4)
Interest.................................................. 8,863 9,187 1,636(5) 19,686
Equity in earnings of DHHS................................ (6,609) (6,609)
Settlement costs.......................................... 22,356 22,356
----------- ----------- ------------ -----------
Total costs and expenses.................................... 274,251 100,286 3,393 377,930
----------- ----------- ------------ -----------
Income (loss) before minority interests
and income taxes........................................... (8,625) 2,803 (3,553) (9,375)
Minority interests.......................................... (1,072) (1,072)
----------- ----------- ------------ -----------
Income (loss) before income taxes........................... (9,697) 2,803 (3,553) (10,447)
Income taxes (benefit)...................................... (3,976) 1,037 (802)(6) (3,741)
----------- ----------- ------------ -----------
Net income (loss)........................................... (5,721) 1,766 (2,751) (6,706)
Preferred dividends accrued................................. 6,899 (6,899)(7)
----------- ----------- ------------ -----------
Loss applicable to common stock............................. $ (5,721) $ (5,133) $ 4,148 $ (6,706)
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Loss per share.............................................. $ (0.63) $ (0.14)
----------- -----------
----------- -----------
Weighted average number of common and common equivalent
shares outstanding......................................... 8,121 38,880(8) 47,001
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
See notes to Paracelsus and Champion unaudited pro forma condensed combining
financial statements.
103
<PAGE>
PARACELSUS AND CHAMPION
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS PRO FORMA
PARACELSUS CHAMPION FOR THE FOR THE
PRO FORMA HISTORICAL(A) MERGER MERGER
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................... $ 3,149 $ 5,670 $(53,667)(9) $ 8,819
53,667(9)
Marketable securities................................................... 10,051 -- 10,051
Accounts receivable, less allowance for uncollectibles.................. 100,015 36,407 136,422
Supplies................................................................ 9,652 3,872 13,524
Deferred income taxes................................................... 26,463 2,521 18,646(10) 47,630
Other current assets.................................................... 4,918 3,769 (1,000)(11) 7,687
--------- ------------- ------------- ---------
Total current assets.................................................. 154,248 52,239 17,646 224,133
Property and equipment, net of accumulated depreciation................... 195,809 166,997 38,022(12) 400,828
Investment in DHHS........................................................ 52,118 52,118
Other assets.............................................................. 57,854 36,668 60,215(12) 151,737
(3,000)(11)
--------- ------------- ------------- ---------
Total assets.......................................................... $ 407,911 $308,022 $112,883 $ 828,816
--------- ------------- ------------- ---------
--------- ------------- ------------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and other current liabilities.......................... $ 77,411 $ 33,655 $ 4,000(13) $ 115,066
Current maturities of long-term debt.................................... 458 2,834 3,292
--------- ------------- ------------- ---------
Total current liabilities............................................. 77,869 36,489 4,000 118,358
Long-term debt and capital lease obligations.............................. 183,102 181,212 49,667(9) 413,981
Deferred income taxes..................................................... 24,607 7,394 15,589(12) 47,590
Other long-term liabilities............................................... 25,968 3,051 1,500(13) 30,519
Redeemable preferred stock................................................ 46,078 (46,078)(12)
Shareholders' equity...................................................... 96,365 33,798 (21,113)(14) 218,368
(9,604)(15)
5,478(12)
147,242(12)
(33,798)(12)
--------- ------------- ------------- ---------
Total liabilities and shareholders' equity............................ $ 407,911 $308,022 $112,883 $ 828,816
--------- ------------- ------------- ---------
--------- ------------- ------------- ---------
</TABLE>
- ------------------------
(a) There are no pro forma adjustments to the Champion historical balance sheet.
See notes to Paracelsus and Champion unaudited pro forma condensed combining
financial statements.
104
<PAGE>
NOTES TO PARACELSUS AND CHAMPION UNAUDITED PRO FORMA
CONDENSED COMBINING FINANCIAL STATEMENTS
(1) To reflect the pro forma reduction in interest income as a result of the
repayment of a $4,000,000 promissory note due to Paracelsus, which is
expected to be paid in full by Dr. Krukemeyer contemporaneously with the
payment of the Dividend.
(2) To reflect the pro forma reduction in other operating expenses due to the
termination of the Know-how Contract upon consummation of the Merger. See
"Certain Relationships and Related Transactions -- Other Transactions."
(3) To adjust depreciation and amortization expense based on the revaluation of
Champion's depreciable assets and the increase in goodwill in connection
with the allocated purchase price (see Note 12). The acquired assets are
estimated to have an average remaining useful life of approximately 20
years based on the assumption that Champion's hospital assets consist of
65% buildings and improvements and 35% equipment with the useful lives of
such assets determined in accordance with Paracelsus' depreciation policy
(35 years, 20 years and 10 years for buildings, improvements and equipment,
respectively). Cost in excess of the fair market value of net assets
acquired ("Goodwill") is amortized on a straight line basis over a 20 year
period.
(4) To record the pro forma decrease in amortization of deferred financing
costs associated with the Champion Credit Facility, Champion Notes and
certain other Champion indebtedness. Unaudited Pro Forma Condensed
Combining Statements of Income assume that no value is assigned to such
deferred financing costs in connection with the purchase price allocation.
(5) To record interest expense on the pro forma increase of approximately
$42,482,000 in the Existing Paracelsus Credit Facility to pay for various
Merger related expenditures (See Note 9) and the pro forma issuance of the
Shareholder Subordinated Note. The interest rates in effect under the
Existing Paracelsus Credit Facility were 7.9% for the year ended September
30, 1995, 7.8% for the six months ended March 31, 1995, and 6.6% for the
six months ended March 31, 1996. The Shareholder Subordinated Note will
have an annual interest rate of 6.51%. The following table summarizes the
pro forma change in interest expense.
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS ENDED
ENDED MARCH 31,
SEPTEMBER 30, --------------------
1995 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Merger related increase in Existing Paracelsus Credit
Facility................................................. $ 3,356 $ 1,657 $ 1,402
Shareholder Subordinated Note............................. 468 234 234
------------- --------- ---------
Pro forma adjustment.................................. $ 3,824 $ 1,891 $ 1,636
------------- --------- ---------
------------- --------- ---------
</TABLE>
PRO FORMA EFFECT OF PROPOSED DEBT OFFERING
Paracelsus has filed a registration statement relating to the registration
of the New Senior Subordinated Notes. Paracelsus currently expects the Debt
Offering to close promptly following the Effective Time. The New Senior
Subordinated Notes are expected to be limited to $250,000,000 principal
amount (excluding $25,000,000 in aggregate principal amount subject to an
underwriters' over-allotment option) with a term of ten years, resulting in
net proceeds to Paracelsus of approximately $241,250,000 after deduction of
issue costs. The New Senior Subordinated Notes are assumed to have an
annual interest rate of 10% for the purpose of this discussion. Proceeds
from the issuance of New Senior Subordinated Notes are assumed to be
applied against (i) all of the outstanding Champion Series D Notes and
Champion Series E Notes, including prepayment penalties estimated at
approximately 6% of the face value of such Champion Notes, (ii) amounts
outstanding under the Champion Credit Facility; (iii) the pro forma
increases in the Champion Credit Facility as reflected in the Champion
Unaudited Pro
105
<PAGE>
NOTES TO PARACELSUS AND CHAMPION UNAUDITED PRO FORMA
CONDENSED COMBINING FINANCIAL STATEMENTS (CONTINUED)
Forma Condensed Combining Statements of Income included elsewhere herein;
(iv) amounts outstanding under certain other Champion indebtedness; and (v)
to the extent funds are available, actual and pro forma amounts outstanding
under the Existing Paracelsus Credit Facility as reflected in the
Paracelsus Unaudited Pro Forma Condensed Combining Financial Statements and
the Paracelsus and Champion Unaudited Pro Forma Condensed Combining
Financial Statements included elsewhere herein (items (i) through (v), the
"Old Debt Amounts"). The Old Debt Amounts averaged approximately
$248,074,000 for the fiscal year ended September 30, 1995, and
approximately $229,428,000 and $303,144,000 for the six months ended March
31, 1995 and 1996, respectively. There can be no assurance that the Debt
Offering will be consummated or consummated on terms satisfactory to
Paracelsus. The following table summarizes the pro forma effect of the Debt
Offering had the Debt Offering occurred at the beginning of each period
presented in the Unaudited Pro Forma Condensed Combining Statements of
Income (in thousands). See "Financing in Connection with the Merger and
Related Transactions -- Financing" and "-- Public Offerings -- Debt
Offering."
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS ENDED
ENDED MARCH 31,
SEPTEMBER 30, ------------------------
1995 1995 1996
<S> <C> <C> <C>
Pro forma combined income (loss) applicable to common
stock................................................. $ 7,472 $ 3,695 $ (6,706)
Increase in interest and amortization expense as a
result of the Debt Offering, net of tax benefit....... (1,479) (1,535) (1,071)
------------- ----------- -----------
Pro forma combined income (loss) applicable to common
stock after the Debt Offering......................... $ 5,993 $ 2,160 $ (7,777)
------------- ----------- -----------
------------- ----------- -----------
Pro forma combined income (loss) per share after the
Debt Offering......................................... $ 0.12 $ 0.04 $ (0.17)
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
PRO FORMA EFFECT OF PROPOSED PUBLIC OFFERINGS
Paracelsus has filed a registration statement relating to the registration
of up to 7,895,000 shares of Paracelsus Common Stock, including 5,200,000
newly issued shares of Paracelsus Common Stock in the Primary Equity
Offering. Paracelsus currently expects the Primary Equity Offering to close
as promptly as practicable following the Effective Time. Assuming the issue
of 5,200,000 new shares of Paracelsus Common Stock at an offer price of
$11.50 per share, and net issue costs equal to approximately 6.5% of gross
proceeds, net proceeds to the Company would be approximately $55,913,000.
Proceeds from the Primary Equity Offering would be used to reduce amounts
outstanding under the Existing Paracelsus Credit Facility. On a pro forma
basis, after application of estimated net proceeds of $241,250,000 from the
Debt Offering, amounts outstanding under the Existing Paracelsus Credit
Facility averaged approximately $6,824,000 and $61,894,000 for the fiscal
year ended September 30, 1995 and the six months ended March 31, 1996,
respectively. No amounts were assumed outstanding for the six months ended
March 31, 1995 on a pro forma basis.
The following table summarizes the pro forma effect of the Public Offerings
as though both Public Offerings had occurred at the beginning of each
period presented in the Unaudited Pro
106
<PAGE>
NOTES TO PARACELSUS AND CHAMPION UNAUDITED PRO FORMA
CONDENSED COMBINING FINANCIAL STATEMENTS (CONTINUED)
Forma Condensed Combining Statements of Income (in thousands). There can be
no assurance that either of the Public Offerings will be consummated. See
"Financing in Connection with the Merger and Related Transactions --
Financing" and "-- Public Offerings."
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS ENDED MARCH
ENDED 31,
SEPTEMBER 30, ------------------------
1995 1995 1996
<S> <C> <C> <C>
Pro forma combined income (loss) applicable to common
stock after the Debt Offering......................... $ 5,993 $ 2,160 $ (7,777)
Decrease in interest expense as a result of the Primary
Equity Offering, net of tax benefit................... 318 -- 1,089
------------- ----------- -----------
Pro forma combined income (loss) applicable to common
stock after the Public Offerings...................... $ 6,311 $ 2,160 $ (6,688)
------------- ----------- -----------
------------- ----------- -----------
Pro forma combined income (loss) per share after the
Public Offerings...................................... $ 0.11 $ 0.04 $ (0.13)
------------- ----------- -----------
------------- ----------- -----------
Pro forma common and common equivalent shares
outstanding after the Public Offerings................ 55,524 55,527 52,201
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
(6) To reflect the pro forma provision for income taxes at the effective rate
(41%) giving effect to the acquired operations and excluding the
amortization of Goodwill, which is non-deductible for tax purposes.
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS ENDED
ENDED MARCH 31,
SEPTEMBER 30, --------------------
1995 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Pro forma adjustments to income before income taxes..... $ 7,915 $ 4,151 $ 3,553
Non-deductible Goodwill amortization.................... (3,193) (1,596) (1,596)
------------- --------- ---------
4,722 2,555 1,957
Effective tax rate...................................... 41% 41% 41%
------------- --------- ---------
Pro forma adjustment.................................. $ 1,936 $ 1,048 $ 802
------------- --------- ---------
------------- --------- ---------
</TABLE>
(7) To eliminate the historical dividend requirements on the Champion Preferred
Stock outstanding during the respective periods as a result of the
conversion of each share of Champion Preferred Stock into two shares of
Paracelsus Common Stock pursuant to the Merger.
107
<PAGE>
NOTES TO PARACELSUS AND CHAMPION UNAUDITED PRO FORMA
CONDENSED COMBINING FINANCIAL STATEMENTS (CONTINUED)
(8) To adjust common and common equivalent shares used to calculate income
(loss) per share. The pro forma adjustment reflects the following events
related to the Merger for the fiscal year ended September 30, 1995 and the
six months ended March 31, 1995 and 1996 as more specifically described
below:
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS ENDED
ENDED MARCH 31,
SEPTEMBER 30, --------------------
1995 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Paracelsus Stock Split of each share of Paracelsus
Common Stock outstanding prior to the Effective Time
of the Merger into 66,159.426 shares of Paracelsus
Common Stock.......................................... 29,772 29,772 29,772
Dilutive effect of shares of Champion Common Stock
issued during the period in connection with (i) the
exercise of Champion Options and Champion Warrants and
(ii) the conversion of Champion Preferred Stock into
Champion Common Stock in connection with Champion's
1995 recapitalization................................. 7,613 2,809 3,892
Dilutive effect of Champion Common Stock equivalents,
based on the treasury stock method using the
historical stock prices of Champion Common Stock...... 729 837 -- (a)
Conversion of each share of Champion Preferred Stock
into two shares of Paracelsus Common Stock in the
Merger................................................ 5,211 9,920 5,216
Dilutive effect of Paracelsus Options to be outstanding
upon consummation of the Merger, based on the treasury
stock method using the historical stock prices of
Champion Common Stock................................. 2,744 2,745 -- (a)
------------- --------- ---------
Pro forma adjustment................................... 46,069 46,083 38,880
------------- --------- ---------
------------- --------- ---------
</TABLE>
-------------------------------
(a) Not applicable due to anti-dilutive impact.
108
<PAGE>
NOTES TO PARACELSUS AND CHAMPION UNAUDITED PRO FORMA
CONDENSED COMBINING FINANCIAL STATEMENTS (CONTINUED)
(9) To reflect the pro forma sources and uses of cash in connection with the
Shareholder Subordinated Note and other Merger-related expenditures as of
March 31, 1996, summarized as follows (in thousands):
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENT ADJUSTMENT
TO CASH TO DEBT
<S> <C> <C>
Sources:
Merger related increase in Existing Paracelsus Credit Facility.... $ 42,482 $ 42,482
Shareholder Subordinated Note..................................... 7,185 7,185
Repayment of Dr. Krukemeyer's promissory note due to Paracelsus... 4,000
----------- -----------
Pro forma adjustment -- total sources......................... $ 53,667 $ 49,667
----------- -----------
----------- -----------
Uses:
Estimated Merger expenses......................................... $ 6,000
Bonuses to be paid to Champion officers upon consummation of the
Merger........................................................... 3,054
Cash compensation paid in connection with the cancellation of the
Phantom Equity Plan (as defined below)........................... 20,500
Estimated severance and relocation costs.......................... 3,000
Paracelsus Dividend............................................... 21,113
-----------
Pro forma adjustment -- total uses............................ $ 53,667
-----------
-----------
</TABLE>
(10) To record current deferred tax assets at the effective rate (41%) resulting
from the following Merger-related events (in thousands):
<TABLE>
<S> <C>
Compensation expense associated with the cancellation of the
Phantom Equity Plan:
Cash compensation............................................... $ 20,500
Grant of Value Options.......................................... 12,317
Estimated severance and relocation costs.......................... 3,000
Record vesting of Paracelsus employees in SERP (as defined below)
upon consummation of the Merger (See Note 13).................... 4,000
Compensation expense associated with Paracelsus Options granted to
Paracelsus officers and directors................................ 3,833
---------
43,650
Income tax benefit at the effective rate of 41%................... 41%
---------
17,896
Reversal of valuation allowance on Champion deferred tax assets... 750
---------
Pro forma adjustment............................................ $ 18,646
---------
---------
</TABLE>
109
<PAGE>
NOTES TO PARACELSUS AND CHAMPION UNAUDITED PRO FORMA
CONDENSED COMBINING FINANCIAL STATEMENTS (CONTINUED)
(11) To reflect the pro forma repayment of Dr. Krukemeyer's promissory note due
to Paracelsus ($1,000,000 current, $3,000,000 long-term (see Note 9)).
(12) To record the Merger using the purchase method of accounting, including the
adjustment of Champion's balance sheet to reflect the estimated fair market
value of its property and equipment, based on the per share market price of
Champion Common Stock on April 12, 1996, the last trading day prior to the
announcement of the Merger ($10.50), less a 25% discount to reflect the
limited number of shares of Champion Common Stock that were freely tradable
at the date of the Merger. The Merger Agreement does not specify the
Champion Common Stock market price to be used in the calculation of the
purchase price. The purchase price allocation reflected in the Unaudited
Pro Forma Condensed Combining Balance Sheet is based upon the best
information currently available without a final independent appraisal of
Champion's facilities. For the purpose of allocating net acquisition costs
among the Champion assets acquired, Paracelsus has tentatively allocated
35% of the excess acquisition cost over the carrying value of Champion's
assets to property and equipment and 65% to Goodwill. It is the intention
of Paracelsus and Champion to more fully evaluate the net assets acquired
and, as a result, the allocation of acquisition cost may change. Paracelsus
and Champion do not expect the final allocation of acquisition cost to be
materially different from that assumed in the Unaudited Pro Forma Condensed
Combining Balance Sheet. The following table summarizes the calculation of
the preliminary purchase price allocation (in thousands, except market
price data):
<TABLE>
<S> <C> <C> <C>
Champion common and common equivalent shares outstanding (a)......... 21,856
Discounted per share price (b)....................................... $ 7.88
---------
Discounted market value of Champion Common Stock..................... $ 172,225
Less proceeds from options and warrants assumed exercised............ (24,983)
---------
147,242
Plus: Estimated Merger expenses................................. 6,000
Bonuses to be paid to Champion officers upon consummation
of the Merger............................................ 3,054
Prior service cost of including certain Champion officers
in SERP.................................................. 1,500
Market value of Paracelsus Options to be granted to
Champion officers........................................ 5,478
---------
Total purchase price.................................... 163,274
Less: Champion stockholders' equity............................. $ (33,798)
Champion Preferred Stock.................................. (46,078)
Reversal of valuation allowance on Champion deferred tax
assets (see Note 10)..................................... (750)
Plus assets not acquired:
Champion Goodwill......................................... 21,238
Champion deferred financing costs......................... 4,749
---------
Net assets acquired....................................... (54,639)
---------
Acquisition cost in excess of net assets acquired....... $ 108,635
---------
---------
ALLOCATION OF ACQUISITION COSTS IN EXCESS OF NET ASSETS ACQUIRED:
Acquisition costs in excess of net assets acquired allocated to
property and equipment -- 35%....................................... $ 38,022
---------
---------
Acquisition costs in excess of net assets acquired allocated to
Goodwill -- 65%..................................................... $ 70,613
Less: Champion Goodwill......................................... (21,238)
Champion deferred financing costs......................... (4,749)
---------
44,626
Pro forma increase in deferred tax liability due to step up in
property and equipment.............................................. 15,589
---------
Net pro forma adjustment to Goodwill................................. $ 60,215
---------
---------
</TABLE>
110
<PAGE>
NOTES TO PARACELSUS AND CHAMPION UNAUDITED PRO FORMA
CONDENSED COMBINING FINANCIAL STATEMENTS (CONTINUED)
- --------------------------
<TABLE>
<C> <S> <C>
(a) Champion total common and common equivalent shares consist of the
following components as of March 31, 1996:
Shares of Champion Common Stock outstanding......................... 12,013
Conversion of Champion Preferred Stock (each share of Champion
Preferred Stock into two shares of Paracelsus Common Stock in the
Merger)............................................................ 5,216
Champion Options, Champion Warrants and Champion Subscription Shares
assumed exercised.................................................. 4,627
---------
Champion total common and common equivalent shares outstanding...... 21,856
---------
---------
(b) Per share discount of Champion Common Stock:
Market price of Champion Common Stock on April 12, 1996, the last
trading date prior to the announcement of the Merger............... $ 10.50
Estimated discounted value due to limited liquidity of Champion
Common Stock ...................................................... 75%
---------
Discounted per share price.......................................... $ 7.88
---------
---------
</TABLE>
(13) To record a pro forma increase in current liabilities of approximately
$4,000,000 in connection with the vesting of Paracelsus employees in the
SERP and a pro forma increase in long-term liabilities of approximately
$1,500,000 as a result of the inclusion of certain Champion officers in the
SERP.
(14) To reflect the pro forma payment of the Dividend in the amount of
$21,113,000.
(15) To reflect the pro forma reduction in shareholders' equity for the
following Merger-related events (in thousands):
<TABLE>
<S> <C>
Cash compensation paid in connection with the cancellation of the
Phantom Equity Plan (see Note 9)................................. $ 20,500
Record vesting of Paracelsus employees in SERP upon consummation
of the Merger (see Note 13)...................................... 4,000
Estimated severance and relocation costs (see Note 9)............. 3,000
---------
Total......................................................... 27,500
---------
Less income tax effect:
Income tax benefit at the effective rate of 41%................. 11,275
Grant of Value Options upon cancellation of Phantom Equity
Plan........................................................... 5,050
Options granted to Paracelsus officers.......................... 1,571
---------
Net income tax effect......................................... 17,896
---------
Pro forma adjustment to shareholders' equity...................... $ 9,604
---------
---------
</TABLE>
The Unaudited Pro Forma Condensed Combining Statements of Income for the
fiscal year ended September 30, 1995 and the six months ended March 31, 1995 and
1996, exclude the effects of the following charges resulting from the Merger (in
thousands):
<TABLE>
<S> <C>
Total charges excluded from the Unaudited Pro Forma Condensed
Combining Statements of Income (see Note 10).................... $ 43,650
Income tax benefit at the effective rate of 41%.................. (17,896)
---------
Net reduction to income (loss) applicable to common stock........ $ 25,754
---------
---------
</TABLE>
111
<PAGE>
NOTES TO PARACELSUS AND CHAMPION UNAUDITED PRO FORMA
CONDENSED COMBINING FINANCIAL STATEMENTS (CONTINUED)
Loss per share would have been the following if the impact of such
charges were reflected on the Unaudited Pro Forma Condensed Combining
Statements of Income:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
FISCAL YEAR ENDED --------------------
SEPTEMBER 30, 1995 1995 1996
<S> <C> <C> <C>
Loss per share.............................. $ (0.39) $ (0.47) $ (0.69)
------ --------- ---------
------ --------- ---------
</TABLE>
112
<PAGE>
PARACELSUS UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
The following tables present the Paracelsus Unaudited Pro Forma Condensed
Combining Balance Sheet as of March 31, 1996 and the Paracelsus Unaudited Pro
Forma Condensed Combining Statements of Income for the six months ended March
31, 1996 and 1995 and the fiscal year ended September 30, 1995, to reflect the
effect of the acquisition by Paracelsus of the Columbia Hospitals (Pioneer, a
139-bed hospital in West Valley City, Utah, Davis, a 120-bed hospital in Layton,
Utah, and Santa Rosa, a 129-bed hospital in Milton, Florida) on May 17, 1996,
the sale by Paracelsus of Womans Hospital, a 111-bed hospital in Jackson,
Mississippi on September 30, 1995 and the closure of Bellwood Health Center, a
psychiatric facility in Bellwood, California, on April 24, 1995 (the "Closed
Facility"). The Paracelsus Unaudited Pro Forma Condensed Combining Balance Sheet
assumes that the acquisition of the Columbia Hospitals occurred on March 31,
1996, and the Paracelsus Unaudited Pro Forma Combining Statements of Income
assume that the acquisition of the Columbia Hospitals occurred at the beginning
of each period and the sale of Womans Hospital and the closure of the Closed
Facility occurred on October 1, 1994.
Paracelsus acquired the Columbia Hospitals from Columbia for consideration
consisting of $38,500,000 in cash and the exchange of the Exchanged Hospitals
(Peninsula, a 119-bed hospital in Ormond Beach, Florida, Elmwood, a 135-bed
hospital in Jefferson, Louisiana, and Halstead, a 190-bed hospital in Halstead,
Kansas). The acquisition was accounted for as a purchase transaction. Paracelsus
financed the cash portion of the acquisition of the Columbia Hospitals from
borrowings under the Existing Paracelsus Credit Facility. Paracelsus also
engaged in the Real Property Purchase and Sale Transaction whereby it purchased
the real property of Elmwood and Halstead from a REIT, exchanged the Elmwood and
Halstead real properties with Columbia for Pioneer's real property, and sold
Pioneer's real property to the REIT.
Paracelsus sold Womans Hospital to the facility's lessee for $17,800,000 in
cash, which resulted in a gain of $9,189,000. In August of 1994, Paracelsus
divested the operations of Womans Hospital and entered into an operating lease
agreement with the lessee, which granted the lessee the option to purchase the
facility at an amount defined in the lease agreement.
In connection with the closure of the Closed Facility, Paracelsus recorded a
restructuring charge of $973,000 for employee severance benefits and contract
termination costs.
The Paracelsus Unaudited Pro Forma Condensed Combining Statement of Income
for the fiscal year ended September 30, 1995 includes Paracelsus' historical
results of operations for the fiscal year ended September 30, 1995 and the
Columbia Hospitals' historical results of operations for the year ended December
31, 1995. The Paracelsus Unaudited Pro Forma Condensed Combining Statements of
Income for the six months ended March 31, 1995 and 1996 include Paracelsus' and
the Columbia Hospitals' historical results of operations for the same six-month
period. The Paracelsus Unaudited Pro Forma Condensed Combining Balance Sheet
includes the historical balance sheets of Paracelsus and the Columbia Hospitals
as of March 31, 1996.
The Paracelsus Unaudited Pro Forma Condensed Combining Financial Statements
do not purport to present the financial position or results of operations of
Paracelsus had the acquisitions occurred on the dates specified, nor are they
necessarily indicative of the results of operations that may be expected in the
future. The Paracelsus Unaudited Pro Forma Condensed Combining Financial
Statements following are qualified in their entirety by reference to, and should
be read in conjunction with, the historical consolidated financial statements of
Paracelsus and the historical combined financial statements of the Columbia
Hospitals included elsewhere herein.
113
<PAGE>
PARACELSUS UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF INCOME
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
BELLWOOD
WOMANS HEALTH
HOSPITAL CENTER
(OCTOBER 1, (OCTOBER 1,
1994 TO 1994 TO
PARACELSUS COLUMBIA SEPTEMBER APRIL 24, PRO FORMA PARACELSUS
HISTORICAL HOSPITALS 30, 1995) 1995) ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C> <C> <C>
Total operating revenues......................... $509,729 $105,307 $(11,003) $(5,706) $(96,694)(1) $501,633
Costs and expenses:
Salaries and benefits.......................... 209,672 39,088 -- (1,731) (40,994)(1) 206,035
Supplies....................................... 40,780 14,680 -- (5) (10,639)(1) 44,816
Purchased services............................. 58,113 10,158 -- (594) (8,375)(1) 59,302
Provision for bad debts........................ 39,277 7,515 -- (843) (4,895)(1) 41,054
Other operating expenses....................... 99,777 17,776 (265) (4,208) (20,252)(2) 92,828
Depreciation and amortization.................. 17,276 5,570 (622) (183) (4,874)(3) 17,167
Interest....................................... 15,746 3,280 -- (228) (1,557)(4) 17,241
Restructuring and unusual charges.............. 5,150 -- -- (973) 4,177
---------- --------- ------------ ----------- ------------ ---------
Total costs and expenses......................... 485,791 98,067 (887) (8,765) (91,586) 482,620
---------- --------- ------------ ----------- ------------ ---------
Income before minority interests and income
taxes........................................... 23,938 7,240 (10,116) 3,059 (5,108) 19,013
Minority interests............................... (1,927) -- -- -- (1,927)
---------- --------- ------------ ----------- ------------ ---------
Income (loss) before income taxes................ 22,011 7,240 (10,116) 3,059 (5,108) 17,086
Income taxes (benefit)........................... 9,024 2,869 (4,148) 1,254 (1,994)(5) 7,005
---------- --------- ------------ ----------- ------------ ---------
Net income (loss)................................ $ 12,987 $ 4,371 $ (5,968) $ 1,805 $ (3,114) $ 10,081
---------- --------- ------------ ----------- ------------ ---------
---------- --------- ------------ ----------- ------------ ---------
</TABLE>
See notes to Paracelsus unaudited pro forma condensed combining financial
statements.
114
<PAGE>
PARACELSUS UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED MARCH 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARACELSUS COLUMBIA WOMANS BELLWOOD PRO FORMA PARACELSUS
HISTORICAL HOSPITALS HOSPITAL HEALTH CENTER ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C> <C> <C>
Total operating revenues......... $ 252,356 $ 52,136 $ (922) $ (5,389) $ (47,850)(1) $ 250,331
Costs and expenses:
Salaries and benefits.......... 108,575 18,674 (1,731) (19,479)(1) 106,039
Supplies....................... 21,432 7,093 (5) (6,438)(1) 22,082
Purchased services............. 28,118 4,701 (594) (4,723)(1) 27,502
Provision for bad debts........ 19,283 3,116 (843) (2,495)(1) 19,061
Other operating expenses....... 46,730 7,215 (121) (2,261) (6,767)(2) 44,796
Depreciation and
amortization.................. 8,734 3,165 (309) (129) (2,796)(3) 8,665
Interest....................... 7,652 1,832 (114) (1,110)(4) 8,260
----------- ----------- ----------- ------------- ------------- -----------
Total costs and expenses......... 240,524 45,796 (430) (5,677) (43,808) 236,405
----------- ----------- ----------- ------------- ------------- -----------
Income (loss) before minority
interests and income taxes...... 11,832 6,340 (492) 288 (4,042) 13,926
Minority interests............... (1,204) -- -- -- -- (1,204)
----------- ----------- ----------- ------------- ------------- -----------
Income (loss) before income
taxes........................... 10,628 6,340 (492) 288 (4,042) 12,722
Income taxes (benefit)........... 4,357 2,599 (202) 118 (1,657)(5) 5,215
----------- ----------- ----------- ------------- ------------- -----------
Net income (loss)................ $ 6,271 $ 3,741 $ (290) $ 170 $ (2,385) $ 7,507
----------- ----------- ----------- ------------- ------------- -----------
----------- ----------- ----------- ------------- ------------- -----------
</TABLE>
See notes to Paracelsus unaudited pro forma condensed combining financial
statements.
115
<PAGE>
PARACELSUS UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARACELSUS COLUMBIA PRO FORMA PARACELSUS
HISTORICAL HOSPITALS ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C>
Total operating revenues................................... $ 260,590 $ 54,999 $ (49,963)(1) $ 265,626
Costs and expenses:
Salaries and benefits.................................... 113,162 21,096 (22,271)(1) 111,987
Supplies................................................. 19,363 7,769 (5,528)(1) 21,604
Purchased services....................................... 34,174 5,301 (5,689)(1) 33,786
Provision for bad debts.................................. 20,191 3,264 (2,468)(1) 20,987
Other operating expenses................................. 46,906 12,849 (13,362)(2) 46,393
Depreciation and amortization............................ 7,972 3,134 (2,831)(3) 8,275
Interest................................................. 7,685 1,377 (199)(4) 8,863
Settlement costs......................................... 22,356 -- 22,356
----------- --------- -------------- -----------
Total costs and expenses................................... 271,809 54,790 (52,348) 274,251
----------- --------- -------------- -----------
Income (loss) before minority interests and income taxes... (11,219) 209 2,385 (8,625)
Minority interests......................................... (1,072) -- (1,072)
----------- --------- -------------- -----------
Income (loss) before income taxes.......................... (12,291) 209 2,385 (9,697)
Income taxes (benefit)..................................... (5,040) 86 978(5) (3,976)
----------- --------- -------------- -----------
Net income (loss).......................................... $ (7,251) $ 123 $ 1,407 $ (5,721)
----------- --------- -------------- -----------
----------- --------- -------------- -----------
</TABLE>
See notes to Paracelsus unaudited pro forma condensed combining financial
statements.
116
<PAGE>
PARACELSUS UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARACELSUS COLUMBIA PRO FORMA PARACELSUS
HISTORICAL HOSPITALS ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 3,149 $ 206 $ (206)(6) $ 3,149
Marketable securities.................................. 10,051 -- 10,051
Accounts receivable, less allowance for
uncollectibles........................................ 100,121 15,664 (15,770)(6)(7) 100,015
Supplies............................................... 10,634 2,019 (3,001)(6)(7) 9,652
Deferred income taxes.................................. 26,463 -- 26,463
Other current assets................................... 4,798 1,040 (920)(6)(7) 4,918
----------- --------- -------- -----------
Total current assets................................. 155,216 18,929 (19,897) 154,248
Property and equipment, net of accumulated depreciation
and amortization........................................ 165,729 47,561 (17,481)(8) 195,809
Other assets............................................. 47,271 12,781 (2,198)(6)(8) 57,854
----------- --------- -------- -----------
Total assets......................................... $ 368,216 $ 79,271 $ (39,576) $ 407,911
----------- --------- -------- -----------
----------- --------- -------- -----------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable and other current liabilities......... $ 76,615 $ 8,750 $ (7,954)(6)(7) $ 77,411
Current maturities of long-term debt and capital lease
obligations........................................... 5,186 -- (4,728)(4) 458
----------- --------- -------- -----------
Total current liabilities............................ 81,801 8,750 (12,682) 77,869
Long-term debt and capital lease obligations............. 139,475 -- 43,627(4) 183,102
Deferred income taxes.................................... 24,607 -- 24,607
Other long-term liabilities.............................. 25,968 36,324 (36,324)(6) 25,968
Shareholder's equity..................................... 96,365 34,197 (34,197)(6) 96,365
----------- --------- -------- -----------
Total liabilities and shareholder's equity........... $ 368,216 $ 79,271 $ (39,576) $ 407,911
----------- --------- -------- -----------
----------- --------- -------- -----------
</TABLE>
See notes to Paracelsus unaudited pro forma condensed combining financial
statements.
117
<PAGE>
NOTES TO PARACELSUS UNAUDITED PRO FORMA CONDENSED
COMBINING FINANCIAL STATEMENTS
(1) To remove the historical operating results of the Exchanged Hospitals.
(2) To adjust other operating expenses for the exchange of the Exchanged
Hospitals, the acquisition, sale and leaseback of the Pioneer real property,
and the net change in allocated corporate overhead. Other operating expenses
are estimated to decrease on a pro forma basis as follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
FISCAL YEAR ENDED ---------------------
SEPTEMBER 30, 1995 1995 1996
<S> <C> <C> <C>
Operating expenses related to Paracelsus Hospitals..... $ (21,518) $ (9,609) $ (10,454)
Payments under operating lease arrangement to REIT..... 7,051 3,555 3,526
Decrease in Columbia Hospitals allocated corporate
overhead.............................................. (5,785) (713) (6,434)
-------- --------- ----------
Pro forma adjustment................................. $ (20,252) $ (6,767) $ (13,362)
-------- --------- ----------
-------- --------- ----------
</TABLE>
Paracelsus assumed there would be no incremental increase in corporate
overhead as a result of the acquisition of the Columbia Hospitals and the
related disposition of the Exchanged Hospitals because the overall corporate
overhead after the transaction is expected to be the same as it was before
the transactions.
(3) To adjust depreciation and amortization based on the revaluation of the
acquired depreciable assets to fair value and the increase in Goodwill in
connection with the purchase price allocation (see Note 8). The acquired
assets are estimated to have an average useful life of approximately 18
years based on an allocation of the appraised values of the assets acquired
and the useful lives of such assets in accordance with Paracelsus'
depreciation policy (35 years, 20 years and 10 years for buildings,
improvements, and equipment, respectively). The Goodwill is being amortized
over a 20-year period. Depreciation and amortization are estimated to
decrease on a pro forma basis, as follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
FISCAL YEAR ENDED --------------------
SEPTEMBER 30, 1995 1995 1996
<S> <C> <C> <C>
Depreciation expense related to the Exchanged
Hospitals............................................... $ (3,381) $ (1,626) $ (1,693)
Excess historical depreciation and amortization expense
for the Columbia Hospitals acquired over the
depreciation and amortization of the fair value of the
Columbia Hospitals' assets acquired..................... (1,579) (1,170) (1,138)
Adjustment for Bellwood Health Center corporate
allocation.............................................. 86 -- --
------- --------- ---------
Pro forma adjustment................................... $ (4,874) $ (2,796) $ (2,831)
------- --------- ---------
------- --------- ---------
</TABLE>
The net decrease in historical cost depreciation and amortization for each
of the periods presented resulted from the acquisition, sale and leaseback
of the Pioneer real property (See Note 2).
(4) To record the pro forma increase in the Paracelsus Existing Credit Facility
and related interest expense as a result of the acquisition of the Columbia
Hospitals, net of the effect of the sale of Womans Hospital (year ended
September 30, 1995 only). The acquisition of the Columbia Hospitals assumes
an increase in the principal amount outstanding under the Paracelsus
Existing Credit Facility by $43,627,000. Such amount is comprised of
$38,500,000 in cash consideration, $1,626,000 for payment of closing costs,
$4,728,000 to refinance current maturities of long-term
118
<PAGE>
NOTES TO PARACELSUS UNAUDITED PRO FORMA CONDENSED
COMBINING FINANCIAL STATEMENTS (CONTINUED)
debt of the Paracelsus Hospitals not assumed by Columbia, offset in part by
a payment from Columbia of $1,764,000 for a net working capital deficit
assumed by Paracelsus, net of a $537,000 payment for a note receivable
acquired (included in Other Assets). The average interest rates in effect
under the Paracelsus Existing Credit Facility were 7.90% for the fiscal year
ended September 30, 1995, and 7.80% and 6.60% for the six months ended March
31, 1995 and 1996, respectively. Interest expense on a pro forma basis
decreased, as follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
FISCAL YEAR ENDED --------------------
SEPTEMBER 30, 1995 1995 1996
<S> <C> <C> <C>
Increase in interest expense to finance the acquisition
of the Columbia Hospitals............................... $ 3,447 $ 1,701 $ 1,440
Interest expense on the Columbia Hospitals debt not
assumed by Paracelsus................................... (3,280) (1,832) (1,377)
Interest expense on the Exchanged Hospitals debt assumed
by Columbia............................................. (546) (399) (262)
Adjustment for Bellwood Health Center corporate
allocation.............................................. 228 114
Reduction in interest expense assuming the proceeds from
the sale of Womans Hospital were applied to reduce
Paracelsus' credit facility............................. (1,406) (694)
------- --------- ---------
Pro forma adjustment................................... $ (1,557) $ (1,110) $ (199)
------- --------- ---------
------- --------- ---------
</TABLE>
(5) To reflect the pro forma provision for income taxes at the statutory rate
(41%) giving effect to the hospitals acquired and divested.
(6) To remove the assets not acquired, liabilities not assumed and the
shareholder's equity of the Columbia Hospitals acquired.
(7) To remove the assets and liabilities of the Exchanged Hospitals as partial
consideration for the Columbia Hospitals acquired.
(8) To record the acquisition of the Columbia Hospitals using the purchase
method of accounting, including adjustment of the balance sheet of the
Columbia Hospitals acquired to reflect the transfer of assets of the
Exchanged Hospitals and the allocation of the estimated fair values of
property and equipment acquired in excess of the carrying values. The
purchase price allocation
119
<PAGE>
NOTES TO PARACELSUS UNAUDITED PRO FORMA CONDENSED
COMBINING FINANCIAL STATEMENTS (CONTINUED)
reflected in the Unaudited Pro Forma Condensed Combined Balance Sheet is
based upon an independent appraisal. The following table summarizes the
calculation of the purchase price allocation (in thousands):
<TABLE>
<S> <C>
Total cash consideration, including estimated closings costs (See
Note 4)............................................................. $ 40,126
Fair value of the Exchanged Hospitals transferred to Columbia........ 31,761
---------
Total estimated purchase price..................................... 71,887
Columbia's basis in property and equipment transferred to
Paracelsus.......................................................... (47,561)
---------
Excess purchase price.............................................. 24,326
Purchase price allocated to Goodwill................................. (13,069)
---------
Purchase price allocated to property and equipment................. 11,257
Basis of the Exchanged Hospitals transferred to Columbia............. (28,738)
---------
Net pro forma adjustment......................................... $ (17,481)
---------
---------
Purchase price allocated to Goodwill................................. $ 13,069
Less:Basis in Goodwill of the Exchanged Hospitals.................... (3,023)
Columbia Hospitals long-term net assets not acquired............ (12,244)
---------
Net pro forma adjustment......................................... $ (2,198)
---------
---------
</TABLE>
The Real Property Purchase and Sale Transaction was accounted for as an
exchange of assets between Paracelsus, Columbia and the REIT which had no
effect on the Paracelsus Unaudited Pro Forma Condensed Combining Balance
Sheet.
120
<PAGE>
CHAMPION UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENTS OF INCOME AND
UNAUDITED HISTORICAL CONDENSED BALANCE SHEET
The following tables present the Unaudited Pro Forma Condensed Combining
Statements of Income for the year ended December 31, 1995 and the six months
ended March 31, 1995 and 1996, to illustrate the effect of Champion's
acquisition of Jordan Valley Hospital ("Jordan Valley"), a 50-bed hospital in
West Jordan, Utah, on March 1, 1996, the acquisition of Salt Lake Regional
Medical Center ("SLRMC"), a 200-bed hospital in Salt Lake City, Utah, on April
13, 1995, the formation of DHHS, the partnership between the wholly owned
subsidiary of Champion that owned Heartland Medical Center ("Heartland"), a
142-bed general acute care hospital in Fargo, North Dakota, and Dakota Hospital
("Dakota"), a not-for-profit corporation that owned a 199-bed general acute care
hospital also in Fargo, North Dakota, effective December 31, 1994 and the
AmeriHealth Merger on December 6, 1994. The Unaudited Pro Forma Condensed
Combining Statements of Income assume the acquisition of Jordan Valley occurred
at the beginning of each period. The Unaudited Pro Forma Condensed Combining
Statements of Income for the year ended December 31, 1995 and the six months
ended March 31, 1995 assume the acquisition of SLRMC occurred on January 1, 1995
and October 1, 1994, respectively. The Unaudited Pro Forma Condensed Combining
Statement of Income for the six months ended March 31, 1995 assumes the
formation of DHHS and the AmeriHealth Merger occurred October 1, 1994. The
Unaudited Historical Condensed Balance Sheet is presented for informational
purposes only.
Jordan Valley is a 50-bed acute care hospital located in West Jordan, Utah,
a suburb of Salt Lake City. Jordan Valley was acquired from Columbia in exchange
for Autauga Medical Center, an 85-bed acute care hospital, and Autauga Health
Care Center, a 72-bed skilled nursing facility, both in Prattville, Alabama
(collectively, "Autauga"), plus preliminary cash consideration paid to Columbia
of approximately $10,750,000. Cash consideration included approximately
$3,750,000 for certain net working capital components, which are subject to
adjustment and final settlement by the parties, and reimbursement of certain
capital expenditures made previously by Columbia. The acquisition was accounted
for as a purchase transaction with operations reflected in the consolidated
financial statements beginning March 1, 1996.
SLRMC is comprised of a 200-bed tertiary care hospital and five clinics and
is located in Salt Lake City, Utah. SLRMC was acquired from Columbia for total
consideration of approximately $61,042,000, which consisted of approximately
$56,816,000 in cash and a note payable due to Columbia of approximately
$1,767,000, as well as the assumption of approximately $2,459,000 in capital
lease obligations. Cash consideration included approximately $11,783,000 for
certain working capital components, resulting in a net purchase price of
approximately $49,259,000. Champion funded the asset purchase from available
cash and approximately $30,000,000 in borrowings under its then outstanding
credit facility, which Champion subsequently repaid from the proceeds from the
issuance of the Champion Series E Notes. The acquisition was accounted for as a
purchase transaction with operations reflected in the consolidated financial
statements beginning April 14, 1995.
On December 6, 1994, Champion's predecessor merged with AmeriHealth. The
AmeriHealth Merger was accounted for as a recapitalization of Champion with
Champion as the acquiror (a reverse acquisition). The common shareholders of
AmeriHealth received one share of Champion common stock for every 5.70358 shares
of common stock of AmeriHealth and a cash distribution of $0.085 per AmeriHealth
common share. The common shareholders of Champion's predecessor received one
share of Champion Common Stock for each predecessor share of common stock
outstanding prior to the AmeriHealth Merger. The preferred shareholders of
Champion's predecessor received one share of Champion preferred stock for each
predecessor share of preferred stock outstanding prior to the AmeriHealth
Merger. Additionally, Champion assumed approximately $17,700,000 in debt,
resulting in a net purchase price of approximately $38,876,000. The AmeriHealth
Merger was accounted for as a purchase transaction. AmeriHealth owned and
managed two acute care hospitals with a combined
121
<PAGE>
total of 265 licensed beds: Metropolitan Hospital in Richmond, Virginia with 180
beds and Autauga Medical Center in Prattville, Alabama with 85 beds. AmeriHealth
also owned a 72 bed skilled nursing facility, Autauga Health Care Center in
Prattville, Alabama.
In connection with the formation of DHHS, Champion and Dakota contributed
their respective hospitals both debt and lien free (except for capitalized
leases), and Champion contributed an additional $20,000,000 in cash, each in
exchange for 50% ownership in DHHS. In addition, each partner contributed
$2,000,000 in cash to the working capital of DHHS. A $20,000,000 special
distribution was made to Dakota after capitalization of DHHS in accordance with
the terms of the partnership agreement. The ownership interest acquired by each
partner was based on the value of the assets contributed to DHHS. Also on
December 21, 1994, Champion entered into an operating agreement with DHHS and
Dakota to manage the combined operations of the two hospitals. Under the terms
of the partnership agreement, Champion is obligated to advance funds to DHHS to
cover any and all operating deficits of DHHS. Champion will receive 55% of the
net income and distributable cash flow ("DCF") of DHHS until such time as it has
recovered on a cumulative basis an additional $10,000,000 of DCF in the form of
an "excess" distribution. Champion accounts for its investment in DHHS under the
equity method.
These Unaudited Pro Forma Condensed Combining Statements of Income do not
purport to present the financial position or results of operations of Champion
had the acquisitions occurred on the dates specified, nor are they necessarily
indicative of the results of operations that may be expected in the future. The
Unaudited Pro Forma Condensed Combining Statements of Income following are
qualified in their entirety by reference to, and should be read in conjunction
with, the historical consolidated financial statements of Champion included
elsewhere herein.
122
<PAGE>
CHAMPION UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CHAMPION JORDAN SLRMC (3
HISTORICAL VALLEY MONTHS AND PRO FORMA CHAMPION
(1) HOSPITAL 13 DAYS) ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C> <C>
Net revenue................................ $ 167,520 $ 20,973 $ 22,438 $ (15,298)(2)(3) $ 195,633
Costs and expenses:
Salaries and benefits.................... 72,188 8,000 8,090 (6,238)(2) 82,040
Supplies................................. 21,113 2,751 4,012 (1,864)(2) 26,012
Purchased services....................... 23,595 2,570 2,296 (1,773)(2) 26,688
Provision for bad debts.................. 12,016 1,929 1,527 (910)(2) 14,562
Other operating expenses................. 20,999 3,531 3,611 (2,658)(2)(4) 25,483
Depreciation and amortization............ 9,290 1,128 1,372 (1,446)(2)(5) 10,344
Interest................................. 13,618 -- 45 2,075(6) 15,738
Equity in earnings of DHHS............... (8,881) -- -- (8,881)
------------ --------- ----------- -------- -----------
Total costs and expenses................... 163,938 19,909 20,953 (12,814) 191,986
------------ --------- ----------- -------- -----------
Income before income taxes................. 3,582 1,064 1,485 (2,484) 3,647
Income taxes............................... 150 394 557 (824)(7) 277
------------ --------- ----------- -------- -----------
Net income................................. 3,432 670 928 (1,660) 3,370
Preferred dividends accrued................ 11,331 -- -- 11,331
------------ --------- ----------- -------- -----------
Loss applicable to common stock............ $ (7,899) $ 670 $ 928 $ (1,660) $ (7,961)
------------ --------- ----------- -------- -----------
------------ --------- ----------- -------- -----------
Loss per share............................. $ (1.86) $ (1.87)
------------ -----------
------------ -----------
Weighted average number of common and
common equivalent shares outstanding...... 4,255 4,255
------------ -----------
------------ -----------
</TABLE>
See notes to Champion unaudited pro forma condensed combining statements of
income.
123
<PAGE>
CHAMPION UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED MARCH 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
1994 FOR THE
ACQUISITION 1994 JORDAN
CHAMPION AMERIHEALTH AND INVESTMENT ACQUISITION VALLEY PRO FORMA
HISTORICAL (1) (2 MONTHS) ADJUSTMENTS AND INVESTMENT HOSPITAL SLRMC ADJUSTMENTS
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue......... $ 61,623 $ 4,683 $ (10,497)(8)(9) $ 55,809 $ 11,035 $ 37,144 $ (6,879)(2)(3)
Cost and expenses:
Salaries and
benefits......... 26,951 3,662 (3,962)(9) 26,651 4,149 14,261 (2,893)(2)
Supplies.......... 6,818 1,071 (1,304)(9) 6,585 1,300 6,895 (1,077)(2)
Purchased
services......... 8,804 1,195 (2,871)(9)(10) 7,128 1,006 5,030 (1,051)(2)
Provision for bad
debts............ 5,183 1,713 (529)(9) 6,367 1,263 1,979 (1,666)(2)
Other operating
expenses......... 8,886 894 (1,335)(9) 8,445 884 4,323 (829)(2)
Depreciation and
amortization..... 3,023 366 (197)(9)(11) 3,192 718 2,402 (1,899)(2)(5)
Interest.......... 4,204 331 (145)(9)(12) 4,390 307 2,251(6)
Equity in earnings
of DHHS.......... (1,478) (885)(9)(13) (2,363)
------------- ------------- --------------- --------------- ----------- ----------- -------
Total costs and
expenses........... 62,391 9,232 (11,228) 60,395 9,320 35,197 (7,164)
------------- ------------- --------------- --------------- ----------- ----------- -------
Income (loss) before
income taxes....... (768) (4,549) 731 (4,586) 1,715 1,947 285
Income taxes
(benefit).......... 70 (274) 274(7) 70 635 731 (1,366)(7)
------------- ------------- --------------- --------------- ----------- ----------- -------
Net income (loss)... (838) (4,275) 457 (4,656) 1,080 1,216 1,651
Preferred dividends
accrued............ 2,727 2,727
------------- ------------- --------------- --------------- ----------- ----------- -------
Income (loss)
applicable to
common stock....... $ (3,565) $ (4,275) $ 457 $ (7,383) $ 1,080 $ 1,216 $ 1,651
------------- ------------- --------------- --------------- ----------- ----------- -------
------------- ------------- --------------- --------------- ----------- ----------- -------
Loss per share...... $ (1.10) $ (0.25) $ (1.74)
------------- ------------- ---------------
------------- ------------- ---------------
Weighted average
number of common
and common
equivalent shares
outstanding........ 3,244 16,924 (15,924)(14) 4,244
------------- ------------- --------------- ---------------
------------- ------------- --------------- ---------------
<CAPTION>
CHAMPION
PRO FORMA
<S> <C>
Net revenue......... $ 97,109
Cost and expenses:
Salaries and
benefits......... 42,168
Supplies.......... 13,703
Purchased
services......... 12,113
Provision for bad
debts............ 7,943
Other operating
expenses......... 12,823
Depreciation and
amortization..... 4,413
Interest.......... 6,948
Equity in earnings
of DHHS.......... (2,363)
-----------
Total costs and
expenses........... 97,748
-----------
Income (loss) before
income taxes....... (639)
Income taxes
(benefit).......... 70
-----------
Net income (loss)... (709)
Preferred dividends
accrued............ 2,727
-----------
Income (loss)
applicable to
common stock....... $ (3,436)
-----------
-----------
Loss per share...... $ (0.81)
-----------
-----------
Weighted average
number of common
and common
equivalent shares
outstanding........ 4,244
-----------
-----------
</TABLE>
See notes to Champion unaudited pro forma condensed combining statements of
income.
124
<PAGE>
CHAMPION UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JORDAN
CHAMPION VALLEY PRO FORMA CHAMPION
HISTORICAL(1) HOSPITAL ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C>
Net revenue.............................................. $ 100,366 $ 8,830 $ (6,107)(2) $ 103,089
Cost and expenses:
Salaries and benefits.................................. 43,296 3,472 (2,828)(2) 43,940
Supplies............................................... 12,730 1,174 (791)(2) 13,113
Purchased services..................................... 13,079 1,288 (610)(2) 13,757
Provision for bad debts................................ 6,701 362 (205)(2) 6,858
Other operating expenses............................... 12,560 2,380 (1,805)(2)(4) 13,135
Depreciation and amortization.......................... 6,335 303 267 (2)(5 6,905
Interest............................................... 8,799 -- 388(6) 9,187
Equity in earnings of DHHS............................. (6,609) -- (6,609)
------------ --------- -------- -----------
Total costs and expenses................................. 96,891 8,979 (5,584) 100,286
------------ --------- -------- -----------
Income (loss) before income taxes........................ 3,475 (149) (523) 2,803
Income taxes (benefit)................................... 447 (55) 645(7) 1,037
------------ --------- -------- -----------
Net income (loss)........................................ 3,028 (94) (1,168) 1,766
Preferred dividends accrued.............................. 6,899 -- 6,899
------------ --------- -------- -----------
Loss applicable to common stock.......................... $ (3,871) $ (94) $ (1,168) $ (5,133)
------------ --------- -------- -----------
------------ --------- -------- -----------
Loss per share........................................... $ (0.48) $ (0.63)
------------ -----------
------------ -----------
Weighted average number of common and common equivalent
shares outstanding...................................... 8,121 8,121
------------ -----------
------------ -----------
</TABLE>
See notes to Champion unaudited pro forma condensed combining statements of
income.
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CHAMPION UNAUDITED HISTORICAL CONDENSED BALANCE SHEET
MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents...................................................... $ 5,670
Accounts receivable, less allowance for uncollectibles......................... 36,407
Supplies....................................................................... 3,872
Deferred income taxes.......................................................... 2,521
Other current assets........................................................... 3,769
---------
Total current assets......................................................... 52,239
Property and equipment, net of accumulated depreciation and amortization......... 166,997
Investment in DHHS............................................................... 52,118
Other assets..................................................................... 36,668
---------
Total assets................................................................. $ 308,022
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other current liabilities................................. $ 33,655
Current maturities of long-term debt and capital lease obligations............. 2,834
---------
Total current liabilities.................................................... 36,489
Long-term debt and capital lease obligations..................................... 181,212
Deferred income taxes............................................................ 7,394
Other long-term liabilities...................................................... 3,051
Redeemable preferred stock....................................................... 46,078
Stockholders' equity............................................................. 33,798
---------
Total liabilities and stockholders' equity................................... $ 308,022
---------
---------
</TABLE>
See notes to Champion unaudited historical condensed financial statements.
There are no pro forma adjustments to the Champion unaudited condensed balance
sheet.
126
<PAGE>
NOTES TO CHAMPION UNAUDITED PRO FORMA
CONDENSED COMBINING STATEMENTS OF INCOME
(1) Summarized from Champion's historical financial statements.
(2) To remove the historical operating results of Autauga.
(3) To reflect a decrease in interest earnings for the pro forma decrease in
cash. This adjustment assumes that approximately $26,248,000 of SLRMC
acquisition costs were paid from available cash at January 1, 1995. Interest
earnings are computed at 3.35% for the six months ended March 31, 1995 and
5.63% for the period January 1, 1995 through April 13, 1995. Such
percentages represent Champion's average investment rate for the period.
(4) To record a pro forma decrease of approximately $1,091,000 and $1,255,000 in
management fees charged to Jordan Valley by Columbia for the year ended
December 31, 1995, and the six months ended March 31, 1996, respectively.
Champion does not believe that overhead and other costs allocable to the
facility will be materially different from costs incurred historically by
Champion with respect to its management of Autauga.
(5) To adjust depreciation expense for the step up in basis for the depreciable
assets of Jordan Valley and SLRMC. The allocation with respect to SLRMC was
based on an independent appraisal obtained by Champion and resulted in a pro
forma decrease in depreciation expense of approximately $665,000 for the
year ended December 31, 1995 and $1,150,000 for the six months ended March
31, 1995. With respect to Jordan Valley, the acquired assets are estimated
to have an average remaining useful life of approximately 17 years based on
management's assumption that an acute care hospital's assets consist of 50%
buildings and 50% equipment with a 30-year life and a five-year life,
respectively. Based on this preliminary allocation, depreciation expense
increased approximately $190,000 and $244,000 on a pro forma basis for the
year ended December 31, 1995 and the six months ended March 31, 1996,
respectively, and decreased approximately $59,000 for the six months ended
March 31, 1995.
(6) To record interest expense on the pro forma increase in the Champion Credit
Facility, the Champion Notes and notes payable as a result of its
acquisitions of Jordan Valley and SLRMC.
With respect to Jordan Valley, the Pro Forma Condensed Combining Statement
of Income assumes Champion increased the principal amount outstanding under
its revolving credit facility by $10,750,000 as of January 1, 1995 and
October 1, 1995. Such amount is comprised of $7,000,000 in cash
consideration attributable to property and equipment and approximately
$3,750,000 for certain net working capital components, which are subject to
adjustment and final settlement by the parties. The average interest rates
in effect under the Champion Credit Facility were 9.33% for the year ended
December 31, 1995 and 8.91% and 8.81% for the six months ended 1995 and
1996, respectively.
With respect to SLRMC, the Pro Forma Condensed Combining Statement of Income
for the year ended December 31, 1995 assumes Champion financed the
acquisition of SLRMC through (i) the issuance of $30,000,000 principal
amount of Series E Notes at an effective annual interest rate of 11.35% and
(ii) a note payable to Columbia in the amount of approximately $1,767,000
bearing interest at an effective annual rate of 10%. Such debentures and
notes are assumed to have been issued on January 1, 1995.
Interest expense with respect to the above increased approximately
$2,094,000 on a pro forma basis for the year ended December 31, 1995 and
approximately $2,270,000 and $393,000 for the six months ended March 31,
1995 and 1996, respectively, less $19,000, $19,000 and $5,000, respectively,
associated with Autauga's capital lease obligations.
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<PAGE>
NOTES TO CHAMPION UNAUDITED PRO FORMA
CONDENSED COMBINING STATEMENTS OF INCOME (CONTINUED)
(7) To reflect the pro forma provision for income taxes due to the inclusion of
the acquired operations and, for the six months ended March 31, 1996, to
eliminate the effect of fiscal 1995 net operating loss utilization on the
fiscal 1996 annual period. For the year ended December 31, 1995, loss
carryovers of Champion can be utilized to reduce the provision for income
taxes.
(8) To reflect a decrease in interest earnings of approximately $229,000 for
the pro forma decrease in cash as a result of Champion's $20,000,000 capital
contribution to DHHS, its $2,000,000 contribution to DHHS working capital
and with respect to the AmeriHealth Merger, the retirement of an $8,516,000
loan held by the Resolution Trust Corporation (the "RTC Loan"), net of a
discount of approximately $384,000 obtained by Champion concurrent with the
AmeriHealth Merger. Such funds were assumed expended on October 1, 1994.
Interest earnings are computed at 3.35%, Champion's average investment rate
for the period.
(9) To remove the historical operating results of Heartland for the three
months ended December 31, 1994. Champion contributed Heartland to DHHS
effective December 31, 1994.
(10) To remove approximately $1,074,000 in merger-related expenses incurred by
AmeriHealth.
(11) Reflects a $42,000 pro forma increase to depreciation expense based upon
the step up in basis for the depreciable assets of AmeriHealth.
(12) Reflects a pro forma reduction in interest expense of approximately
$136,000 related to the retirement of the RTC Loan concurrent with the
AmeriHealth Merger. The Champion Unaudited Pro Forma Condensed Combining
Statement of Income assumes the RTC Loan was retired from available funds on
October 1, 1994.
(13) To record Champion's equity in the pro forma earnings of DHHS for the three
months ended December 31, 1994. DHHS began operations effective January 1,
1995.
(14) To adjust common and common equivalent shares used to calculate loss per
share. The pro forma adjustment reflects the following events:
(a) The exchange of each 5.70358 shares of AmeriHealth common and common
equivalent shares into one share of the Champion Common Stock. For the
two months ended November 31, 1994, AmeriHealth's weighted average common
and common equivalent shares would have decreased from 16,924,000 shares
to 2,967,000 shares of the Champion Common Stock.
(b) Champion purchased 880,000 shares of the AmeriHealth's common stock in a
private transaction, which were retired concurrent with the AmeriHealth
Merger, resulting in a reduction of 154,000 shares of Champion Common
Stock that would have otherwise been issued.
The common shareholders of Champion's predecessor received one share of
Champion Common Stock for each predecessor share of common stock
outstanding prior to the AmeriHealth Merger. The preferred shareholders
of Champion's predecessor received one share of Champion preferred stock
for each predecessor share of preferred stock outstanding prior to the
the AmeriHealth Merger.
The following table summarizes the adjustment to shares used in the
calculation of loss per share:
<TABLE>
<S> <C>
Adjustment to AmeriHealth's common and common equivalent shares
for the exchange ratio (a)...................................... (13,957)
AmeriHealth common shares canceled (b)........................... 726
Effect of shares of (i) AmeriHealth common stock issued in
exchange for shares of AmeriHealth preferred stock during the
period and (ii) Champion Common Stock issued in connection with
the AmeriHealth Merger.......................................... (2,693)
---------
(15,924)
---------
---------
</TABLE>
128
<PAGE>
PARACELSUS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CERTAIN STATEMENTS UNDER THIS CAPTION "PARACELSUS MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" CONSTITUTE
"FORWARD-LOOKING STATEMENTS" UNDER THE REFORM ACT. SEE "RISK FACTORS --
FORWARD-LOOKING STATEMENTS."
The following should be read in conjunction with the Consolidated Financial
Statements of Paracelsus and the related notes thereto included elsewhere in
this Proxy Statement/Prospectus.
PENDING TRANSACTION
On April 12, 1996, Paracelsus agreed to merge a wholly owned subsidiary into
Champion, whereupon Champion will become a wholly owned subsidiary of
Paracelsus. Prior to the Effective Time of the Merger, each of the 450 shares of
Paracelsus Common Stock will be split into 66,159.426 shares of Paracelsus
Common Stock. At the Effective Time, each share of Champion Common Stock and
Champion Preferred Stock will then be exchanged for one and two shares,
respectively, of Paracelsus Common Stock. The Merger will be accounted for using
the purchase method of accounting and is subject to, among other things,
approvals of the stockholders and shareholder of Champion and Paracelsus,
respectively.
RESULTS OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1996 COMPARED TO SIX MONTHS ENDED MARCH 31, 1995
The results of operations discussed below compare the operating results for
the six months ended March 31, 1996 to the operating results for the six months
ended March 31, 1995. Paracelsus closed the Closed Facility. All Paracelsus
healthcare facilities outside California will be referred to as the "Eastern
Region Facilities."
Operating revenues increased 3.3% to $260,590,000 for the six months ended
March 31, 1996 from $252,356,000 for the comparable period in the prior year.
After excluding operating revenues of the Closed Facility, operating revenues on
a same-hospital basis increased $13,574,000, or 5.5%. This increase was
principally due to an increase of $7,856,000 in the home health agency operating
revenues generated by the Eastern Region Facilities, resulting from an increase
of 125,953, or 52.2%, in home health agency visits. The remaining increase in
operating revenues is attributed to the increase in outpatient visits
principally in the Eastern Region Facilities.
Salaries and benefits increased 4.2% to $113,162,000 for the six months
ended March 31, 1996 from $108,575,000 for the comparable period in the prior
year. After excluding salaries and benefits of the Closed Facility, salaries and
benefits increased $6,289,000, or 5.9%, offset by decreased salaries and
benefits relating to the subcontracting of pharmacy purchases and management
activities described below. This increase was principally due to an 11.1%
increase in the employee work force at the Eastern Region Facilities to service
the expansion of the home health agency programs. In addition, the employee work
force was increased at the Eastern Region Facilities to service the increased
volume of outpatient services. As a percentage of operating revenues, salaries
and benefits increased to 43.4% for the six months ended March 31, 1996 from
43.0% for the comparable period in the prior year.
Supplies decreased 9.7% to $19,363,000 for the six months ended March 31,
1996 from $21,432,000 for the comparable period in the prior year. The decrease
was principally due to a reduction in pharmacy supplies expense for the six
months ended March 31, 1996 of $2,835,000 as a result of the subcontracting in
June 1995 of Paracelsus' pharmacy purchases and management activities to a
pharmacy management company. Paracelsus also reduced its non-pharmacy supplies
expense due to improved purchasing terms and price reductions received under its
group purchasing contract. As a percentage of operating revenues, supplies
decreased to 7.4% for the six months ended March 31, 1996 from 8.5% for the
comparable period in the prior year.
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<PAGE>
Purchased services increased 21.5% to $34,174,000 for the six months ended
March 31, 1996 from $28,118,000 for the comparable period in the prior year due
to the pharmacy management company contract, which increased purchased services
by $3,665,000, and an increase in the home health agency programs' purchased
services of $927,000 in the Eastern Region Facilities. As a percentage of
operating revenues, purchased services increased to 13.1% for the six months
ended March 31, 1996 from 11.1% for the comparable period in the prior year.
Provision for bad debts increased 4.7% to $20,191,000 for the six months
ended March 31, 1996 from $19,283,000 for the comparable period in the prior
year, due primarily to an increase in provision for bad debts at two of the
psychiatric facilities as a result of reductions in payments received for
psychiatric services. As a percentage of operating revenues, provision for bad
debts increased to 7.7% for the six months ended March 31, 1996 from 7.6% for
the comparable period in the prior year.
During March 1996, Paracelsus recognized a charge for the settlement of two
lawsuits totaling $22,356,000. The charge included the settlement payments, the
payment of legal fees associated with the lawsuits, and the write-off of certain
psychiatric accounts receivable.
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
The results of operations discussed below compare the operating results for
the fiscal year ended September 30, 1995 to the operating results for the fiscal
year ended September 30, 1994. Paracelsus sold Womans Hospital on September 30,
1995 and Advanced Healthcare Diagnostics Services, a mobile diagnostics
business, in August 1995 (collectively, the "Sold Facilities"), and acquired
Jackson County Hospital on September 5, 1995 and Keith Medical Group on August
1, 1995 (collectively, the "Acquired Facilities").
Operating revenues increased to $509,729,000 in 1995 from $507,864,000 in
1994, an increase of $1,865,000, or 0.4%. Included in the $509,729,000 operating
revenues in 1995 is a net gain from the sale of the Sold Facilities of
$9,026,000. After excluding the operating revenues of the Acquired Facilities,
the Closed Facility and the Sold Facilities, and the net gain from the sale of
the Sold Facilities, operating revenues on a same-hospital basis increased to
$478,659,000 in 1995 from $471,808,000 in 1994, an increase of $6,851,000 or
1.5%. This increase in operating revenues was caused by growth in same-hospital
outpatient volume. On a same-hospital basis, outpatient visits increased by 7.6%
in 1995, while inpatient admissions decreased by 1.0% in 1995. The significant
increase in outpatient visits in 1995 was primarily a result of Paracelsus'
expansion into the home health services business, especially in its Eastern
Region Facilities, and also the further introduction of additional outpatient
services at several of Paracelsus' facilities. The decrease in admissions was
primarily a result of the effect of managed care contracts and the shifting of
inpatient care to outpatient services, especially at the California hospitals,
where admissions, on a same-hospital basis, decreased by 4.9%.
Total costs and expenses as a percentage of operating revenues, after
excluding the net gain from the sale of the Sold Facilities from operating
revenues, increased to 97.0% in 1995 from 95.4% in 1994. The primary reasons for
this increase were the effect of the 1995 restructuring and an unusual charge of
$5,150,000, which included severance benefits and contract termination costs of
$973,000 for the closure of the Closed Facility and certain executives' special
bonuses of $4,177,000 for services provided to Paracelsus. The closure costs and
special bonuses increased operating costs and expenses as a percentage of
operating revenues by 1.0%.
Salaries and benefits decreased to $209,672,000 in 1995 from $209,772,000 in
1994, a decrease of $100,000. As a percentage of operating revenues, after
excluding the net gain from the sale of the Sold Facilities, salaries and
benefits increased to 41.9% in 1995 from 41.3% in 1994. This increase was mainly
a result of annual merit pay increases, offset in part by reductions in staffing
at several of the facilities.
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Supplies decreased to $40,780,000 in 1995 from $42,890,000 in 1994, a
decrease of $2,110,000, or 4.9%. The decrease in supplies is mainly a result of
Paracelsus' emphasis on reducing inventory levels, more favorable terms
resulting from Paracelsus' group purchasing contract and price reductions
negotiated directly with vendors.
Purchased services increased to $58,113,000 in 1995 from $55,078,000 in
1994, an increase of $3,035,000, or 5.5%, and as a percentage of operating
revenues, after excluding the net gain from the sale of the Sold Facilities,
increased to 11.6% in 1995 from 10.9% in 1994. Of the $3,035,000 increase,
$2,349,000, or 77.4%, was caused by increases in purchased medical services
mainly resulting from the increase in outpatient volume.
The provision for bad debts increased to $39,277,000 in 1995 from
$33,110,000 in 1994, an increase of $6,167,000, or 18.6%, and increased as a
percentage of operating revenues, after excluding the net gain from the sale of
the Sold Facilities, to 7.8% in 1995 from 6.5% in 1994. Of the $6,167,000
increase in 1995, $5,037,000, or 81.7%, was attributed to the three psychiatric
facilities. The increase in the provision for bad debts at the three psychiatric
facilities is attributed to the reductions in payments received for psychiatric
services.
Other operating expenses as a percentage of operating revenues decreased to
19.9% in 1995 from 22.5% in 1994. This reduction is mainly a result of lower
medical malpractice liability costs and reductions in non-medical supplies,
property insurance, rental/lease expense and consulting expenses.
Depreciation and amortization increased to $17,276,000 in 1995 from
$16,565,000 in 1994, an increase of $711,000, or 4.3%. This increase is mainly
the result of capital expenditures made during 1995. Interest expense increased
to $15,746,000 in 1995 from $12,966,000 in 1994, an increase of $2,780,000, or
21.4%. This increase was mainly caused by an increase in Paracelsus' average
outstanding borrowings under the then existing credit facility and an increase
in interest rates on the then existing credit facility and the commercial paper
program.
Minority interests decreased to $1,927,000 in 1995 from $2,517,000 in 1994,
a decrease of $590,000, or 23.4%. This decrease was caused mainly by a decrease
in volume of business at two of Paracelsus' podiatry joint ventures, one of
which was terminated during 1995, and an obesity surgery joint venture that was
also terminated during 1995.
FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993
The results of operations discussed below compare the operating results for
the fiscal year ended September 30, 1994 to the operating results for the fiscal
year ended September 30, 1993. Paracelsus acquired Desert Palms Community
Hospital on August 31, 1993, Halstead Hospital on June 30, 1993 and Elmwood
Medical Center on March 1, 1993 (collectively, the "1993 Acquisitions").
Operating revenues increased to $507,864,000 in 1994 from $435,102,000 in
1993, an increase of $72,762,000 or 16.7%. Of this increase, $57,694,000 or
79.3% was attributable to the 1993 Acquisitions for which there was a full 12
months of operations in 1994. Excluding the 1993 Acquisitions, operating
revenues on a same-hospital basis increased $15,068,000, or 3.7%. This increase
in operating revenues was due primarily to an increase in gross outpatient
revenues to $209,849,000 in 1994 from $187,646,000 in 1993, an increase of
$22,203,000, or 11.8%. The growth in outpatient services continues to result in
part from the introduction of additional outpatient services at several of
Paracelsus' facilities. Paracelsus' management believes the decline in inpatient
occupancy rates to 42.6% in 1994 from 42.9% in 1993 resulted primarily from
increased efforts by payors to reduce inpatient hospitalization, and to shift
medical services to lower cost outpatient settings whenever possible. However,
the reduction in occupancy rates between 1994 and 1993 is not as significant as
was experienced between 1993 and 1992.
Total costs and expenses as a percentage of operating revenues increased to
95.4% in 1994 from 94.2% in 1993. Through a continued effort to reduce other
operating expenses, Paracelsus made reductions during 1994 in its insurance
costs, including malpractice and workers' compensation. As a
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<PAGE>
percentage of operating revenues, other operating expenses decreased to 22.5% in
1994 from 23.1% in 1993. Purchased services increased to $55,078,000 in 1994
from $48,951,000 in 1993, an increase of $6,127,000, or 12.5%. However, as a
percentage of operating revenues, purchased services decreased to 10.9% in 1994
from 11.3% in 1993. The provision for bad debts increased to $33,110,000 in 1994
from $26,629,000 in 1993, an increase of $6,481,000, or 24.3%. After excluding
the 1993 Acquisitions, the provision for bad debts increased by $2,574,000, or
10.1%. The increase was due primarily to higher provisions for bad debts at the
three psychiatric facilities. As a percentage of operating revenues, the
provision for bad debts increased to 6.5% in 1994 from 6.1% in 1993.
Salaries and benefits increased to $209,772,000 in 1994 from $174,849,000 in
1993, an increase of $34,923,000, or 20.0%. Salaries and benefits as a
percentage of operating revenues increased to 41.3% in 1994 from 40.2% in 1993.
This increase was due primarily to additional staffing requirements at certain
existing facilities and increases in Paracelsus' self-insured health insurance
program. Effective October 1, 1994, Paracelsus replaced the self-insurance
program at its California facilities, where health insurance costs are the
highest, with an outside HMO/PPO program.
Depreciation and amortization increased to $16,565,000 in 1994 from
$14,587,000 in 1993, an increase of $1,978,000, or 13.6%. This increase is due
primarily to having a full year of depreciation in 1994 for the 1993
Acquisitions and capital expenditures Paracelsus made in 1994. Interest expense
increased to $12,966,000 in 1994 from $10,213,000 in 1993, an increase of
$2,753,000, or 27.0%. This increase was attributable to interest on the Existing
Subordinated Notes issued in October 1993, and increases in interest rates
applicable to Paracelsus' borrowings under its then existing credit facility and
the commercial paper program.
LIQUIDITY AND CAPITAL RESOURCES
Paracelsus' working capital as of March 31, 1996 was $73,415,000, an
increase of $13,034,000 from September 30, 1995. The increase in working capital
is primarily attributable to decreases in current maturities of long-term debt
obligations and capital lease obligations, and an increase in accounts
receivable. The increase in accounts receivable is attributable mainly to an
increase in psychiatric and home healthcare services, which take longer to
collect than Paracelsus' acute care receivables. The decrease in current
maturities of long-term debt and capital lease obligations is attributable to
the refinancing of mortgage debt on one of Paracelsus' partnerships. Other
significant changes in working capital included an increase in deferred tax
assets and accrued expenses related to the settlement of two lawsuits.
On December 8, 1995, Paracelsus entered into the Existing Paracelsus Credit
Facility, which provides up to $230,000,000 of revolving credit. The Existing
Paracelsus Credit Facility has been used to finance future acquisitions, to
refinance existing credit facility borrowings and for general corporate
purposes, including working capital and capital expenditures. Credit facility
borrowings were increased from $27,500,000 at September 30, 1995 to $51,000,000
at March 31, 1996. The additional borrowings were used to refinance mortgage
debt on one of Paracelsus' partnerships, to finance acquisitions of property and
equipment and for working capital purposes. Paracelsus anticipates that existing
capital resources and internally generated cash flows will be sufficient to fund
capital expenditures, debt service and working capital requirements.
The accounts receivable financing program (the "Accounts Receivable
Program") implemented in 1993 provides Paracelsus with up to $65,000,000 in
accounts receivable financing. Pursuant to the Accounts Receivable Program,
Paracelsus' hospitals sell accounts receivable that meet certain requirements
specified under the Accounts Receivable Program ("Eligible Receivables") to a
special purpose subsidiary of Paracelsus, which in turn resells the Eligible
Receivables to an unaffiliated trust (the "Trust") at a discount to reflect
reserves for uncollectible receivables and interest expense. A special purpose
subsidiary of a major lending institution provides the Trust with up to
$65,000,000 in commercial paper financing to purchase the Eligible Receivables,
secured by an interest in certain of
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the Eligible Receivables held by the Trust. Interest expense related to
commercial paper and investment participations issued under the Accounts
Receivable Program is passed through to Paracelsus and included as interest
expense on Paracelsus' consolidated financial statements. At March 31, 1996, the
maximum financing of $65,000,000 available under the program was outstanding.
RECENT PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. Paracelsus will adopt SFAS 121 on October
1, 1996, and, based on current circumstances, does not believe the effect of the
adoption will be material.
IMPACT OF INFLATION AND CHANGING PRICES
A significant portion of Paracelsus' operating expenses is subject to
inflationary increases, the impact of which Paracelsus has historically been
able to substantially offset through price increases, by expanding services and
by increasing operating efficiencies. However, price increases alone have not
kept up with increases in costs. To the extent that inflation occurs in the
future, Paracelsus may not be able to pass on the increased costs associated
with providing healthcare services to patients with government or managed care
payors unless such payors correspondingly increase reimbursement rates.
EFFECT OF PROPOSED LEGISLATION
Federal and state legislators continue to consider legislation that could
significantly impact Medicare, Medicaid and other government funding of
healthcare costs. Initiatives currently before Congress, if enacted, would
significantly reduce payments under various government programs, including,
among others, payments to teaching hospitals and hospitals providing a
disproportionate amount of care to indigent patients. A reduction in these
payments would adversely affect operating revenues and operating margins at
certain of Paracelsus' hospitals. Paracelsus is unable to predict what
legislation, if any, will be enacted at the Federal and state level in the
future or what effect such legislation might have on Paracelsus' financial
position, results of operations or liquidity.
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CHAMPION MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CERTAIN STATEMENTS UNDER THIS CAPTION "CHAMPION MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" CONSTITUTE
"FORWARD-LOOKING STATEMENTS" UNDER THE REFORM ACT. SEE "RISK FACTORS --
FORWARD-LOOKING STATEMENTS."
The following should be read in conjunction with the Consolidated Financial
Statements of Champion and the related notes thereto included elsewhere in this
Proxy Statement/Prospectus.
PENDING TRANSACTIONS
On April 12, 1996, Champion agreed to a merger in which a wholly owned
subsidiary of Paracelsus will be merged into Champion resulting in Champion
becoming a wholly owned subsidiary of Paracelsus. Prior to the Effective Time of
the Merger, each share of Paracelsus Common Stock will be split into 66,159.426
shares of Paracelsus Common Stock. At the Effective Time, each share of Champion
Common Stock and Champion Preferred Stock will then be exchanged for one and two
shares, respectively, of Paracelsus Common Stock. The Merger will be accounted
for using the purchase method of accounting and is subject to approvals of the
stockholders and shareholder of Champion and Paracelsus, respectively.
IMPACT OF ACQUISITIONS
Champion was formed to acquire and operate acute care and specialty
hospitals. At March 31, 1996, Champion owned seven hospitals and a 50% interest
in DHHS, a partnership that is operated by Champion and that owns and operates
two acute care hospitals with a total of 341 beds in North Dakota under the name
"Dakota Heartland Health System."
Because of the financial impact of Champion's recent acquisitions and the
formation of DHHS, it is difficult to make meaningful comparisons between
Champion's financial statements for the fiscal periods presented. Furthermore,
each additional hospital acquisition can have a significant impact on Champion's
overall financial performance. After acquiring a hospital, Champion attempts to
implement various operating efficiencies and cost-cutting strategies, including
staffing adjustments. Champion may also incur significant additional costs to
expand the hospital's services and improve its market position. Champion can
give no assurance that these investments and other activities will result in
increases in net revenue or reductions in costs at the acquired facility.
Consequently, an acquired hospital may adversely affect Champion's operating
results in the near term. Champion believes this effect will be mitigated as
more hospitals are acquired.
RECAPITALIZATION
Effective December 31, 1995, Champion entered into a recapitalization for
the principal purpose of enhancing the value of the Champion Common Stock by
reducing the complexity of Champion's capital structure and eliminating the
accrual of future dividends on its outstanding preferred stock and the resulting
impact on earnings per share. As a part of these transactions (i) three series
of Champion's outstanding preferred stock, pursuant to their terms, were
converted into Champion Common Stock, (ii) accrued dividends totaling
approximately $12,614,000 on all classes of Champion's outstanding preferred
stock were paid by issuing Champion Common Stock at an agreed-upon price of
$7.00 per share and (iii) the holders of the remaining two series of outstanding
Champion Preferred Stock agreed to waive the future accrual of preferential
dividends. As a further part of these transactions, Champion issued additional
shares of Champion Common Stock to all holders of its then outstanding preferred
stock as consideration for the actions taken and agreed to reduce the exercise
prices of one series of Champion Warrants to purchase 680,104 shares of Champion
Common Stock from $5.90 to $5.25 per share and two series of Champion Warrants
to purchase a total of 2,447,670 shares of Champion Common Stock from $9.00 to
$7.00 per share until May 13, 1996, after which the exercise prices would revert
to their prior amounts. Champion Warrant holders have the right to tender
subordinated debt in lieu of cash, where applicable. As a result of the
recapitalization, shares of
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Champion Common Stock outstanding at December 31, 1995 increased from 4,262,386
to 11,868,230, and preferred shares outstanding decreased from 10,452,370 to
2,605,714. Other than for fractional shares, no cash consideration was paid
under the terms of the recapitalization.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THE THREE MONTHS ENDED MARCH
31, 1995
Champion had net revenue of $50,681,000 for the quarter ended March 31,
1996, compared to $28,727,000 for same period in 1995, an increase of
$21,954,000, or 76.4%. The increase was due primarily to Champion's acquisition
of the 200-bed SLRMC in April 1995, the acquisition of home healthcare
operations in June 1995 and in January 1996, and the commencement of operations
at the 101-bed Westwood Medical Center ("WMC") in October 1995. WMC replaced the
60-bed Physicians and Surgeons Hospital located in Midland, Texas ("P&S"), which
Champion had acquired in 1993.
Champion's operations are labor intensive with salaries and benefits
comprising the single largest item in operating expenses. Salaries and benefits
increased 72.4% to $22,006,000 for the quarter ended March 31, 1996, compared to
$12,762,000 in 1995, primarily as a result of Champion's acquisition of SLRMC
and the acquisition of home healthcare operations. As a percentage of net
revenue, salaries and benefits were 43.4% and 44.4% for the quarters ended March
31, 1996 and 1995, respectively. The decline in salaries and benefits as a
percentage of net revenue reflects Champion's ongoing efforts to implement
various operating efficiencies and cost-cutting measures at its hospitals.
The major components of other operating and administrative expenses were
professional fees, taxes (other than income), insurance, utilities and other
services. In absolute terms, other operating and administrative expenses
increased by 76.2% to $19,232,000 for the quarter ended March 31, 1996, compared
to $10,913,000 in 1995, due to Champion's acquisition of SLRMC and the start-up
of WMC. However, overall other operating and administrative expenses were
substantially unchanged at 37.9% and 38.0% of net revenue for the quarters ended
March 31, 1996 and 1995, respectively.
Provision for bad debts was $3,670,000 for the quarter ended March 31, 1996,
or 7.4% of net patient service revenue, compared to $2,073,000, or 7.5%, for the
same period in 1995.
Interest expense increased to $4,587,000 in the first quarter of 1996,
compared to $2,630,000 for the comparable period in 1995, due principally to (i)
the increase in amounts outstanding under the Champion Credit Facility as a
result of its acquisition of SLRMC and Jordan Valley and (ii) the issuance of
the Series E Notes on June 12, 1995. The increase in interest expense was
offset, in part, by a decline in the interest rate applicable to the Champion
Credit Facility (a weighted average of approximately 8.71% and 9.12% for the
quarters ended March 31, 1996 and 1995, respectively).
Depreciation and amortization expense was $3,016,000 in 1996, compared to
$1,532,000 in 1995, an increase of $1,484,000, or 96.9%. This increase is due
primarily to Champion's acquisition of SLRMC and the completion of construction
at WMC as well as Champion's ongoing capital improvement programs at its
existing hospitals.
Income before income taxes for the quarter ended March 31, 1996 includes
approximately $3,973,000 attributable to Champion's equity in the earnings of
DHHS, compared to approximately $1,478,000 for the same period a year earlier,
or an increase of 168.8%. The increase was due to (i) a $1,535,000, or 5.9%,
increase in DHHS net revenue for the quarter ended March 31, 1996, compared to
the same period a year earlier, primarily as a result of an expanded and
improved service mix, and (ii) a $3,175,000, or 14.1%, decrease in current
period operating expenses, compared to the prior period. The reduction in
operating expenses is due primarily to the elimination of duplicative services
and overhead costs and reflects Champion's ongoing efforts to integrate the
operations of the two hospitals that comprise DHHS.
Champion reported net income of $1,393,000 for the quarter ended March 31,
1996, compared to net income of $177,000 for the first quarter of 1995. For the
quarter ended March 31, 1996, after deducting approximately $49,000 for
accretion of preferred stock issuance costs, Champion reported
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primary income per share of $0.10, compared to a loss per share of $0.31 for the
quarter ended March 31, 1995. The loss for 1995 included a deduction of
approximately $1,489,000 for non-cash preferred stock dividend requirements and
accretion of issuance costs. On a fully diluted basis, Champion reported net
income per share of $0.08 for the quarter ended March 31, 1996. Fully diluted
income per share was not presented for the quarter ended March 31, 1995 due to
the anti-dilutive effect of such calculation. On a pro forma basis assuming the
recapitalization had occurred on January 1, 1995 both primary and fully diluted
earnings per share would have been $0.02 per share for the quarter ended March
31, 1995.
1995 COMPARED TO 1994
Champion's net revenue was $167,520,000 for the year ended December 31,
1995, compared to $104,193,000 for 1994, an increase of $63,327,000, or 60.8%.
The increase was due primarily to hospital acquisitions in the fourth quarter of
1994 and the second quarter of 1995 (collectively, the "Champion Acquisitions"),
and was offset, in part, by the contribution of Heartland to DHHS. Net revenue
for 1994 included approximately $40,061,000 attributable to Heartland.
The occupancy rate of Champion's consolidated hospitals was substantially
unchanged at 38% in 1995 and 1994, due primarily to the acquisition of two
psychiatric hospitals in the fourth quarter of 1994. In general, psychiatric
hospitals derive a greater percentage of their revenue from inpatient services
than do acute care hospitals. The occupancy rate at Champion's acute care
hospitals declined to 33% in 1995 compared to 35% in 1994, due primarily to
Champion's contribution of Heartland to DHHS effective December 31, 1994, and
due to an industry-wide trend of decreased inpatient utilization at acute care
hospitals. Champion expects this trend to continue as Medicare, Medicaid, HMOs,
PPOs and other third-party payors continue to exert pressure on healthcare
providers to reduce hospital stays and to provide services, when appropriate, on
a less expensive outpatient basis. Heartland had an occupancy rate of 41% in
1994.
Gross outpatient revenue increased 45.8% from $63,387,000 in 1994 to
$92,392,000 in 1995. Outpatient revenue as a percentage of gross patient service
revenue declined from 38.1% in 1994 to 33.9% in 1995, due to Champion's
acquisition of two psychiatric hospitals in the fourth quarter of 1994.
Excluding these two facilities, outpatient revenue comprised 39.5% of gross
patient revenue in 1995.
Gross patient revenue attributable to Medicare increased to 42% in 1995,
compared to 39% in 1994, due to the inclusion of certain of Champion's
acquisitions for the full 12-month period ended December 31, 1995. These
facilities generally derived a greater portion of their gross patient revenue
from the Medicare program than did the hospitals owned and consolidated by
Champion for the 12 months ended December 31, 1994. Gross revenue attributable
to Medicaid increased to 19% in 1995 compared to 18% in 1994, due primarily to
Champion's acquisition of two psychiatric hospitals in the fourth quarter of
1994. Approximately 50% of gross patient revenue at these facilities is
attributable to the Medicaid program.
Net patient service revenue is presented in the Consolidated Statement of
Operations net of the provision for contractual allowances. Such provision was
40% in 1995 and 1994. The provision for contractual allowances as a percentage
of gross patient service revenue is likely to increase in the future (i) as rate
increases at Champion's hospitals exceed increases, if any, in fixed
reimbursement rates, (ii) from increased discounts on standard rates due to
pressure from third-party payors, such as HMOs, PPOs and private insurance
companies and (iii) from increased inpatient utilization by Medicare and
Medicaid patients. Payments received under these programs are generally less
than established billing rates. The trend toward managed care may affect
hospitals' ability to maintain their current rate of net revenue growth and
operating margins.
Net revenue for 1995 and 1994 included approximately $744,000 and
$2,196,000, respectively, in interest income earned on cash balances during the
year.
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Champion's operations are labor intensive with salaries and benefits
comprising the single largest item in operating expenses. Salaries and benefits
increased 75.9% to $72,188,000 in 1995, compared to $41,042,000 in 1994, as a
result primarily of the Champion Acquisitions. In addition, corporate salaries
increased due to the increase in hospitals, new public reporting requirements
and preparation for additional acquisitions. As a percentage of net revenue,
salary and benefits increased to 43.1% in 1995, compared to 39.4% in 1994. This
trend is largely a result of Champion's strategy of acquiring underperforming
hospitals that often incur labor and other operating costs in excess of what
Champion believes is necessary for the efficient operation of a facility.
Champion attempts to reduce these costs over time by implementing various
operating efficiencies and cost-cutting strategies. However, Champion can give
no assurance that its efforts will ultimately result in significant cost
reductions at these facilities.
The major components of other operating expenses were professional fees,
taxes (other than income), insurance, utilities and other services. In absolute
terms, other operating and supplies expense increased by 54.6% to $65,707,000 in
1995, compared to $42,511,000 in 1994, as a result of the Champion Acquisitions.
However, overall other operating and supplies expense declined to 39.2% of net
revenue in 1995, compared to 40.8% in 1994.
Provision for bad debts was $12,016,000 in 1995, or 7.3% of net patient
service revenue, compared to $7,812,000, or 7.8%, in 1994. The prior year
included approximately $700,000 in charges due to problems resulting from the
installation of an information management system at one facility. Excluding this
charge, provision for bad debts was approximately 7.1% of net patient service
revenue in 1994.
Interest expense increased from $6,375,000 in 1994 to $13,618,000 in 1995,
due principally to (i) the increase in amounts outstanding under the Champion
Credit Facility as a result of its acquisition of SLRMC and funding of ongoing
construction projects; (ii) the issuance of the Series D Notes on December 30,
1994 and the Series E Notes on June 12, 1995; and (iii) debt assumed and/or
issued in connection with Champion's acquisition of AmeriHealth on December 6,
1994 through the AmeriHealth Merger and the acquisition of Psychiatric
Healthcare Corporation ("Psychiatric Healthcare") in the fourth quarter of 1994.
See "-- Liquidity and Capital Resources." Interest expense also increased due to
an increase in the interest rate applicable to its senior bank credit facility
(a weighted average of approximately 9.3% and 7.7% for the years ended December
31, 1995 and 1994, respectively).
Depreciation and amortization expense was $9,290,000 in 1995, compared to
$4,010,000 in 1994, an increase of $5,280,000, or 131.7%. This increase is due
primarily to the Champion Acquisitions, the completion of a hospital and medical
office building in Midland, Texas and an ambulatory care center in Baytown,
Texas, as well as Champion's ongoing capital improvement programs at its
existing hospitals.
Champion capitalized approximately $1,462,000 and $294,000 in interest costs
associated with the construction of a hospital and other medical-related
facilities at December 31, 1995 and 1994, respectively. With the completion of
the hospital and medical office building in Midland, Texas and the ambulatory
care center in Baytown, Texas, Champion expects capitalized interest to be
minimal in 1996.
Operating income for 1995 included approximately $8,881,000 attributable to
Champion's equity in the earnings of DHHS. Champion contributed Heartland to
DHHS effective December 31, 1994 and accounts for its investment in DHHS under
the equity method. Previously, Champion had consolidated Heartland for financial
reporting purposes. Operating income for 1994 included approximately $6,201,000
attributable to Heartland.
Champion reported net income of $2,314,000 for the year ended December 31,
1995, compared to net income of $2,243,000 for the comparable period in 1994. On
a per share basis, after deducting non-cash preferred stock dividend
requirements and other adjustments of $11,331,000 and $4,710,000 in 1995 and
1994, respectively, Champion reported a net loss of $2.12 per share of Champion
Common
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Stock for 1995, compared to a net loss of $1.69 per share of Champion Common
Stock for 1994. The deduction to net income for 1995 included a dividend paid in
Champion Common Stock to preferred stockholders of approximately $5,349,000 as
part of Champion's recapitalization. Additionally, net income for 1995 included
an extraordinary loss of approximately $1,118,000, or $0.26 per share, on the
early extinguishment of debt. Fully diluted earnings per share was not presented
for 1995 and 1994 due to the anti-dilutive effect of such calculation. On a pro
forma basis, assuming the recapitalization had occurred on January 1, 1995,
primary and fully diluted earnings per share would have been $0.27 and $0.19,
respectively, for the year ended December 31, 1995.
1994 COMPARED TO 1993
Champion's net revenue was $104,193,000 for the year ended December 31,
1994, compared to $89,832,000 for 1993, an increase of $14,361,000, or 16.0%.
This increase was due primarily to the inclusion of P&S for a full year in 1994,
compared to eight months in 1993 (the year P&S was acquired) and Champion's
acquisition of Psychiatric Healthcare and the AmeriHealth Merger in the fourth
quarter of 1994. On a same hospital basis, net revenue decreased approximately
$2,550,000, or 3.2%, in 1994 due to the elimination of a psychiatric program at
Baycoast Medical Center ("BMC") and a decline in outpatient surgery cases due to
capacity constraints following the consolidation of the operations of GCH onto
the BMC campus in December 1993.
The average occupancy rates at Champion's hospitals declined from 40.1% in
1993 to 38.3% in 1994. This decline is consistent with the industry trend of
decreased inpatient utilization at acute care hospitals and is due primarily to
increased pressure from Medicare, Medicaid, HMOs, PPOs and other third-party
payors to reduce hospital stays and to provide services, where possible, on a
less expensive outpatient basis. Gross outpatient revenue increased 6.1% from
$59,738,000 in 1993 to $63,387,000 in 1994. Outpatient revenue as a percentage
of gross patient service revenue declined from 41.9% in 1993 to 38.1% in 1994,
due primarily to Champion's acquisition of Psychiatric Healthcare effective
October 1, 1994. In general, psychiatric hospitals derive a greater percentage
of their gross revenue from inpatient services than do acute care hospitals.
Exclusive of acquisitions, outpatient revenue comprised 41.3% of gross patient
revenue in 1994.
Provision for contractual allowances was 40.2% of gross patient service
revenue for 1994, compared to 39.2% in 1993. This increase is consistent with
industry expectations as discussed above.
Approximately 39% of gross patient revenue was attributable to Medicare in
1994 and 1993. Gross revenue attributable to Medicaid increased to 18% in 1994
compared to 12% in 1993, due primarily to Champion's acquisition of Psychiatric
Healthcare, which derives approximately 53% of its gross patient revenue from
the Medicaid program, and due to a decline in revenue attributable to private
and other payor sources at hospitals owned by Champion for the year ended
December 31, 1994.
Salaries and benefits increased 11.8% to $41,042,000 in 1994, compared to
$36,698,000 in 1993, due primarily to the inclusion of P&S for a full year in
1994 and Champion's acquisition of Psychiatric Healthcare and the AmeriHealth
Merger in the fourth quarter of 1994. As a percentage of net revenue, salary and
benefits decreased to 39.4% in 1994, compared to 40.9% in 1993, as a result of
Champion's ongoing efforts to improve staffing efficiencies in its acquired
hospitals. For hospitals owned for the year ended December 31, 1994, salary and
benefits were 37.7% of net revenues in 1994, compared to 39.4% in 1993.
The major components of other operating expenses were professional fees,
taxes (other than income), insurance, utilities and other services. Other
operating and supplies expense increased by 19.2% to $42,511,000 in 1994,
compared to $35,674,000 in 1993. Other operating and supplies expense increased
to 40.8% of net revenue in 1994, compared to 39.7% in 1993. The increase in the
percentage of net revenue is due primarily to non-capitalizable costs associated
with Champion's acquisition activity.
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Provision for bad debts was $7,812,000 in 1994, or 7.8% of net patient
service revenue, compared to $5,669,000, or 6.5%, in 1993. This 37.8% increase
is due in part to the installation of a new computer system at one of Champion's
hospitals that disrupted the hospital's billing procedures and accounts
receivable detail. The hospital determined that approximately $700,000 in
accounts receivable produced by the new system should have been charged to
allowance for uncollectible accounts. Excluding this charge, provision for bad
debts was approximately 7.1% of net patient service revenue in 1994.
Depreciation and amortization expense was $4,010,000 in 1994, compared to
$3,524,000 in 1993, an increase of $486,000, or 13.8%. The increase in
depreciation and amortization expense was due primarily to Champion's
acquisitions in 1994, Champion's ongoing capital improvement programs at its
existing hospitals and the amortization of costs associated with Champion's
issuance of the Series D Notes.
Interest expense increased from $2,725,000 in 1993 to $6,375,000 in 1994,
due principally to Champion's issuance of $37,833,000 of the Series D Notes
effective December 31, 1993 and its establishment of a $20,000,000 senior bank
credit facility on November 3, 1993, as well as interest expense associated with
debt assumed and/or issued in the AmeriHealth Merger and the Psychiatric
Healthcare acquisition. See "-- Liquidity and Capital Resources." Interest
expense also increased due to an increase in the interest rate applicable to its
senior bank credit facility (a weighted average of approximately 7.7% and 6.5%
at December 31, 1994 and 1993, respectively).
Champion reported net income of $2,243,000 for the year ended December 31,
1994, compared to a net loss of $12,153,000 in 1993. On a per share basis, after
deducting non-cash preferred stock dividend requirements and other adjustments
of $4,710,000 and $1,652,000 in 1994 and 1993, respectively, Champion reported a
net loss of $1.69 per common share for 1994 compared to a net loss of $12.31 per
common share for 1993.
The net loss for the year ended December 31, 1993 included an extraordinary
loss of approximately $1,230,000 (net of income tax effect of $634,000), or
$1.10 per share, from the early extinguishment of debt. The net loss for 1993
also included an asset write-down of approximately $15,456,000 pursuant to
Champion's decision in December 1993 to consolidate the operations of GCH onto
the campus of BMC. Champion acquired GCH on September 1, 1992. The write-down
was recorded in 1993 to recognize the limited alternative uses of the GCH
campus. In June 1994, Champion sold the former GCH property with restrictions
prohibiting its use to non-competing activities without Champion's consent.
LIQUIDITY AND CAPITAL RESOURCES
Champion had cash and cash equivalents of $5,670,000 at March 31, 1996.
Champion also had $33,351,000 available under the Champion Credit Facility,
subject to certain limitations.
Champion had a cash deficit from operations of approximately $5,566,000 for
the quarter ended March 31, 1996, due primarily to working capital requirements.
Cash flows from operations have not contributed significantly to Champion's
liquidity in the past, due principally to its strategy of acquiring
underperforming hospitals. Champion seeks to improve cash flows at its acquired
facilities through the implementation of improved operating efficiencies over
time. However, there can be no assurance that Champion's efforts will be
successful or that these improvements, if achieved, will result in increased
cash flows from operations.
For the quarter ended March 31, 1996, Champion expended approximately
$2,697,000 for routine capital expenditures and approximately $768,000 for
principal payments on long-term debt and capitalized lease obligations.
Additionally, Champion borrowed approximately $18,512,000 under the Champion
Credit Facility during the quarter ended March 31, 1996, primarily to finance
the acquisition of Jordan Valley and to fund working capital requirements.
Champion anticipates that existing cash, amounts available under the
Champion Credit Facility and internally generated cash flows will be sufficient
to fund capital expenditures, debt service and
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working capital requirements through the foreseeable future. Champion intends to
acquire additional acute care and specialty facilities, home healthcare
providers and physician practices and is actively pursuing several of such
acquisitions. However, depending upon the individual circumstances, Champion
will likely require additional debt or equity financing as it pursues its
acquisition strategy.
RECENT ACQUISITIONS AND OTHER INVESTMENTS
On March 1, 1996, Champion acquired Jordan Valley from Columbia. Jordan
Valley is a 50-bed acute care hospital located in West Jordan, Utah, a suburb of
Salt Lake City. Jordan Valley was acquired in exchange for Autauga, an 85-bed
acute care hospital and a 72-bed skilled nursing facility, both in Prattville,
Alabama, plus preliminary cash consideration paid to Columbia of approximately
$10,750,000. Cash consideration included approximately $3,750,000 for certain
net working capital components, which are subject to further adjustment and
final agreement by the parties and reimbursement for certain capital
expenditures made previously by Columbia. The transaction did not result in a
gain or loss. The Alabama facilities were acquired as a part of the AmeriHealth
Merger on December 6, 1994.
On April 13, 1995, Champion acquired SLRMC from Columbia for approximately
$61,042,000, which included approximately $11,783,000 for certain working
capital components, resulting in a net purchase price of approximately
$49,259,000. Champion funded the asset purchase from available cash and
approximately $30,000,000 in borrowings under its senior bank credit facility.
SLRMC is comprised of a 200-bed tertiary care hospital and five clinics and is
located in Salt Lake City, Utah.
On December 21, 1994, a wholly owned subsidiary of Champion that owned
Heartland entered into the DHHS partnership with Dakota, a not-for-profit
corporation that owned a 199-bed acute care hospital, in Fargo, North Dakota.
Champion and Dakota contributed their respective hospitals debt and lien free
(except for capitalized lease obligations), including certain working capital
components, and Champion contributed an additional $20,000,000 in cash, each in
exchange for 50% ownership in the partnership. Champion will receive 55% of the
net income and DCF of the partnership until such time as it has recovered on a
cumulative basis an additional $10,000,000 of DCF in the form of an "excess"
distribution. Because the partners through the partnership agreement and an
operating agreement have delegated substantially all management of DHHS to
Champion, the authority of the partnership's governing board is limited. Under
the terms of the partnership agreement, Champion is obligated to advance funds
to the partnership to cover any and all operating deficits of the partnership.
Beginning in July 1996, Dakota has the right to require Champion to purchase its
partnership interest free of debt or liens for a cash purchase price equal to
5.5 times Dakota's pro rata share of earnings before depreciation, interest,
income taxes and amortization, as defined in the partnership agreement, less
Dakota's pro rata share of the partnership's long-term debt. DHHS had earnings
before depreciation, interest, income taxes and amortization of approximately
$19,000,000 for the year ended December 31, 1995. Beginning in January 1998, the
purchase price for Dakota's partnership interest shall not be less than
$50,000,000. Should Dakota elect to exercise its option, Champion would likely
finance the purchase through bank or other borrowings. Under the terms of the
option, Champion has 12 months to consummate its obligations thereunder. As of
December 31, 1995, Champion has received $825,000 in cash distributions from
DHHS.
On December 6, 1994, Champion's predecessor merged with AmeriHealth. The
AmeriHealth Merger was accounted for as a recapitalization of Champion's
predecessor with Champion's predecessor as the acquiror (a reverse acquisition).
The common shareholders of Champion's predecessor received one share of
AmeriHealth common stock for each predecessor share and the common stockholders
of AmeriHealth received one share of AmeriHealth common stock for 5.70358
AmeriHealth shares, and the stockholders of AmeriHealth received a cash
distribution of $0.085 per AmeriHealth common share. Additionally, Champion
assumed approximately $17,700,000 in debt, resulting in a net purchase price of
approximately $38,876,000. AmeriHealth owned and managed two acute care
hospitals with a combined total of 265 licensed beds: Metropolitan Hospital in
Richmond, Virginia with 180 beds; and Autauga Medical Center in Prattville,
Alabama with 85 beds.
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AmeriHealth also owned a 72-bed skilled nursing facility, Autauga Health Care
Center, also located in Prattville, Alabama. Autauga Medical Center and Autauga
Health Care Center were later exchanged for Jordan Valley as described above.
As part of the AmeriHealth Merger, Champion assumed and extended
approximately $10,000,000 principal amount of debt held by Wilmington Savings
Fund Society (the "WSFS Loan") and paid approximately $7,665,000 in cash to
retire $8,049,000 principal amount of AmeriHealth debt held by the Resolution
Trust Corporation. Champion retired the WSFS Loan in connection with refinancing
its senior bank credit facility in May 1995. See "-- Debt."
On October 21, 1994, Champion acquired Psychiatric Healthcare, which owned
two free-standing psychiatric hospitals with a combined total of 219 beds in
Springfield, Missouri, and Alexandria, Louisiana. The net purchase price,
including contingent consideration of $2,000,000 paid in 1995 and the assumption
of approximately $14,880,000 in long-term debt, was approximately $24,600,000.
Champion paid no cash to the Psychiatric Healthcare shareholders, instead
issuing a combination of Champion Series D Preferred Stock and Series D Notes
with detachable Champion Warrants.
Champion acquired P&S on May 1, 1993 for approximately $5,800,000 in cash
and the assumption of $1,200,000 in debt. Champion replaced P&S in the fourth
quarter of 1995 with the newly constructed 101-bed WMC. Total construction cost
for the new facility was approximately $39,017,000.
DEBT
On June 12, 1995, Champion issued $35,000,000 face amount (less a discount
of approximately $668,000) of Series E Notes. The Series E Notes bear interest
at an annual effective rate of 11.35% (11% stated rate). Interest is payable
quarterly, and the stated rate increased from 11% to 11.5% on March 31, 1996.
The Series E Notes included detachable Champion Warrants for the purchase of
525,000 shares of Champion Common Stock. The Series E Notes are subject to
redemption on or after December 31, 1995, at Champion's option, at prices
declining from 112.5% of principal amount at December 31, 1995 to par at
December 31, 2002. Additionally, there is a requirement to repurchase all
outstanding Series E Notes in the event of a change in control of Champion, at
the holder's option, based on a declining redemption premium ranging from 112.5%
to 103% of principal. Proceeds from the issuance of Series E Notes were used to
pay down approximately $31,500,000 principal amount outstanding under Champion's
revolving senior bank debt with the remainder retained for general corporate
purposes. The Series E Notes are uncollateralized obligations and are
subordinated in right of payment to certain senior indebtedness of Champion.
On May 31, 1995, Champion refinanced and paid a $50,000,000 senior bank
credit facility obtained in November 1993 with the $100,000,000 Champion Credit
Facility with Banque Paribas, as agent, AmSouth Bank of Alabama, Bank One of
Texas, N.A., CoreStates Bank, N.A., and NationsBank of Texas, N.A. Amounts
available under the Champion Credit Facility are subject to certain limitations,
and the total amount available under the Champion Credit Facility declines to
$80,000,000 on the third anniversary date. The Champion Credit Facility matures
no later than March 31, 1999, and bears interest at a lender defined incremental
rate plus, at Champion's option, the LIBOR or Prime rate. The incremental rate
ranges from 2.5% to 3.0% with respect to the LIBOR rate option and from 1.0% to
1.5% with respect to the Prime rate option. The interest rates on the Champion
Credit Facility and prior senior bank credit facility were 8.85% and 9.12%,
respectively, at December 31, 1995 and 1994. Proceeds from the refinancing were
used to pay approximately $48,000,000 principal amount outstanding under
Champion's prior senior bank credit facility and approximately $9,533,000
principal amount of debt held by Wilmington Savings Fund Society ("WSFS"). The
interest rate on the WSFS Loan was 11.5% and 10.5% at May 31, 1995 (the date of
payment) and December 31, 1994, respectively. With the exception of certain
assets collateralizing debt assumed in Champion's 1994 acquisition of
Psychiatric Healthcare, the Champion Credit Facility is collateralized by
substantially all of Champion's assets. Champion's future acquisitions and
divestitures may require, in certain circumstances, consent by lenders under
this agreement.
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On December 31, 1993, Champion issued $37,833,000 of Series D Notes with
detachable Champion Warrants for the purchase of 1,134,990 shares of Champion
Common Stock. On December 30, 1994, pursuant to commitments obtained from the
original purchasers of the Series D Notes issued on December 31, 1993, Champion
issued an additional $19,133,000 of Series D Notes with detachable Champion
Warrants for the purchase of 573,990 shares of Champion Common Stock. No value
was allocated to the Champion Warrants at the time of issuance because the
interest rate on the Series D Notes was considered a market rate and the
exercise price was greater than the estimated fair value of the common stock.
The Series D Notes bear interest at an effective annual rate of 11%. All other
terms of the Series D Notes are substantially the same as those discussed above.
The Champion Credit Facility, Champion Notes and agreements relating to the
collateralizing of certain debt referenced above contain restrictive covenants
that include, among others, restrictions on additional indebtedness, the payment
of dividends and other distributions, the repurchase of Common Stock and related
securities under certain circumstances, and the requirement to maintain certain
financial ratios. Champion was in compliance with or has obtained permanent
waivers for all loan covenants to which it was subject as of December 31, 1995
and 1994.
Pursuant to the Participants Agreement, certain terms of the Series D Notes
and the Series E Notes have been amended. See "Certain Related Agreements --
Participants Agreement."
REDEEMABLE PREFERRED STOCK
On December 31, 1993, Champion issued 1,269,144 shares of Champion Series D
Preferred Stock for net proceeds of approximately $22,008,000. On December 30,
1994, pursuant to commitments obtained from the initial purchasers of Champion
Series D Preferred Stock, Champion issued an additional 623,453 shares of
Champion Series D Preferred Stock for net proceeds of $11,222,000. Champion also
issued Champion Series D Preferred Stock in connection with the Psychiatric
Healthcare acquisition.
On December 2, 1993, Champion issued 448,811 shares of Champion Series C
Preferred Stock for net proceeds of $8,033,000. On December 2, 1993, Champion
issued 289,950 shares of Series BB Preferred Stock, resulting in net proceeds of
$3,422,000. On December 31, 1995, all outstanding shares of Series BB were
converted into Champion Common Stock as part of Champion's recapitalization.
Champion is subject to certain credit agreements that restrict its right to
pay cash dividends on Champion Common Stock and Champion Preferred Stock.
Furthermore, Champion cannot pay cash dividends on Champion Common Stock without
paying dividends on Champion Preferred Stock. Pursuant to the recapitalization,
all accrued preferred dividends at December 31, 1995 (approximately $12,614,000)
were paid by the issuance of Champion Common Stock at an agreed price of $7.00
per share, and the shares of Champion Preferred Stock do not accrue dividends.
SUBSEQUENT EVENTS
Pursuant to the Recapitalization Agreement entered into by Champion and
certain of its security holders effective December 31, 1995, Champion agreed to
reduce the exercise prices of one series of Champion Warrants to purchase
680,104 shares of Champion Common Stock from $5.90 to $5.25 per share and two
series of Champion Warrants to purchase a total of 2,447,670 shares of Champion
Common Stock from $9.00 to $7.00 per share until May 13, 1996, after which date
the exercise prices reverted to their prior amounts. As of May 13, 1996,
Champion Warrants have been exercised to purchase 2,347,252 shares of Champion
Common Stock, resulting in cash proceeds to Champion of approximately $8,715,000
and the tender of approximately $4,882,000 in Champion Notes and of Champion
Warrants to purchase 365,616 shares of Champion Common Stock in lieu of cash.
INFLATION
The healthcare industry is labor intensive. Wages and other expenses are
subject to rapid escalation, especially during periods of inflation and when
shortages occur in the marketplace. In addition, suppliers attempt to pass along
increases in their costs by charging Champion higher prices. In
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general, Champion's revenue increases through price increases or changes in
reimbursement levels have not kept up with cost increases. However, by expanding
services and by increasing operating efficiencies, Champion has historically
been able to substantially offset increases in such costs. In light of
cost-containment measures imposed by government agencies, private insurance
companies and managed-care plans, Champion is likely to experience continued
pressure on operating margins in the future.
RECENT PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation," which is effective for fiscal years beginning after
December 15, 1995. SFAS 123 establishes new financial accounting and reporting
standards for stock-based compensation plans. Entities will be allowed to
measure compensation expense for stock-based compensation under SFAS 123 or APB
Opinion No. 25, "Accounting for Stock Issued to Employees." Champion has elected
to continue accounting for such compensation under the provisions of APB Opinion
No. 25.
In March 1995, the Financial Accounting Standards Board issued SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." SFAS 121, which is effective for fiscal years beginning after
December 15, 1995, requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Champion adoption of SFAS 121 on January 1, 1996 had no
material effect on its financial statements.
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BUSINESS OF PARACELSUS
CERTAIN STATEMENTS UNDER THE CAPTION "BUSINESS" CONSTITUTE "FORWARD-LOOKING
STATEMENTS" UNDER THE REFORM ACT. SEE "RISK FACTORS -- FORWARD-LOOKING
STATEMENTS."
GENERAL
Paracelsus owns and operates 18 acute care hospitals with a total of 1,685
licensed beds in California, Utah, Tennessee, Texas, Florida, Georgia and
Mississippi. Paracelsus' acute care hospitals provide a broad array of general
medical and surgical services on an inpatient, outpatient and emergency basis.
In addition, certain hospitals and their related facilities offer rehabilitative
medicine, substance abuse treatment, psychiatric care and AIDS care. In
California, Paracelsus also owns and operates three psychiatric hospitals with
218 licensed beds, four skilled nursing facilities with 232 licensed beds and a
60-bed rehabilitative hospital. In addition, Paracelsus owns and operates 11
home healthcare agencies and 16 medical office buildings adjacent to certain of
its hospitals.
RECENT TRANSACTIONS
ACQUISITION OF FHP HOSPITAL. On May 17, 1996, Paracelsus acquired the PHC
Salt Lake Hospital, a 125-bed acute care hospital, including its surrounding
campus, in Salt Lake City, Utah from FHP International Corp. ("FHP") for
$70,000,000 in cash. Paracelsus financed the acquisition of PHC Salt Lake
Hospital with borrowings under the Paracelsus Existing Credit Facility. Prior to
the acquisition, the PHC Salt Lake Hospital was operated by FHP, an HMO,
principally to provide care to its HMO members. Accordingly, FHP operated the
PHC Salt Lake Hospital as a captive cost center for the sole benefit of FHP and
not as a business managed separately for profit. In connection with the
acquisition of the PHC Salt Lake Hospital, Paracelsus entered into a 15-year
exclusive provider agreement (the "FHP Exclusive Provider Agreement") under
which FHP will pay Paracelsus stated percentages of its monthly HMO member
premiums to guarantee FHP HMO members access to inpatient care at all
Paracelsus-operated hospitals in Salt Lake City, Utah, including the PHC Salt
Lake Hospital. Based upon information provided to Paracelsus by FHP, as of March
31, 1996, FHP had approximately 102,000 covered lives who would be subject to
the FHP Exclusive Provider Agreement. In addition, the PHC Salt Lake Hospital
will continue to provide access to approximately 13,000 additional covered lives
under an FHP PPO contract under which FHP will make a fee-for-service payment to
Paracelsus.
Paracelsus intends to change significantly the patient base of the PHC Salt
Lake Hospital. In addition to the FHP HMO and PPO members, PHC Salt Lake
Hospital will enter into contracts with other insurance carriers and managed
care organizations and otherwise seek to serve the patients in its market. In
addition, the PHC Salt Lake Hospital will provide reference lab services and
emergency room services which are anticipated to generate additional revenues.
To date, Paracelsus has entered into non-capitated provider contracts with
CIGNA, United Health and Blue Cross ("other payors"). Under those contracts,
based on public disclosures made by such other payors as of March 31, 1996,
Paracelsus believes that the PHC Salt Lake Hospital will provide services to
approximately 220,000 covered lives. As a result of the expansion and
diversification of the patient base, Paracelsus anticipates that a substantially
reduced portion of the PHC Salt Lake Hospital's total inpatient care will be
comprised of services provided to FHP members, with additional revenues
generated through admissions by independent practicing physicians and patients
covered by other insurance carriers, managed care organizations and the Utah
Medicaid program.
Paracelsus believes that the PHC Salt Lake Hospital acquisition and the
revenues anticipated to be received under the FHP Exclusive Provider Agreement
will complement the hospitals owned by Champion and the Columbia Hospitals
recently acquired by Paracelsus from Columbia. Paracelsus does not believe that
the historical financial statements of PHC Salt Lake Hospital are relevant
because the future operations will include services provided to the general
public as compared to its previous operations as a capitive cost center, which
served only FHP members. As a result, Paracelsus has concluded that the PHC Salt
Lake Hospital acquisition is an acquisition of assets, rather than the
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acquisition of a business for which financial statements and pro forma
information would be required under applicable accounting rules of the
Commission. The cost of the assets acquired were allocated to the individual
assets acquired based on their relative fair market values.
ACQUISITION OF COLUMBIA HOSPITALS.
On May 17, 1996, Paracelsus acquired the Columbia Hospitals for
consideration consisting of $38,500,000 in cash and the exchange of its
Peninsula Medical Center, a 119-bed hospital located in Ormond Beach, Florida;
Elmwood, a 135-bed hospital located in Jefferson, Louisiana; and Halstead, a
190-bed hospital located in Halstead, Kansas. Paracelsus also purchased the real
property of Elmwood and Halstead from a REIT, exchanged the Elmwood and Halstead
real property for Pioneer's real property and sold the Pioneer real property to
the REIT. The acquisition was accounted for as a purchase transaction. Parcelsus
financed the cash portion of the acquisition of the Columbia Hospitals from
borrowings under its Credit Facility.
OTHER TRANSACTIONS.
On September 30, 1995, Paracelsus sold Womans Hospital in Mississippi to the
facility's lessee for $17,800,000 in cash, which resulted in a gain of
$9,189,000. In August 1994, Paracelsus divested the operations of Womans
Hospital and entered into an operating lease agreement with the lessee which
granted the lessee an option to purchase the facility. Also in August 1994, the
lessee purchased land and a medical office building from Paracelsus for
approximately $1,000,000. In October 1993, Paracelsus acquired the land and
medical office building along with cash of $698,000 in exchange for land it held
with a carrying value of $1,772,000.
On September 5, 1995, Paracelsus acquired the real and personal property
assets and inventory of Jackson County Hospital, a 44-bed acute care facility in
Gainesboro, Tennessee, for $582,000 in cash. The facility is being operated by
Paracelsus under the name Cumberland River Hospital -- South.
During August 1995, in three separate transactions, Paracelsus sold the real
and personal property assets and inventory of Advanced Healthcare Diagnostic
Services, a mobile diagnostic imaging company, for $764,000 in cash. The sale
resulted in a loss of $163,000.
On August 1, 1995, Paracelsus purchased the accounts receivable, equipment
and intangible assets of Keith Medical Group, an outpatient medical clinic
located in Hollywood, California, for $2,428,000.
On April 24, 1995, Paracelsus closed the Closed Facility due to a continuing
decrease in patients. The facility's patients were transferred to Paracelsus'
Orange County Community Hospital of Orange facility. In connection with the
closure, Paracelsus recorded a restructuring charge of $973,000 for employee
severance benefits and contract termination costs.
BUSINESS STRATEGY
Paracelsus believes that it must actively attract managed care providers and
further emphasize the provision of outpatient services and specialty programs
targeted toward each of Paracelsus' local markets to remain competitive in an
increasingly competitive business environment. Paracelsus has developed
operating and acquisition strategies designed to achieve these objectives by
positioning Paracelsus as a provider of choice for high quality, low cost
services in each of the markets it serves.
OPERATING STRATEGY
Paracelsus' principal operating objectives are to increase the operating
revenues, profitability and market share of its hospitals while addressing the
cost and service requirements of managed care organizations. Paracelsus'
objectives are achieved through a combination of strategies, including (i)
recruiting and retaining qualified physicians, (ii) expanding the existing base
of services provided, (iii) introducing targeted specialty programs and services
and (iv) applying financial and operational controls. Paracelsus' operating
strategies are implemented through a combination of local decentralized
management and strong corporate support.
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Paracelsus believes that effective recruitment and retention of qualified
physicians lead to an expansion of medical and surgical services. To this end,
Paracelsus' senior management team includes a senior vice president who is
responsible for Paracelsus' physician recruitment and retention programs.
Paracelsus targets primary care physicians locally and nationwide to join its
medical staffs in order to expand the range of services offered by its
hospitals, as well as to enable its physicians to act as gatekeepers for the
healthcare delivery systems in each specific market. To attract and retain high
quality physicians, Paracelsus provides various services to assist them in
opening and operating their practices. Such services include purchasing new
equipment and leasing office space in medical office buildings owned by
Paracelsus adjacent to most of its hospitals.
Paracelsus focuses on developing niche programs and new services at the
local level by analyzing each market and local competition in order to determine
the needs of the community it serves. Operating revenues have grown through the
development of additional inpatient services such as full-service obstetrics and
open-heart surgery at certain of Paracelsus' acute care hospitals. Paracelsus
has also successfully targeted certain markets with growing niche programs such
as AIDS care, rehabilitation units and home health services. Additionally,
Paracelsus continues to emphasize its outpatient business, with outpatient gross
revenues having increased from 23.1% to 30.2% of gross operating revenues from
fiscal year 1991 to fiscal year 1995.
Paracelsus has developed and implemented a continuous quality improvement
program designed to assess all levels of patient care provided in its hospitals.
While the basics of the program are mandated by Federal, state and Joint
Commission on Accreditation of Healthcare Organizations ("JCAHO") regulations
and standards, the objective of the program is to meet or exceed the mandates by
focusing on hospital systems, and patient, physician and employee concerns. The
quality improvement program at each hospital is managed by a multidisciplinary
committee consisting of physicians, nurses, ancillary managers and
administration. The committee performs peer review, monitors all functions
within the hospital, identifies opportunities to improve, recommends actions and
follows up on changes made to assure improvement. The committee, along with a
representative from the facility administrative and quality improvement services
departments, and the corporate quality improvement services department, meet
regularly to address specific problems and ways to improve patient care under a
"Total Quality Management System." Continual review, analysis and training
provided through quality improvement programs provide patients, physicians and
third party payors assurance that patient care receives the highest priority at
each of Paracelsus' hospitals.
Paracelsus employs experienced administrators, controllers and directors of
nursing who have responsibility for carrying out the strategic plan at each of
its hospitals. Incentive compensation programs are offered to reward local
managers who achieve established financial and operational goals. Further,
Paracelsus provides each local management team with significant corporate
support. This corporate support includes central purchasing, management
information systems, marketing and public relations, personnel management, risk
management, capital formation and patient care quality assurance and control.
Paracelsus' standardized management information systems provide accurate
clinical and financial data for use by hospital staff, physicians and corporate
management. In addition, Paracelsus closely monitors departmental staffing and
has established staffing level targets for each hospital measured by the number
of full time equivalent employees per occupied hospital bed. Paracelsus reviews
compliance with these staffing targets on a monthly basis. Paracelsus also
reviews patient length of stay, service utilization, cash flow, accounts
receivable collection, inventory levels and outside purchases. To reduce the
cost of supplies, Paracelsus has entered into national purchasing contracts.
Paracelsus believes its current cost structure will enable it to continue to
compete effectively in each of its current markets.
ACQUISITION STRATEGY
Paracelsus is actively negotiating to acquire additional healthcare
facilities, principally general acute care hospitals. Due to the nature of
various contingencies that are normally associated with
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proceeding to consummation of an acquisition, such as satisfactory due diligence
investigations and regulatory and governing body approvals, whether or not
Paracelsus executes either a non-binding or binding letter of intent or even a
definitive agreement, there is no assurance that an acquisition will occur.
Whether or not and to what extent Paracelsus discloses the status of any pending
acquisition is dependent upon a number of factors, including the nature and
status of the contractual relationship, any unique need for confidentiality, the
nature and type of governing body approvals, the nature of and concern for
regulatory approvals, financing contingencies, specific operational and due
diligence concerns and whether other potential purchasers are competing to
purchase the facility. Paracelsus is presently unable to conclude whether any
potential acquisition currently under consideration is more likely than not to
occur.
Paracelsus actively seeks to expand its base of operations by acquiring
acute care hospital facilities. Hospitals for acquisition are characterized by
limited local competition, favorable government payment rates, strong
demographic trends and, in the case of facilities that will be leased rather
than purchased, favorable lease rates and low initial capital costs. Paracelsus
generally seeks to acquire medium to large hospitals (i.e., hospitals with at
least 100 licensed beds) located outside of highly competitive major
metropolitan areas. However, Paracelsus also considers whether a given
acquisition candidate is a strong institution in its market or enjoys particular
advantages in a specialized area of medical practice.
Upon acquiring a hospital, Paracelsus takes immediate steps to enhance the
operating performance and profitability of the hospital. One important objective
is to increase its presence in the particular market, which, for non-urban
hospitals, often means minimizing the out-migration of patients and physicians
to larger tertiary, urban hospitals. This is achieved by broadening and
improving the level and quality of patient care, intensive physician recruitment
and retention programs, development of targeted acute care and specialized
services not currently provided and implementation of quality assurance programs
focused on continual clinical review of the care provided to each patient. A
second important objective is the implementation of Paracelsus' operating and
financial control policies. Paracelsus endeavors to enhance an acquired
hospital's operating margins through (i) effective rationalization and
scheduling of staffing levels, (ii) conversion to Paracelsus' national
purchasing contracts, (iii) ensuring accurate and timely patient admission,
billing and collection procedures, (iv) negotiating managed care contracts and
(v) controlling overall operating expenses. Paracelsus' company-wide management
information systems are implemented to ensure consistency and standardization of
reporting and to expedite the flow of financial and clinical information to
hospital and corporate end-users.
The primary objective of Paracelsus' acquisition strategy is to achieve
geographic diversification of its operations by purchasing facilities in areas
where local demographics indicate a growing need for patient care and in which
the facility can become a leading provider of healthcare services. After
excluding the net gain on sale of facilities and the restructuring and unusual
charges, approximately 8.2% of Paracelsus' fiscal 1995 EBITDA (earnings before
interest, taxes, depreciation, and amortization) was derived from its hospitals
in the Los Angeles metropolitan area as compared to 23.2% in fiscal 1994.
Paracelsus' goal is to continue to decrease this percentage. Paracelsus adopted
this objective because of the competitive and overbedded Southern California
environment and attractive opportunities in other states.
Another objective of Paracelsus' acquisition strategy is to take advantage
of opportunities to enhance its competitive position in its existing markets. On
September 5, 1995, Paracelsus acquired Jackson County Hospital, a 44-bed acute
care facility. Paracelsus is operating the facility under the name of Cumberland
River Hospital -- South, which is located in the same patient service area as
another of Paracelsus' hospitals, Cumberland River Hospital -- North.
On June 30, 1994, Paracelsus assumed an operating lease of the real and
personal property assets of Chico Rehabilitation Hospital, a 60-bed
rehabilitation hospital located in Chico, California. The hospital is located in
the same geographic service area as another of Paracelsus' hospitals, Chico
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Community Hospital. Paracelsus believes the ability to offer a broader range of
services through both of these facilities will enable Paracelsus to more
effectively compete for managed care contracts and to secure the patient base
available in these existing geographic areas.
Another objective of Paracelsus is to maintain and expand its business by
acquiring strategic physician practices. This was the case when Paracelsus
purchased on August 1, 1995, the accounts receivable, equipment and intangible
assets of Keith Medical Group, an outpatient medical clinic located in
Hollywood, California for $2,428,000.
OPERATIONS
ACUTE CARE HOSPITALS. Each of Paracelsus' medical/surgical hospitals
provides medical and surgical services generally available in acute care
hospitals of similar size. All 22 of Paracelsus' acute care, psychiatric and
rehabilitative hospitals are managed on a day-to-day basis by an administrator
selected by Paracelsus. At each facility, the hospital's medical staff, under
the supervision of the hospital's board of directors, is delegated direct
responsibility for the medical, professional and ethical practices at that
hospital.
JOINT VENTURES. Paracelsus owns a majority interest in five physician joint
ventures. One of the joint ventures leases and operates a hospital. Three of the
joint ventures have nonexclusive use of space and equipment in certain hospitals
which they use to provide specialized medical and/or surgical services to
patients. One of the joint ventures owns, maintains and operates two medical
office buildings. In all cases, the minority interests in the joint ventures are
either held by a physician or a group of physicians or a corporation or
partnership owned by a physician or a group of physicians. In fiscal year 1995,
the joint ventures generated an aggregate of $3,881,000 of income before income
taxes, of which $2,015,000 was paid out to the holders of the minority interests
in the joint ventures.
MEDICAL OFFICE BUILDINGS. Paracelsus owns, leases and manages medical
office buildings located adjacent to certain of its hospitals. Paracelsus'
management believes that operating a medical office building adjacent to a
hospital attracts additional physicians to the hospital's medical staff and
therefore contributes significantly to patient admissions at the hospital
facility.
SKILLED NURSING FACILITIES. Paracelsus operates four skilled nursing
facilities in Northern California, which accounted for 2.0% of Paracelsus' gross
operating revenues in fiscal 1995. Skilled nursing care services consist of
24-hour nursing care, principally to the elderly, by registered or licensed
practical nurses and related medical services prescribed by the patient's
physician. The following table sets forth the name, location and number of
licensed beds for each of the skilled nursing facilities owned or leased and
operated by Paracelsus.
<TABLE>
<CAPTION>
LICENSED
LICENSED FACILITY (1) LOCATION BEDS
<S> <C> <C>
CALIFORNIA
Lafayette Convalescent Hospital Lafayette 52
Oak Park Convalescent Hospital Pleasant Hill 51
Rheem Valley Convalescent Hospital (2) Rheem Valley 49
University Convalescent Hospital Menlo Park 80
---
Total Licensed Beds 232
---
---
</TABLE>
- ------------------------
(1) All facilities acquired on February 1, 1981.
(2) Leased by Paracelsus.
An important element of Paracelsus' skilled nursing facility strategy is to
provide inpatient and outpatient rehabilitative service to patients who do not
require the services of an acute care hospital. Rehabilitative services consist
of physical, speech and occupational therapies designed to aid the patient's
recovery and to enable the patient to resume normal activities. Although
rehabilitative services by themselves do not account for a significant portion
of Paracelsus' operating revenues, such
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services are relatively more profitable than other nursing services typically
offered at skilled nursing facilities. These services have aided in attracting
private pay and Medicare patients. Although Paracelsus plans to retain operation
of its skilled nursing facilities, Paracelsus currently does not intend to
acquire additional skilled nursing facilities.
SELECTED OPERATING STATISTICS
The following table sets forth operating statistics of Paracelsus' acute
care, psychiatric and rehabilitative hospitals for each of the periods
indicated.
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEARS ENDED SEPTEMBER 30, ENDED MARCH 31,
----------------------------------- ---------------------
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
Number of hospitals at period-end................. 22 22 22 22 21
Licensed beds at period-end....................... 2,066 2,015 1,988 2,015 1,869
Admissions........................................ 45,018 52,951 49,622 25,314 25,985
Adjusted admissions (1)........................... 62,233 73,445 71,097 35,796 37,198
Average length of stay (days)..................... 6.1 6.1 5.9 6.0 5.8
Patient days...................................... 273,250 320,369 292,357 152,283 149,528
Adjusted patient days (2)......................... 377,727 444,362 418,880 214,916 214,053
Occupancy rate (3)................................ 42.9% 42.6% 40.3% 41.5% 41.3%
Surgeries......................................... 30,552 32,082 28,291 14,402 13,138
Outpatient visits (4)............................. 510,772 686,388 923,446 419,214 546,768
Gross outpatient revenues as a percentage of gross
operating revenues............................... 26.5% 29.8% 30.2% 29.1% 30.1%
</TABLE>
- ------------------------
(1) Total admissions for the period multiplied by the ratio of total patient
revenue divided by total inpatient revenue.
(2) Total patient days for the period multiplied by the ratio of total patient
revenue divided by total inpatient revenue.
(3) Average daily census for the period divided by licensed beds.
(4) Includes emergency room and home health agency visits.
SOURCES OF REVENUE
Paracelsus receives payment for services rendered to patients from private
insurers, the Federal government under the Medicare program, state governments
under their respective Medicaid programs and directly from patients.
The table below shows the approximate percentages of gross operating
revenues derived by Paracelsus' hospitals from Medicare, Medicaid and private
insurance or other revenue sources for each of the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30, SIX MONTHS
ENDED MARCH 31,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
Medicare..................................... 38.5% 41.4% 45.4% 45.0% 46.8%
Medicaid..................................... 10.3% 10.5% 11.1% 10.7% 13.0%
Private insurance and other.................. 51.2% 48.1% 43.5% 44.3% 40.2%
</TABLE>
MEDICAL STAFF AND EMPLOYEES
At March 31, 1996, approximately 2,394 licensed physicians were members of
the medical staffs of Paracelsus' 18 acute care, three psychiatric and one
rehabilitation hospitals. Many of these professionals also serve on the staffs
of other nearby hospitals. Approximately 218 physicians were under contract with
Paracelsus' hospitals at March 31, 1996, primarily to staff emergency rooms, to
provide
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ancillary services and to serve in other support capacities. Paracelsus had
approximately 6,970 employees at March 31, 1996, of which approximately 1,300
were covered by collective bargaining agreements.
Hollywood Community Hospital, Lancaster Community Hospital, Chico Community
Hospital and University Convalescent Hospital are Paracelsus' only facilities
with employees represented by unions. Paracelsus believes that its relationship
with employees is satisfactory.
COMPETITION
The competition for patients among hospitals and other healthcare providers
has intensified in recent years as hospital occupancy rates have declined. This
decline is attributable to several factors, including cost containment
pressures, changing medical technology, changing government regulations and
utilization management. Such factors have prompted new competitive strategies by
hospitals and other healthcare providers. Among these strategies is an
increasing emphasis on outpatient healthcare delivery procedures (E.G.,
outpatient surgery, diagnostic centers and home healthcare), which tend to
eliminate or reduce the length of hospital stays.
Paracelsus believes that one of the most significant factors in the
competitive position of a hospital is the number and quality of the physicians
affiliated with the hospital, because physicians determine the majority of
hospital admissions. Although physicians may at any time terminate their
affiliation with a hospital operated by Paracelsus, Paracelsus seeks to retain
physicians of varied specialties on its hospitals' medical staffs and to attract
other qualified physicians. Paracelsus believes that physicians refer patients
to a hospital primarily on the basis of the quality of services it renders to
patients and physicians, the quality of other physicians on the medical staff,
the location of the hospital and the quality of the hospital's facilities,
equipment and employees. However, physicians affiliated with certain managed
care providers may be precluded from utilizing Paracelsus' facilities for their
patients, or referring patients to doctors using Paracelsus' facilities, if the
facility or referred doctors are not currently contracting with such managed
care providers.
The competitive position of a hospital is also affected by its management's
ability to negotiate service contracts with purchasers of group healthcare
services, including employers, PPOs and HMOs. PPOs and HMOs attempt to direct
and control the use of hospital services through "managed care" programs and to
obtain discounts from hospitals' established charges, and, in return, hospitals
acquire access to a large number of potential patients. In addition, employers
and traditional health insurers are increasingly interested in containing costs
through negotiations with hospitals for managed care programs and discounts from
established charges. Of importance to a hospital's competitive position is its
ability to obtain contracts with PPOs and HMOs and other organizations that
finance healthcare. Managed care providers are increasingly contracting with
hospitals or networks of hospitals that can provide a full range of services in
a particular market. Accordingly, Paracelsus is attempting to join or establish
hospital networks and to increase services to compete for contracts in such
markets.
Paracelsus believes that it is able to compete effectively in its markets in
part because of the advantages of chain ownership (such as the pooling of
managerial talent), its cost awareness and control expertise, its extensive
experience in the California marketplace (especially with managed care
providers) and its strategies to establish niche services and to target
profitable payor groups.
LIABILITY INSURANCE
Paracelsus is self-insured for the first $500,000 per occurrence of general
and professional liability risks occurring after October 1, 1987 and the first
$250,000 per occurrence of workers' compensation liability risks occurring after
October 1, 1992. Paracelsus formed Hospital Assurance Company, Ltd., a wholly
owned subsidiary, in order to insure the general and professional and workers'
compensation risks beginning October 1, 1992. In addition, Paracelsus owns
approximately 10% of Hospital Underwriters Group, which insures the first $2.5
million per occurrence of claims in excess of $500,000, and reinsures amounts
over $3.0 million per occurrence with unrelated third-party commercial insurance
carriers, up to $100 million per occurrence.
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REGULATION AND OTHER FACTORS
All hospitals are subject to compliance with various Federal, state and
local statutes, regulations and ordinances, and receive periodic inspection by
state and local licensing agencies, as well as by nongovernmental organizations
acting under contract or pursuant to Federal law, to review compliance with
standards of medical care, and requirements concerning facilities, equipment,
staffing, cleanliness and related matters. Paracelsus' hospitals must comply
with the licensing requirements of state and local health agencies, as well as
the requirements of municipal building codes, health codes and local fire
departments. All Paracelsus' hospitals have obtained the licenses which
Paracelsus believes are necessary under applicable law for the operation of the
hospitals. In addition, all of Paracelsus' hospitals are presently accredited by
the JCAHO, except for two rural hospitals in the Southeast region, which are
surveyed annually by state regulatory authorities.
In recent years, many states have enacted legislation regulating the
establishment or expansion of hospital facilities and services. In certain
states, prior to the construction of new hospitals, the expansion of old
hospitals or the introduction of certain new services in existing hospitals,
Paracelsus must obtain a CON by demonstrating to either state or local
authorities, or both, that it is in compliance with plans adopted by such
authorities, or receive an exemption from CON requirements by demonstrating that
the project is covered by statutory and regulatory exemption provisions. This
requirement can increase the cost (in time and money) of a project, and may
affect the feasibility of some projects. Of the seven states in which Paracelsus
operates, a CON is required only in Florida, Georgia, Mississippi and Tennessee.
MEDICARE PROGRAM -- GENERAL
The Medicare program is a Federal healthcare program created by the Social
Security Act Amendments of 1965. Each of Paracelsus' hospitals is certified as a
provider of services under the Medicare program. Revenues attributable to
Medicare patients represented 45% and 46% of Paracelsus' historical gross
operating revenues in fiscal 1995 and in the six months ended March 31, 1996,
respectively. The Medicare program has changed significantly during the past
several years, and these changes have had and will continue to have a
significant effect on Paracelsus' hospitals. In addition, the requirements for
certification in the Medicare program are subject to change, and, in order to
remain qualified for the program, it may be necessary for Paracelsus to make
changes from time to time in its facilities, equipment, personnel and services.
Although Paracelsus intends to continue its participation in the Medicare
program, there is no assurance that it will continue to qualify for
participation.
Pursuant to the Social Security Act Amendments of 1983 and subsequent budget
reconciliations and modifications, Congress adopted a prospective payment system
("PPS") under which a hospital is paid a predetermined amount for each Medicare
Inpatient discharge depending on the patient's diagnosis and related procedures.
Generally, under the PPS, if the costs of meeting the health needs of the
patient are greater than the predetermined payment rate, the hospital must
absorb the loss. Conversely, if the cost of the services provided is less than
the predetermined payment, the hospital retains the difference.
Recent legislation has reduced projected increases for Medicare payments to
providers for hospital outpatient services. The payment rate for hospital
outpatient surgery and hospital radiology services is limited to a blend of 42%
of reasonable costs and 58% of Medicare's prospective rates. The payment rate
for other outpatient diagnostic services is limited to a blend of 50% of
reasonable costs and 50% of the prospective rates. Furthermore, studies are
currently in process at the Health Care Financing Administration ("HCFA") that
propose converting payment for all outpatient services (including home health
services), inpatient psychiatric services and skilled nursing care to a
prospective payment system. Congress is presently considering further
significant reductions in projected increases in Medicare payments to providers.
The financial effect of these changes may have a negative impact on the Company,
although the exact method of implementing these reductions and whether a
prospective payment system for outpatient services or inpatient psychiatric and
home health services and skilled nursing care will be adopted are not yet known.
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The Omnibus Budget Reconciliation Act of 1990 ("OBRA 1990") reduced
projected increases in Medicare payments to providers by approximately $35
billion in fiscal years 1991 through 1995. A portion of these reductions include
reductions in increases in "Diagnosis Related Group" payments for inpatient
services during each of fiscal years 1991 through 1995, reductions in payments
for outpatient hospital and surgical services, and reimbursement of both
inpatient and outpatient capital-related costs at the rate of 85% in fiscal year
1991 and 90% during fiscal years 1992 through 1995 (as described in the next
paragraph below). The payment rate for hospital outpatient surgery was changed
from a blend of 50% of reasonable costs and 50% of the prospective Ambulatory
Surgery Center ("ASC") rate to 42% of reasonable cost and 58% of the prospective
ASC rate.
Prior to 1988, Medicare reimbursed hospitals for 100% of their share of
capital related costs, which included depreciation, interest, taxes and
insurance related to plant and equipment for inpatient hospital services. The
reimbursed rate was reduced thereafter to 85% of costs. Federal regulations
effective October 1, 1991 created a PPS for inpatient capital costs to be phased
in over a 10-year transition period from a hospital-based rate to a fully
Federal payment rate or a per-case rate. Such a method of capital cost payment
could have a material adverse effect on the operating revenues of Paracelsus.
Pursuant to OBRA 1990, Congress revised the Gramm-Rudman budget and
sequestration process and established a "pay-as-you-go" system for entitlement
programs, including Medicare. Legislation increasing entitlements and/or
reducing revenues must be deficit-neutral, I.E., it must pay for itself by a
reduction in entitlement spending elsewhere or additional revenues. Legislation
violating the pay-as-you-go principle would trigger a sequestration of
entitlement program funds in the same amount that such legislation added to the
deficit. Up to a maximum of 4% of Medicare program funds would be included among
those sequestered. Medicaid program funds, however, continue to be exempt from
sequestration. Payment reductions under the revised sequestration process were
not implemented in fiscal years 1993, 1994 or 1995. If implemented in future
years, these reductions could have a material adverse effect on Paracelsus'
operating revenues. However, because the actual amount of the reduction for any
fiscal year may vary according to the Federal deficit, the financial impact of
the revised process on Paracelsus cannot be predicted.
The Medicare program makes additional payments to those healthcare providers
that serve a disproportionate share of low income patients. The qualification
and funding for disproportionate share payments can vary by fiscal year.
Disproportionate share payments for future years could vary significantly from
historical payments.
Within the statutory framework of the Medicare program, there are
substantial areas subject to administrative rulings, interpretations and
discretion that may affect payments made under the program. In addition, the
Federal government might, in the future, reduce the funds available for, or
require more stringent utilization of, hospital facilities, either of which
could have a material adverse effect on Paracelsus' future income.
MEDICAID PROGRAM
Medicaid (Title XIX of the Social Security Act) is a program of medical
assistance that is administered by each state. Each of Paracelsus' hospitals is
certified for participation in the various state Medicaid programs, although not
all of Paracelsus' hospitals have chosen to participate. In fiscal 1995,
Paracelsus derived 11.1% of its hospital gross operating revenues from Medicaid
programs. Payment for inpatient services varies by state, but a majority of
states pays either a fixed, predetermined daily rate or a fixed payment for each
type of service.
The Medicaid program also makes additional payments to those healthcare
providers that serve a disproportionate share of low income patients. The
methodology used to determine qualification and funding will vary by state. The
qualification and funding for disproportionate share payments can vary by fiscal
year. Disproportionate share payments for future years could vary significantly
from historical payments.
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In California, the Medicaid program is known as Medi-Cal. To be certified
for Medi-Cal participation, California hospitals must contract with the state
for Medi-Cal reimbursement. Such contracts are intended to reduce the state's
overall cost of providing Medi-Cal services. Of Paracelsus' California
hospitals, currently four have applied for and been awarded such contracts.
Paracelsus' or management believes that, for those hospitals not participating
in Medi-Cal, payment received in the Medi-Cal program would not cover the cost
of providing service to eligible patients.
HOSPITAL INSPECTIONS AND REVIEWS
JCAHO regularly conducts an on-site review and inspection of every hospital
seeking to obtain or maintain its accreditation. Hospitals accredited by JCAHO
are deemed to be in compliance with the standards for participation in the
Medicare program, although Medicare can conduct its own compliance reviews.
During fiscal 1995, three Paracelsus facilities had full JCAHO reviews. All
such facilities maintained accreditation. In addition to JCAHO inspections and
inspections conducted by certain state and local regulatory authorities, the
HCFA, generally in response to specific complaints from patients but also
occasionally on a random basis, causes hospitals participating in the Medicare
program to be inspected. In fiscal 1995, two facilities had state regulatory
surveys, some of which may have been done on behalf of the HCFA, and both of
those facilities remained eligible to participate in the Medicare program.
REGULATORY COMPLIANCE
The operation of healthcare facilities is subject to Federal, state and
local regulations. Facilities are subject to periodic inspection by state
licensing agencies to determine whether the standards of medical care provided
therein comply with licensing standards. Paracelsus believes that all of its
healthcare facilities are in substantial compliance with such Federal, state and
local regulations and licensing requirements.
OTHER FEDERAL STATUTES AND REGULATIONS
Effective January 1, 1995, the so-called Stark II law bars physicians from
referring Medicare and Medicaid patients to 11 designated health services in
which the physicians have an investment or compensation arrangement. The HCFA
has not set a target date for proposing the Stark II regulations, but it finally
issued the so-called Stark I regulations on August 14, 1995. (Stark I bans
physicians from referring Medicare and Medicaid patients to clinical
laboratories in which they have a financial interest). The HCFA has stated that
the Stark I regulations will also be applicable to Stark II.
The HCFA plans to require healthcare entities, including hospitals, to sign
a declaration form in which they promise not to bill Medicare for patients
referred by a physician who has a prohibited financial relationship with the
entity. The HCFA will keep those forms on file. Physicians who own an interest
in a designated health service will also be asked to sign a declaration form
saying they will not refer Medicare patients to that service. The entity will
keep the physician forms on file, and the HCFA will check to see that entities
are keeping the forms.
In addition, the Antifraud Amendments provide criminal penalties for
individuals or entities participating in the Medicare or Medicaid programs who
knowingly and willfully offer, pay, solicit, or receive remuneration in order to
induce referrals for items or services reimbursed under such programs. In
addition to felony criminal penalties, the Social Security Act also establishes
the intermediate sanction of excluding violators from Medicare or Medicaid
participation. The HHS has promulgated regulations that define certain Safe
Harbors for arrangements that would not violate the Antifraud Amendments. Any
venture that meets all the conditions of an applicable safe harbor will be
exempt both from prosecution and exclusion under the Antifraud Amendments.
None of Paracelsus' joint ventures with physician investors falls within any
of the defined Safe Harbors. The fact that the terms of a venture do not satisfy
applicable Safe Harbor criteria, however, does not mean that the venture is
illegal but does mean that the venture may be subject to review. Under
Paracelsus' joint venture arrangements, physician investors are not and will not
be under any
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obligation to refer or admit their patients, including Medicare or Medicaid
beneficiaries, to receive services at Paracelsus facilities, nor are
distributions to those physician investors contingent upon or calculated with
reference to referral by the physician investors. On the basis thereof,
Paracelsus' management does not believe the ownership of interests in or receipt
of distributions from Paracelsus' joint ventures would be construed to be
knowing and willful payments to the physician investors to induce them to refer
patients in violation of the Antifraud Amendments. There can be no assurances,
however, that government officials charged with responsibility for enforcing the
prohibitions of the Antifraud Amendments will not assert that one or more of
Paracelsus' joint ventures are in violation of the Antifraud Amendments. To
date, none of Paracelsus' current joint ventures have been reviewed by any
governmental authority for compliance with the Antifraud Amendments.
STATE STATUTES AND REGULATIONS
Each of the states in which Paracelsus does business has a state medical
practice act that prohibits unprofessional conduct of physicians, including
failure to conform to the ethical standards of the profession. A physician who
is found to have violated a state medical practice act may be subject to
disciplinary action up to and including loss of the physician's license to
practice medicine. Certain states as well as Federal regulations require
disclosure by physicians of an investment interest in a facility to which the
physician refers, and most state medical associations require such disclosure to
meet ethical standards. Moreover, the American Medical Association's ethical
opinions generally proscribe as unprofessional any conduct or transaction by a
physician that places the physician's own financial interest above the welfare
of the physician's patients or results in the provision of unnecessary services
or overutilization of services or facilities. The ethical opinions also require
that a physician disclose any ownership interest to his or her patient prior to
referral.
Certain states in which Paracelsus operates also have laws that prohibit
payments to physicians for patient referrals. These statutes may involve
criminal as well as civil penalties which may impact the operations at
Paracelsus' facilities. The scope of these laws is broad, and little precedent
exists for their interpretation or enforcement. Paracelsus monitors developments
in this area of law and will from time to time determine what steps are
necessary to ensure that patients at its facilities receive required
disclosures, and it will, accordingly, revise disclosure requirements for its
facilities and for physician limited partners as necessary.
Some states have also enacted their own version of Stark II prohibiting
physician ownership in designated health services. Although Paracelsus believes
that its joint ventures have been structured to comply with all applicable
Federal and state laws, no assurance can be given that the ventures will not be
reviewed and challenged by enforcement authorities empowered to do so or that
the ventures, if challenged, would prevail. No documents or agreements have been
challenged by any regulatory authorities alleging that distributions to any
joint venture's partners violate any governmental or ethical prohibitions
against illegal remuneration arrangements, kickbacks, commissions, bonuses or
rebates.
ENVIRONMENTAL MATTERS
Paracelsus is subject to various Federal, state and local statutes and
ordinances regulating the discharge of materials into the environment.
Paracelsus' management does not believe that Paracelsus will be required to
expend any material amounts in order to comply with these laws and regulations
or that compliance will materially affect its capital expenditures, earnings or
competitive position.
HEALTHCARE REFORM LEGISLATION
Federal and state legislators continue to consider legislation that could
significantly impact Medicare, Medicaid and other government funding of
healthcare costs. Initiatives currently before Congress, if enacted, would
significantly reduce payments under various government programs, including,
among others, payments to disproportionate share and teaching hospitals. A
reduction in these payments would adversely affect net revenue and operating
margins at certain of Paracelsus
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hospitals. Paracelsus is unable to predict what legislation, if any, will be
enacted at the Federal and state level in the future or what effect such
legislation might have on Paracelsus' financial position, results of operations
or liquidity.
PROPERTIES
The following table sets forth the name, location, type of facility, date of
acquisition and number of licensed beds for each of Paracelsus' hospitals:
<TABLE>
<CAPTION>
DATE OF LICENSED
LICENSED FACILITY LOCATION TYPE OF FACILITY ACQUISITION BEDS
<S> <C> <C> <C> <C>
CALIFORNIA
Bellwood General Hospital Bellflower Acute care 2/08/82 85
Chico Community Hospital Chico Acute care 4/28/85 123
Chico Community Rehabilitation Hospital (1) Chico Rehabilitative 6/30/94 60
Hollywood Community Hospital of Hollywood Los Angeles Acute care 12/22/82 100
Hollywood Community Hospital of Van Nuys Van Nuys Psychiatric 11/01/82 59
Lancaster Community Hospital Lancaster Acute care 2/01/81 131
Los Angeles Community Hospital Los Angeles Acute care 8/08/83 136
Monrovia Community Hospital (2) Monrovia Acute care 2/01/81 49
Norwalk Community Hospital Norwalk Acute care 2/01/81 50
Orange County Community Hospital of Orange Orange Psychiatric 11/01/91 104
Orange County Hospital of Buena Park (3) Buena Park Psychiatric 2/01/81 55
UTAH
Davis Hospital and Medical Center Layton Acute care 5/17/96 120
PHC Salt Lake Regional Medical Center Salt Lake City Acute care 5/17/96 125
Pioneer Valley Hospital (1) West Valley City Acute care 5/17/96 139
TENNESSEE
Cumberland River Hospital North (1) Celina Acute care 10/01/85 36
Cumberland River Hospital South Gainesboro Acute care 9/05/95 44
Fentress County General Hospital Jamestown Acute care 10/01/85 84
Bledsoe County Hospital (1) Pikeville Acute care 10/01/85 32
TEXAS
The Medical Center of Mesquite Mesquite Acute care 10/01/90 176
FLORIDA
Santa Rosa Medical Center (1) Milton Acute care 5/17/96 129
GEORGIA
Flint River Community Hospital (1) Montezuma Acute care 1/01/86 50
MISSISSIPPI
Senatobia Community Hospital (1) Senatobia Acute care 1/01/86 76
-----
Total Licensed Beds 1,963
-----
-----
</TABLE>
- ------------------------
(1) Hospital facility is leased.
(2) Monrovia Community Hospital is operated as a joint venture with a physician
investor. Paracelsus owns a 51.0% interest in this joint venture.
(3) Orange County Hospital of Buena Park is owned subject to a mortgage securing
borrowings in the amount of $283,473 as of March 31, 1996.
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LITIGATION
During March 1996, Paracelsus settled two lawsuits in connection with the
operation of its psychiatric programs. Paracelsus recognized a charge for
settlement costs totaling $22.4 million in the six months ended March 31, 1996
which consisted of settlement payments, legal fees and the write off of certain
psychiatric accounts receivables. Paracelsus did not admit liability in either
case but resolved the disputes through the settlements in order to reestablish a
business relationship and/or avoid further legal costs in connection with the
disputes. Paracelsus and the plaintiff insurance company have reestablished
their business relationship. See "Paracelsus Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Summary --
Paracelsus Healthcare Corporation Summary Historical Consolidated Financial and
Operating Data."
Paracelsus is subject to claims and suits in the ordinary course of
business, including those arising from care and treatment afforded at
Paracelsus' acute care, psychiatric and rehabilitative hospitals and skilled
nursing facilities, and maintains insurance and, where appropriate, reserves
with respect to the possible liability arising from such claims. Paracelsus
believes that the ultimate resolution of the proceedings presently pending
against Paracelsus (or any of its subsidiaries) will not have a material adverse
effect on Paracelsus' consolidated financial position or results of operations.
See "The Merger -- Certain Litigation."
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BUSINESS OF CHAMPION
CERTAIN STATEMENTS UNDER THIS CAPTION "BUSINESS" CONSTITUTE "FORWARD-LOOKING
STATEMENTS" UNDER THE REFORM ACT. SEE "RISK FACTORS -- FORWARD-LOOKING
STATEMENTS."
GENERAL
Champion owns and operates five acute care hospitals with a total of 722
licensed beds in Utah, Texas and Virginia and owns a 50% interest in, and
operates, DHHS, a partnership that owns two additional acute care hospitals with
a total of 341 licensed beds in North Dakota. Champion's acute care hospitals
generally offer the same types of services provided by Paracelsus' acute care
hospitals. Champion also owns and operates two psychiatric hospitals with a
total of 219 licensed beds in Missouri and Louisiana.
RECENT ACQUISITIONS
On April 13, 1995, Champion acquired SLRMC from Columbia for approximately
$61,042,000, which included approximately $11,783,000 for certain working
capital components, resulting in a net purchase price of approximately
$49,259,000. SLRMC is comprised of a 200-bed tertiary care hospital and five
clinics and is located in Salt Lake City, Utah.
On March 1, 1996, Champion acquired, from Columbia Jordan Valley Hospital, a
50-bed acute care hospital located in West Jordan, Utah, a suburb of Salt Lake
City. Champion acquired Jordan Valley in exchange for Autauga Medical Center, an
85-bed acute care hospital and a 72-bed skilled nursing facility, plus
preliminary cash consideration paid to Columbia of $10,750,000. The cash
consideration included $3,750,000 for certain net working capital components,
which are subject to adjustment and final settlement by the parties, and
reimbursement of certain capital expenditures made previously by the seller. The
transaction did not result in a gain or loss. The Autauga facilities were
acquired as part of Champion's acquisition of AmeriHealth on December 6, 1994,
through the AmeriHealth Merger.
PENDING ACQUISITIONS
Champion is actively negotiating to acquire additional healthcare
facilities, principally general acute care hospitals. Due to the nature of
various contingencies that are normally associated with proceeding to
consummation of an acquisition, such as satisfactory due diligence
investigations and regulatory and governing body approvals, Champion's execution
of either a non-binding or binding letter of intent or even a definitive
agreement is no assurance that an acquisition will occur. Whether or not and to
what extent Champion discloses the status of any pending acquisition is
dependent upon a number of factors, including the nature and status of the
contractual relationship, any unique need for confidentiality, the nature and
type of governing body approvals, the nature of and concern for regulatory
approvals, financing contingencies, specific operational and due diligence
concerns, and whether other potential purchasers are competing for the facility.
Champion is presently unable to conclude whether any potential acquisition
currently under consideration is more likely than not to occur.
SOURCES OF REVENUE
Champion's revenues depend on the level of inpatient census at its
hospitals, the volume of outpatient services at its hospitals and outpatient
facilities, the acuity of patients' conditions and charges for services. The
increase in gross inpatient revenue in 1995, compared to 1994, is due primarily
to Champion's acquisition of two psychiatric hospitals in the fourth quarter of
1994, which
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derive a greater percentage of their gross patient revenue from inpatient
services than do acute care hospitals. The approximate percentages of gross
patient revenue for inpatient and outpatient services for Champion and DHHS for
the periods indicated were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
YEARS ENDED DECEMBER 31, ------------------------
--------------------------------------------------- CONSOLIDATED HOSPITALS
CONSOLIDATED HOSPITALS DHHS
1993 1994 1995 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C>
Inpatient services....................... 58% 62% 66% 65% 74% 66%
Outpatient services...................... 42% 38% 34% 35% 26% 34%
<CAPTION>
DHHS
1995 1996
<S> <C> <C>
Inpatient services....................... 66% 64%
Outpatient services...................... 34% 36%
</TABLE>
PAYMENT MIX
Champion receives payment for services rendered to patients from the Federal
government under the Medicare program, state governments under their respective
Medicaid programs, PPOs, HMOs, other private insurers and directly from
patients. See "-- Reimbursement." The approximate percentages of Champion's and
DHHS' gross patient revenue from these sources for the periods indicated were as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
YEARS ENDED DECEMBER 31, ------------------------
--------------------------------------------------- CONSOLIDATED HOSPITALS
CONSOLIDATED HOSPITALS DHHS
1993 1994 1995 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C>
Medicare................................. 39% 39% 42% 46% 42% 40%
Medicaid................................. 12% 18% 19% 9% 23% 18%
All other payors......................... 49% 43% 39% 45% 35% 42%
<CAPTION>
DHHS
1995 1996
<S> <C> <C>
Medicare................................. 45% 46%
Medicaid................................. 9% 9%
All other payors......................... 46% 45%
</TABLE>
BED UTILIZATION AND OCCUPANCY RATES
The following table summarizes selected operating statistics for the
hospitals owned by Champion and DHHS during the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
YEARS ENDED DECEMBER 31, ------------------------------------------
------------------------------------------ CONSOLIDATED
CONSOLIDATED HOSPITALS DHHS HOSPITALS DHHS
1993 (1) 1994 (1) 1995 1995 1995 1996 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Number of hospitals at
period-end...................... 3 7 7 2 6 7 2 2
Licensed beds at period-end...... 359 877 976 341 735 941 341 341
Admissions....................... 9,026 10,556 17,530 10,096 3,402 5,085 2,667 2,319
Adjusted admissions (2).......... 15,522 17,037 25,731 12,177 4,594 7,677 4,058 3,602
Patient days..................... 50,309 65,693 123,525 55,476 29,603 32,644 14,106 13,456
Outpatient visits................ 81,221 95,979 189,790 126,211 31,966 56,069 30,701 27,989
Surgery cases.................... 9,911 9,990 10,981 9,769 1,556 3,285 2,435 2,155
Deliveries....................... 1,233 1,262 2,112 1,449 148 809 339 300
Average length of stay (days):
All beds....................... 5.6 6.2 7.0 5.5 8.7 6.4 5.3 5.8
Medical-surgical............... 4.2 4.2 4.4 4.4 5.2 4.3 4.4 4.6
Psychiatric.................... 11.1 13.8 13.5 9.6 14.1 12.3 9.1 8.1
Occupancy rate................... 40% 38% 38% 45% 45% 37% 46% 43%
</TABLE>
- ------------------------
(l) Includes 142 licensed beds at Heartland Medical Center, which Champion
contributed to DHHS effective December 31, 1994. Champion accounts for its
interest in DHHS under the equity method. Prior to contribution, Heartland
Medical Center was wholly owned by Champion and consolidated in Champion's
Consolidated Statement of Operations.
(2) Total admissions for the period multiplied by the ratio of total patient
revenue divided by total inpatient revenue.
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PROPERTIES
Champion leases approximately 32,500 square feet for its principal executive
office space at 515 West Greens Road, Suite 800, Houston, Texas 77067 pursuant
to a lease agreement that expires in 2003.
The following table sets forth the name, location and number of licensed
beds of hospitals that Champion owns or has a partnership interest. The number
of licensed beds represents the maximum number of beds permitted in the facility
under its state license; accordingly, the number of available beds may be less
than that of licensed beds.
<TABLE>
<CAPTION>
TYPE OF LICENSED
STATE NAME FACILITY LOCATION BEDS
<S> <C> <C> <C> <C>
Utah Salt Lake Regional Medical Center Acute Care Salt Lake City 200
Utah Jordan Valley Hospital (1) Acute Care West Jordan 50
Texas BayCoast Medical Center Acute Care Baytown 191
Texas Westwood Medical Center (2) Acute Care Midland 101
Virginia Metropolitan Hospital (3) Acute Care Richmond 180
Missouri Lakeland Regional Hospital Psychiatric Springfield 149
Louisiana Crossroads Regional Hospital Psychiatric Alexandria 70
North Dakota Dakota Heartland Health System (4) Acute Care Fargo 341
-----
Total licensed beds 1,282
-----
-----
</TABLE>
- ------------------------
(1) On March 1, 1996, Champion acquired Jordan Valley, a 50-bed general acute
care hospital located in West Jordan, Utah, in exchange for Autauga, plus
preliminary additional cash consideration paid to the seller of $10,750,000.
(2) This newly constructed facility replaced P&S, a 60-bed general acute care
hospital located in Midland, Texas, in the fourth quarter of 1995.
(3) Champion owns an 89.0% general partnership interest in a limited partnership
that owns the hospital.
(4) Champion owns a 50.0% interest in and operates DHHS, a partnership that owns
two hospitals.
Some of these facilities are subject to mortgages, and substantially all of
Champion's assets are pledged as collateral for long-term debt. Champion owns or
leases medical office buildings and clinics adjoining or near certain of its
hospitals. Champion believes that all of these properties are suitable for their
intended purposes.
MEDICAL STAFF AND EMPLOYEES
As of March 31, 1996, Champion had approximately 1,683 full-time employees
and 669 part-time employees at its majority-owned hospitals. In addition,
approximately 701 physicians were active members of the medical staffs of
Champion's hospitals, many of whom also serve on the staffs of competing
hospitals. Approximately 48 physicians were under contract with Champion's
hospitals, primarily to staff emergency rooms and serve in support capacities.
None of Champion's employees is covered by a collective bargaining agreement.
As of March 31, 1996, DHHS had approximately 867 full-time employees and 574
part-time employees. Approximately 174 physicians were active members of the
medical staff, many of whom also serve on the staffs of competing hospitals, and
approximately 25 physicians were under contract to staff the emergency room and
serve in support capacities. None of DHHS's employees is covered by a collective
bargaining agreement.
Champion has a decentralized management structure. Each hospital is run by
its own chief executive officer and chief financial officer who are responsible
for day-to-day operations. Incentive
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compensation programs have been implemented to reward such managers for
accomplishing established goals. Champion employs corporate staff to provide
services such as human resource management, reimbursement, finance, technical
accounting support, purchasing, legal and tax services. Financial control is
maintained through fiscal and accounting policies that are established at the
corporate level for use at the hospitals.
Champion is subject to the Federal minimum wage and hour laws and maintains
various employee benefit plans. Labor relations at Champion's facilities have
been satisfactory. Although Champion currently is not experiencing a shortage of
nursing personnel, the availability of nursing personnel fluctuates from year to
year, and Champion cannot predict the degree to which it will be affected by the
future availability and cost of nursing personnel.
COMPETITION
The competition for patients among hospitals and other health care providers
has intensified in recent years as hospital occupancy rates have declined. This
decline is attributable to several factors, including cost containment
pressures, changing medical technology, changing government regulations and
utilization management. Such factors have prompted new competitive strategies by
hospitals and other healthcare providers. Among these strategies is an
increasing emphasis on outpatient healthcare delivery procedures (E.G.,
outpatient surgery, diagnostic centers and home healthcare), which tend to
eliminate or reduce the length of hospital stays. In addition, consolidation of
hospital chains and affiliations among hospitals have increased, with the result
that payors are increasingly contracting with these entities to provide
exclusive healthcare services to its members within a geographic area. Such
contracts, with the resulting greater number of possible patients, often permit
more competitive pricing and other services relative to hospitals that are not a
part of such group.
Champion competes with one or more hospitals and other alternative
healthcare providers in each of the markets it serves. Certain of Champion's
competitors have greater financial resources, are better equipped and offer a
broader range of services than Champion's hospitals. Additionally, governmental
and tax-exempt hospitals benefit from endowments, charitable contributions and
tax-exempt financing, all of which are not available to Champion.
In the opinion of Champion's management, one of the most significant factors
in the competitive position of a hospital is the number and quality of
physicians affiliated with that hospital, because physicians determine the
majority of hospital admissions. Champion's management believes that physicians
refer patients to a hospital primarily on the basis of the quality of services
it renders to patients and physicians, the quality of the other physicians on
the medical staff, the location of the hospital and the quality of the
hospital's facilities, equipment and employees. Champion strives to maintain
high ethical and professional standards and high quality facilities, equipment,
employees and services for physicians and their patients.
The competitive position of a hospital is also affected by its management's
ability to negotiate service contracts with purchasers of group healthcare
services, including employers, PPOs and HMOs. PPOs and HMOs attempt to direct
and control the use of hospital services through "managed care" programs and to
obtain discounts from hospitals' established charges and, in return, hospitals
acquire access to a large number of potential patients. In addition, employers
and traditional health insurers are increasingly interested in containing costs
through negotiations with hospitals for managed care programs and discounts from
established charges. In geographic areas where these organizations have
established themselves as a significant presence in their markets, the failure
of a hospital to obtain managed care provider contracts could negatively impact
that hospital's volume of patients and revenues and therefore could have an
adverse impact on Champion's results of operations and cash flow. Champion
attempts to mitigate this risk by seeking to position each of its facilities as
a low cost provider of high quality services in the market it serves and by
ensuring that its acute care facilities, when practical, offer obstetrical
services. Champion believes that both of these factors are important in
attracting managed care provider contracts.
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The aforementioned trends have resulted in significant consolidation in the
healthcare industry over the past decade and many hospitals have closed.
Champion believes that continuing cost containment pressures will lead to a
continued increase in managed care and future consolidation in the hospital
industry.
REGULATION AND OTHER FACTORS
Healthcare operations are subject to Federal, state and local government
regulations regarding condition and adequacy of the facility, its equipment,
personnel and standards of medical care. Healthcare facilities must also comply
with the licensing requirements of the Federal, state and local health agencies
as well as the requirements of building codes, health codes and local fire
codes. Champion's facilities are properly licensed under appropriate state laws
and are certified under the Medicare Program. Champion believes that its
facilities are in substantial compliance with all current applicable laws and
regulations governing its healthcare operations. The existing laws and
regulations covering Champion's healthcare facilities are subject to change and,
in order to remain in compliance, Champion may be required to effect changes in
its facilities, equipment, personnel and services. Although Champion intends to
continue its licensing and qualifications, there is no assurance that its
hospitals will be able to comply in the future.
UTILIZATION REVIEW. Federal regulations provide that admissions to and
utilization of facilities by Medicare and Medicaid patients must be reviewed in
order to ensure efficient utilization of facilities and services. Such reviews
are performed by federally funded agencies known as Peer Review Organizations
("PROs"). Federal law requires a PRO to review the need for hospitalization and
utilization of hospital services and to set standards for patient care. A PRO
may conduct such review either prospectively or retrospectively and may, as
appropriate, deny admission of a patient or payment for services provided to a
patient. In addition to PRO reviews, Champion's own quality assurance programs
in each of its hospitals provide for utilization review and retrospective
patient care evaluation.
CERTIFICATE OF NEED. The construction of new facilities, the acquisition of
existing facilities, and the addition of new beds or services may be reviewable
by state regulatory agencies under a CON program. Champion operates hospitals in
some states that require approval under a CON program. Such laws generally
require appropriate state agency determination of public need and approval prior
to beds or services being added, or a related capital amount being spent.
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. Champion has not
experienced, and does not expect to experience, any material adverse effects
from state CON requirements or from the imposition, elimination or relaxation of
such requirements. Currently, only Champion's hospitals in Virginia, Missouri
and Louisiana are subject to CON laws.
HEALTHCARE REFORM
Healthcare, as one of the largest industries in the United States, continues
to attract much legislative interest and public attention. Federal and state
legislators continue to consider legislation that could significantly impact
Medicare, Medicaid and other government funding of healthcare costs. Initiatives
currently before Congress, if enacted, would significantly reduce payments under
various government programs, including, among others, payments to
disproportionate share and teaching hospitals. A reduction in these payments
would adversely affect net revenue and operating margins at certain of
Champion's hospitals. Champion is unable to predict what legislation, if any,
will be enacted at the Federal and state level in the future or what effect such
legislation might have on Champion's financial position, results of operations
or liquidity.
REIMBURSEMENT
GENERAL. A significant portion of Champion's revenues is derived from
patients covered by government-sponsored and other contractual programs.
Payments under these programs are based on cost, a negotiated rate, or a
predetermined rate based upon the diagnosis of the patient's condition,
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plus, in some programs, capital costs and/or certain other adjustments. Revenues
from such programs are presented based on established billing rates less
allowances and estimated adjustments for patients covered by such programs.
Revenues from such programs are subject to audit and final settlement.
The principal sources of Champion's contractual payments are Medicare,
Medicaid, Blue Cross and private insurance programs (including PPOs and HMOs).
All of Champion's hospitals are certified as providers of Medicare and Medicaid
and participate to varying degrees in other reimbursement programs. Amounts
received from Medicare, Medicaid, Blue Cross, HMOs and PPOs are generally less
than the hospital's established charges for the services covered. Patients are
generally not responsible for any difference between established hospital
charges and amounts paid under these programs for such services, except to the
extent of any exclusions or deductible and co-payment features of their
coverage.
MEDICARE -- ELIGIBILITY. The Social Security Act of 1965 enacted the
Medicare program designed to provide health services to the aged. Medicare Part
A provides health insurance benefits for covered hospital and related healthcare
services to most persons who are: 65 years old and are entitled to monthly
Social Security retirement or survivor benefits; the disabled; and persons with
end-stage renal disease. Medicare Part B provides voluntary supplemental medical
benefits covering primarily outpatient and physician care costs for covered
persons.
MEDICARE -- OPERATING COST REIMBURSEMENT. Under PPS, the Secretary of HHS
has established fixed payment amounts per discharge for categories of hospital
treatment, commonly known as diagnosis related groups, or "DRGs". Separate DRG
rates have been established for each individual hospital participating in the
Medicare program. As a general rule under PPS, if a facility's costs of
providing care for the patient are less than the predetermined DRG rate, the
facility retains the difference. Conversely, if the facility's costs of
providing the necessary service are more than the predetermined rate, the
facility must absorb the loss. Because DRG rates are based upon a statistically
normal distribution of severity, patients falling outside the normal
distribution are afforded additional payments and defined as "outliers." All of
Champion's general acute care hospitals are reimbursed through the PPS system.
Champion's two psychiatric hospitals are reimbursed at the lower of their
Medicare allowable costs or their target rate under the Tax Equalization
Fairness Reform Act plus capital costs.
MEDICARE -- CAPITAL RELATED COST REIMBURSEMENT. For cost reporting periods
prior to October 1, 1991, payments under the Medicare program for capital
related costs were made on a reasonable cost basis. Reasonable capital costs
generally include depreciation, rent and lease expense, capital interest,
property taxes, insurance related to the physical plant, fixed equipment and
movable equipment. Effective with the cost reporting period that began on
October 1, 1991, hospitals paid under PPS for operating costs were required to
be reimbursed for capital costs on a prospective basis. A ten-year transition
period was established for the phasing-in of the capital PPS. Under the
transition period rules, hospitals are paid on a fully prospective methodology,
a hold-harmless method or at the Federal standard rate, dependent upon certain
criteria. Beginning with cost reporting periods on or after October 1, 2001, at
the end of the transition period, all hospitals are to be paid at the Federal
rate. Four of Champion's hospitals are paid based on the hold-harmless method.
Champion believes that the change in capital cost reimbursement from a
reasonable cost basis to a PPS basis will not have a material impact on
Champion's financial condition or results of operations.
MEDICARE -- OUTPATIENT SERVICES REIMBURSEMENT. Medicare payments for
certain outpatient surgery services are based upon the lower of (i) a percentage
of hospital costs, (ii) a percentage of customary charges or (iii) a prospective
payment rate based upon the hospital's historical costs and the rates paid by
Medicare for similar procedures performed in freestanding surgical centers.
Outpatient radiology and imaging services are paid at the lower of (i)
reasonable costs, (ii) customary charges or (iii) a blend of costs and adjusted
physician charges. Champion's level of reimbursement for
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outpatient services has decreased as a result of these changes, and Champion
expects its percentage of reimbursed cost for such services to decrease further.
The extent of such decrease will be dependent upon rate changes and the volume
of such outpatient services rendered to Medicare program patients.
MEDICAID. Medicaid is a Federal-state medical assistance program
administered by the states that provides hospital assistance to certain
individuals defined as "medically indigent." A number of states also utilize a
prospective payment system or have established a program to negotiate payment
levels at individual hospitals for their state Medicaid programs.
MEDICARE AND MEDICAID -- COMMON ISSUES. The Medicare and Medicaid programs
are subject to statutory and regulatory changes. Also, significant portions of
the programs are subject to administrative rulings, interpretations,
governmental funding restrictions and requirements for utilization and quality
review. Such matters may significantly reduce payments made under either or both
programs to Champion's hospitals. Any of these actions could adversely affect
Champion's financial condition and results of operations. Because the
requirements for certification under Medicare, Medicaid and similar
reimbursement programs are subject to change, it may be necessary for Champion
to make changes in its services, equipment, facilities and personnel to remain
qualified for such programs.
Annual cost reports required under these programs are subject to audit which
may result in adjustments to the amounts originally estimated to be due Champion
under these reimbursement programs. (Since the inception of the DRG form of
payments, however, the amount of reimbursement potentially affected by audit has
substantially decreased.) Such audits are conducted or overseen by the HCFA.
These audits often require several years to reach the final determination of
amounts earned under the programs. Champion believes that adequate provision has
been made for any material retroactive adjustments that might result from such
audits.
The Social Security Act provides criminal penalties for individuals or
entities that knowingly and willfully offer, pay, solicit or receive
remuneration in order to induce business reimbursed under the Medicare or
Medicaid programs. The statute on its face is very broad, covering kickbacks,
bribes and rebates made directly or indirectly, overtly or covertly, in cash or
in kind. In addition, prohibited conduct includes remuneration intended to
induce the purchasing, leasing, ordering or arranging for any good, facility,
service or item paid for by Medicare or Medicaid programs. Violation of the
statute can lead to exclusion from participation in the Medicare and Medicaid
programs.
Because of concerns by healthcare providers that many relatively innocuous,
or even beneficial, commercial arrangements are technically violative of this
statute (and are, therefore, subject to potential criminal prosecution),
Congress directed that regulations be promulgated to specify those payment
practices that will not violate the statute. The final regulations include safe
harbor criteria for leasing, purchasing and ordering arrangements. Such
arrangements do not constitute illegal remuneration so long as all of the
criteria set forth in the safe harbors are met. The fact that the specifics of a
leasing, purchasing or ordering arrangement do not squarely fall within all of
the applicable safe harbor criteria does not mean, however, that the practice is
necessarily illegal.
Various "anti-kickback" and "self-referral" Federal and state legislative
and regulatory programs have been enacted, and others are currently under
consideration. Although Champion believes that it is in compliance with each of
these enacted programs, it is unable to predict the interpretation of the
existing program, the enactment of new programs or the form in which such new
programs may be enacted, and, accordingly, it is unable to assess their effect
on its business.
BLUE CROSS, PRIVATE INSURANCE CARRIERS, HMOS AND PPOS. Blue Cross is a
healthcare financing program that provides its subscribers with hospital
benefits through numerous independent organizations that vary from state to
state. Pursuant to contracts, local Blue Cross organizations pay Champion's
hospitals directly on a basis agreed to by each hospital and Blue Cross. Other
private insurance carriers reimburse their policy holders or make direct
payments to Champion's hospitals on the basis of the particular hospital's
established charges and the coverage provided for within the insurance policies.
HMOs provide prepaid physician, hospital, and other health care services either
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directly or through contracts with providers. A PPO is an organization which
arranges favorable terms and discounts for services from healthcare providers on
behalf of insurance companies, self-insured employers and other third-party
payors.
PROFESSIONAL LIABILITY
As is typical in the healthcare industry, Champion is subject to claims and
legal actions by patients and others in the ordinary course of business.
Champion and its subsidiaries maintain a program of insurance that Champion
believes is adequate to cover such liability. In the opinion of Champion's
management, the ultimate resolution of any currently pending claims or legal
actions will not have a material adverse effect on Champion's consolidated
financial position, results of operations or liquidity.
ACCREDITATION AND REVIEWS
All of Champion's hospitals are accredited by JCAHO, including Champion's
newly constructed hospital in Midland, Texas, which received its provisional
accreditation in the first quarter of 1996. JCAHO regularly conducts an on-site
review and inspection of every hospital seeking to obtain or maintain its
accreditation. Hospitals accredited by JCAHO are deemed to be in compliance with
the standards for participation in the Medicare program, although Medicare can
conduct its own compliance reviews.
ENVIRONMENTAL MATTERS
Champion is subject to various Federal, state, and local statutes and
ordinances regulating the discharge of materials into the environment. Champion
believes that its hospitals are currently in compliance in all material respects
with applicable Federal, state and local statutes and ordinances regulating the
discharge of materials into the environment. Prior to the acquisition of its
existing hospitals, Champion obtains or reviews environmental reports.
Champion's management does not believe that Champion will be required to expend
any material amounts in order to comply with these laws and regulations or that
compliance will materially affect its capital expenditures, earnings or
competitive position.
LITIGATION
Given the nature and kind of business in which Champion is engaged, it is
not unusual for Champion to be subject to various claims, charges or litigation
relating to professional services, contractual relations, property ownership, or
employee relations. Amounts initially claimed in such litigation may be
substantial but may not bear any reasonable relationship to the merits of the
claim or the true financial exposure of Champion. In the opinion of management,
the ultimate resolution of such pending legal proceedings will not have a
material adverse effect on Champion's consolidated financial position, results
of operations or liquidity. See "The Merger -- Certain Litigation."
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MANAGEMENT OF PARACELSUS FOLLOWING THE MERGER
DIRECTORS AND EXECUTIVE OFFICERS OF PARACELSUS AFTER THE EFFECTIVE TIME
The following table sets forth certain information with respect to those
individuals who are expected to serve as directors and executive officers of
Paracelsus immediately following the Effective Time:
<TABLE>
<CAPTION>
NAME AGE PROJECTED POSITION WITH THE COMPANY
<S> <C> <C>
Dr. Manfred G. Krukemeyer 34 Chairman of the Board
R.J. Messenger 51 Vice Chairman of the Board and Chief Executive Officer
Charles R. Miller 57 President, Chief Operating Officer and Director
James G. VanDevender 48 Executive Vice President, Chief Financial Officer and Director
Ronald R. Patterson 54 Executive Vice President and President, Healthcare Operations
Robert C. Joyner 49 Senior Vice President, Secretary and General Counsel
David R. Topper 48 Senior Vice President, Development
George Asbell 47 Senior Vice President, Operations
W. Warren Wilkey 51 Senior Vice President, Operations
Michael M. Brooks 47 Senior Vice President, Acquisitions
James T. Rush 49 Senior Vice President
Lawrence A. Humphrey 40 Senior Vice President, Corporate Finance
Michael D. Hofmann 56 Director
Christian A. Lange 57 Director
James A. Conroy 35 Director
Angelo R. Mozilo 57 Director
Daryl J. White 48 Director
</TABLE>
Dr. Krukemeyer, a German medical doctor, has been a director of Paracelsus
since its inception in January 1981, and Chairman of the Paracelsus Board since
the death of his father, Dr. Hartmut Krukemeyer, Paracelsus' founder and
previous Chairman of the Board, in May 1994. Dr. Krukemeyer was Vice Chairman of
the Board from November 1983 until May 1994. Dr. Krukemeyer is also the Chief
Executive Officer and sole shareholder of Paracelsus Klinik Osnabruck, which
owns and operates 37 hospitals ranging in size from 100 to 400 beds in Germany,
England and Switzerland. Dr. Krukemeyer is a graduate of the University of
Vienna School of Medicine and practiced medicine in Europe before assuming full
time business responsibilities in 1992.
Mr. Messenger joined Paracelsus in March 1984, as President, Chief Operating
Officer and Secretary of Paracelsus. He was promoted to Chief Executive Officer
in 1992. Mr. Messenger has been a director since joining Paracelsus in 1984.
Prior to joining Paracelsus, Mr. Messenger was the Regional Vice President of
the National Medical Enterprises, Inc. ("NME") (now Tenet Healthcare)
Southwestern and Eastern regions, and the Senior Vice President, Acquisitions
and Development/ Hospital Group, where he was responsible for all acquisitions
and development projects on a national basis. Mr. Messenger has over 27 years of
experience in the hospital industry. Mr. Messenger serves on the Board of
Directors of the Federation of American Health Systems, the California Hospital
Association and the Health Resources Institute, Inc. Mr. Messenger also serves
as an advisory member on the Board of Directors of Liberty Mutual Insurance
Company and on the Board of Councilors of the University of Southern California
("USC"). Mr. Messenger received a BS degree in Industrial Engineering in 1967
and a Masters degree in Healthcare Administration in 1969, both from USC.
Mr. Miller has been the Chairman, President and Chief Executive Officer of
Champion since its founding in February 1990. Mr. Miller has over 37 years of
experience in the hospital industry. In 1981,
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he co-founded Republic Health Corporation ("Republic"), serving as President and
a director of the company. In less than three years, Republic had revenues of
$540 million and was the fifth largest publicly-held hospital management
company, owning 23 acute hospitals, 20 psychiatric and substance abuse
facilities and managing 18 hospitals and 3 specialty units. In 1986, Republic
was acquired in a leveraged buy-out for $800 million. Mr. Miller, who declined
to participate in the leveraged buy-out of Republic, resigned as an officer and
director of Republic in 1986. After leaving Republic, Mr. Miller and Mr. Brooks
acquired in 1987 a general acute care hospital in El Paso, Texas and
subsequently sold that facility in late 1988. During 1989, Mr. Miller did
limited healthcare consulting and developed the business plan for Champion.
Prior to co-founding Republic, Mr. Miller was employed for seven years by
Hospital Affiliates International ("HAI"). Mr. Miller received a BBA in
Personnel Management from Texas Tech University in 1968 and a Masters degree in
Public Health Administration from the University of Texas in 1974.
Mr. VanDevender has been the Executive Vice President, Chief Financial
Officer, Secretary and Director of Champion since its formation in February
1990. Mr. VanDevender has approximately 24 years of experience in the hospital
industry, including management positions in accounting and finance at the
hospital level, and senior executive positions in accounting, finance,
acquisitions and development and operations at the corporate level of
multi-hospital companies. Mr. VanDevender was employed with Republic from 1981
until 1987 and was a Senior Vice President primarily responsible for Republic's
acquisition and development function. Before joining Republic, Mr. VanDevender
was employed for four years by HAI. From 1987 until 1990, Mr. VanDevender
pursued private investments. He received his undergraduate degree in Accounting
from Mississippi State University in 1970.
Mr. Patterson has been Executive Vice President and Chief Operating Officer
of Champion since 1994 after joining Champion in 1992 as Senior Vice President
- -- Operations. Mr. Patterson has 26 years of experience in the healthcare
industry. His operational responsibilities have included community hospitals,
large university teaching hospitals, psychiatric hospitals, contract management
of hospitals and specialty units and mobile diagnostic services. Prior to
joining Champion, he was a Senior Vice President with Harris Methodist Health
System, a Fort Worth, Texas not-for-profit healthcare system from 1990 until
1991. From 1988 until 1990, Mr. Patterson did private turnaround management
consulting in the healthcare industry. From 1982 to 1988, Mr. Patterson was
employed by Republic, serving initially as an Operations Vice President and
subsequently as Senior Vice President with responsibility for a major operating
division. From 1975 to 1981, Mr. Patterson was employed in various management
positions by HAI. Mr. Patterson is a Fellow in the American College of Health
Care Executives. He received his undergraduate degree from the University of
Houston in 1965 and a Masters degree in Health Care Administration from Trinity
University in 1973.
Mr. Joyner joined Paracelsus as Vice President, Corporate Counsel and
Assistant Secretary in 1986. Prior to joining Paracelsus, Mr. Joyner served as
Senior Vice President and Assistant General Counsel for NME. Mr. Joyner is a
member of the California and Florida Bars, has practiced law since 1972 and has
approximately 20 years of experience in the healthcare industry. In addition to
his responsibilites as General Counsel he is responsible for the Paracelsus
departments of Human Resources and Insurance and Risk Management. Mr. Joyner
graduated with a BSBA degree in 1969 and a JD in 1972, both from the University
of Florida.
Mr. Topper joined Paracelsus in February 1981, and in January 1985 became
its Vice President, Development. He was promoted to Senior Vice President in
1993. Prior to joining Paracelsus, Mr. Topper was with Community Psychiatric
Centers in various senior management positions.
Mr. Asbell joined Paracelsus in September 1985 as Senior Financial Officer
for the Eastern Region. He was promoted to Regional Vice President, Operations
and Development in 1988 and served in that capacity until 1995 when he was
promoted to Senior Vice President, Operations. He is responsible for all
hospital operations of Paracelsus. Prior to joining Paracelsus, Mr. Asbell
served for five years in various capacities with American Medical International.
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Mr. Wilkey joined Champion in 1995 and has served as Senior Vice President
- -- Market Operations of Champion since February 1996. From January 1995 to
January 1996, Mr. Wilkey served as Vice President, Operations. Mr. Wilkey has
approximately 26 years of experience in the healthcare industry, including group
hospital operations, hospital administration and ancillary service management.
For the six years prior to joining Champion, Mr. Wilkey was a Vice President and
Director of Group Operations for Epic Healthcare Group, a publicly-held hospital
ownership and management company.
Mr. Brooks has served as Senior Vice President -- Development since February
1996, and Senior Vice President -- Operations Controller/Administration of
Champion since January 1992. From 1989 until 1992, Mr. Brooks did private
consulting within the healthcare industry and was associated with Champion in
this capacity from February 1991 to December 1991.
Mr. Rush joined Paracelsus as Vice President, Finance and Chief Financial
Officer in February 1985. Prior to joining Paracelsus, Mr. Rush was the Senior
Vice President and Chief Financial Officer for over eight years at Summit Health
Ltd., a healthcare company similar in size and operations to Paracelsus. Mr.
Rush is a Certified Public Accountant.
Mr. Humphrey has served as Senior Vice President -- Corporate Finance of
Champion since February 1996 and prior to that as Vice President of Operations
- --Finance of Champion. Prior to joining Champion in September 1993, Mr. Humphrey
worked for NME from 1981. Mr. Humphrey has over 15 years of experience in
healthcare finance and operations. Mr. Humphrey is a Certified Public
Accountant.
Mr. Hofmann has been a director of Paracelsus since 1983. He has been an
international consultant in finance and banking, with his own consulting
practices in London, England and Fribourg, Switzerland for more than the last
five years. In addition, between 1990 and 1992 Mr. Hofmann was Chief Executive
Officer of Swiss Bank Corporation in Germany.
Mr. Lange has been a director of Paracelsus since 1983. He has been
President of European Investors, Inc. since 1983, and has served as Chairman of
the Board of European Investors Corporate Finance, Inc. Prior to 1983, he was a
senior executive with Friedrich Flick Industrieverwaltung KgaA of Dusseldorf,
Germany.
Mr. Conroy has been a general partner of OGP Partners, L.P., the general
partner of The Olympus Private Placement Fund, L.P. ("Olympus"), since 1990. Mr.
Conroy is also a general partner of OGP II, L.P., the general partner of Olympus
Growth Fund II, L.P. Olympus invests in growth companies, acquisitions and
restructurings through the purchase of private equity and equity-linked
securities.
Mr. Mozilo has been President of Countrywide Mortgage Inc. since its
inception in 1985 and a director since October 1987. He is co-founder of
Countrywide Credit Industries, Inc. and has been Vice Chairman of the Board of
Directors and Executive Vice President since its formation in March 1969. Mr.
Mozilo has served since 1978 as President of Countrywide Home Loans, Inc.
Mr. White has been Chairman of Pinnacle Micro, Inc. since May 1986. He was
Senior Vice President, Finance and Chief Financial Officer for Compaq Computer
Corp. ("Compaq") from May 1989 to May 1996. He joined Compaq in January 1983 as
Director of Information Management and was named Corporate Controller in May
1984, Vice President and Corporate Controller in January 1986 and Vice
President, Finance and Chief Financial Officer in October 1988.
NEW PARACELSUS BOARD
At the Effective Time, the authorized number of directors on the New
Paracelsus Board will be nine. After the Effective Time, the New Paracelsus
Board will be divided into three classes, as nearly equal in number as possible,
with the initial term of office of Class I directors to expire at the 1997
annual meeting of shareholders, the initial term of office of Class II directors
to expire at the 1998
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annual meeting of shareholders and the initial term of office of Class III
directors to expire at the 1999 annual meeting of shareholders, with each class
of directors to hold office until their successors have been duly elected and
qualified.
The Class III directors will be Dr. Krukemeyer and Messrs. Messenger and
Miller. The Class II directors will be Messrs. VanDevender, Lange and one
Independent Director. The Class I directors will be Messrs. Conroy, Hofmann and
one Independent Director. As contemplated by the Shareholder Agreement, Dr.
Krukemeyer and Messrs. Messenger, Lange and Hofmann will each be the initial
representatives of the Paracelsus Shareholder and Messrs Conroy, Mozilo and
White will each be the initial Independent Directors. After the Effective Time,
the Shareholder Agreement, the Paracelsus Articles and the Parcelsus Bylaws will
provide that the New Paracelsus Board may be enlarged by up to three additional
Independent Directors if the beneficial ownership of Paracelsus Common Stock of
the Paracelsus Shareholder falls below certain levels. See "Certain Related
Agreements -- Shareholder Agreement."
COMMITTEES OF THE NEW PARACELSUS BOARD
EXECUTIVE COMMITTEE
Under the Paracelsus Articles and the Paracelsus Bylaws, the New Paracelsus
Board may, by resolution passed by the affirmative vote of at least 75% of the
New Paracelsus Board, appoint from its membership, annually, an executive
committee of two or more directors, which shall include the Chief Executive
Officer and the President of Paracelsus. The New Paracelsus Board may designate
in such resolution one or more directors as alternate members of the Executive
Committee, who may replace any absent or disqualified member at any meeting of
the committee. The Executive Committee, during the intervals between meetings of
the New Paracelsus Board, will have authority and power to act on behalf of the
New Paracelsus Board as provided in the Paracelsus Bylaws. After the Merger, the
initial members of the Executive Committee will be Messrs. Messenger, Miller and
VanDevender.
OTHER COMMITTEES OF THE NEW PARACELSUS BOARD
The New Paracelsus Board may, by resolution adopted by a majority of the
authorized number of directors, designate one or more other committees, each
consisting of two or more directors, to serve at the pleasure of the New
Paracelsus Board. The New Paracelsus Board may designate one or more directors
as alternate members of any committee, who may replace any absent member at any
meeting of the committee. The appointment of members or alternate members of a
committee requires the vote of a majority of the authorized number of directors.
Any such committee shall have authority to act in the manner and to the extent
provided in the resolution of the New Paracelsus Board and may have all the
authority of the New Paracelsus Board, except with respect to the limitations as
set forth in the Paracelsus Bylaws.
After the Merger, the New Paracelsus Board will have the following
committees, in addition to the Executive Committee, and the following respective
initial members: (i) the Audit Committee (Messrs. Conroy, Mozilo and White),
(ii) the Finance and Strategic Planning Committee (Messrs. Hofmann, Lange and
one of the Independent Directors to be named) and (iii) the Compensation
Committee (Dr. Krukemeyer, one non-employee director and one of the Independent
Directors to be named).
MEETINGS AND ACTIONS OF COMMITTEES
Meetings and actions of committees permitted by the provisions of the
Paracelsus Articles will be governed by, and held and taken in accordance with
each of the provisions of the Paracelsus Bylaws, with such changes in the
context of those bylaws as are necessary to substitute the committee and its
members for the New Paracelsus Board and its members; PROVIDED, HOWEVER, that
the time of regular meetings of committees may be determined either by
resolution of the New Paracelsus Board or by resolution of the committee, that
special meetings of committees may also be called by resolution of the New
Paracelsus Board, and that notice of special meetings of committees shall also
be given to all
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alternate members, who shall have the right to attend all meetings of the
committee. The New Paracelsus Board may adopt rules for the governance of any
committee not inconsistent with the provisions of the Paracelsus Bylaws and the
Paracelsus Articles.
AGREEMENT REGARDING COMPOSITION OF COMMITTEES
The Shareholder Agreement provides that, for so long as such agreement
remains in effect, each committee of the New Paracelsus Board (other than the
Audit Committee and the Compensation Committee) will contain such numbers of
Shareholder Directors or Transferee Directors so that the number of Shareholder
Directors or Transferee Directors, when taken together, on each such committee
shall be as nearly as possible proportional to the total number of Shareholder
Directors and Transferee Directors on the New Paracelsus Board. The Shareholder
Agreement and Paracelsus Bylaws provide that the Audit Committee will be
comprised solely of Independent Directors and, for so long as the Paracelsus
Shareholder is entitled to nominate any Shareholder Directors, the Compensation
Committee will be comprised of one non-employee Shareholder Director, one
Independent Director and one additional non-employee director. The parties have
agreed to the initial composition of the Executive Committee as described under
"Committees of the New Paracelsus Board-- Executive Committee" and the initial
composition of the Finance and Strategic Planning Committee and have waived such
composition requirements with respect to the initial composition of the Finance
and Strategic Planning Committee. See "Certain Related Agreements -- Shareholder
Agreement."
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by Paracelsus to
Messrs. Messenger and Joyner during the fiscal years ended September 30, 1995,
1994 and 1993, respectively, and by Champion to Messrs. Miller, VanDevender and
Patterson during the years ended December 31, 1995, 1994 and 1993, respectively.
Those individuals are expected to serve following the Merger as Paracelsus'
Chief Executive Officer and its next four most highly compensated executive
officers (the "Named Executive Officers"). For a description of certain
employment and incentive compensation arrangements involving the Named Executive
Officers that will be implemented in connection with the Merger, see "The Merger
- -- Effect of the Merger on Employee Compensation Arrangements -- New Employment
Agreements."
169
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------
AWARDS
ANNUAL COMPENSATION ----------- PAYOUTS
------------------------------------------------------ SECURITIES -------------
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING LTIP ALL OTHER
POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS (#) PAYOUTS ($) COMPENSATION ($)
- --------------------------- --------- ----------- --------- ------------------- ----------- ------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
R.J. Messenger 1995 686,433 3,970,041 88,370(1) -- 895,134 10,860(2)
Vice Chairman and Chief 1994 588,726 518,218 94,684(1) -- 457,246 7,288
Executive Officer 1993 585,717 471,107 59,550(1) -- 407,140 6,913
Charles R. Miller 1995 437,500 225,000 -- -- -- --
President and Chief 1994 295,000 -- -- 13,876 -- --
Operating Officer 1993 234,167 -- -- -- -- --
James G. VanDevender 1995 295,000 162,500 -- -- -- --
Executive Vice President 1994 235,417 -- -- 128,000 -- --
and Chief Financial 1993 181,667 100,000 -- -- -- --
Officer
Ronald R. Patterson 1995 295,000 150,000 -- -- -- 2,310(3)
Executive Vice President 1994 235,000 -- -- 150,690 -- 2,250
and President, Healthcare 1993 176,007 -- -- -- -- 76,782
Operations
Robert C. Joyner 1995 200,810 171,360 -- -- 142,240 7,332(2)
Vice President, and 1994 191,111 163,200 -- -- 91,683 6,386
General Counsel 1993 190,806 155,520 -- -- 7,286 5,905
</TABLE>
- ------------------------------
(1) Represents perquisites and personal benefits, including, among other things,
club dues in the amounts of $20,199, $43,767 and $31,449, respectively, in
1995, 1994 and 1993, and automobile-related expenses of $35,408 in 1995.
(2) Represents matching contributions by Paracelsus under its Employee
Retirement Savings (401(k)) Plan and term life insurance premiums paid by
Paracelsus.
(3) Represents matching contributions by Champion under its Marathon 401(k)
Plan.
The following table provides information with respect to Messrs. Miller,
VanDevender and Patterson concerning unexercised Champion Options held by such
individuals as of May 24, 1996. None of the Named Executive Officers was granted
or exercised any stock options during 1995, and, except as described above in
"The Merger -- Interests of Certain Persons in the Merger -- Paracelsus --
Treatment of Phantom Stock Appreciation Rights" and "The Merger -- Effect of the
Merger on Employee Compensation Arrangements -- 1996 Stock Incentive Plan," no
options to purchase Paracelsus Common Stock have been granted to employees of
Paracelsus at any time prior to the Merger. See also "-- Long-Term Incentive
Plan Awards in Last Fiscal Year."
AGGREGATED OPTION/SAR EXERCISES IN
LAST FISCAL YEAR AND CURRENT OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT MAY 24, IN-THE-MONEY OPTIONS/SARS
1996 (#) AT MAY 24, 1996 (1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- -------------------------------------------- -------------------------- ------------------------------
<S> <C> <C>
Charles R. Miller........................... 207,250/4,626 $1,582,694/8,674
James G. VanDevender........................ 307,333/42,667 1,742,249/80,001
Ronald R. Patterson......................... 220,460/50,230 933,363/94,181
</TABLE>
- ------------------------
(1) Based upon a closing stock price of $10.875 per share of Champion Common
Stock on May 24, 1996.
170
<PAGE>
The following table sets forth grants of PSARs in the fiscal year ended
September 30, 1995 to Messrs. Messenger and Joyner under the Phantom Equity
Plan:
LONG-TERM INCENTIVE PLAN
AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK PRICE-BASED PLANS (1)
NUMBER OF ----------------------------------------
NAME PSARS PERIOD UNTIL PAYOUT THRESHOLD (2) TARGET (3) MAXIMUM (4)
- ---------------------------- --------- ------------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
R. J. Messenger 500 10/1/92 - 9/30/96 $ 286,500 -- $ 1,536,667
Robert C. Joyner 100 10/1/92 - 9/30/96 57,300 -- 307,349
</TABLE>
- ------------------------------
(1) Under the Phantom Equity Plan, which is to be terminated in connection with
the Merger, each participant could be awarded a certain number of PSARs
effective as of the beginning of each fiscal year. The dollar value of each
PSAR depended on Paracelsus' performance over a period of four fiscal years,
beginning on the effective date of such PSAR award (a "Cycle"). At the end
of a Cycle, if the participant remained in service with Paracelsus
throughout the Cycle, that participant's PSARs would vest and could be
exchanged for an amount equal to the increase in the actual book value of
Paracelsus, if any, during that Cycle divided by 100,000. At the end of each
Cycle, the Paracelsus Board could award additional PSARs if certain growth
and income targets established at the beginning of the Cycle were achieved.
Such additional PSARs would be awarded effective as of the beginning of such
Cycle. No more than 5,000 PSARs could be granted with respect to any
particular Cycle. For information regarding the grant of stock options and
cash payments to be made to certain executive officers of Paracelsus in
connection with the termination of the Phantom Equity Plan, see "The Merger
-- Interests of Certain Persons in the Merger -- Paracelsus -- Treatment of
Phantom Stock Appreciation Rights."
(2) The threshold amounts shown are calculated based on an assumed annual net
income growth rate of 0%. If the actual annual net income growth rate were
negative, the threshold amount payable under the Phantom Equity Plan could
reach zero.
(3) The Phantom Equity Plan does not contemplate specific performance targets.
If the percentage increase in annual net income for fiscal year 1995 were
the same as that achieved in fiscal year 1994, the amounts payable would
equal the amounts shown under the maximum payout column.
(4) The maximum amounts shown are calculated based on an assumed annual net
income growth rate of 20%, the annual net income growth rate at which the
maximum number of PSARs become available to all participants under the
Phantom Equity Plan. The Phantom Equity Plan does not impose any limit on
the value of a PSAR, which would continue to increase with further increases
in the annual net income growth rate.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The matrix below sets forth total benefits payable to the Named Executive
Officers under the SERP. Amounts shown represent the annual benefits to which
the Named Executive Officers would be entitled under the SERP (assuming payment
in the form of a single life annuity), but do not reflect an offset with respect
to certain Social Security benefits.
<TABLE>
<CAPTION>
YEARS OF SERVICE
AVERAGE ANNUAL -----------------------------------
COMPENSATION 5 10 15
- ------------------- --------- ----------- -----------
<S> <C> <C> <C>
$100,000 $ 18,350 $ 36,700 $ 55,050
125,000 22,938 45,875 68,813
150,000 27,525 55,050 82,575
175,000 32,113 64,225 96,338
200,000 36,700 73,400 110,100
225,000 41,228 85,575 123,863
250,000 45,875 91,750 137,625
300,000 55,050 110,100 165,150
400,000 73,400 146,800 220,200
500,000 91,750 183,500 275,250
600,000 110,100 220,200 330,300
700,000 128,450 256,900 385,350
800,000 146,800 293,600 440,400
</TABLE>
171
<PAGE>
SERP benefits for the Named Executive Officers are determined, subject to
certain vesting requirements, as (i) the product of (x) number of years of
service with Paracelsus, (y) 3.67% for officer participants (2.33% for
non-officer participants) and (z) average earnings for the final 36 months of
employment, less (ii) a percentage of the participating officer's Social
Security benefits. SERP benefits for the Named Executive Officers generally
accrue and vest ratably over a 15-year period. However, upon a change in control
of Paracelsus, each Named Executive Officer will immediately become fully vested
and entitled to full benefits under the SERP, regardless of his actual number of
years of service with Paracelsus, in the event of a termination by such person
of his employment or a termination of such person without cause after a change
in control. Prior to the Merger, the term "change in control" is defined under
the SERP to include, among other things, certain offerings of equity securities
pursuant to a registration statement, such as the Registration Statement of
which this Proxy Statement/Prospectus forms a part, filed with and declared
effective by the Commission under the Securities Act. Accordingly, a consumation
of the Merger will constitute a change in control for the Named Executive
Officers. Following the Merger, with respect to new participants in the SERP,
the term "change in control" will be defined as described in "The Merger --
Effect of the Merger on Employee Compensation Arrangements -- New Employment
Agreements." Pursuant to their Employment Agreements, Messrs. Miller,
VanDevender and Patterson will each receive credit for eligibility, vesting and
benefit accrual purposes under the SERP for their prior service with Champion.
Immediately following the Effective Time of the Merger, Messrs. Messenger,
Miller, VanDevender, Patterson and Joyner, will each have, respectively, 15, 6,
6, 4 and 15 years of credited service under the SERP. See "The Merger --
Interests of Certain Persons in the Merger" and "-- Effect of the Merger on
Employee Compensation Arrangements."
COMPENSATION OF DIRECTORS
Following the Merger, it is anticipated that non-employee directors of
Paracelsus will each receive an annual fee of $30,000 and a fee of $2,500 for
each meeting of the New Paracelsus Board or any committee thereof attended, up
to a maximum of $50,000 per year. Directors of Paracelsus who are also employees
of Paracelsus will not receive any additional compensation for their service as
directors. All directors will be reimbursed for expenses incurred in the
performance of their duties. For information regarding a services agreement
pursuant to which Dr. Krukemeyer will provide consulting services to Paracelsus
(other than in his capacity as Chairman of the Board), see "Certain Paracelsus
Shareholder Arrangements -- Services Agreement."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Following the Merger, the Compensation Committee is expected to consist of
Dr. Krukemeyer or a Shareholder Director nominated by him, one non-employee
director and one of the Independent Directors to be named. See "-- Certain
Related Agreements -- Shareholders Agreement."
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AGREEMENTS
In connection with the consummation of the Merger, the following employment
contracts are to be terminated and replaced with the Employment Agreements as
described in "The Merger -- Effect of the Merger on Employee Compensation
Arrangements -- New Employment Agreements."
CHAMPION. Messrs. Miller and VanDevender executed five-year employment
agreements dated August 4, 1995. The agreements provide for an initial annual
salary of $450,000 for Mr. Miller and $300,000 for Mr. VanDevender. The annual
salary paid to each of the executives will be reviewed annually by the Champion
Board and may be increased at the discretion of the Champion Board. Under the
terms of their agreements, Messrs. Miller and VanDevender agreed under certain
conditions not to compete with Champion for one year following a termination of
employment. These agreements contain provisions under which Messrs. Miller or
VanDevender may terminate their employment (i) within six months of a change in
control for any reason and (ii) within 18 months of a change of control and not
more than six months after (a) the failure to appoint each to their respective
current officer positions, (b) any material change resulting in a reduction in
their authority, duties, or responsibilities or (c) any breach of any other
provision of their agreement including a reduction in salary. Upon any such
termination, Messrs. Miller and VanDevender are entitled to receive 2.99 times
172
<PAGE>
their current annualized salary. A "change in control," for purposes of this
discussion, is defined to mean the acquisition by any person or group of
sufficient voting power to elect a majority of the Champion Board.
Mr. Patterson executed a three-year employment agreement dated August 4,
1995. The agreement provides for an initial annual salary of $300,000 per year,
which will be reviewed annually by the Champion Board and may be increased at
the discretion of the Champion Board. Under the terms of this agreement, Mr.
Patterson agreed that under certain conditions he would not compete with
Champion for one year following a termination of employment. Mr. Patterson's
agreement contains provisions similar to those for Messrs. Miller and
VanDevender relating to his ability to terminate his employment following a
change in control, and upon such termination he would be entitled to receive two
years of salary at the then current annualized rate.
PARACELSUS. Under Mr. Messenger's current agreement with Paracelsus, Mr.
Messenger has served as Paracelsus' President and Chief Executive Officer and as
a director pursuant to a rolling three-year employment agreement. Unless Mr.
Messenger or Paracelsus gives prior notice in writing to the contrary, the term
of the agreement is automatically extended on October 1 of each year so that as
of October 1 of each year, the term of the employment agreement will run for
three years thereafter. Pursuant to the agreement, for the year ended September
30, 1995, Mr. Messenger's annual salary was $686,433, and the agreement provides
for annual salary increases of 10%. In addition, the agreement provides for
annual bonus awards ranging from 40% to 90% of Mr. Messenger's annual salary,
depending on the degree to which certain performance measures are satisfied.
Pursuant to Mr. Messenger's agreement, Paracelsus currently provides Mr.
Messenger with group life insurance, group health insurance, a dental plan and
disability coverage, certain additional disability benefits, a company car and
reimbursement for the cost of memberships in certain recreational clubs.
Paracelsus has agreed to indemnify Mr. Messenger, through insurance or
otherwise, against any and all personal liability incurred in the conduct of
Paracelsus' business, other than liability arising from dishonesty, gross or
willful misfeasance or nonfeasance of duty or criminal conduct.
If Mr. Messenger were discharged from his employment without cause following
a change of control of Paracelsus, Paracelsus or its successors would be
obligated under the agreement to continue to pay Mr. Messenger, at the times
when such payment would otherwise have become due, the higher of (a) any unpaid
portion of Mr. Messenger's salary payments, or (b) the amount of his salary for
two years (or, if greater, for the time remaining under his employment
agreement) at the rate in effect at the time of such discharge. For purposes of
this discussion, a "change of control" of Paracelsus will be deemed to have
occurred if (i) Paracelsus is a party to any merger, consolidation or sale of
substantially all of its assets or if there is a successful tender offer for
Paracelsus Common Stock or a contested election of its directors, and as a
result the directors of Paracelsus in office immediately before such event cease
to constitute a majority of the Paracelsus Board, (ii) a majority of the shares
of Paracelsus Common Stock owned by the Paracelsus Shareholder are sold to a
third party (other than a member of the Paracelsus Shareholder's family or his
or their rightful heirs) or (iii) there is a reduction of the Paracelsus
Shareholder's ownership interest below a majority through the issuance of
additional stock by Paracelsus. The meaning of the term "substantially all of
its assets" in clause (i) above is not determinable with absolute certainty.
Such term is likely to be interpreted by reference to applicable state law in
effect at the relevant time and the interpretation will be dependent upon the
facts and circumstances existing at that time. It is therefore possible that Mr.
Messenger and Paracelsus or its successors could disagree as to whether or not a
change of control, for purposes of Mr. Messenger's employment agreement, has
occurred.
Mr. Joyner currently has a letter from Paracelsus that outlines certain
terms of his employment, including salary and benefits. The letter also provides
for up to a year and a half of severance pay in the event of a termination of
employment, whether or not following a change in control.
173
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A sole proprietorship doing business as Paracelsus Klinik, currently owned
by Dr. Krukemeyer, entered into the Know-how Contract with Paracelsus in 1983.
The Know-how Contract provides for the transfer of specified know-how to
Paracelsus. The Know-how Contract provides for a payment of the lesser of
$400,000 or .75% of Paracelsus' net operating revenue, as defined in the
Know-how Contract. The Know-how Contract is being terminated as part of the
transactions related to the Merger.
In November 1993, Paracelsus lent Dr. Krukemeyer $3,200,000 under a
promissory loan agreement. In April 1994, Paracelsus lent Dr. Krukemeyer an
additional $1,800,000 under a new $5,000,000 promissory loan agreement which
replaced the existing $3,200,000 promissory loan agreement. The note balance and
interest are due in annual payments of $1,000,000 each May 1, commencing May 1,
1995 through May 1, 1999 with interest at 8% per annum. The balance outstanding
under the note at September 30, 1995 was $4,000,000. This loan will be repaid in
full contemporaneously with the payment by Paracelsus of the Dividend.
In August 1994, Dr. Krukemeyer and Internationale Nederlanden (U.S.) Capital
Corporation ("INCC") entered into certain arrangements relating to the extension
of credit by INCC to Dr. Krukemeyer. In connection with such extension of credit
to Dr. Krukemeyer, Paracelsus entered into certain agreements with INCC agreeing
to pay to Dr. Krukemeyer, to the extent permitted by the provisions of certain
senior debt of Paracelsus (i) transfer payments, such as dividends and know-how
payments in an amount equal of the consolidated net income of Paracelsus on a
quarterly basis and (ii) salary and bonus payments equal to a minimum of
$2,000,000 per year. This loan will be repaid in full contemporaneously with the
payment by Paracelsus of the Dividend.
The Paracelsus Shareholder, which is wholly owned by Dr. Krukemeyer, and
certain Champion Investors, including an associated entity of Mr. Conroy, will
have rights to both require and participate in the filing of registration
statements by Paracelsus with the Commission. See "Certain Related Agreements --
Paracelsus Shareholder Registration Rights Agreement" and "-- Champion Investors
Registration Rights Agreements."
Dr. Krukemeyer at the Effective Time will enter into a licensing agreement
with Paracelsus pursuant to which Paracelsus will receive a perpetual,
royalty-free, exclusive right and license to use and register the Paracelsus
tradename and the related trademark in the United States.
Messrs. Hofmann and Lange serve as directors of Paracelsus and also as
financial consultants under a contract entered into with Paracelsus on July 4,
1983. The consulting services provided involve the coordination of Paracelsus'
policies and strategies and, to a lesser extent, the financial affairs of
Paracelsus. The consultants also advise Paracelsus as to certain matters
involving the health care industry. These contracts provide for aggregate annual
payments of $250,000 each and reimbursement for certain out-of-pocket expenses.
Paracelsus believes that the terms of Paracelsus' arrangements with Messrs.
Hofmann and Lange are at least as favorable as could have been obtained from
unaffiliated third parties.
174
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS
OWNERSHIP OF PARACELSUS COMMON STOCK
The following table sets forth as of May 28, 1996 the number of shares of
Paracelsus Common Stock (adjusted to give effect to the Paracelsus Stock Split)
beneficially owned by Dr. Krukemeyer, who serves as the Chairman of the
Paracelsus Board. Dr. Krukemeyer has sole voting and investment power with
respect to the Shares.
<TABLE>
<CAPTION>
AMOUNT OF
NAME AND ADDRESS OF BENEFICIAL PERCENT
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP OF CLASS
- ------------------ --------------------------------------- ------------- ------------
<S> <C> <C> <C>
Common Stock Dr. Manfred George Krukemeyer 29,771,742 100%
Paracelsus Klinik Osnabruck
AM Natruper Holz 69
D-49076 Osnabruck
Federal Republic of Germany
Common Stock Park Hospital GmbH((1)) 29,771,742 100%
AM Natruper Holz 69
D-49076 Osnabruck
Federal Republic of Germany
</TABLE>
- ------------------------
((1)) A German corporation wholly owned by Dr. Krukemeyer.
OWNERSHIP OF CHAMPION SECURITIES
The following table sets forth, as of May 28, 1996, certain information
regarding beneficial ownership of Champion Common Stock by (a) each person known
by Champion to own beneficially more than 5% of each class of voting securities,
(b) each director of Champion, (c) the chief executive officer and the four most
highly compensated executive officers of Champion and (d) all directors and
officers as a group. The information in the table was obtained from information
supplied to Champion by the beneficial owners listed below, and where
applicable, the books and records of Champion. Each person listed below has sole
voting and investment powers except as noted. In addition, the Participants,
some of whom are beneficial owners of Champion Capital Stock as set forth below,
are party to the Participants Agreement. See "Certain Related Agreements --
Participants Agreement."
<TABLE>
<CAPTION>
FOOTNOTE
SHAREHOLDER REFERENCES COMMON STOCK CONVERTIBLE PREFERRED STOCK (E)
- ----------------------------------------- ---------------- OWNERSHIP ----------------------------------
-------------- SERIES C SERIES D FULLY
--------- --------- DILUTED
(A)(F) OWNERSHIP
(B) (C) ------------
(D)
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
MANAGEMENT
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Charles R. Miller........................ (1),(2),(3) 734,400 739,026
5.01% 3.42%
James G. VanDevender..................... (1),(2),(4) 407,333 450,000
2.74% 2.09%
Nolan Lehmann............................ (2),(5),(6), 1,603,323 4,901 83,333 1,603,323
(7),(8) 10.95% 1.09% 3.86% 7.43%
Janet A. Hickey.......................... (2),(9),(10), 2,786,901 33,616 279,985 2,786,901
(11),(g),(h) 18.47% 7.49% 12.98% 12.91%
James A. Conroy.......................... (2),(12),(13), 2,077,292 103,773 83,334 2,077,292
(14),(g),(h) 14.00% 23.12% 3.86% 9.63%
David S. Spencer......................... (2),(15),(16) 39,400 39,400
(*) (*)
Manuel M. Ferris......................... (2),(17) 40,000 40,000
(*) (*)
</TABLE>
175
<PAGE>
<TABLE>
<CAPTION>
FOOTNOTE
SHAREHOLDER REFERENCES COMMON STOCK CONVERTIBLE PREFERRED STOCK (E)
- ----------------------------------------- ---------------- OWNERSHIP ----------------------------------
-------------- SERIES C SERIES D FULLY
--------- --------- DILUTED
(A)(F) OWNERSHIP
(B) (C) ------------
(D)
- ---------------------------------------------------------------------------------------------------------------
MANAGEMENT
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
William G. White......................... (2),(18),(19) 249,318 249,318
1.71% 1.16%
Richard D. Sage.......................... (2),(20),(21) 109,635 109,635
(*) (*)
Ronald R. Patterson...................... (1),(22) 231,531 1,847 281,761
1.58% (*) 1.31%
Warren W. Wilkey......................... (1),(23) 8,666 22,000
(*) (*)
All officers and directors as a group (24
persons)................................ (1),(25) 8,588,789 142,290 472,965 8,784,651
51.02% 31.70% 21.93% 40.70%
NON-MANAGEMENT
------------------------------------------------------
Bahrain International Bank, E.C.......... (26),(27) 445,443 111,111 445,443
3.00% 5.15% 2.06%
Baker Fentress & Company................. (28),(29) 535,443 111,111 535,443
3.65% 5.15% 2.48%
William Blair Venture Partners III
Limited Partnership..................... (30),(31),(32), 793,644 30,675 83,334 793,644
(g),(h) 5.40% 6.83% 3.86% 3.68%
First Interstate Bank of California, as
Trustee................................. (11),(33),(i) 2,681,972 33,616 246,331 2,681,972
17.85% 7.49% 11.42% 12.43%
DLJ First ESC Corporation................ (10),(11) 1,969 633 1,969
(*) (*) (*)
Donaldson, Lufkin & Jenrette Securities
Corporation............................. (10),(11) 101,512 32,597 101,512
(*) 1.51% (*)
+ Donaldson, Lufkin & Jenrette, Inc.... (10),(11) 2,785,453 33,616 279,541 2,785,453
18.46% 7.49% 12.96% 12.91%
+ The Equitable Companies
Incorporated......................... (10),(11) 2,785,453 33,616 279,541 2,785,453
18.46% 7.49% 12.96% 12.91%
Equity-Linked Investors, L.P............. (34),(35),(g), 497,726 161,552 497,726
(h) 3.37% 7.49% 2.31%
Equity-Linked II, L.P. (35),(36),(g), 358,078 116,226 358,078
(h) 2.44% 5.38% 1.66%
+ Rohit M. Desai....................... (35),(37),(g), 855,804 277,778 855,804
(h) 5.70% 12.88% 3.97%
+ Desai Capital Management, Inc........ (35),(37),(g), 855,804 277,778 855,804
(h) 5.70% 12.88% 3.97%
</TABLE>
176
<PAGE>
<TABLE>
<CAPTION>
FOOTNOTE
SHAREHOLDER REFERENCES COMMON STOCK CONVERTIBLE PREFERRED STOCK (E)
- ----------------------------------------- ---------------- OWNERSHIP ----------------------------------
-------------- SERIES C SERIES D FULLY
--------- --------- DILUTED
(A)(F) OWNERSHIP
(B) (C) ------------
(D)
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
NON-MANAGEMENT
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Equus II Incorporated.................... (6),(8) 1,263,058 3,601 83,333 1,263,058
8.63% (*) 3.86% 5.85%
Equus Capital Partners, L.P.............. (6),(7) 338,249 1,300 338,249
2.34% (*) 1.57%
Frontenac VI Limited Partnership......... (38),(39) 1,186,466 55,556 388,889 1,186,466
7.73% 12.38% 18.03% 5.50%
Frontenac Diversified III Limited
Partnership............................. (38),(40) 338,774 83,333 338,774
2.32% 3.86% 1.57%
Hancock Venture Partners III, L.P........ (41),(42) 678,455 20,874 111,111 678,455
4.61% 4.65% 5.15% 3.14%
John Hancock Venture Capital Fund Limited
Partnership II.......................... (41),(43),(g), 355,443 111,111 355,443
(h) 2.42% 5.15% 1.65%
Olympus Private Placement Fund, L.P...... (13),(14),(g), 2,077,292 103,773 83,334 2,077,292
(h) 14.00% 23.12% 3.86% 9.63%
RFE Capital Partners, L.P................ (44),(45),(46) 731,973 148,413 731,973
4.96% 6.88% 3.39%
RFE Investment Partners IV, L.P.......... (44),(45),(46), 731,973 148,413 731,973
(54) 4.96% 6.88% 3.39%
WPG Corporate Development Associates III,
L.P..................................... (47),(48),(49), 632,942 20,738 91,666 632,942
(g),(h) 4.31% 4.62% 4.25% 2.93%
WPG Corporate Development Associates III
(Overseas), L.P......................... (50),(51), 134,270 4,399 19,445 134,270
(g),(h) (*) (*) (*) (*)
Virginia Retirement System............... (52),(53) 1,700,040 172,956 1,700,040
11.48% 38.54% 7.88%
</TABLE>
- ------------------------
*) Less than 1% of the class.
+, ++) Not held of record but may be deemed beneficially owned.
a) Total shares of Champion Common Stock outstanding as of May 28, 1996 is
14,424,106.
b) 448,811 shares outstanding as of May 28, 1996, convertible into 897,622
shares of Champion Common Stock on a 2 for 1 basis.
c) 2,156,903 shares outstanding as of May 28 1996, convertible into 4,313,806
shares of Champion Common Stock on a 2 for 1 basis.
d) On a fully diluted basis as of May 28, 1996, a total of 21,581,341 shares of
Champion Common Stock would be outstanding. This amount is composed of (i)
the 14,424,106 shares of Champion Common Stock identified in footnote (a)
above; plus (ii) the following shares of Champion Common Stock issuable upon
the exercise or conversion, as applicable, of the following securities of
Champion: (A) 80,000 shares underlying Champion Subscription Shares; plus
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(B) 1,297,204 shares underlying Champion Options; plus (C) 422,286 shares
underlying Champion Warrants; plus (D) 5,211,428 shares issuable upon
conversion of Champion Preferred Stock; plus (E) 146,317 shares underlying
Champion Convertible Securities and an employment contract.
e) All direct and beneficial holders of each series of Champion Preferred
Stock, Champion Common Stock issuable upon conversion of Champion Preferred
Stock, Champion Common Stock issuable upon exercise of Champion Warrants
held by holders of Champion Preferred Stock and Champion Common Stock
issuable upon the exercise of Champion Options are subject to the D
Stockholders Agreement.
f) With the exception of Messrs. White and Sage, all shares of Champion Common
Stock beneficially owned are subject to the D Stockholders Agreement.
g) Shared voting power.
h) Shared investment power.
i) Voting power only.
(1) Officer. Business address is 515 W. Greens Road, Suite 800, Houston, TX
77067.
(2) Director.
(3) Includes 207,250 shares that may be acquired by Mr. Miller within 60 days
upon the exercise of Champion Options.
(4) Includes 387,334 shares that may be acquired by Mr. VanDevender within 60
days upon the exercise of Champion Options and Champion Subscriptions.
(5) Mr. Lehmann is president of Equus Corp., the financial advisor and manager
of Equus II Incorporated ("Equus II") and Equus Capital Partners, L.P.
("Equus Partners") and disclaims beneficial ownership of the Champion's
securities owned by Equus II and Equus Partners. Mr. Lehmann owns directly
2,016 shares of the Champion Common Stock.
(6) 2929 Allen Parkway, Suite 2500, Houston, TX 77019.
(7) Equus Partners is the beneficial owner of 338,249 shares of Champion Common
Stock through its direct ownership of (i) 335,649 shares of Champion Common
Stock, and (ii) 1,300 shares of Champion Series C Preferred Stock which may
be converted at any time at the option of the holder into 2,600 shares of
Champion Common Stock. Equus Corp., Equus Management, Equus Corporation
International, Douglas Trust FBO Brooke and Douglas Trust FBO Preston may be
deemed to beneficially own the shares of Champion Common Stock beneficially
owned by Equus Partners. By reason of his status as President of Equus
Corp., which is the managing general partner of Equus Partners, Mr. Lehmann
may be deemed to be the beneficial owner of the 338,249 shares of Champion
Common Stock held by Equus Partners. In addition, Mr. Lehmann holds 2,016
shares of Champion Common Stock which he beneficially owns in his own
capacity. Accordingly, Mr. Lehmann may be deemed to be the beneficial owner
of 340,265 shares of Champion Common Stock in the aggregate. Mr. Lehmann
disclaims beneficial ownership of the 338,249 shares of Champion Common
Stock.
(8) Equus II is the beneficial owner of 1,263,058 shares of Champion Common
Stock through its direct ownership of (i) 1,089,190 shares of Champion
Common Stock, (ii) 3,601 shares of Series C Preferred Stock which may be
converted at any time at the option of the holder into 7,202 shares of
Champion Common Stock, and (iii) 83,333 shares of Champion Series D
Preferred Stock which may be converted at any time at the option of the
holder into 166,666 shares of Champion Common Stock.
(9) Ms. Hickey is a general partner of Sprout Group, a division of DLJ Capital
Corporation ('DLJCC") and is a general partner of Sprout Growth II, L.P.
("Growth II"), the general partner
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of Sprout Growth, L.P. ("Growth"), Sprout Capital VI, L.P. ("Sprout VI"),
DLJ Venture Capital Fund II, L.P. ("DLJ II"), DLJ and DLJCC and disclaims
beneficial ownership of the Champion securities beneficially owned by such
funds. Ms. Hickey owns directly in her individual capacity 1,448 shares of
Champion Common Stock consisting of (i) 560 shares of Champion Common Stock,
and (ii) 444 shares of Champion Series D Preferred Stock which may be
converted at any time at the holder's option into 888 shares of Champion
Common Stock.
(10) 140 Broadway, 42nd floor, New York, NY 10005.
(11) DLJ II may be deemed to be the beneficial owner of the following securities
held by First Interstate Bank of California ("First Interstate") as
trustee: 36,246 shares of Champion Common Stock, and 1,360 shares of
Champion Common Stock issuable upon conversion or exercise of the 680
shares of Series C Preferred Stock. Accordingly, DLJ II may be deemed to
beneficially own an aggregate of 37,606 shares of Champion Common Stock
(the "DLJ II Shares").
DLJ Fund Associates II ("Associates II"), as the general partner of DLJ II,
may be deemed to beneficially own indirectly the DLJ II Shares.
Growth may be deemed to be the beneficial owner of the following securities
held by First Interstate, as trustee: 746,997 shares of Champion Common
Stock and the 26,912 shares of Champion Common Stock issuable upon
conversion or exercise of the 13,456 shares of Series C Preferred Stock.
Accordingly, Growth may be deemed to beneficially own an aggregate of
773,909 shares of Champion Common Stock (the "Growth Shares").
DLJ Growth Associates ("Associates"), as a general partner of Growth, may
be deemed to beneficially own indirectly the Growth Shares.
Sprout VI may be deemed to be the beneficial owner of the following
securities held by First Interstate, as trustee: 1,076,371 shares of
Champion Common Stock and the 93,738 shares of Champion Common Stock
issuable upon the conversion or exercise of the 19,480 and 27,389 shares of
Champion Series C Preferred Stock and Series D Preferred Stock,
respectively.
Accordingly, Sprout VI may be deemed to beneficially own an aggregate of
1,170,109 shares of Champion Common Stock (the "Sprout VI Shares").
Growth II may be deemed to be the beneficial owner of the following
securities held by First Interstate, as trustee: 238,254 shares of Champion
Common Stock and the 397,398 shares of Champion Common Stock issuable upon
the conversion or exercise of the 198,699 shares of Series D Preferred
Stock directly owned by it. Accordingly, Growth II may be deemed to
beneficially own an aggregate of 635,652 shares of Champion Common Stock
(the "Growth II Shares").
DLJCC may be deemed to be the beneficial owner of the following securities
held by First Interstate, as trustee: 24,247 shares of Champion Common
Stock, the 40,446 shares of Champion Common Stock issuable upon the
conversion or exercise of the 20,223 shares of Series D Preferred Stock.
DLJCC, because of its relationships with DLJ II, Associates II, Growth and
Associates, and as the managing general partner of each of Sprout VI and
Growth II, also may be deemed to beneficially own indirectly the DLJ II
Shares, the Growth Shares, the Sprout VI Shares and the Growth II Shares,
for an aggregate of 2,681,969 shares of Champion Common Stock (the "DLJCC
Shares").
DLJ First ESC L.L.C. ("ESC") may be deemed to be the beneficial owner of
1,969 Champion Common Shares through its direct ownership of (i) 703 shares
of Champion Common Stock, and (ii) the 1,266 shares of Champion Common
Stock (the "ESC Shares") issuable upon the conversion or exercise of the
633 shares of Series D Preferred Stock.
DLJ LBO Plans Management Corporation ("LBO"), as the manager of ESC, may be
deemed to beneficially own indirectly the ESC Shares.
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<PAGE>
DLJ may be deemed to be the beneficial owner of 101,512 Champion Common
Stock through its direct ownership of (i) 36,318 shares of Champion Common
Stock, and (ii) the 65,194 shares of Champion Common Stock (the "DLJ
Shares") issuable upon the conversion or exercise of the 32,597 shares of
Series D Preferred Stock.
As the sole stockholder of DLJCC and DLJ, Donaldson, Lufkin & Jenrette,
Inc. ("Donaldson, Lufkin") may be deemed to beneficially own indirectly the
DLJCC Shares and the DLJ Shares. In addition, as the sole stockholder of
LBO, Donaldson, Lufkin may be deemed to beneficially own indirectly the
shares that are beneficially owned indirectly by LBO. Accordingly,
Donaldson, Lufkin may be deemed to beneficially own an aggregate of
2,785,450 shares of Champion Common Stock (the "Donaldson, Lufkin Shares").
As the sole stockholder of Donaldson, Lufkin, The Equitable Companies
Incorporated ("Equitable") may be deemed to beneficially own indirectly the
Donaldson, Lufkin Shares. In addition, the following entities, by reason of
their relationships with Equitable or Donaldson, Lufkin, may be deemed to
beneficially own indirectly the Donaldson, Lufkin Shares: AXA, FINAXA, AXA
Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, Uni Europe
Assurance Mutuelle, Alpha Assurances Vie Mutuelle, Alpha Assurances
I.A.R.D. Mutuelle, Claude BeBear, as Voting Trustee, Patrice Garnier, as
Voting Trustee, Henri de Clermont-Tonnerre, as voting trustee.
(12) Mr. Conroy is a general partner of Olympus and disclaims beneficial
ownership of Champion's securities owned by that fund.
(13) Metro Center, One Station Place, Stamford, CT 06902.
(14) Olympus is the beneficial owner of 2,077,292 shares of Champion Common
Stock through its direct ownership of (i) 1,703,078 shares of Champion
Common Stock, (ii) 103,773 shares of Series C Preferred Stock, which may be
converted at any time at the option of the holder into 207,546 shares of
Champion Common Stock, and (iii) 83,334 shares of Champion Series D
Preferred Stock, which may be converted at any time at the option of the
holder into 166,668 shares of Champion Common Stock. OGP Partners, L.P.,
James A. Conroy, and Robert S. Morris may be deemed to beneficially own the
shares of Champion Common Stock beneficially owned by Olympus.
(15) 5909-G Breckenridge Parkway, Tampa, FL 33610.
(16) Includes 30,000 shares that may be acquired by Mr. Spencer within 60 days
upon the exercise of stock options.
(17) Includes 30,000 shares that may be acquired by Mr. Ferris within 60 days
upon the exercise of stock options.
(18) Includes 89,852 shares that may be acquired by Mr. White within 60 days
upon the exercise of stock options; does not include 1,753 shares owned by
Mr. White's spouse, as to which shares he disclaims beneficial ownership.
(19) 1670 Tyler Green Trail, Smyrna, GA 30080.
(20) Does not include 12,675 shares owned by Mr. Sage's spouse, as to which
shares he disclaims beneficial ownership.
(21) 610 S.W. 128th Street, Miami, FL 33156.
(22) Includes 220,460 shares that may be acquired by Mr. Patterson within 60
days upon the exercise of stock options.
(23) Includes 6,666 shares that may be acquired by Mr. Wilkey within 60 days
upon the exercise of stock options.
(24) Intentionally omitted.
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(25) Includes 1,119,056 shares that may be acquired by all directors and
officers as a group within 60 days upon the exercise of stock options and
subscriptions.
(26) Bahrain International Bank, E.C. is the beneficial owner of 445,443 shares
of Champion Common Stock through its direct ownership of (i) 73,221 shares
of Champion Common Stock, (ii) 150,000 shares of Champion Common Stock that
may be acquired within 60 days upon the exercise of Series D Warrants, and
(iii) 111,111 shares of Series D Preferred Stock, which may be converted at
any time at the option of the holder into 222,222 shares of Champion Common
Stock.
(27) c/o Dilmun Investments, Inc., Metro Center, One Station Place, Stamford, CT
06902.
(28) 200 W. Madison Street, Chicago, IL 60606.
(29) Baker Fentress & Company is the beneficial owner of 535,443 shares of
Champion Common Stock through its direct ownership of (i) 313,221 shares of
Champion Common Stock and (ii) 111,111 shares of Champion Series D Preferred
Stock which may be converted into 222,222 shares of Champion Common Stock.
(30) 222 West Adams Street, Chicago, IL 60606.
(31) William Blair Venture Partners III Limited Partnership ("Blair III")is the
beneficial owner of 793,644 shares of Champion Common Stock through its
direct ownership of (i) 558,246 shares of Champion Common Stock, (ii) 7,380
shares of Champion Common Stock that may be acquired within 60 days upon the
exercise of Champion Warrants, (iii) 30,675 shares of Champion Series C
Preferred Stock which may be converted at any time at the option of the
holder into 61,350 shares of Champion Common Stock, and (iv) 83,334 shares
of Champion Series D Preferred Stock which may be converted at any time at
the option of the holder into 166,668 shares of Champion Common Stock.
(32) William Blair Venture Capital Management Company, Samuel Guren and William
Blair & Company may be deemed to beneficially own the shares of Champion
Common Stock, Champion Series C Preferred Stock and Champion Series D
Preferred Stock beneficially owned by Blair III.
(33) 707 Wilshire Boulevard, W-11-2, Los Angeles, CA 90017. Trustee under a
ten-year voting trust agreement dated August 31, 1995, granting it sole
voting power of the Champion securities it holds on behalf of Sprout Growth,
Sprout VI, DLJ II, Growth II, and DLJCC.
(34) Equity-Linked Investors, L.P. ("Equity") is the beneficial owner of 497,726
shares of Champion Common Stock through its direct ownership of (i) 174,622
shares of Champion Common Stock and (ii) 161,552 shares of Series D
Preferred Stock which may be converted at any time at the option of the
holder into 323,104 shares of Champion Common Stock.
(35) c/o Desai Capital Management, Inc. ("Desai Capital"), 540 Madison Avenue,
36th Floor, New York, NY 10022.
(36) Equity-Linked Investors II, L.P. ("Equity II") is the beneficial owner of
358,078 shares of Champion Common Stock through its direct ownership of (i)
125,626 shares of Champion Common Stock and (ii) 116,226 shares of Champion
Series D Preferred Stock which may be converted at any time at the option of
the holder into 232,452 shares of Champion Common Stock.
(37) Each of Desai Capital and Rohit M. Desai may be deemed to be the beneficial
owner of the entire 855,804 shares of Champion Common Stock held by Equity
and Equity II.
(38) 135 S. LaSalle St., 38th Floor, Chicago, IL 60604.
(39) Frontenac VI Limited Partnership ("Frontenac VI") is the beneficial owner
of 1,186,466 shares of Champion Common Stock through its direct ownership of
(i) 297,576 shares of Champion Common Stock, (ii) 55,556 shares of Champion
Series C Preferred Stock which may be converted at any time at the option of
the holder into 111,112 shares of Champion Common Stock and (iii) 388,889
shares of Champion Series D Preferred Stock, which may be converted at any
time at the
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option of the holder into 777,778 shares of Champion Common Stock. Frontenac
Company and Frontenac VI Partners, L.P. may be deemed to beneficially own
the shares of Champion Common Stock beneficially owned by Frontenac IV.
(40) Frontenac Diversified III Limited Partnership ("Frontenac III") is the
beneficial owner of 338,774 shares of Champion Common Stock through its
direct ownership of (i) 172,108 shares of Champion Common Stock, and (ii)
83,333 shares of Champion Series D Preferred Stock, which may be converted
at any time at the option of the holder into 166,666 shares of Champion
Common Stock. Frontenac Company may be deemed to beneficially own the shares
of Champion Common Stock beneficially owned by Frontenac III.
(41) One Financial Center, 44th Floor, Boston, MA 02111.
(42) Hancock Venture Partners III, L.P. ("Hancock III") is the beneficial owner
of 678,455 shares of Champion Common Stock through its direct ownership of
(i) 414,485 shares of Champion Common Stock, (ii) 20,874 shares of Champion
Series C Preferred Stock, which may be converted at any time at the option
of the holder into 41,748 shares of Champion Common Stock, and (iii) 111,111
shares of Champion Series D Preferred Stock, which may be converted at any
time at the option of the holder into 222,222 shares of Champion Common
Stock of the outstanding shares of Champion Common Stock. Back Bay Partners
V, L.P. ("Back Bay V"), Back Bay Partners, Hancock Venture Partners Inc.,
John Hancock Subsidiaries, Inc. ("Hancock Inc."), and John Hancock Mutual
Life Insurance Company ("Hancock Mutual") (all of whose business address is
John Hancock Place, Boston, Massachusetts 02117) may be deemed to
beneficially own the shares of Champion Common Stock beneficially held by
Hancock.
(43) John Hancock Venture Capital Fund Limited Partnership II ("Hancock II") is
the beneficial owner of 355,443 shares of Champion Common Stock through its
direct ownership of (i) 133,221 shares, and (ii) 111,111 shares of Champion
Series D Preferred Stock, which may be converted at any time at the option
of the holder into 222,222 shares of Champion Common Stock. Back Bay
Partners L.P. II, Hancock Inc., Hancock Subs., and Hancock Mutual may be
deemed to beneficially own the shares of Champion Common Stock beneficially
held by Hancock II.
(44) 36 Grove Street, New Canaan, CT 06840.
(45) RFE Capital Partners, L.P. ("RFE") is the beneficial owner of 237,782
shares of Champion Common Stock through its direct ownership of 237,782
shares of Champion Common Stock. Norcon Associates ("Norcon"), RFE
Investment Partners IV, L.P. ("RFE Investment IV"), RFE Associates IV, L.P.
("RFE Associates IV"), RFE Management Corp. ("RFE Corp."), Robert M.
Williams, Howard C. Landis, James A. Parsons, Knute C. Albrecht, A. Dean
Davis and Michael J. Foster may be deemed to beneficially own the shares of
Champion Common Stock beneficially owned by RFE.
(46) RFE Investment IV is the beneficial owner of 494,191 shares of Champion
Common Stock through its direct ownership of (i) 197,365 shares of Champion
Common Stock, and (ii) 148,413 shares of Champion Series D Preferred Stock,
which may be converted at any time at the option of the holder into 296,826
shares of Champion Common Stock. RFE, Norcon, RFE Associates IV, RFE Corp.,
Robert M. Williams, Howard C. Landis, James A. Parsons, Knute C. Albrecht,
Michael J. Foster, and A. Dean Davis may be deemed to beneficially own the
shares of Champion Common Stock beneficially owned by RFE Investment IV.
(47) One New York Plaza, 30th Floor, New York, NY 10004.
(48) WPG Corporate Development Associates III, L.P. ("WPG III") is the
beneficial owner of 632,942 shares of Champion Common Stock through its
direct ownership of (i) 408,134 shares of Champion Common Stock, (ii) 20,738
shares of Champion Series C Preferred Stock, which may be
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<PAGE>
converted at any time at the option of the holder into 41,476 shares of
Champion Common Stock, and (iii) 91,666 shares of Champion Series D
Preferred Stock, which may be converted at any time at the option of the
holder into 183,332 shares of Champion Common Stock.
(49) WPG CDA III, L.P. ("WPG CDA III"), as the sole general partner of WPG III,
may be deemed to own beneficially the 632,942 shares held by WPG III.
c/o Walker & Company, Caledonian House, Grand Cayman, Cayman Islands,
British West Indies.
(50) WPG Corporate Development Associates III (Overseas), Ltd. ("WGP III
(Overseas)"), is the beneficial owner of 134,270 shares of Champion Common
Stock through its direct ownership of (i) 86,582 shares of Champion Common
Stock, (ii) 4,399 shares of Champion Series C Preferred Stock, which may be
converted at any time at the option of the holder into 8,798 shares of
Champion Common Stock, and (iii) 19,445 shares of Champion Series D
Preferred Stock, which may be converted any time at the option of the holder
into 38,890 shares of Champion Common Stock.
(51) WPG CDA III (Overseas), Ltd. ("WPG CDA III (Overseas)") as the sole
investment advisor of WPG III (Overseas), may be deemed to own beneficially
the 134,270 shares owned by WPG III (Overseas). WPG CDA III (Overseas),
disclaims beneficial ownership of all such shares.
By reason of his status as a managing general partner of WPG CDA III, which
is the sole general partner of WPG III, Mr. Greer may be deemed to be the
beneficial owner of the 632,942 shares held by WPG III. By reason of his
status as a managing general partner of WPG CDA III (Overseas), Mr. Greer
may also be deemed to be the beneficial owner of the 134,270 shares held by
WPG III (Overseas). Accordingly, Mr. Greer may be deemed to be the
beneficial owner of 767,212 shares. Mr. Greer disclaims beneficial ownership
of all shares beneficially owned by WPG III, and WPG III (Overseas), except
to the extent of his indirect beneficial interest as a managing general
partner of WPG CDA III, in shares held by WPG III.
By reason of his status as managing partner of WPG CDA III, which is the
sole general partner of WPG III, Mr. Lang may be deemed to be the beneficial
owner of the 632,942 shares held by WPG III. By reason of his status as a
managing general partner of WPG CDA III (Overseas), Mr. Greer may also be
deemed to be the beneficial owner of the 134,270 shares held by WPG III
(Overseas). In addition, Mr. Lang is the beneficial owner in his individual
capacity of 3,016 shares through his direct ownership of (i) 2,722 shares of
Champion Common Stock, and (ii) 147 shares of Champion Series C Preferred
Stock, which may be converted at any time at the option of the holder into
294 shares of Champion Common Stock and has the sole power to vote or direct
the vote of and the sole power to dispose or direct the disposition of the
3,016 shares. Accordingly, Mr. Lang may be deemed to be the beneficial owner
of 770,228 shares in the aggregate. Mr. Lang disclaims beneficial ownership
of all shares beneficially owned by WPG III, and WPG III (Overseas), except
to the extent of his indirect beneficial interest as a managing general
partner of WPG CDA III in shares held by WPG III.
By reason of his status as a managing partner of WPG CDA III, which is the
sole general partner of WPG III, Mr. Hutchinson may be deemed to be the
beneficial owner of the 632,942 shares held by WPG III. By reason of his
status as a managing general partner of WPG CDA III (Overseas), Mr.
Hutchinson may also be deemed to be the beneficial owner of the 134,270
shares held by WPG III (Overseas). Accordingly, Mr. Hutchinson may be deemed
to be the beneficial owner of 767,212 shares. Mr. Hutchinson disclaims
beneficial ownership of all shares beneficially owned by WPG III, and WPG
III (Overseas), except to the extent of his indirect beneficial interest as
a managing general partner of WPG CDA III, in shares held by WPG III.
(52) 1200 E. Main Street, Richmond, VA 23219.
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(53) Virginia Retirement System is the beneficial owner of 1,700,040 shares of
Champion Common Stock through its direct ownership of 1,354,128 shares of
Champion Common Stock, and (ii) 172,956 shares of Champion Series C
Preferred Stock, which may be converted at any time at the option of the
holder into 345,912 shares of Champion Common Stock.
(54) Mr. Robert M. Williams may be deemed to be the beneficial owner of 741,973
shares of Champion Common Stock, including his direct ownership of 10,000
shares of Champion Common Stock as well as 731,973 shares of Champion Common
Stock and 148,413 shares of Champion Series D Preferred Stock beneficially
owned by RFE Investment IV.
Mr. Michael J. Foster may be deemed to be the beneficial owner of 733,726
shares of Champion Common Stock, including his direct ownership of 1,753
shares of Champion Common Stock as well as 731,973 shares of Champion Common
Stock and 148,413 shares of Champion Series D Preferred Stock beneficially
owned by RFE Investment IV.
Mr. Knute C. Albrecht may be deemed to be the beneficial owner of 734,953
shares of Champion Common Stock, including his direct ownership of 2,980
shares of Champion Common Stock as well as 731,973 shares of Champion Common
Stock and 148,413 shares of Champion Series D Preferred Stock beneficially
owned by RFE Investment IV.
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THE PLAN PROPOSALS
Each of the Plan Proposals and the stock option plans and agreements to
which they relate are discussed below. Each of the Plan Proposals is being
submitted to stockholders in order to qualify the affected stock options for
certain exemptions from the short-swing profit rules of Section 16 of the
Exchange Act. In addition, the Founders' Stock Option Plan Proposal is being
submitted to stockholders for approval in order to qualify the affected options
as "performance-based compensation" for purposes of Section 162(m) of the Code.
Approval of the Merger Proposal will be deemed to constitute approval of the
Directors' and Selected Executive Stock Option Plan Proposals, and stockholders
should, therefore, consider and vote upon the Directors' and Selected Executive
Stock Option Plan Proposals in the context of the Merger Proposal. However,
stockholders are asked to consider and vote upon the Founders' Stock Option Plan
Proposal independently of the Merger Proposal.
AMENDMENT OF THE DIRECTORS' STOCK OPTION PLAN
On February 20, 1996, the Champion Board granted to each of Messrs. Ferris
and Spencer, each currently a director of Champion, a non-statutory option to
purchase 20,000 shares of Champion Common Stock at an exercise price of $8.00
per share (the "1996 Director Options"), subject to the condition that there be
authorized and reserved for issuance under the Directors' Stock Option Plan a
sufficient number of shares with respect to the exercise of the 1996 Director
Options. Because the aggregate number of shares of Champion Common Stock that
may be purchased pursuant to options ("Director Options") granted under the
Directors' Stock Option Plan is limited to 60,000, and because Director Options
to purchase 60,000 shares of Champion Common Stock have already been granted
under the Directors' Stock Option Plan, the Champion Board has adopted an
amendment to the Directors' Stock Option Plan, attached hereto as Annex F,
subject to stockholder approval, authorizing and reserving for issuance pursuant
to grants of Director Options an additional 40,000 shares of Champion Common
Stock.
Under the current provisions of the Directors' Stock Option Plan, Director
Options expire on the earliest of (i) the date specified in the Director Option,
(ii) 90 days following the date on which an optionee's service as a director
ceases for any reason other than death or disability or (iii) one year following
the date on which the optionee's service as a director ceases by reason of death
or disability. Because neither of the current holders of outstanding Director
Options will continue to serve as a director of Paracelsus following the Merger,
under the current terms of the Directors' Stock Option Plan all outstanding
Directors Options will expire 90 days following the Effective Time. In order to
enable such individuals to benefit from, among other things, any future
appreciation in the price of Paracelsus Common Stock, the Champion Board has
adopted an additional amendment to the Directors' Stock Option Plan, attached
hereto as Annex F, subject to stockholder approval, to provide that Director
Options granted to a director whose service as a director of Champion terminates
in connection with a merger or consolidation of Champion will remain exercisable
until the date specified in the Director Option, which in the case of Messrs.
Ferris and Spencer is the date that is ten years from the respective dates of
grant.
APPROVAL OF THE MERGER PROPOSAL WILL BE DEEMED TO CONSTITUTE APPROVAL OF THE
PROPOSAL TO AMEND THE DIRECTORS' STOCK OPTION PLAN AS DESCRIBED ABOVE. SEE "THE
SPECIAL MEETING -- VOTES REQUIRED."
NEW PLAN BENEFITS. As described above, if the Merger Proposal is approved,
Messrs. Ferris and Spencer will each be granted Champion Options to purchase
20,000 shares of Paracelsus Common Stock, and the 50,000 outstanding Champion
Options held by each of Messrs. Ferris and Spencer will remain exercisable until
the dates specified in the applicable stock option agreements.
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The following table is included pursuant to requirements of the Commission:
DIRECTORS' STOCK OPTION PLAN
<TABLE>
<CAPTION>
NUMBER OF
NAME AND POSITION STOCK OPTIONS
- ------------------------------------------------------------------------------- -------------
<S> <C>
R. J. Messenger................................................................ 0
Vice Chairman and Chief Executive Officer
Charles R. Miller.............................................................. 0
President and Chief Operating Officer
James G. VanDevender........................................................... 0
Executive Vice President and Chief Financial Officer
Ronald R. Patterson............................................................ 0
Executive Vice President and President, Healthcare Operations
Robert C. Joyner............................................................... 0
Senior Vice President, Secretary and General Counsel
Executive Group................................................................ 0
Non-Executive Director Group................................................... 100,000
Non-Executive Officer Employee Group........................................... 0
</TABLE>
Set forth below is a general description of the terms of the Directors'
Stock Option Plan. This description is qualified in its entirety by reference to
the complete text of the Directors' Stock Option Plan, included as an exhibit to
the Registration Statement of which this Proxy Statement/Prospectus forms a part
and is incorporated herein by reference, and to the text of the amendments to
the Directors' Stock Option Plan attached hereto as Annex F.
GENERAL. The Champion Board adopted the Directors' Stock Option Plan on
September 1, 1992. Stockholder approval was obtained December 6, 1994 as part of
the AmeriHealth Merger.
The purpose of the Directors' Stock Option Plan is to give the members of
the Champion Board who are not elected as representatives of Champion's
management or elected as representatives of certain specified stockholders ("Key
Directors") an opportunity to acquire shares of Champion Common Stock and
participate in the appreciation thereof, thereby providing such Key Directors an
incentive to promote the best interests of Champion and enhance its long-term
performance.
ADMINISTRATION. The Champion Board is authorized to administer the
Directors' Stock Option Plan and is permitted to delegate all or a portion of
its administrative authority (other than its authority to amend or terminate the
Directors' Stock Option Plan) to a committee of the Champion Board comprised of
no less than two Champion Board members that are not Key Directors (the
"Committee"). As administrators of the Director's Stock Option Plan, the
Champion Board and the Committee (together in their capacities as plan
administrators, the "Administrator") have the authority to determine: (i) the
Key Directors to whom options will be granted, (ii) the time or times at which
options will be granted, (iii) the form and amount of awards, (iv) the
limitations, restrictions and conditions applicable to any such award and (v)
the adjustment of the aggregate number of shares subject to a Director Option
and the exercise price thereof in the event of an adjustment in the number of
shares of issued Champion Common Stock. In addition, the Administrator has the
authority to interpret and make final determinations under the Directors' Stock
Option Plan.
AWARDS. The Administrator is authorized to grant Director Options, which
are non-statutory stock options, with respect to 60,000 shares (100,000 if the
Directors' Stock Option Plan Proposal is approved) of Champion Common Stock. In
addition, the Administrator may grant a stock appreciation right (a "Director
SAR") with respect to each Director Option at any time that the Director Option
is outstanding, provided that the Administrator determines that it is in the
best interests of Champion
186
<PAGE>
to grant such Director SAR. A Director SAR entitles the holder thereof to
surrender to Champion the Director Option, or any portion thereof, to which the
Director SAR is related, in exchange for Champion Common Stock having an
aggregate fair market value equal to the excess of the fair market value on the
date of exercise of one share of Champion Common Stock over the exercise price
of the Director Option or any portion thereof being surrendered, multiplied by
the number of shares of Champion Common Stock subject to the Director Option or
portion thereof (the "Spread"). However, the Administrator has the right to pay
all or a portion of the Spread in cash in lieu of Champion Common Stock. Since
the date that the Champion Common Stock became listed on the AMEX, the fair
market value of the Champion Common Stock on a given date has been determined by
taking the average of the closing prices of the Champion Common Stock on the
composite tape for the ten consecutive trading days immediately preceding such
given date.
OPTION TERMS. The terms and conditions of the Director Options, which must
be set forth in an option agreement, are determined by the Administrator;
PROVIDED, HOWEVER, that the exercise price of the Director Options may not be
less than 80% of the fair market value of the Common Stock at the time of grant,
the term of the Director Option may not exceed 10 years and the Director Options
may not be transferred except as provided by will or applicable laws of descent.
The Administrator has the authority to require the Key Director to enter into
any or all of the following agreements as a condition to receiving an Option
grant: a non-compete agreement; an agreement cancelling other benefits required
to be provided by Champion; or a stockholder's agreement. In addition, the
Administrator is precluded from delivering Champion Common Stock pursuant to the
exercise of a Director Option, unless the optionee has executed (i) the
Shareholders' Agreement dated as of December 31, 1990, (ii) the Selected
Shareholders' Agreement dated May 27, 1992 and (iii) the Stockholders Agreement
dated May 27, 1992.
MERGER, DISSOLUTION AND CONSOLIDATION. At the special meeting of Champion
stockholders on December 6, 1994, the stockholders of Champion approved, by
approving the AmeriHealth Merger, the Director's Plan and an amendment to the
Directors' Plan relating to treatment of Director Options upon the merger,
dissolution or consolidation of Champion. Pursuant to such amendment, the
Director Options would terminate upon a liquidation or termination of Champion
or upon a merger or consolidation in which the Company is not the surviving
corporation and for which the plan or agreement of merger or consolidation does
not provide for the assumption by the surviving corporation of the Director
Options and Director SARs. In the event that Champion enters into a merger or
consolidation pursuant to which Champion will not be the surviving corporation
and the plan or agreement does provide that the Director Options and Director
SARs will be assumed by the surviving corporation, the Director Options and
Director SARs will become and remain the obligation of the surviving corporation
and will be adjusted as the Champion Board may deem appropriate with respect to
any increase or decrease in the number of shares of issued Champion Common Stock
resulting from certain corporate events, such as a reorganization or
recapitalization, effected without receipt of consideration by Champion.
The Merger Agreement provides that the outstanding Director Options will be
assumed by Paracelsus and be converted into Paracelsus Options to purchase that
number of shares of Paracelsus Common Stock equal to the number of shares of
Champion Common Stock subject to such Director Options. The terms and conditions
of the Paracelsus Options, including the exercise price thereof, will generally
be the same as those applicable to the converted Director Options.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The following discussion is a
general summary of the principal United States Federal income tax consequences
relating to option grants under the Directors' Stock Option Plan. This summary
is not intended to be exhaustive and, among other things, does not describe
state, local or foreign income and other tax consequences.
An optionee will not recognize any taxable income upon the grant of a
non-qualified option and the company making such grant will not be entitled to a
tax deduction at such time. Generally, upon exercise of a non-qualified option,
such as the Director Options, the excess of the fair market value of
187
<PAGE>
the stock on the exercise date over the exercise price will be taxable as
compensation income to the optionee, and the company will be entitled to a tax
deduction in an amount equal to such excess. The optionee's tax basis for the
stock received pursuant to such exercise will equal the sum of the compensation
income recognized and the exercise price. In the event of a sale of stock
received upon the exercise of a non-qualified option, any appreciation or
depreciation after the exercise date generally will be taxed to the optionee as
capital gain or loss and will be long-term capital gain or loss if the holding
period for such stock is more than one year.
If the Director Options remain outstanding at the time of the Merger, such
Director Options along with the 1996 Director Options will be converted into
Paracelsus Options.
AMENDMENT OF THE SELECTED EXECUTIVE STOCK OPTION PLAN
Under the current terms of the Selected Executive Stock Option Plan, options
to purchase Common Stock granted to participants in the Selected Executive Stock
Option Plan (the "Executive Options") will terminate upon a merger or
consolidation of the Company pursuant to which Champion is not the surviving
corporation, subject to the holder's right to exercise the Executive Options
prior to the effective date of such merger or consolidation. The Champion Board
has adopted an amendment to the Selected Executive Stock Option Plan, attached
hereto as Annex G, subject to stockholder approval, providing that the Executive
Options will not be terminated upon a merger or consolidation of Champion
pursuant to which Champion is not the surviving corporation or in which Champion
becomes a wholly owned subsidiary if the applicable plan or agreement of merger
or consolidation provides that the Executive Options will become and remain the
obligation of the surviving corporation or the corporation wholly owning the
subsidiary and will be adjusted in accordance with the change in capitalization
provisions under the Executive Option Plan. The Merger Agreement provides that
all outstanding Champion Options at the Effective Time will be assumed by
Paracelsus and be converted into Paracelsus Options. Accordingly, in the event
that the proposed amendment to the Executive Option Plan is approved by the
Champion stockholders, the Executive Options will be converted into options to
acquire Paracelsus Common Stock rather than being terminated at the Effective
Time of the Merger. At the special meeting of Champion stockholders on December
6, 1994, the stockholders of Champion approved identical amendments to four
other stock option plans in which Champion executives participate.
APPROVAL OF THE MERGER PROPOSAL WILL BE DEEMED TO CONSTITUTE APPROVAL OF THE
PROPOSAL TO AMEND THE SELECTED EXECUTIVE STOCK OPTION PLAN AS DESCRIBED ABOVE.
SEE "THE SPECIAL MEETING -- VOTES REQUIRED."
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<PAGE>
NEW PLAN BENEFITS. As described above, if the Merger Proposal is approved,
no new options will be granted under the Selected Executive Stock Option Plan
but a total of 69,000 Champion Options outstanding thereunder will be assumed by
Paracelsus and converted into Paracelsus Options. The following table is
included pursuant to requirements of the Commission:
SELECTED EXECUTIVE STOCK OPTION PLAN
<TABLE>
<CAPTION>
NUMBER OF
NAME AND POSITION STOCK OPTIONS
- ----------------------------------------------------------------------------------------- -------------
<S> <C>
R. J. Messenger
Vice Chairman and Chief Executive Officer.............................................. 0
Charles R. Miller
President and Chief Operating Officer.................................................. 0
James G. VanDevender
Executive Vice President and Chief Financial Officer................................... 0
Ronald R. Patterson
Executive Vice President and President, Healthcare Operations.......................... 0
Robert C. Joyner
Senior Vice President, Secretary and General Counsel................................... 0
Executive Group.......................................................................... 17,500
Non-Executive Director Group............................................................. 0
Non-Executive Officer Employee Group..................................................... 51,500
</TABLE>
Set forth below is a general description of the terms of the Selected
Executive Stock Option Plan. This description is qualified in its entirety by
reference to the complete text of the Selected Executive Stock Option Plan
included as an exhibit to the Registration Statement of which this Proxy
Statement/Prospectus forms a part and is incorporated herein by reference, and
to the text of the proposed amendment to the Selected Executive Stock Option
Plan attached hereto as Annex G.
GENERAL. The Champion Board adopted the Selected Executive Stock Option
Plan on April 20, 1995, subject to stockholder approval. The Champion
stockholders approved the Selected Executive Stock Option Plan at their annual
meeting on May 25, 1995.
The purpose of the Selected Executive Stock Option Plan is to give selected
executives ("Key Executives") an opportunity to acquire shares of Champion
Common Stock and participate in the appreciation thereof, thereby providing such
Key Executives an incentive to promote the best interests of Champion and
enhance its long-term performance.
ADMINISTRATION. The Champion Board is authorized to administer the Selected
Executive Stock Option Plan and is permitted to delegate all or a portion of its
administrative authority (other than its authority to amend or terminate the
Selected Executive Stock Option Plan) to a committee of the Champion Board
comprised of no less than two Champion Board members (the "Option Committee").
As administrators of the Selected Executive Stock Option Plan, the Champion
Board and the Option Committee (together in their capacities as plan
administrators, the "Option Administrator") determine: (i) the Key Executives to
whom options will be granted, (ii) the time or times at which options will be
granted, (iii) the form and amount of awards, (iv) the limitations, restrictions
and conditions applicable to any such award and (v) the adjustment of the
aggregate number of shares subject to an Executive Option and the exercise price
thereof in the event of an adjustment in the number of shares of issued Champion
Common Stock. In addition, the Option Administrator has the authority to
interpret and make final determinations under the Selected Executive Stock
Option Plan.
AWARDS. The Option Administrator is authorized to grant Executive Options,
which are non-statutory options, to acquire a maximum of 144,500 shares of
Champion Common Stock. In addition,
189
<PAGE>
the Option Administrator may grant an SAR with respect to each Executive Option
at any time that the Executive Option is outstanding, provided that the Option
Administrator determines that it is in the best interests of Champion to grant
such SAR. The SAR entitles the holder thereof to surrender to Champion the
Executive Option, or any portion thereof, to which it is related, in exchange
for Champion Common Stock having an aggregate fair market value equal to the
Spread on the Executive Option. However, the Option Administrator will have the
right to pay all or a portion of the Spread in cash in lieu of Champion Common
Stock.
OPTION TERMS. The terms and conditions of the Executive Options, which must
be set forth in an option agreement, are determined by the Option Administrator;
PROVIDED, HOWEVER that the exercise price of the Executive Options may not be
less than 80% of the fair market value of the Champion Common Stock at the time
of the grant, the term of the Executive Option may not exceed 10 years and the
Executive Options may not be transferred, except as provided by will or
applicable laws of descent. The Administrator has the authority to require the
Key Executive to enter into any or all of the following agreements as a
condition of receiving an Executive Option grant: a non-compete agreement; an
agreement cancelling other benefits required to be provided by Champion; or a
stockholder's agreement. In addition, the Option Administrator is not obligated
to deliver Champion Common Stock pursuant to the exercise of an Executive
Option, unless the Optionee has executed the D Stockholders' Agreement.
TERMINATION OF EMPLOYMENT. The Executive Options will terminate upon the
earliest of (i) the date specified by the Executive Option, (ii) the date on
which an Executive Option holder is notified that his employment with Champion
has terminated for any reason other than death or disability, unless the Option
Administrator determines that the Executive Option should terminate on a date
that is within 90 days of the Executive Option holder's termination of
employment in which case the Executive Option will terminate on the date
specified by the Option Administrator or (iii) the date that is one year
following the termination of the Executive Option holder's employment as a
result of death or disability. The Option Administrator has determined that an
Executive Option holder who remains employed by a successor of Champion will not
be treated as having terminated employment with Champion.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The following discussion is a
general summary of the principal United States Federal income tax consequences
relating to Executive Options under the Selected Executive Stock Option Plan.
This summary is not intended to be exhaustive and, among other things, does not
describe state, local or foreign income and other tax consequences.
Like the Director Options, the Executive Options are non-statutory options
and are subject to tax in the same manner as the Director Options. See "--
Amendment of the Directors' Stock Option Plan -- Certain Federal Income Tax
Consequences."
AMENDMENT OF THE FOUNDERS' STOCK OPTION PLAN
Under the Founders' Stock Option Plan, Champion has granted Messrs. Miller
and VanDevender options (the "Founders' Options") to purchase 108,000 and 72,000
shares, respectively, of Champion Common Stock at an exercise price of $1.00 per
share. Under the current terms of the Founders' Stock Option Plan, the exercise
price of the Founders' Options is payable solely in cash. The Champion Board has
adopted, subject to stockholder approval, an amendment to the Founders' Stock
Option Plan attached hereto as Annex H, providing that the Founders' Options may
instead be exercised by means of a cashless exercise procedure to pay either or
both (i) the exercise price of the Founders' Options and (ii) any withholding
taxes payable in connection with the exercise of options outstanding thereunder.
The Paracelsus Board has agreed to adopt similar amendments with respect to each
of the other Champion Stock Option Plans except the Champion Healthcare
Corporation Physicians Stock Option Plan. Such other amendments do not require
stockholder approval for purposes of Section 16 of the Exchange Act and Section
162(m) of the Code.
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<PAGE>
THE FOUNDERS' STOCK OPTION PLAN PROPOSAL IS BEING SUBMITED TO STOCKHOLDERS
FOR APPROVAL INDEPENDENTLY OF THE MERGER PROPOSAL. SEE "THE SPECIAL MEETING --
VOTES REQUIRED." YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE FOUNDERS'
STOCK OPTION PLAN PROPOSAL AND RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE
PROPOSAL TO AMEND THE FOUNDERS' STOCK OPTION PLAN.
NEW PLAN BENEFITS. As described above, if the Founders' Stock Option Plan
Proposal is approved, a cashless exercise procedure will be added to the 108,000
and 72,000 outstanding Champion options currently held by Messrs. Miller and
VanDevender, respectively, under the Founders' Stock Option Plan. No new option
grants under the Founders' Stock Option Plan will be made. The following table
is included pursuant to requirements of the Commission:
FOUNDERS' STOCK OPTION PLAN
<TABLE>
<CAPTION>
NUMBER OF
NAME AND POSITION STOCK OPTIONS
- ----------------------------------------------------------------------------------------- -------------
<S> <C>
R. J. Messenger
Vice Chairman and Chief Executive Officer.............................................. 0
Charles R. Miller
President and Chief Operating Officer.................................................. 108,000
James G. VanDevender
Executive Vice President and Chief Financial Officer................................... 72,000
Ronald R. Patterson
Executive Vice President and President, Healthcare Operations.......................... 0
Robert C. Joyner.........................................................................
Senior Vice President, Secretary and General Counsel................................... 0
Executive Group.......................................................................... 180,000
Non-Executive Director Group............................................................. 0
Non-Executive Officer Employee Group..................................................... 0
</TABLE>
Set forth below is a general description of the terms of the Founders' Stock
Option Plan. This description is qualified in its entirety by reference to the
complete text of the Founders' Stock Option Plan included as an exhibit to the
Registration Statement of which this Proxy Statement/Prospectus forms a part,
and to the text of the proposed amendment to the Founders' Stock Option Plan
attached hereto as Annex H.
FOUNDERS' OPTIONS TERMS: The Founders' Options expire on December 31, 2000,
are not transferable or assignable (except in the case of death), are governed
by the laws of the State of Texas and cannot be amended without the consent of
Champion and the applicable holder. Messrs. Miller and VanDevender have
consented to the proposed amendments to the Founders' Stock Option Plan. The
Founders' Stock Option Plan provides that the Founders' Options will become the
obligation of any successor to Champion. Pursuant to the Merger the Founders'
Options will be converted into Paracelsus Options on substantially similar
terms.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The following discussion is a
general summary of the principal United States Federal income tax consequences
to Paracelsus with respect to the Founders' Options. This summary is not
intended to be exhaustive and, among other things, does not describe state,
local or foreign income and other tax consequences.
Like the Director Options, the Founders' Options are non-statutory options
and are subject to tax in the same manner as the Director Options. See "--
Amendment of the Directors' Stock Option Plan -- Certain Federal Income Tax
Consequences."
191
<PAGE>
In addition, Section 162(m) of the Code may apply to the Founders' Options.
Section 162(m) of the Code disallows a federal income tax deduction to any
publicly-held corporation for compensation paid in excess of $1,000,000 in any
taxable year to the chief executive officer or any of the four other most highly
compensated executive officers who are employed by the corporation on the last
day of the taxable year. However, Section 162(m) provides that the $1 million
limit does not apply to compensation related to the exercise of certain options
("Section 162(m) Qualifying Options") granted under a stock option plan that
meets certain requirements (a "Section 162(m) Qualifying Option Plan"). The
Founders' Options are intended to constitute Section 162(m) Qualifying Options
and the Founders' Stock Option Plan is intended to constitute a Section 162(m)
Qualifying Option Plan (and is intended to remain so upon approval of the
proposed amendment to the Founders' Stock Option Plan).
VALIDITY OF PARACELSUS COMMON STOCK
The validity of the Paracelsus Common Stock to be issued in connection with
the Merger will be passed upon for Paracelsus by its counsel, Skadden, Arps,
Slate, Meagher & Flom, Los Angeles, California.
EXPERTS
The (i) consolidated balance sheet of Champion Healthcare Corporation as of
December 31, 1994 and 1995 and the consolidated statements of operations,
stockholders' equity and cash flows of Champion Healthcare Corporation for each
of the three years in the period ended December 31, 1995; (ii) the balance sheet
of Dakota Heartland Health System as of December 31, 1994 and 1995 and the
statements of income, partners' equity, and cash flows of Dakota Heartland
Health System for the year ended December 31, 1995; (iii) the balance sheet of
Jordan Valley Hospital as of September 30, 1995 and the statements of income and
changes in owner's equity and cash flows of Jordan Valley Hospital for the
period from January 1, 1995 through September 30, 1995 and (iv) the consolidated
balance sheets of Salt Lake Regional Medical Center as of May 31, 1994 and April
13, 1995 and the consolidated statements of income, equity, and cash flows of
Salt Lake Regional Medical Center for each of the two years in the period ended
May 31, 1994 and the period from June 1, 1994 through April 13, 1995 included in
this Proxy Statement/Prospectus and the Registration Statement, have been
included herein in reliance on the reports of Coopers & Lybrand L.L.P.,
independent accountants, given upon the authority of such firm as experts in
accounting and auditing.
One or more representatives of Coopers & Lybrand L.L.P. are expected to be
present at the Special Meeting to answer appropriate questions of stockholders
of Champion and to make a statement if so desired.
The consolidated financial statements of Paracelsus Healthcare Corporation
as of September 30, 1994 and 1995 and for each of the three years in the period
ended September 30, 1995 and the combined financial statements of Davis Hospital
and Medical Center, Pioneer Valley Hospital and Santa Rosa Medical Center as of
December 31, 1994 and 1995 and for the years then ended appearing in this Proxy
Statement/Prospectus and the Registration Statement, have been audited by Ernst
& Young LLP, independent auditors, as set forth in their respective reports
thereon appearing elsewhere herein and in the Registration Statement and are
included in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
192
<PAGE>
STOCKHOLDER PROPOSALS
The date by which stockholder proposals intended to be presented at
Champion's 1996 Annual Meeting of Stockholders must have been received by the
Secretary of Champion for inclusion in Champion's proxy, notice of meeting and
proxy statement relating to Champion's 1996 Annual Meeting was December 29,
1995. If the date of such annual meeting is advanced or delayed, Champion will
comply with any applicable provision concerning submission of stockholder
proposals under Regulation 14A under the Exchange Act and the Champion Bylaws.
Champion will not hold further annual meetings of stockholders if the Merger is
consummated.
If the Merger is consummated, the first annual meeting of the public
shareholders of Paracelsus after such consummation is expected to be held in the
month of May 1997. If any Paracelsus shareholder intends to present a proposal
at such Paracelsus annual meeting and wishes to have such proposal considered
for inclusion in the proxy materials for such meeting, such holder must submit
the proposal to the Secretary of Paracelsus in writing so as to be received at
the executive offices of Paracelsus a reasonable time before the proxy statement
relating to that meeting is mailed. Paracelsus requests any such proposals be
received by October 2, 1996. Such proposal must also meet the other requirements
of the rules of the Commission relating to shareholders' proposals. In addition,
after the Effective Time the Paracelsus Bylaws will establish an advance notice
procedure with regard to certain matters, including shareholder proposals not
included in Paracelsus' proxy statement, to be brought before an annual meeting
of shareholders. In general, notice must be received by the Secretary of
Paracelsus not less than 60 days nor more than 90 days prior to the anniversary
date of the immediately preceding annual meeting and must contain specified
information concerning the matters to be brought before such meeting and
concerning the shareholder proposing such matters. If the date of the annual
meeting is more than 30 days earlier or later than such anniversary date, notice
must be received not later than the close of business on the 10th day following
the day on which notice of the date of the annual meeting was mailed to
shareholders or public disclosure of the date of such meeting was made,
whichever first occurs.
193
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
Paracelsus Financial Statements as of and for the years ended September 30, 1993,
1994 and 1995
Report of Ernst & Young LLP Independent Auditors.................................. F-3
Consolidated Balance Sheets -- September 30, 1994 and 1995........................ F-4
Consolidated Statements of Income -- Years ended September 30, 1993, 1994 and
1995............................................................................. F-5
Consolidated Statements of Shareholder's Equity -- Years ended September 30, 1993,
1994 and 1995.................................................................... F-6
Consolidated Statements of Cash Flows -- Years ended September 30, 1993, 1994 and
1995............................................................................. F-7
Notes to Consolidated Financial Statements........................................ F-9
Paracelsus Financial Statements as of and for the Six Months ended March 31, 1995
and 1996 (unaudited)
Condensed Consolidated Balance Sheets -- September 30, 1995 and March 31, 1996.... F-20
Consolidated Statements of Income (unaudited) -- Six Months ended March 31, 1995
and 1996......................................................................... F-21
Consolidated Statements of Cash Flows (unaudited) -- Six Months ended March 31,
1995 and 1996.................................................................... F-22
Notes to Unaudited Condensed Consolidated Financial Statements.................... F-23
Davis Hospital and Medical Center, Pioneer Valley Hospital, and Santa Rosa Medical
Center Combined Financial Statements as of and for the years ended December 31,
1994 and 1995
Report of Ernst & Young LLP Independent Auditors.................................. F-25
Combined Balance Sheets -- December 31, 1994 and 1995............................. F-26
Combined Statements of Income and Changes in Retained Earnings -- Years ended
December 31, 1994 and 1995....................................................... F-27
Combined Statements of Cash Flows -- Years ended December 31, 1994 and 1995....... F-28
Notes to Combined Financial Statements............................................ F-29
Davis Hospital and Medical Center, Pioneer Valley Hospital, and Santa Rosa Medical
Center Combined Financial Statements for the Three Months ended March 31, 1995 and
1996 (unaudited)
Unaudited Combined Balance Sheet -- March 31, 1996................................ F-33
Unaudited Combined Statements of Income and Changes in Retained Earnings -- Three
Months ended March 31, 1995 and 1996............................................. F-34
Unaudited Combined Statements of Cash Flows -- Three Months ended March 31, 1995
and 1996......................................................................... F-35
Champion Financial Statements as of and for the years ended December 31, 1993, 1994
and 1995
Report of Coopers & Lybrand L.L.P. Independent Accountants........................ F-36
Consolidated Balance Sheet -- December 31, 1994 and 1995.......................... F-37
Consolidated Statement of Operations -- Years Ended December 31, 1993, 1994 and
1995............................................................................. F-38
Consolidated Statement of Stockholders' Equity -- Years Ended December 31, 1993,
1994 and 1995.................................................................... F-39
Consolidated Statement of Cash Flows -- Years Ended December 31, 1993, 1994 and
1995............................................................................. F-40
Notes to Consolidated Financial Statements........................................ F-41
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
Dakota Heartland Health System Financial Statement as of December 31, 1994 and 1995
and at the year ended December 31, 1995
Report of Coopers & Lybrand L.L.P. Independent Accountants........................ F-60
Balance Sheet -- December 31, 1994 and 1995....................................... F-61
Statement of Income -- Year Ended December 31, 1995............................... F-62
Statement of Partners' Equity -- Years Ended December 31, 1994 and 1995........... F-63
Statement of Cash Flows -- Year Ended December 31, 1995........................... F-64
Notes to Financial Statements..................................................... F-65
Jordan Valley Hospital Financial Statements as of September 30, 1995 and for the
period from January 1, 1995 through September 30, 1995
Report of Coopers & Lybrand L.L.P. Independent Accountants........................ F-68
Balance Sheet -- September 30, 1995............................................... F-69
Statement of Income and Changes in Owners' Equity -- For the Period from January
1, 1995 through September 30, 1995............................................... F-70
Statement of Cash Flows -- For the Period from January 1, 1995 through September
30, 1995......................................................................... F-71
Notes to Financial Statements..................................................... F-72
Salt Lake Regional Medical Center Financial Statements as of and for the years ended
May 31, 1993 and 1994 and as of April 13, 1995 and for the period from June 1, 1994
through April 13, 1995.
Report of Coopers & Lybrand L.L.P. Independent Accountants........................ F-76
Consolidated Balance Sheets -- May 31, 1994 and April 13, 1995.................... F-77
Consolidated Statements of Income -- Years Ended May 31, 1993 and 1994 and for the
Period from June 1, 1994 through April 13, 1995.................................. F-78
Consolidated Statements of Equity -- Years Ended May 31, 1993 and 1994 and for the
Period from June 1, 1994 through April 13, 1995.................................. F-79
Consolidated Statements of Cash Flows -- Years Ended May 31, 1993 and 1994 and for
the Period from June 1, 1994 through April 13, 1995.............................. F-80
Notes to Consolidated Financial Statements........................................ F-81
Champion Financial Statements as of and for the Three Months ended March 31, 1995
and 1996 (Unaudited)
Unaudited Condensed Consolidated Balance Sheet -- December 31, 1995 and March 31,
1996............................................................................. F-88
Unaudited Condensed Consolidated Statement of Operations -- Three Months Ended
March 31, 1995 and 1996.......................................................... F-89
Unaudited Condensed Consolidated Statement of Cash Flows -- Three Months Ended
March 31, 1995 and 1996.......................................................... F-90
Notes to Condensed Consolidated Financial Statements.............................. F-91
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholder
Paracelsus Healthcare Corporation
We have audited the accompanying consolidated balance sheets of Paracelsus
Healthcare Corporation and subsidiaries as of September 30, 1994 and 1995, and
the related consolidated statements of income, shareholder's equity and cash
flows for each of the three years in the period ended September 30, 1995. 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 Paracelsus
Healthcare Corporation and subsidiaries at September 30, 1994 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1995, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, as of
October 1, 1994, the Company changed its method of accounting for marketable
securities.
ERNST & YOUNG LLP
Los Angeles, California
December 14, 1995
F-3
<PAGE>
PARACELSUS HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30
----------------------------------
1994 1995
---------------- ----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................... $ 1,452,000 $ 2,949,000
Marketable securities (NOTE 5).............................................. 16,960,000 10,387,000
Accounts receivable, less allowance for uncollectible accounts and
contractual adjustments of $56,507,000 in 1994 and $56,958,000 in 1995
(NOTE 4)................................................................... 68,244,000 81,039,000
Notes and other receivables (NOTE 6)........................................ 9,287,000 12,502,000
Supplies.................................................................... 10,602,000 10,565,000
Deferred income taxes (NOTE 2).............................................. 17,420,000 16,485,000
Other current assets........................................................ 6,493,000 4,510,000
---------------- ----------------
Total current assets...................................................... 130,458,000 138,437,000
Property and equipment (NOTES 3 AND 10):
Land and improvements....................................................... 24,699,000 23,366,000
Buildings and improvements.................................................. 144,066,000 137,966,000
Equipment................................................................... 101,559,000 99,748,000
Construction in progress.................................................... 636,000 7,332,000
---------------- ----------------
270,960,000 268,412,000
Less accumulated depreciation and amortization.............................. 97,123,000 102,746,000
---------------- ----------------
173,837,000 165,666,000
Marketable securities (NOTE 5)................................................ -- 12,169,000
Other assets (NOTE 6)......................................................... 25,706,000 28,360,000
---------------- ----------------
Total assets.................................................................. $ 330,001,000 $ 344,632,000
---------------- ----------------
---------------- ----------------
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
<S> <C> <C>
Current liabilities:
Bank drafts outstanding..................................................... $ 2,179,000 $ 4,991,000
Accounts payable and accrued expenses....................................... 22,640,000 27,384,000
Accrued wages and benefits.................................................. 27,863,000 28,354,000
Accrued interest............................................................ 3,845,000 3,877,000
Current maturities of long-term debt and
capital lease obligations.................................................. 5,269,000 8,658,000
Current portion of self-insurance reserves.................................. 5,802,000 4,792,000
---------------- ----------------
Total current liabilities................................................. 67,598,000 78,056,000
Long-term debt and capital lease obligations,
less current maturities (NOTE 3)............................................. 112,449,000 113,070,000
Self-insurance reserves, less current portion (NOTE 9)........................ 23,117,000 25,176,000
Deferred income taxes (NOTE 2)................................................ 29,108,000 23,255,000
Minority interests............................................................ 214,000 126,000
Commitments and contingencies (NOTE 8)........................................
Shareholder's equity:
Common stock, no stated value:
Authorized shares -- 1,000
Issued and outstanding shares -- 450...................................... 4,500,000 4,500,000
Additional paid-in capital.................................................. 390,000 390,000
Unrealized gains on marketable securities, net of taxes (NOTE 5)............ -- 137,000
Retained earnings........................................................... 92,625,000 99,922,000
---------------- ----------------
Total shareholder's equity................................................ 97,515,000 104,949,000
---------------- ----------------
Total liabilities and shareholder's equity.................................... $ 330,001,000 $ 344,632,000
---------------- ----------------
---------------- ----------------
</TABLE>
See accompanying notes.
F-4
<PAGE>
PARACELSUS HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
----------------------------------------------------
1993 1994 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
Total operating revenues (NOTE 10).......................... $ 435,102,000 $ 507,864,000 $ 509,729,000
Costs and expenses:
Salaries and benefits..................................... 174,849,000 209,772,000 209,672,000
Supplies.................................................. 34,245,000 42,890,000 40,780,000
Purchased services........................................ 48,951,000 55,078,000 58,113,000
Provision for bad debts................................... 26,629,000 33,110,000 39,277,000
Other operating expenses.................................. 100,287,000 114,096,000 99,777,000
Depreciation and amortization............................. 14,587,000 16,565,000 17,276,000
Interest.................................................. 10,213,000 12,966,000 15,746,000
Restructuring and unusual charges (NOTE 11)............... -- -- 5,150,000
---------------- ---------------- ----------------
Total costs and expenses.................................... 409,761,000 484,477,000 485,791,000
---------------- ---------------- ----------------
Income before minority interests, income taxes and
extraordinary loss......................................... 25,341,000 23,387,000 23,938,000
Minority interests.......................................... (2,683,000) (2,517,000) (1,927,000)
---------------- ---------------- ----------------
Income before income taxes and extraordinary loss........... 22,658,000 20,870,000 22,011,000
Income taxes (NOTE 2)....................................... 10,196,000 8,567,000 9,024,000
---------------- ---------------- ----------------
Income before extraordinary loss............................ 12,462,000 12,303,000 12,987,000
Extraordinary loss (net of income tax benefit of $346,000)
(NOTE 3)................................................... -- (497,000) --
---------------- ---------------- ----------------
Net income.................................................. $ 12,462,000 $ 11,806,000 $ 12,987,000
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
PARACELSUS HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK UNREALIZED
------------------------- ADDITIONAL GAINS ON
OUTSTANDING PAID-IN MARKETABLE RETAINED
SHARES AMOUNT CAPITAL SECURITIES EARNINGS TOTAL
----------- ------------ ---------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balances at September 30,
1992........................... 450 $ 4,500,000 $ 390,000 $ -- $ 72,576,000 $ 77,466,000
Dividends to shareholder........ -- -- -- -- (1,214,000) (1,214,000)
Net income...................... -- -- -- -- 12,462,000 12,462,000
--- ------------ ---------- ----------- ------------- ---------------
Balances at September 30,
1993........................... 450 4,500,000 390,000 -- 83,824,000 88,714,000
Dividends to shareholder........ -- -- -- (3,005,000) (3,005,000)
Net income...................... -- -- -- 11,806,000 11,806,000
--- ------------ ---------- ----------- ------------- ---------------
Balances at September 30,
1994........................... 450 4,500,000 390,000 -- 92,625,000 97,515,000
Dividends to shareholder........ -- -- -- -- (5,690,000) (5,690,000)
Cumulative effect of a change in
accounting for marketable
securities, net of taxes....... -- -- -- (67,000) -- (67,000)
Change in unrealized gains on
marketable securities, net of
taxes.......................... -- -- -- 204,000 -- 204,000
Net income...................... -- -- -- 12,987,000 12,987,000
--- ------------ ---------- ----------- ------------- ---------------
Balances at September 30,
1995........................... 450 $ 4,500,000 $ 390,000 $ 137,000 $ 99,922,000 $ 104,949,000
--- ------------ ---------- ----------- ------------- ---------------
--- ------------ ---------- ----------- ------------- ---------------
</TABLE>
See accompanying notes.
F-6
<PAGE>
PARACELSUS HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
------------------------------------------------
1993 1994 1995
-------------- ---------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................... $ 12,462,000 $ 11,806,000 $ 12,987,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................... 14,587,000 16,565,000 17,276,000
Gain from disposal of facilities............................ -- -- (9,026,000)
Deferred income taxes....................................... (3,399,000) (5,226,000) (4,989,000)
Extraordinary loss.......................................... -- 497,000 --
Minority interests.......................................... 2,683,000 2,517,000 1,927,000
Changes in operating assets and liabilities, net of effects
of acquisitions:
Accounts receivable....................................... 43,780,000 (9,028,000) (12,261,000)
Supplies and other current assets......................... (2,873,000) (2,368,000) 2,020,000
Notes and other receivables............................... (1,066,000) (2,519,000) (3,215,000)
Accounts payable and other current liabilities............ (1,897,000) 9,410,000 8,079,000
Income taxes payable...................................... (1,568,000) -- --
Self-insurance reserves..................................... 7,151,000 5,457,000 1,049,000
-------------- ---------------- --------------
Net cash provided by operating activities..................... 69,860,000 27,111,000 13,847,000
INVESTING ACTIVITIES
Purchase of available-for-sale securities..................... (8,631,000) (8,329,000) (5,527,000)
Maturities of held-to-maturity securities..................... -- -- 139,000
Acquisitions, net of cash acquired............................ (9,477,000) -- (3,010,000)
Proceeds from disposal of facilities.......................... -- 1,698,000 18,564,000
Additions to property and equipment........................... (14,676,000) (14,342,000) (15,835,000)
Decrease in minority interests................................ (2,752,000) (2,651,000) (2,015,000)
Increase in other assets...................................... (6,622,000) (12,691,000) (2,986,000)
-------------- ---------------- --------------
Net cash used in investing activities......................... (42,158,000) (36,315,000) (10,670,000)
FINANCING ACTIVITIES
Long-term borrowings.......................................... 59,452,000 125,410,000 55,003,000
Payments of long-term debt and capital lease obligations...... (85,509,000) (108,618,000) (50,993,000)
Payments of subordinated promissory note payable.............. -- (4,335,000) --
Dividends to shareholder...................................... (1,214,000) (3,005,000) (5,690,000)
-------------- ---------------- --------------
Net cash provided by (used in) financing activities........... (27,271,000) 9,452,000 (1,680,000)
-------------- ---------------- --------------
Increase in cash and cash equivalents......................... 431,000 248,000 1,497,000
Cash and cash equivalents at beginning of year................ 773,000 1,204,000 1,452,000
-------------- ---------------- --------------
Cash and cash equivalents at end of year...................... $ 1,204,000 $ 1,452,000 $ 2,949,000
-------------- ---------------- --------------
-------------- ---------------- --------------
</TABLE>
F-7
<PAGE>
PARACELSUS HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Supplemental schedule of noncash investing and financing activities:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
--------------------------------------------
1993 1994 1995
-------------- ------------- -------------
<S> <C> <C> <C>
Details of unrealized gains on marketable securities:
Marketable securities............................................ $ -- $ -- $ 208,000
Deferred taxes................................................... -- -- 71,000
-------------- ------------- -------------
Increase in shareholder's equity................................. $ -- $ -- $ 137,000
-------------- ------------- -------------
-------------- ------------- -------------
Exchange of land and building.................................... $ -- $ 1,074,000 $ --
-------------- ------------- -------------
-------------- ------------- -------------
Leases capitalized............................................... $ -- $ 713,000 $ --
-------------- ------------- -------------
-------------- ------------- -------------
Details of businesses acquired in purchase transactions:
Fair value of assets acquired.................................... $ 22,225,000 $ -- $ 3,010,000
Liabilities assumed, including capital lease obligations and note
payable to bank................................................. 10,766,000 -- --
-------------- ------------- -------------
Cash paid for acquisitions....................................... 11,459,000 -- 3,010,000
Cash acquired in acquisitions.................................... 1,982,000 -- --
-------------- ------------- -------------
Net cash paid for acquisitions................................... $ 9,477,000 $ -- $ 3,010,000
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
See accompanying notes.
F-8
<PAGE>
PARACELSUS HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Paracelsus Healthcare Corporation (the "Company") owns, leases and operates
22 acute care, psychiatric and specialty hospitals, four skilled nursing
facilities and 13 medical office buildings. In addition, the Company is a
partner in seven partnerships (six being general and one being limited
partnerships), with ownership equal to or in excess of 50% in five, and less
than 50% in two. In May 1994, the founder, Chairman of the Board and sole
shareholder of the Company passed away with ownership of the Company and the
role of Chairman of the Board succeeding to his son, Dr. Manfred George
Krukemeyer, who is a citizen of the Federal Republic of Germany.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned or majority owned subsidiaries and partnerships. All
significant intercompany transactions and balances are eliminated in
consolidation. Minority interests represent income allocated to the minority
partners' investment.
OPERATING REVENUES
Operating revenues include healthcare services provided to patients which
are reported on an accrual basis in the period in which the services are
provided at established rates, net of third-party reductions related to
contractual adjustments for Medicare, Medicaid, managed care and other programs.
Contractual adjustments totaled $307,868,000, $394,110,000 and $407,888,000, for
1993, 1994 and 1995, respectively.
Contractual adjustments include differences between established billing
rates and amounts estimated by management as reimbursable under various
fixed-price, cost reimbursement and other contractual arrangements. In addition,
other activities including investment earnings, gains on disposal of facilities
(see Note 10), rental income and income from partnerships, all of which are used
exclusively for healthcare-related services provided by the Company, are
considered operating revenues.
Normal estimation differences between final settlements and amounts
recognized in previous years are reported as contractual adjustments in the
current year. The administrative procedures for the cost-based programs preclude
final determination of the payments due or receivable until after the Company's
cost reports are audited or otherwise reviewed by and settled with the
respective program agencies. The Company's estimate for final settlements of all
years through 1995 has been reflected in the consolidated financial statements.
Approximately 57%, 60% and 63% of the Company's gross revenues are for services
to Medicare, Medicaid, and Blue Cross patients for 1993, 1994 and 1995,
respectively.
MARKETABLE SECURITIES
As of October 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115 ("SFAS No. 115"), "Accounting for Certain Investments in Debt
and Equity Securities." In accordance with SFAS No. 115, prior period financial
statements have not been restated to reflect the change in accounting principle.
The adoption of SFAS No. 115 had no effect on net income, but decreased
marketable securities as of October 1, 1994, by $102,000, decreased
shareholder's equity by $67,000 and increased deferred tax assets by $35,000.
Management determines the appropriate classification of marketable
securities (corporate bonds and government securities) at the time of purchase.
Marketable securities are classified as held-to-maturity when the Company has
the positive intent and ability to hold the securities to maturity.
F-9
<PAGE>
PARACELSUS HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Held-to-maturity securities are stated at amortized cost. Marketable securities
not classified as held-to-maturity are classified as available-for-sale.
Available-for-sale securities are stated at fair value, with the unrealized
gains and losses, net of tax, reported in a separate component of shareholder's
equity. The Company also determined that available-for-sale securities are
available for use in current operations and, accordingly, classified such
securities as current assets without regard to the securities' contractual
maturity dates.
The amortized cost of marketable securities classified as held-to-maturity
or available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization is included in operating revenues.
Realized gains and losses, and declines in value judged to be other-
than-temporary are included in operating revenues. The cost of securities sold
is based on the specific identification method.
SUPPLIES
Supplies consisting of drugs and other supplies are stated at cost
(first-in, first-out method) which is not in excess of market.
PROPERTY AND EQUIPMENT
Property and equipment is stated on the basis of cost. Depreciation is
computed by the straight-line method over the estimated useful lives of the
respective assets.
ORGANIZATION AND OTHER COSTS
Organization, loan and other costs (included in other assets) have been
capitalized and are amortized over periods ranging from 24 to 480 months. The
balance of organization, loan, and other costs at September 30, 1994 and 1995,
amounted to $16,469,000 and $18,224,000, respectively. The related accumulated
amortization at September 30, 1994 and 1995, amounted to $5,766,000 and
$4,835,000, respectively.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("SFAS No. 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. The statement also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company will adopt SFAS No. 121
on October 1, 1996, and, based on current circumstances, does not believe the
effect of the adoption will be material.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consists principally of investments in marketable
securities and commercial premiums receivable. The Company's investments in
marketable securities are managed by professional investment managers within
guidelines established by the Board of Directors, which, as a matter of policy,
limit the amounts which may be invested in any one issuer. Concentrations of
credit risk with respect to accounts receivable are limited since a majority of
the receivables are due from the Medicare and Medicaid programs. Management does
not believe that there are any credit risks associated with these governmental
agencies. Commercial insurance, managed care and private receivables consist of
receivables from various payors, subject to differing economic conditions, and
do not represent any concentrated credit risks to the Company. Furthermore,
management continually monitors and adjusts its reserves and allowances
associated with these receivables.
F-10
<PAGE>
PARACELSUS HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments purchased with
original maturities of three months or less.
2. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
----------------------------------------------
1993 1994 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Current:
Federal.......................... $ 10,664,000 $ 11,144,000 $ 11,018,000
State............................ 2,931,000 2,649,000 2,995,000
-------------- -------------- --------------
13,595,000 13,793,000 14,013,000
Deferred:
Federal.......................... (3,434,000) (4,080,000) (4,419,000)
State............................ 35,000 (1,146,000) (570,000)
-------------- -------------- --------------
(3,399,000) (5,226,000) (4,989,000)
-------------- -------------- --------------
$ 10,196,000 $ 8,567,000 $ 9,024,000
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
During 1992, the Company changed its method of reporting income for tax
purposes from the cash basis to accrual basis. Under the cash basis, the Company
deferred approximately $72,000,000 of taxable income for periods ending prior to
October 1, 1991. Of the amounts deferred, $14,431,000, $11,429,000 and
$11,794,000 were included in 1993, 1994 and 1995 taxable income, respectively.
The effect of the change in reporting has been to increase the Company's income
for tax purposes, consistent with federal and state regulations, through 1997.
F-11
<PAGE>
PARACELSUS HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
2. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30
------------------------------
1994 1995
-------------- --------------
<S> <C> <C>
Deferred tax liabilities:
Accelerated depreciation............................................. $ 21,833,000 $ 21,083,000
Change in method of reporting taxable income......................... 9,960,000 3,765,000
Accrued malpractice claims........................................... (4,969,000) (3,839,000)
Unrealized gains on marketable securities............................ -- 71,000
Other -- net......................................................... 2,284,000 2,175,000
-------------- --------------
Total deferred tax liabilities..................................... 29,108,000 23,255,000
Deferred tax assets:
Change in method of reporting taxable income......................... (3,853,000) (5,487,000)
Accrued malpractice claims........................................... 1,079,000 717,000
Allowance for bad debts.............................................. 10,813,000 10,959,000
Accrued bonuses...................................................... 2,064,000 2,337,000
Accrued workers' compensation claims................................. 424,000 404,000
Accrued vacation pay................................................. 1,933,000 1,870,000
Accrued expenses..................................................... 4,960,000 5,685,000
-------------- --------------
Total deferred tax assets.......................................... 17,420,000 16,485,000
-------------- --------------
Net deferred tax liabilities....................................... $ 11,688,000 $ 6,770,000
-------------- --------------
-------------- --------------
</TABLE>
A reconciliation of the differences between federal income taxes computed at
the statutory rate and the total provision is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
-------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Federal statutory rate................................. 34.8% 35.0% 35.0%
State taxes, net of federal income tax benefit......... 7.0% 6.0% 6.0%
Effect of federal income tax rate increase on prior
years deferred taxes.................................. 3.2% -- --
--- --- ---
Effective income tax rate............................ 45.0% 41.0% 41.0%
--- --- ---
--- --- ---
</TABLE>
The Company made income tax payments of $15,863,000, $14,787,000 and
$11,656,000 during 1993, 1994 and 1995, respectively.
F-12
<PAGE>
PARACELSUS HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30
----------------------------------
1994 1995
---------------- ----------------
<S> <C> <C>
Note payable with banks, making available $125,000,000 under a
revolving credit facility, collateralized by 55% of the common
stock of the Company. The revolving facility is available for three
years for up to $125,000,000 (increased to $230,000,000 effective
December 8, 1995 -- see Note 13). Interest on each facility accrues
at a rate equal to the sum of (a) either the reference rate, an off
shore dollar rate or a CD rate (as selected by the Company) plus
(b) the applicable margin. The average interest rate at September
30, 1995, was 6.0% (See Note 8).................................... $ 22,000,000 $ 27,500,000
Senior subordinated notes, interest payable semiannually on April 15
and October 15 of each year at 9.875%, with a maturity date of
October 15, 2003................................................... 75,000,000 75,000,000
Mortgages payable, $56,000 due monthly through December 1998,
including interest from 9.5% to 12.5%, collateralized by trust
deeds on buildings and land with a net book value of $9,194,000 at
September 30, 1995................................................. 4,755,000 4,629,000
Note payable to bank, due in May 1996, interest at prime plus 1.0%
(9.75% at September 30, 1995), collateralized by the accounts
receivable of the facility......................................... 3,259,000 3,259,000
Note payable, due in varying amounts through 1996, at varying
interest rates..................................................... 511,000 505,000
Capital lease obligations........................................... 12,193,000 10,835,000
---------------- ----------------
117,718,000 121,728,000
Less current maturities............................................. 5,269,000 8,658,000
---------------- ----------------
$ 112,449,000 $ 113,070,000
---------------- ----------------
---------------- ----------------
</TABLE>
On October 17, 1993, the Company completed a $75,000,000 public offering of
9.875% Senior Subordinated Notes (the "Notes") due 2003. The Notes, which are
subordinated to all senior indebtedness of the Company, are redeemable at the
option of the Company beginning October 15, 1998, at 104.94% of face value,
declining annually to 100% of face value on or after October 15, 2000, or at the
option of the holder upon the occurrence of a change in control, as defined. The
net proceeds from the offering were used to repay the 14.375% Senior
Subordinated Notes of $18,650,000 at a redemption price of 102.05% plus accrued
interest, and the outstanding balance under the Credit Facility of $54,500,000.
The extinguishment of the 14.375% Senior Subordinated Notes resulted in a loss
of $497,000 (net of income tax benefit of $346,000) which was recorded as an
extraordinary loss in 1994.
The Company's interest rate swap agreement, which converted the variable
interest rate on a portion of its revolving credit facility to a fixed interest
rate, terminated during May 1994. The interest rate swap agreement fixed the
interest rate on $20,000,000 of its bank debt at 7.8%. Each
F-13
<PAGE>
PARACELSUS HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
quarter the Company paid or received an amount equal to the difference between
the fixed interest rate and the LIBOR rate. Net interest payments of $400,000
were recognized as an adjustment to interest expense in 1994.
The credit facility and the senior subordinated notes require the Company,
among other things, to maintain specified financial ratios, and restrict the
sale, lease or disposal of its assets.
Maturities of long-term debt and principal payments under capital lease
obligations as of September 30, 1995, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30
- ----------------------------------------------------------------------------
<S> <C>
1996...................................................................... $ 8,658,000
1997...................................................................... 1,560,000
1998...................................................................... 1,409,000
1999...................................................................... 489,000
2000...................................................................... 330,000
Thereafter................................................................ 109,282,000
----------------
$ 121,728,000
----------------
----------------
</TABLE>
The Company made interest payments of $12,458,000, $9,988,000 and
$15,789,000 during 1993, 1994 and 1995, respectively.
Property and equipment includes $13,534,000 and $12,566,000 at September 30,
1994 and 1995, respectively, for leases that have been capitalized. The
amortization of these assets is included in depreciation expense.
Future minimum payments under capital lease obligations as of September 30,
1995, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30
- ----------------------------------------------------------------------------
<S> <C>
1996...................................................................... $ 2,193,000
1997...................................................................... 2,083,000
1998...................................................................... 1,880,000
1999...................................................................... 972,000
2000...................................................................... 780,000
Thereafter................................................................ 8,915,000
----------------
Total minimum lease payments.............................................. 16,823,000
Amounts representing interest............................................. 5,988,000
----------------
Present value of net minimum lease payments (including current maturities
of $1,371,000)........................................................... $ 10,835,000
----------------
----------------
</TABLE>
4. COMMERCIAL PAPER NOTES
During 1993, PHC Funding Corporation II, a subsidiary of the Company formed
in March 1993, entered into an agreement with an unaffiliated trust (the
"Trust") to sell the hospital's eligible accounts receivable ("Eligible
Receivables") on a nonrecourse basis to the Trust. A special purpose subsidiary
of a major lending institution agreed to provide up to $65,000,000 in commercial
paper financing to the Trust to finance the purchase of the Eligible Receivables
from PHC Funding Corporation II. Eligible Receivables held by the Trust secure
the commercial paper financing. The Commercial Paper Notes have a term of not
more than 120 days. Eligible receivables sold to the Trust at
F-14
<PAGE>
PARACELSUS HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
4. COMMERCIAL PAPER NOTES (CONTINUED)
September 30, 1994 and 1995, totaled $65,000,000. Interest expense charged to
the Trust related to the commercial paper financing is passed through to the
Company and included as interest expense in the Company's consolidated financial
statements.
5. MARKETABLE SECURITIES
The following table summarizes marketable securities at September 30, 1995:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED FAIR
AMORTIZED COST GAINS LOSSES VALUE
-------------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Available-for-sale securities:
Fixed maturity securities:
Corporate bonds.......................... $ 435,000 $ 16,000 $ -- $ 451,000
U.S. Government bonds.................... 1,098,000 60,000 -- 1,158,000
Mortgage-backed bonds.................... 984,000 16,000 -- 1,000,000
Obligations of states and political
subdivisions............................ 7,662,000 128,000 12,000 7,778,000
-------------- ----------- ----------- --------------
$ 10,179,000 $ 220,000 $ 12,000 $ 10,387,000
-------------- ----------- ----------- --------------
-------------- ----------- ----------- --------------
Held-to-maturity securities:
Fixed maturity securities:
Corporate bonds.......................... $ 1,857,000 $ 62,000 $ -- $ 1,919,000
Mortgage-backed bonds.................... 10,312,000 -- 408,000 9,904,000
-------------- ----------- ----------- --------------
$ 12,169,000 $ 62,000 $ 408,000 $ 11,823,000
-------------- ----------- ----------- --------------
-------------- ----------- ----------- --------------
</TABLE>
The maturity distribution of the Company's marketable securities at
September 30, 1995, is as follows:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
------------------------------ ------------------------------
ESTIMATED FAIR ESTIMATED FAIR
AMORTIZED COST VALUE AMORTIZED COST VALUE
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Fixed maturities due:
After one through five years........ $ 4,977,000 $ 5,091,000 $ -- $ --
After five through ten years........ 4,217,000 4,296,000 -- --
After ten years..................... 985,000 1,000,000 12,169,000 11,823,000
-------------- -------------- -------------- --------------
$ 10,179,000 $ 10,387,000 $ 12,169,000 $ 11,823,000
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
During the year ended September 30, 1995, proceeds from maturities of
held-to-maturity securities totaled $139,000. There were no realized gains or
losses in 1995.
6. TRANSACTIONS BETWEEN SHAREHOLDER AND COMPANY
The Company has a Know-How contract with an affiliate in Germany owned by
the Shareholder. This contract provides for the transfer of certain specified
Know-How to the Company relating to the operation of healthcare facilities and
the healthcare industry in general. The contract limited payments to $400,000
per year, subject to annual revisions. On October 1, 1994, the Know-How contract
was amended to limit the Know-How payments to the lesser of 3/4 percent of the
Company's net operating revenue, as defined, or $400,000. Such payments totaled
$400,000 per year for 1993, 1994 and 1995. In addition, the Company reimbursed
the affiliate $147,000, $153,000 and $89,000 for other services during 1993,
1994 and 1995, respectively.
F-15
<PAGE>
PARACELSUS HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
6. TRANSACTIONS BETWEEN SHAREHOLDER AND COMPANY (CONTINUED)
During November 1993, the Company paid in full the subordinated promissory
note payable to shareholder of $4,335,000. In addition, the Company loaned the
shareholder $3,200,000 at 8 percent interest due annually with the principal and
unpaid interest due November 1996. In May 1994, the shareholder loan was amended
to increase shareholder borrowings to $5,000,000. In addition, principal of
$1,000,000 and accrued interest are due annually beginning May 1, 1995. The
principal portion of the loan due after one year is included in other assets.
7. PENSION PLANS
The Company has an Employees' Retirement Savings Plan covering substantially
all employees. Eligible employees may contribute up to 20 percent of pretax
compensation limited to an annual maximum in accordance with the Internal
Revenue Code. The Company will match $.50 for each $1.00 of employee
contributions up to 4 percent of employees' gross pay. The expense incurred in
connection with the plan was $1,180,000, $1,512,000 and $1,592,000 for 1993,
1994 and 1995, respectively.
8. COMMITMENTS AND CONTINGENCIES
Future minimum lease commitments for noncancellable operating leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30 REAL ESTATE EQUIPMENT TOTAL
- -------------------------------------------------------- -------------- ------------- --------------
<S> <C> <C> <C>
1996.................................................. $ 11,111,000 $ 2,684,000 $ 13,795,000
1997.................................................. 10,881,000 2,025,000 12,906,000
1998.................................................. 10,318,000 1,457,000 11,775,000
1999.................................................. 9,946,000 373,000 10,319,000
2000.................................................. 9,897,000 237,000 10,134,000
Thereafter............................................ 16,074,000 190,000 16,264,000
-------------- ------------- --------------
Total minimum lease payments.......................... $ 68,227,000 $ 6,966,000 $ 75,193,000
-------------- ------------- --------------
-------------- ------------- --------------
</TABLE>
Certain of these leases include renewal options, contain normal cost
escalation clauses and require payment of property taxes, insurance and
maintenance costs. The aggregate rental expense was $11,911,000, $17,677,000 and
$19,234,000 for 1993, 1994 and 1995, respectively.
In August 1994, Dr. Krukemeyer borrowed $15,000,000 from a lending
institution (the "Lending Institution") and pledged 45 percent of his stock in
the Company to secure the borrowing. To facilitate Dr. Krukemeyer's arrangements
with the Lending Institution, the Company amended its $125,000,000 Revolving
Credit Facility Agreement (the "Credit Agreement" -- see Note 3) with certain
financial institutions (the "Financial Institutions") pursuant to which the
Financial Institutions agreed to release 45 percent of their collateral interest
in the Company's stock. In the event that either the Company defaults under the
Credit Agreement or Dr. Krukemeyer defaults under his obligation to the Lending
Institution, the Lending Institution would have the right to foreclose on its 45
percent collateral interest in the Company's stock.
In connection with the extension of credit to Dr. Krukemeyer by the Lending
Institution, the Company entered into agreements with the Lending Institution
agreeing to pay, to the extent permitted by the Credit Agreement and Indenture
governing the Company's outstanding 9.875 percent Senior Subordinated Notes due
2003, (i) transfer payments, such as dividends and Know-How payments to Dr.
Krukemeyer in an amount equal to 50 percent of the consolidated net income of
the Company and its subsidiaries on a quarterly basis, and (ii) salary and bonus
payments to Dr. Krukemeyer equal to a minimum of $2,000,000 per year.
F-16
<PAGE>
PARACELSUS HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company is defending itself against a lawsuit filed by Aetna Life
Insurance Company ("Aetna") alleging false diagnosis and billings submitted for
treatment of Aetna patients at the Company's psychiatric facilities. Management
denies these allegations and believes the ultimate resolution of the lawsuit
will not have a material adverse effect on the Company's consolidated financial
position.
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 facilities and maintains insurance and, where appropriate, reserves
with respect to the possible liability arising from such claims. Management
believes the ultimate resolution of the proceedings presently pending against
the Company will not have a material adverse effect on the Company's
consolidated financial position.
9. SELF-INSURANCE RESERVES
Effective October 1, 1992, the Company formed a wholly-owned subsidiary,
Hospital Assurance Company Ltd. ("HAC") to insure general and professional
liability and workers' compensation claims up to $500,000 and $250,000 per
occurrence, respectively. Between October 1, 1987 and the formation of HAC, the
Company was self-insured for the first $500,000 of general and professional
liability claims. The Company has third-party excess insurance coverage over the
first $500,000 per occurrence up to $100,000,000. Accrued self-insurance
reserves include estimates for reported and unreported claims based upon
actuarial projections. The general and professional liability reserves for 1993,
1994 and 1995, are discounted at 6.5%, 6.5% and 7.0%, respectively.
The excess insurance coverage provides for a retrospective adjustment to
premiums to cover losses incurred by the insurance company for all policy years.
This general premium adjustment is not to exceed 100% of the standard premium
for each individual policy year. The potential maximum general premium
adjustment for the period October 1, 1987, through September 30, 1995, is
$14,807,000. No general premium adjustment has been made through September 30,
1995, and no significant adjustment is anticipated based upon current claim
projections.
10. ACQUISITIONS AND DISPOSITIONS
On September 30, 1995, the Company sold Womans Hospital in Mississippi to
the facility's lessee for $17,800,000 in cash which resulted in a gain of
$9,189,000 (included in operating revenues). Previously, in August 1994, the
Company divested the operations of Womans Hospital and entered into an operating
lease agreement with the lessee which granted the lessee an option to purchase
the facility at a cash flow multiple defined in the lease agreement. Also, in
August 1994, the lessee purchased land and a medical office building from the
Company for approximately $1,000,000. In October 1993, the Company acquired the
land and medical office building along with cash of $698,000 in exchange for
land it held with a carrying value of $1,772,000.
On September 5, 1995, the Company acquired the real and personal property
assets, and inventory of Jackson County Hospital, a 44-bed acute facility in
Gainesboro, Tennessee, for $582,000 in cash. The Company is operating the
facility under the name of Cumberland River Hospital -- South.
During August 1995, the Company sold the real and personal property assets
and inventory of Advanced Healthcare Diagnostic Services, a mobile diagnostic
imaging company, for $764,000 in cash which resulted in a loss of $163,000
(included in operating revenues).
On August 1, 1995, the Company purchased the accounts receivable, equipment
and intangible assets of Keith Medical Group, an outpatient medical clinic
located in Hollywood, California, for $2,428,000.
F-17
<PAGE>
PARACELSUS HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
10. ACQUISITIONS AND DISPOSITIONS (CONTINUED)
On June 30, 1994, the Company assumed an operating lease of the real and
personal property assets of a 60-bed rehabilitation hospital located in Chico,
California, and for approximately $400,000 acquired working capital and
equipment.
On August 31, 1993, the Company purchased the real and personal property
assets of Desert Palms Community Hospital in Palmdale, California for
approximately $4,500,000 in cash. The funds were borrowed from the Company's
credit facility.
On June 30, 1993, the Company executed an operating lease of the real
property assets of Halstead Hospital in Halstead, Kansas. The Company also
entered into a capital lease for the purchase of substantially all of the
personal property at a cost of $3,000,000. American Health Properties, a real
estate investment trust that invests primarily in acute care hospitals, is the
lessor under both the real property operating lease and the capital lease.
On March 1, 1993, the Company entered into an operating lease for the lease
of the real property assets of Elmwood Medical Center in Jefferson, Louisiana.
American Health Properties is also the lessor under the real property operating
lease. The Company also acquired substantially all the personal property at a
cost of $9,432,000, including the assumption of existing capital leases.
The following table summarizes the unaudited pro forma consolidated results
of the Company and its material acquisitions and dispositions as though the
acquisitions and dispositions occurred at the beginning of each of the periods
presented giving effect to investment earnings on the proceeds from the sale of
Womans Hospital, the conversion of the Womans real property operating lease to a
sale, and the amortization of the excess of the purchase price over the fair
value of assets acquired. The unaudited pro forma information is not necessarily
indicative of the actual consolidated results of operations that would have
occurred for the years ended September 30, 1994 and 1995, had the acquisitions
and dispositions occurred at the beginning of each period and is not intended to
be indicative of results which may occur in the future.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Operating revenues.................................................. $ 501,702 $ 498,889
Income before income taxes and extraordinary loss................... 19,803 11,004
Income before extraordinary loss.................................... 11,674 6,493
</TABLE>
11. RESTRUCTURING AND UNUSUAL CHARGES
On April 24, 1995, the Company closed the Bellwood Health Center psychiatric
facility due to declining admissions. The facility's patients were transferred
to another of the Company's psychiatric facilities. Management is currently
evaluating the disposition of the physical plant. In connection with the
closure, the Company recorded a restructuring charge of $973,000 for employee
severance benefits and contract termination costs. In addition, during 1995, the
Company paid certain executives special bonuses of $4,177,000 for services
provided to the Company. The special bonuses were accounted for as an unusual
charge.
12. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
F-18
<PAGE>
PARACELSUS HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
12. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
LONG-TERM DEBT: The fair values of the Company's long-term debt are
estimated using discounted cash flow analyses, based on the Company's
current incremental borrowing rates for similar types of borrowing
arrangements.
The carrying amounts and fair values of the Company's financial instruments
at September 30 are as follows:
<TABLE>
<CAPTION>
1994 1995
------------------------------ ------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Cash and cash equivalents....................... $ 1,452,000 $ 1,452,000 $ 2,949,000 $ 2,949,000
Long-term debt:
9.875% senior subordinated notes.............. 75,000,000 73,626,000 75,000,000 79,440,000
Mortgages payable............................. 4,755,000 4,899,000 4,629,000 4,684,000
</TABLE>
The carrying amount of the Company's notes payable under revolving credit
facility were reasonable approximations of their fair value.
It was not practical to estimate the fair value of notes and other
receivables because of the lack of a quoted market price and the inability to
estimate fair value without incurring excessive costs. Management believes there
has been no impairment of the carrying value of notes and other receivables.
13. SUBSEQUENT EVENTS
On November 28, 1995, the Company entered into an Asset Exchange Agreement
and a Stock Purchase Agreement (the "Exchange Transaction") to acquire
substantially all of the assets and operations of Pioneer Valley Hospital
("Pioneer"), a 139-bed hospital located in West Valley City, Utah, Davis
Hospital and Medical Center, a 120-bed hospital located in Layton, Utah, and
Santa Rosa Medical Center, a 129-bed hospital located in Milton, Florida, in
exchange for $38,500,000 in cash, and its Peninsula Medical Center, a 119-bed
hospital located in Ormond Beach, Florida, Elmwood Medical Center ("Elmwood"), a
135-bed hospital located in Jefferson, Louisiana, and Halstead Hospital
("Halstead"), a 190-bed hospital located in Halstead, Kansas. Coincident with
the Exchange Transaction, the Company will purchase the real property of Elmwood
and Halstead from a real estate investment trust ("REIT") for $52,000,000,
exchange the Elmwood and Halstead real property for Pioneer's real property, and
sell the Pioneer real property to the REIT (the "Real Property Purchase and Sale
Transaction"). The Exchange Transaction and the Real Property Purchase and Sale
Transaction are expected to close in January 1996 and are not expected to result
in a material gain or loss.
On December 8, 1995, the Company entered into a new Credit Facility which
increased the Company's Credit Facility from $125,000,000 to $230,000,000. The
Credit Facility is being increased to finance future acquisitions, refinance the
existing Credit Facility borrowings and for general corporate purposes,
including working capital and capital expenditures. The new Credit Facility
contains pricing terms more favorable to the Company, will be secured by the
stock of the Paracelsus subsidiaries and extends the conversion feature to a
term loan on November 30, 1998.
F-19
<PAGE>
PARACELSUS HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER MARCH 31,
30, 1995 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents......................................... $ 2,949 $ 3,149
Marketable securities............................................. 10,387 10,051
Accounts receivable, net.......................................... 81,039 88,141
Notes and other receivables....................................... 12,502 11,980
Supplies.......................................................... 10,565 10,634
Deferred income taxes............................................. 16,485 26,463
Other current assets.............................................. 4,510 4,798
----------- -----------
Total current assets............................................ 138,437 155,216
Property and equipment.............................................. 268,412 275,577
Less accumulated depreciation and amortization...................... 102,746 109,848
----------- -----------
165,666 165,729
Marketable securities............................................... 12,169 14,606
Other assets........................................................ 28,360 32,665
----------- -----------
Total Assets $ 344,632 $ 368,216
----------- -----------
----------- -----------
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
<S> <C> <C>
Current liabilities:
Bank drafts outstanding........................................... $ 4,991 $ 3,135
Accounts payable and other current liabilities.................... 59,615 68,627
Current maturities of long-term debt and capital lease
obligations...................................................... 8,658 5,186
Current portion of self-insurance reserves........................ 4,792 4,853
----------- -----------
Total current liabilities....................................... 78,056 81,801
Long-term debt and capital lease obligations less current
maturities......................................................... 113,070 139,475
Self-insurance reserves, less current portion....................... 25,176 25,827
Deferred income taxes............................................... 23,255 24,607
Minority interests.................................................. 126 141
Shareholder's equity:
Common stock...................................................... 4,500 4,500
Additional paid-in capital........................................ 390 390
Unrealized gains on marketable securities......................... 137 42
Retained earnings................................................. 99,922 91,433
----------- -----------
Total shareholder's equity...................................... 104,949 96,365
----------- -----------
Total liabilities and shareholder's Equity...................... $ 344,632 $ 368,216
----------- -----------
----------- -----------
</TABLE>
Note: The balance sheet at September 30, 1995 has been derived from the audited
financial statements at that date and includes all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements.
See notes to unaudited condensed consolidated financial statements.
F-20
<PAGE>
PARACELSUS HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
----------------------------
1995 1996
-------- --------
<S> <C> <C>
Total operating revenues.................................... $252,356 $260,590
Costs and expenses:
Salaries and benefits..................................... 108,575 113,162
Supplies.................................................. 21,432 19,363
Purchased services........................................ 28,118 34,174
Provision for bad debts................................... 19,283 20,191
Other operating expenses.................................. 46,730 46,906
Depreciation and amortization............................. 8,734 7,972
Interest expense.......................................... 7,652 7,685
Settlement costs.......................................... -- 22,356
-------- --------
Total costs and expenses................................ 240,524 271,809
Income (loss) before minority interests and
income taxes............................................... 11,832 (11,219)
Minority interests.......................................... (1,204) (1,072)
-------- --------
Income (loss) before income taxes........................... 10,628 (12,291)
Provision for income taxes (benefit)........................ 4,357 (5,040)
-------- --------
Net income (loss)........................................... $ 6,271 $ (7,251)
-------- --------
-------- --------
</TABLE>
See accompanying notes.
F-21
<PAGE>
PARACELSUS HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
----------------------------
1995 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)............................................................... $ 6,271 $ (7,251)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization................................................. 8,734 7,972
Deferred income taxes......................................................... (2,931) (8,576)
Minority interests............................................................ 1,204 1,072
Changes in operating assets and liabilities:
Accounts receivable......................................................... (7,608) (7,102)
Supplies and other current assets........................................... 466 (357)
Notes and other receivables................................................. (129) 522
Bank drafts outstanding..................................................... (342) (1,856)
Accounts payable and other current liabilities.............................. (3,445) 9,012
Self-insurance reserves..................................................... 2,893 712
-------- --------
Net cash (used in) provided by operating activities............................. 5,113 (5,852)
INVESTING ACTIVITIES
Purchase of marketable securities............................................... (2,470) (2,246)
Additions to property and equipment............................................. (5,322) (7,123)
Decrease in minority interests.................................................. (1,250) (1,057)
Increase in other assets........................................................ (1,998) (5,217)
-------- --------
Net cash used in investing activities........................................... (11,040) (15,643)
FINANCING ACTIVITIES
Long-term borrowings............................................................ 32,500 31,500
Payments of long-term debt and capital lease obligations........................ (24,278) (8,567)
Dividends to shareholder........................................................ (1,640) (1,238)
-------- --------
Net cash provided by financing activities....................................... 6,582 21,695
-------- --------
Increase in cash and cash equivalents........................................... 655 200
Cash and cash equivalents at beginning of period................................ 1,452 2,949
-------- --------
Cash and cash equivalents at end of period...................................... $ 2,107 $ 3,149
-------- --------
-------- --------
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes.................................................................. $ 5,977 $ 5,048
Interest...................................................................... 7,041 7,534
DETAILS OF UNREALIZED (LOSSES) GAINS ON MARKETABLE SECURITIES:
Marketable securities......................................................... 5 (145)
Deferred taxes................................................................ 2 (50)
-------- --------
Increase (decrease) in shareholder's equity..................................... $ 3 $ (95)
-------- --------
-------- --------
</TABLE>
See accompanying notes.
F-22
<PAGE>
PARACELSUS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 1. BASIS OF PRESENTATION
The interim condensed consolidated financial statements included herein have
been prepared by Paracelsus Healthcare Corporation (the "Company") without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission (the "SEC"). Certain information and footnote disclosures, normally
included in the financial statements prepared in accordance with generally
accepted accounting principles, have been condensed or omitted pursuant to such
SEC rules and regulations; nevertheless, the management of the Company believes
that the disclosures herein are adequate to make the information presented not
misleading. It is suggested that these condensed consolidated financial
statements be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's most recent Annual Report on Form 10-K,
filed with the SEC in December 1995. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments necessary to
present fairly the consolidated financial position of the Company with respect
to the interim condensed consolidated financial statements, and the consolidated
results of its operations and its cash flows for the interim periods then ended,
have been included. The results of operations for the interim periods are not
necessarily indicative of the results for the full year.
NOTE 2. MARKETABLE SECURITIES
On November 15, 1995, the FASB staff issued a Special Report, A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities. In accordance with provisions in that Special Report, the
Company chose to reclassify securities from held-to-maturity to
available-for-sale. At the date of transfer the amortized cost of those
securities was $2,000,000 and the unrealized loss on those securities was
$13,000, which was included in shareholder's equity.
NOTE 3. CONTINGENCIES
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 facilities and maintains insurance and, where appropriate, reserves
with respect to the possible liability arising from such claims. Management
believes the ultimate resolution of the proceedings presently pending against
the Company(or any of its subsidiaries) will not have a material effect on the
Company's financial position, results of operations, or cash flows.
NOTE 4. ACQUISITIONS/CLOSURES
On April 11, 1996, the Company entered into an Asset Purchase Agreement to
acquire a 125-bed acute care hospital located in Salt Lake City, Utah and its
surrounding campus for approximately $70 million in cash. The transaction is
expected to close in May 1996.
On April 12, 1996, the Company entered into an Agreement and Plan of Merger
("the Merger Agreement") with Champion Healthcare Corporation ("Champion"). The
Merger Agreement provides for, among other things, the merger (the "Merger") of
PC Merger Sub., Inc. a newly organized wholly owned subsidiary of the Company,
with and into Champion. Prior to the effective date of the Merger, the Company's
Common Stock will be split. At the effective date of the Merger, the holders of
Champion Common Stock will receive one right, and the holders of Champion
Preferred Stock will receive two rights, to receive one share of the Company's
Common Stock. Following the Merger, the Company's sole shareholder will own
approximately 60 percent of the Company's Common Stock and the stockholders of
Champion will own approximately 40 percent of the Company's Common Stock. The
Merger must be approved by the Stockholders of Champion. Concurrent with the
Merger Agreement, the Company will enter into a Dividend and Note Agreement
which will provide a dividend
F-23
<PAGE>
PARACELSUS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
NOTE 4. ACQUISITIONS/CLOSURES (CONTINUED)
distribution to the Company' sole shareholder, who will in turn loan to the
Company a portion of the proceeds from the dividend distribution. The Merger
will be accounted for using the purchase method of accounting and is expected to
close in August 1996.
On March 15, 1996, the Company closed Desert Palms Community Hospital, an
acute care hospital located in Palmdale, California.
On November 28, 1995, the Company entered into an Asset Exchange Agreement
and a Stock Purchase Agreement (the "Exchange Transaction") to acquire Pioneer
Valley Hospital ("Pioneer"), a 139-bed hospital located in West Valley City,
Utah, Davis Hospital and Medical Center, a 120-bed hospital located in Laydon,
Utah, and Santa Rosa Medical Center, a 129-bed hospital located in Milton,
Florida, in exchange for $38,500,000 in cash, and its Peninsula Medical Center,
a 119-bed hospital located in Ormond Beach, Florida, Elmwood Medical Center
("Elmwood"), a 135-bed hospital located in Jefferson, Louisiana, and Halstead
Hospital ("Halstead"), a 190-bed hospital located in Halstead, Kansas.
Coincident with the Exchange Transaction, the Company will purchase the real
property of Elmwood and Halstead from a real estate investment trust ("REIT"),
exchange the Elmwood and Halstead real property for Pioneer's real property, and
sell the Pioneer real property to the REIT (the "Real Property Purchase and Sale
Transaction"). The Exchange Transaction and the Real Property Purchase and Sale
Transaction are expected to close in May 1996 and are not expected to result in
a material gain or loss.
NOTE 5. SETTLEMENT COSTS
During March 1996, the Company settled two lawsuits in connection with the
operation of its psychiatric programs. The Company recognized a charge for
settlement costs totaling $22,356,000 in the quarter ended March 31, 1996, for
the payment of legal fees associated with these two lawsuits, the settlement
payments, and the write off of certain psychiatric accounts receivables. The
Company did not admit liability in either case but resolved its dispute through
the settlements in order to re-establish a business relationship and/or avoid
further legal costs in connection with the disputes.
F-24
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Davis Hospital and Medical Center
Pioneer Valley Hospital and
Santa Rosa Medical Center
We have audited the accompanying combined balance sheets of Davis Hospital and
Medical Center, Pioneer Valley Hospital and Santa Rosa Medical Center (the
"Hospitals") (all of which are wholly owned subsidiaries of Columbia/HCA
Healthcare Corporation) as of December 31, 1994 and 1995, and the related
statements of income and changes in retained earnings and cash flows for the
years then ended. These financial statements are the responsibility of the
Hospitals' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Davis Hospital and
Medical Center, Pioneer Valley Hospital and Santa Rosa Medical Center at
December 31, 1994 and 1995, and the combined results of their operations and
their cash flows for the years then ended, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Salt Lake City, Utah
May 17, 1996
F-25
<PAGE>
DAVIS HOSPITAL AND MEDICAL CENTER
PIONEER VALLEY HOSPITAL
SANTA ROSA MEDICAL CENTER
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash..................................................................................... $ 456 $ 656
Accounts receivable, less allowance for doubtful accounts of $4,554 in 1994 and $6,641 in
1995.................................................................................... 14,494 13,658
Inventories.............................................................................. 1,933 2,243
Prepaid expenses and other............................................................... 614 1,088
--------- ---------
Total current assets....................................................................... 17,497 17,645
Property, plant and equipment, less accumulated depreciation............................... 50,723 49,215
Prepaid lease.............................................................................. 5,101 6,864
Leasehold value, less accumulated amortization of $2,209 in 1994 and $2,498 in 1995 ....... 3,191 2,902
Other assets............................................................................... 4,206 4,264
--------- ---------
Total assets............................................................................... $ 80,718 $ 80,890
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable and other current liabilities........................................... $ 7,056 $ 7,356
Intercompany liabilities................................................................... 44,765 40,266
Shareholder's equity:
Common stock, Class B, $1 par value - 3,000 shares authorized and issued................. 3 3
Additional paid in capital............................................................... 8,259 8,259
Retained earnings........................................................................ 20,635 25,006
--------- ---------
Total shareholder's equity................................................................. 28,897 33,268
--------- ---------
Total liabilities and shareholder's equity................................................. $ 80,718 $ 80,890
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-26
<PAGE>
DAVIS HOSPITAL AND MEDICAL CENTER
PIONEER VALLEY HOSPITAL
SANTA ROSA MEDICAL CENTER
COMBINED STATEMENTS OF INCOME AND
CHANGES IN RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
----------------------
1994 1995
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Total operating revenues................................................................. $ 99,096 $ 105,307
Costs and expenses:
Salaries, wages, and benefits.......................................................... 35,370 39,088
Supplies............................................................................... 13,452 14,680
Purchased services..................................................................... 9,368 10,158
Other operating expenses............................................................... 11,486 12,376
Provision for doubtful accounts........................................................ 6,019 7,515
Depreciation and amortization.......................................................... 6,154 5,570
Interest expense....................................................................... 3,835 3,280
Management fees........................................................................ 1,984 5,400
--------- -----------
Total costs and expenses................................................................. 87,668 98,067
--------- -----------
Income before income taxes............................................................... 11,428 7,240
Income taxes............................................................................. 4,514 2,869
--------- -----------
Net income............................................................................... 6,914 4,371
Retained earnings at beginning of year................................................... 13,721 20,635
--------- -----------
Retained earnings at end of year......................................................... $ 20,635 $ 25,006
--------- -----------
--------- -----------
</TABLE>
See accompanying notes.
F-27
<PAGE>
DAVIS HOSPITAL AND MEDICAL CENTER
PIONEER VALLEY HOSPITAL
SANTA ROSA MEDICAL CENTER
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................................................................... $ 6,914 $ 4,371
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization................................................. 6,154 5,570
Changes in operating assets and liabilities:
Accounts receivable......................................................... (388) 836
Prepaid expenses, inventory and other current assets........................ (183) (784)
Accounts payable and other liabilities...................................... 201 300
------- -------
Net cash provided by operating activities....................................... 12,698 10,293
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment...................................... (5,883) (4,171)
Disposals of property, plant and equipment...................................... 53 109
(Increase) decrease in net leasehold value and other long-term assets........... 1,170 (1,532)
------- -------
Net cash used in investing activities........................................... (4,660) (5,594)
CASH FLOWS FROM FINANCING ACTIVITIES
Net transfers to Columbia....................................................... (7,583) (4,499)
------- -------
Increase in cash................................................................ 455 200
Cash at beginning of year....................................................... 1 456
------- -------
Cash at end of year............................................................. $ 456 $ 656
------- -------
------- -------
Supplemental cash flow information:
Cash paid during the year for:
Interest payments............................................................. $ 3,835 $ 3,280
Income tax payments........................................................... 4,514 2,869
Significant noncash transaction:
Prepayment of lease through intercompany balances............................. -- 2,000
</TABLE>
See accompanying notes.
F-28
<PAGE>
DAVIS HOSPITAL AND MEDICAL CENTER
PIONEER VALLEY HOSPITAL
SANTA ROSA MEDICAL CENTER
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION
Davis Hospital and Medical Center, Pioneer Valley Hospital and Santa Rosa
Medical Center (the "Hospitals") are indirect wholly owned subsidiaries of
Columbia/HCA Healthcare Corporation ("Columbia"). The Hospitals provide health
care services to patients in and around their respective communities in Utah
(Davis Hospital and Medical Center and Pioneer Valley Hospital) and Florida
(Santa Rosa Medical Center). The Hospitals receive payment for patient services
from the federal government primarily under the Medicare program, state programs
under their respective Medicaid programs, health maintenance organizations,
preferred provider organizations and other private insurers and directly from
patients.
In connection with a Federal Trade Commission consent order resulting from
Columbia's merger with Health Trust, Inc. ("HTI"), Columbia agreed to sell the
Hospitals to Paracelsus Healthcare Corporation ("Paracelsus"). The Hospitals and
related entities were exchanged for three Paracelsus hospitals and related
entities as well as an additional cash payment as defined by the agreement. The
transaction closed on May 16, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PREPARATION OF FINANCIAL STATEMENTS
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.
BASIS OF COMBINATION
The combined financial statements presented herein will be referred to for
the years ended December 31, but will include the financial statements of Davis
Hospital and Pioneer Valley Hospital for the years ended December 31, and Santa
Rosa Medical Center for the years ended August 31.
OPERATING REVENUES AND RECEIVABLES
Operating revenues are based on established billing rates less allowances
and discounts for patients covered by Medicare, Medicaid and various other
discount arrangements. Payments received under these programs and arrangements,
which are based on either predetermined rates or the cost of services, are
generally less than the Hospital's customary charges, and the differences are
recorded as contractual adjustments or policy discounts at the time service is
rendered. These contractual adjustments totaled $49,738,000 and $56,580,000 for
1994 and 1995, respectively.
Normal estimation differences between final settlements and amounts
recognized in previous years are reported as contractual adjustments in the
current year. The administrative procedures for cost-based programs preclude
final determination of the payments due or receivable until after the Hospitals'
cost reports are audited or otherwise reviewed by and settled with the
respective program agencies. The Hospitals' estimate for final settlements of
all years through 1995 has been reflected in the combined financial statements.
F-29
<PAGE>
DAVIS HOSPITAL AND MEDICAL CENTER
PIONEER VALLEY HOSPITAL
SANTA ROSA MEDICAL CENTER
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Patient revenues under the Medicare and Medicaid programs amounted to
approximately 43% and 40% of total patient revenues in 1994 and 1995,
respectively. The Hospitals do not believe that there are any credit risks
associated with receivables due from governmental agencies. Concentrations of
credit risk from other payors is limited by the number of patients and payors.
INTERCOMPANY LIABILITIES
Intercompany liabilities represent, in part, the net excess of funds
transferred to or paid on behalf of the Hospitals over funds transferred to the
centralized cash management account of Columbia. Generally, this balance is
increased by automatic cash transfers from the account to reimburse the
Hospitals' bank accounts for operating expenses and to pay the Hospitals' debt,
completed construction project additions, fees and services provided by Columbia
and other operating expenses, such as payroll, interest, insurance, and income
taxes. Generally, the balance is decreased through daily cash deposits by the
Hospitals to the account. Management fees represent an allocation of home office
and regional expenses of Columbia.
At December 31, 1994 and 1995, intercompany balances also include certain
long-term debt balances amounting to $33,553,000 and $29,616,000, respectively,
which were allocated to the Hospitals by Columbia. All principal and interest
payments on the debt allocated from Columbia are made by the Hospitals through
Columbia. The Hospitals were charged interest on the allocated debt at rates
ranging from 11.9% to 10% during 1994 and 1995.
INVENTORIES
Inventories consisting of drugs and other supplies are stated at cost
(first-in, first-out method) which is not in excess of market.
PROPERTY AND EQUIPMENT
Depreciation is computed by the straight-line method over the estimated
useful life of the assets. Depreciation rates for buildings and improvements are
equivalent to useful lives ranging generally from 10 to 20 years. Estimated
useful lives of equipment vary generally from 4 to 10 years.
INCOME TAXES
Columbia files consolidated federal and state income tax returns which
include the accounts of the Hospitals. The provision for income taxes is
determined utilizing maximum federal and state statutory rates applied to income
before income taxes adjusted for certain items which are not deductible. Income
tax benefits or liabilities are reflected in the intercompany liabilities. All
income tax payments are made by the Hospitals through Columbia.
GENERAL AND PROFESSIONAL LIABILITY RISKS
Columbia assumes the liability for all general and professional liability
claims incurred and maintains the related reserve; accordingly, no reserve for
liability risks is recorded on the accompanying combined balance sheets. Prior
to April 24, 1995, Columbia maintained self-insurance coverage for general and
professional liability risks of the Hospitals. Davis Hospital and Medical Center
maintained reserves for general and professional liability risk up to certain
deductible limits during 1994.
F-30
<PAGE>
DAVIS HOSPITAL AND MEDICAL CENTER
PIONEER VALLEY HOSPITAL
SANTA ROSA MEDICAL CENTER
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Costs attributable to the Hospitals were allocated based on actuarially
determined estimates. Effective April 24, 1995, the cost of general and
professional liability coverage was allocated by Columbia's captive insurance
company to the Hospitals based on actuarially determined estimates. The cost for
1994 and 1995 was approximately $1,046,000 and $1,137,000, respectively.
The Hospitals participate in a self-insured program for workers'
compensation and health insurance administered by Columbia. The cost, based on
the Hospitals' experience, was approximately $1,798,000 and $2,826,000 for 1994
and 1995, respectively.
LITIGATION AND OTHER MATTERS
The Hospitals are subject to claims and suits arising in the ordinary course
of business. In the opinion of management, the ultimate resolution of such
pending legal proceedings will not have a material effect on the Hospitals'
financial position, results of operations or cash flows.
3. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Land and improvements.................................................. $ 1,831 $ 1,824
Buildings and improvements............................................. 39,825 40,507
Equipment.............................................................. 41,938 45,957
--------- ---------
83,594 88,288
Less accumulated depreciation.......................................... 34,493 39,363
--------- ---------
49,101 48,925
Construction in progress............................................... 1,622 290
--------- ---------
$ 50,723 $ 49,215
--------- ---------
--------- ---------
</TABLE>
4. RETIREMENT PLANS
The Hospitals participate in Columbia's defined contribution retirement
plans, which cover substantially all employees. Benefits are determined
primarily as a percentage of a participant's earned income. Retirement expense
was approximately $1,676,000 in 1994 and $1,293,000 in 1995.
5. LEASES
Operating lease rental expense relating primarily to the rental of buildings
and equipment was approximately $2,662,000 and $3,367,000 in 1994 and 1995,
respectively.
F-31
<PAGE>
DAVIS HOSPITAL AND MEDICAL CENTER
PIONEER VALLEY HOSPITAL
SANTA ROSA MEDICAL CENTER
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
5. LEASES (CONTINUED)
Future minimum rental commitments under noncancelable operating leases (with
an initial or remaining term in excess of one year) at December 31, 1995, are as
follows (in thousands):
<TABLE>
<CAPTION>
1996........................................ $ 3,133
<S> <C>
1997........................................ 3,069
1998........................................ 3,048
1999........................................ 2,666
2000........................................ 1,774
Thereafter.................................. 9,098
---------
Total minimum rental commitments............ $ 22,788
---------
---------
</TABLE>
6. PREPAID LEASE
Santa Rosa Medical Center is party to a prepaid lease agreement with Santa
Rosa County to lease certain real property and improvements. Effective September
1, 1994, the initial 20-year lease term, scheduled to terminate in the year
2005, was extended to the year 2025 for $2,000,000. In connection with the lease
extension, Santa Rosa Medical Center agreed to make capital improvements through
December 31, 2004, aggregating not less than $5,000,000.
Leasehold value in the accompanying combined balance sheets represents the
difference between market rent and contract rent, discounted to present value
over the initial lease term, at the date of acquisition of the Hospital by HTI.
Leasehold value is being amortized over the remaining initial lease term on a
straight-line basis.
7. AFFILIATED COMPANIES
The Hospitals incur expenses for management services provided by Columbia.
Due to the related nature of these entities, the amounts paid may not have been
the same if similar activities had been undertaken with unrelated parties.
F-32
<PAGE>
DAVIS HOSPITAL AND MEDICAL CENTER
PIONEER VALLEY HOSPITAL
SANTA ROSA MEDICAL CENTER
UNAUDITED COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------
(IN THOUSANDS)
<S> <C>
ASSETS
Current assets:
Cash........................................................................ $ 206
Accounts receivable, less allowance for doubtful accounts................... 15,664
Inventories................................................................. 2,019
Prepaid expenses and other.................................................. 1,040
--------------
Total current assets.......................................................... 18,929
Property, plant and equipment, less accumulated depreciation.................. 47,561
Prepaid lease................................................................. 5,961
Leasehold value, less accumulated amortization................................ 2,757
Other assets.................................................................. 4,063
--------------
Total assets.................................................................. $ 79,271
--------------
--------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable and other current liabilities.............................. $ 8,750
Intercompany liabilities...................................................... 36,324
Shareholder's equity:
Common stock, Class B, $1 par value -- 3,000 shares authorized and issued... 3
Additional paid in capital.................................................. 8,259
Retained earnings........................................................... 25,935
--------------
Total shareholder's equity.................................................... 34,197
--------------
Total liabilities and shareholder's equity.................................... $ 79,271
--------------
--------------
</TABLE>
See accompanying notes.
F-33
<PAGE>
DAVIS HOSPITAL AND MEDICAL CENTER
PIONEER VALLEY HOSPITAL
SANTA ROSA MEDICAL CENTER
UNAUDITED COMBINED STATEMENTS OF INCOME AND
CHANGES IN RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------------------
1995 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Total operating revenues................................................................... $ 26,861 $ 28,075
Costs and expenses:
Salaries, wages, and benefits............................................................ 9,712 10,658
Supplies................................................................................. 3,862 3,980
Purchased services....................................................................... 2,232 2,908
Other operating expenses................................................................. 3,190 3,202
Provision for doubtful accounts.......................................................... 1,495 1,777
Depreciation and amortization............................................................ 1,568 1,581
Interest expense......................................................................... 854 576
Management fees.......................................................................... 583 1,857
--------- ---------
Total costs and expenses................................................................... 23,496 26,539
--------- ---------
Income before income taxes................................................................. 3,365 1,536
Income taxes............................................................................... 1,329 607
--------- ---------
Net income................................................................................. 2,036 929
Retained earnings at beginning of period................................................... 20,635 25,006
--------- ---------
Retained earnings at end of period......................................................... $ 22,671 $ 25,935
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-34
<PAGE>
DAVIS HOSPITAL AND MEDICAL CENTER
PIONEER VALLEY HOSPITAL
SANTA ROSA MEDICAL CENTER
UNAUDITED COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------------------
1995 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................................................. $ 2,036 $ 929
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization............................................................ 1,568 1,581
Changes in operating assets and liabilities:
Accounts receivable.................................................................... (1,842) (2,006)
Prepaid expenses and inventories....................................................... (322) 272
Accounts payable and other current liabilities......................................... 114 1,394
--------- ---------
Net cash provided by operating activities.................................................. 1,554 2,170
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment................................................. (950) --
Disposals of property, plant and equipment................................................. -- 73
Decrease in net leasehold value and other long term assets................................. (750) 1,249
--------- ---------
Net cash used in investing activities...................................................... (1,700) 1,322
CASH FLOWS FROM FINANCING ACTIVITIES
Net transfers (to) from Columbia........................................................... 58 (3,942)
--------- ---------
Increase in cash........................................................................... (88) (450)
Cash at beginning of period................................................................ 456 656
--------- ---------
Cash at end of period...................................................................... $ 368 $ 206
--------- ---------
--------- ---------
Supplemental cash flow information:
Cash paid during the period for:
Interest payments........................................................................ $ 854 $ 576
Income tax payments...................................................................... 1,329 607
</TABLE>
See accompanying notes.
F-35
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Champion Healthcare Corporation
We have audited the accompanying consolidated balance sheet of Champion
Healthcare Corporation as of December 31, 1994 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1995. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Champion
Healthcare Corporation as of December 31, 1994 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Houston, Texas
February 27, 1996
F-36
<PAGE>
CHAMPION HEALTHCARE CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
---------- ----------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................................................. $ 48,424 $ 7,583
Restricted cash........................................................................ 5,000 --
Accounts receivable, less allowance for doubtful accounts of $4,959 and $10,118 in 1994
and 1995, respectively................................................................ 17,115 33,262
Supplies inventory..................................................................... 1,942 3,470
Prepaid expenses and other current assets.............................................. 4,899 6,264
---------- ----------
Total current assets................................................................... 77,380 50,579
Property and equipment:
Land................................................................................... 4,510 6,418
Buildings and improvements............................................................. 48,888 115,688
Equipment.............................................................................. 25,016 42,343
Construction in progress............................................................... 8,839 4,666
---------- ----------
Total property and equipment......................................................... 87,253 169,115
Less allowances for depreciation and amortization...................................... 5,340 10,733
---------- ----------
Total property and equipment, net.................................................... 81,913 158,382
Investment in Dakota Heartland Health System............................................. 40,088 48,145
Goodwill, net of accumulated amortization of $37 and
$1,051 in 1994 and 1995, respectively................................................... 5,947 20,933
Intangible assets, net of accumulated amortization of $1,647 and
$2,052 in 1994 and 1995, respectively................................................... 5,718 7,438
Other assets............................................................................. 5,507 5,783
---------- ----------
Total assets......................................................................... $ 216,553 $ 291,260
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt...................................................... $ 4,221 $ 1,166
Current portion of capital lease obligations........................................... 560 1,301
Accounts payable....................................................................... 10,637 13,952
Due to third parties................................................................... 2,241 8,829
Accrued and other liabilities.......................................................... 8,446 15,490
---------- ----------
Total current liabilities............................................................ 26,105 40,738
Long-term debt........................................................................... 102,626 159,670
Capital lease obligations................................................................ 2,658 2,777
Other long-term liabilities.............................................................. 11,037 10,177
Commitments and contingencies (Notes 3 and 13)
Redeemable preferred stock............................................................... 76,294 46,029
Common stock, $.01 par value:
Authorized - 25,000,000 shares, 4,223,975 and 11,868,230 shares issued and outstanding
in 1994 and 1995, respectively........................................................ 42 119
Common stock subscribed, 100,000 and 80,000 shares in 1994 and 1995, respectively........ 50 40
Common stock subscription receivable..................................................... (50) (40)
Paid in capital.......................................................................... 15,998 47,643
Accumulated deficit...................................................................... (18,207) (15,893)
---------- ----------
Total liabilities and stockholders' equity........................................... $ 216,553 $ 291,260
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-37
<PAGE>
CHAMPION HEALTHCARE CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1993 1994 1995
----------- ----------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net patient service revenue................................................ $ 86,728 $ 99,613 $ 163,500
Other revenue.............................................................. 3,104 4,580 4,020
----------- ----------- -----------
Net revenue............................................................ 89,832 104,193 167,520
Expenses:
Salaries and benefits.................................................... 36,698 41,042 72,188
Supplies................................................................. 11,641 12,744 21,113
Other operating expenses................................................. 24,033 29,767 44,594
Provision for bad debts.................................................. 5,669 7,812 12,016
Interest................................................................. 2,725 6,375 13,618
Depreciation and amortization............................................ 3,524 4,010 9,290
Equity in earnings of Dakota Heartland Health System..................... -- -- (8,881)
Asset write-down......................................................... 15,456 -- --
----------- ----------- -----------
Total expenses......................................................... 99,746 101,750 163,938
----------- ----------- -----------
Income (loss) before income taxes and extraordinary items................ (9,914) 2,443 3,582
Provision for income taxes................................................. 1,009 200 150
----------- ----------- -----------
Income (loss) before extraordinary items................................. (10,923) 2,243 3,432
Extraordinary items:
Loss on early extinguishment of debt, net of tax benefit of $634 for
1993.................................................................... (1,230) -- (1,118)
----------- ----------- -----------
Net income (loss)........................................................ $ (12,153) $ 2,243 $ 2,314
----------- ----------- -----------
----------- ----------- -----------
Loss applicable to common stock.......................................... $ (13,805) $ (2,467) $ (9,017)
----------- ----------- -----------
----------- ----------- -----------
Loss per common share:
Loss before extraordinary items.......................................... $ (11.21) $ (1.69) $ (1.86)
Extraordinary items...................................................... (1.10) -- (0.26)
----------- ----------- -----------
Loss per common share.................................................. $ (12.31) $ (1.69) $ (2.12)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-38
<PAGE>
CHAMPION HEALTHCARE CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK ADDITIONAL
-------------------------- ---------------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SUBSCRIBED RECEIVABLE CAPITAL DEFICIT
------------- ----------- ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1993........... 1,100,000 $ 11 $ 50 $ (50) $ (2,363)
Preferred stock dividends accrued,
including accretion of issuance
costs................................ (1,652)
Exercise of bridge loan warrants...... 26,250
Net loss.............................. (12,153)
------------- ----- --- --- ----------- ------------
BALANCES AT DECEMBER 31, 1993......... 1,126,250 11 50 (50) (16,168)
Exercise of bridge loan warrants...... 83,044 1
Shares issued in AmeriHealth
acquisition.......................... 3,014,681 30 $ 16,426
Preferred stock dividends accrued,
including accretion of issuance
costs................................ (428) (4,282)
Net income............................ 2,243
------------- ----- --- --- ----------- ------------
BALANCES AT DECEMBER 31, 1994......... 4,223,975 42 50 (50) 15,998 (18,207)
Preferred stock dividends accrued,
including accretion of issuance
costs................................ (5,982)
Dividends declared pursuant to the
Recapitalization..................... (5,349)
Issuance of warrants.................. 668
Exercise of options/stock
subscriptions........................ 38,411 1 (10) 10 108
Shares issued pursuant to the
Recapitalization, net of issuance
costs................................ 7,605,844 76 42,200
Net income............................ 2,314
------------- ----- --- --- ----------- ------------
BALANCES AT DECEMBER 31, 1995......... 11,868,230 $ 119 $ 40 $ (40) $ 47,643 $ (15,893)
------------- ----- --- --- ----------- ------------
------------- ----- --- --- ----------- ------------
</TABLE>
See notes to consolidated financial statements.
F-39
<PAGE>
CHAMPION HEALTHCARE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1993 1994 1995
----------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Operating activities:
Net income (loss).......................................................... $ (12,153) $ 2,243 $ 2,314
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Extraordinary loss, net.................................................. 1,230 -- 1,118
Equity in earnings of Dakota Heartland Health System,
net of distributions.................................................... -- -- (8,056)
Depreciation and amortization............................................ 3,524 4,010 9,290
Deferred income taxes.................................................... (1,171) 1,600 --
Provision for bad debts.................................................. 5,669 7,812 12,016
Asset write-down......................................................... 15,456 -- --
Changes in operating assets and liabilities,
excluding acquisitions:
Accounts receivable.................................................... (6,842) (9,088) (14,864)
Supplies inventory..................................................... (446) (264) 144
Prepaid expenses and other current assets.............................. (169) (4,154) 2,103
Other assets........................................................... (1,654) (908) (3,210)
Accounts payable, income taxes payable and other accrued liabilities... 1,935 (1,968) 12,037
----------- ---------- ----------
Net cash provided by (used in) operating activities.................. 5,379 (717) 12,892
----------- ---------- ----------
Investing activities:
Purchase of facilities................................................... (5,813) -- (59,810)
Net payment for investment in partnership................................ -- (20,000) (2,000)
Cash acquired in acquisitions............................................ -- 4,341 361
Additions to property and equipment...................................... (4,726) (12,561) (42,822)
Proceeds from sales of property and equipment............................ -- -- 1,704
Investment in note receivable............................................ -- (757) (2,524)
----------- ---------- ----------
Net cash used in investing activities................................ (10,539) (28,977) (105,091)
----------- ---------- ----------
Financing activities:
Proceeds from issuance of long-term obligations.......................... 63,091 19,133 143,532
Payments related to issuance of long-term debt obligations and other
financing costs......................................................... (2,396) -- (3,927)
Payments on long-term obligations........................................ (28,516) (2,300) (94,715)
Payments on obligations assumed through acquisitions..................... -- (10,911) --
Proceeds from issuance of redeemable preferred stock and stock
warrants................................................................ 34,345 11,223 793
Payments related to preferred and common stock issuance.................. (882) -- (38)
Cash restricted under collateral agreement............................... -- (5,713) --
Cash released under collateral agreement................................. -- -- 5,713
----------- ---------- ----------
Net cash provided by financing activities............................ 65,642 11,432 51,358
----------- ---------- ----------
(Decrease) increase in cash and cash equivalents..................... 60,482 (18,262) (40,841)
Cash and cash equivalents at beginning of year............................. 6,204 66,686 48,424
----------- ---------- ----------
Cash and cash equivalents at end of year................................... $ 66,686 $ 48,424 $ 7,583
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-40
<PAGE>
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATIONAL BACKGROUND
Champion Healthcare Corporation (the "Company"), a Delaware corporation, is
engaged in the ownership and management of general acute care and specialty
hospitals and related health care facilities. At December 31, 1995, including
hospital partnerships, the Company owns and/or operates seven acute care
hospitals, two psychiatric hospitals and a skilled nursing facility. See Note 16
"Subsequent Events" for a discussion of recent acquisition activity.
Including hospital partnerships, the seven general acute care hospitals
owned and/or operated by the Company provide a range of medical and surgical
services typically available in general acute care hospitals. These services
include inpatient care such as intensive and cardiac care, diagnostic services,
radiological services and emergency services. All of the hospitals provide an
extensive range of outpatient services, including ambulatory surgery, laboratory
and radiology. The Company's two psychiatric hospitals provide child, adolescent
and adult comprehensive psychiatric and chemical dependency treatment programs,
with inpatient, day hospital, outpatient and other ambulatory care.
Effective December 31, 1995, the Company and its preferred shareholders
entered into the 1995 Recapitalization Agreement to reduce the complexity of the
Company's capital structure and eliminate the accrual of future dividends on its
outstanding preferred stock and the resulting impact on earnings per share. As a
result of the Recapitalization Agreement, common shares outstanding increased
from 4,262,386 to 11,868,230 and preferred shares outstanding decreased from
10,452,370 to 2,605,714. The transactions comprising the 1995 Recapitalization
Agreement are herein collectively referred to as the "Recapitalization." See
Note 8 "Stockholders' Equity" for a discussion of the terms of the
Recapitalization.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company,
all wholly-owned and majority-owned subsidiaries and majority-owned
partnerships. The Company uses the equity method of accounting when it has a 20%
to 50% interest in other companies and partnerships. Under the equity method,
the Company records its original investment at cost and adjusts its investment
for its undistributed share of the earnings or losses of the equity investee.
All significant intercompany transactions and accounts have been eliminated in
consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of net revenue and expenses during the
period. Actual results could differ from those estimates. The most significant
areas which require the use of management's estimates relate to the
determination of estimated third-party payor settlements, allowance for
uncollectable accounts receivable, income tax valuation allowance and reserves
for professional liability risk.
NET PATIENT SERVICE REVENUE
The Company's facilities have entered into agreements with third-party
payors, including US government programs and managed care health plans, under
which the Company is paid based upon established charges, cost of services
provided, predetermined rates by diagnosis, fixed per diem rates or discounts
from established charges.
Net patient service revenues are recorded at estimated amounts due from
patients and third party payors for health care services provided, including
anticipated settlements under reimbursement agreements with third party payors.
Payments for services rendered to patients covered by the
F-41
<PAGE>
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Medicare and Medicaid programs are generally less than billed charges.
Provisions for contractual adjustments are made to reduce charges to these
patients to estimated receipts based upon each program's principle of
payment/reimbursement (either prospectively determined or retrospectively
determined costs). Settlements for retrospectively determined rates are
estimated in the period the related services are rendered and are adjusted in
future periods as final settlements are determined. In management's opinion,
adequate allowance has been provided for possible adjustments that might result
from final settlements under these programs. Allowance for contractual
adjustments under these programs are deducted from accounts receivable in the
accompanying consolidated balance sheet.
OTHER REVENUE
Other revenue includes income from non-patient hospital activities such as
cafeteria sales and interest income, among others.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid debt instruments,
primarily US government backed securities and certificates of deposit, purchased
with an original maturity of three months or less. The Company maintains its
cash in bank deposits which, at times, may exceed federally insured limits.
The Company adopted Statement of Financial Accounting Standards No. 115
("SFAS 115"), "Accounting for Certain Investments in Debt and Equity
Securities," on January 1, 1995. All investments accounted for under SFAS No.
115 are classified as available-for-sale, and the implementation of this
statement had no impact on net income.
ACCOUNTS RECEIVABLE
Accounts receivable consist primarily of amounts due from the Medicare and
Medicaid programs, other government programs, managed care health plans,
commercial insurance companies and individual patients. Current earnings are
charged with an allowance for doubtful accounts based on experience and other
circumstances that may affect the ability of patients to meet their obligations.
Accounts deemed uncollectable are charged against that allowance.
SUPPLIES INVENTORY
Inventory consists primarily of pharmaceuticals and supplies and is stated
at the lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for new facilities
and equipment and those that substantially increase the useful life of existing
property and equipment are capitalized. Ordinary maintenance and repairs are
charged to expense when incurred. Upon disposition, the assets and related
accumulated depreciation are removed from the accounts, and the resulting gain
or loss is included in the statement of operations.
Depreciation is computed using the straight-line method at rates calculated
to amortize the cost of assets over their estimated useful lives ranging from 3
to 40 years.
F-42
<PAGE>
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents costs in excess of net assets acquired and is amortized
on a straight-line basis over a period of 20 years. Intangible assets consist of
deferred financing costs, non-compete agreements and various other intangible
assets. Deferred financing costs are amortized on a straight-line basis over the
term of the applicable debt. Costs related to non-compete agreements and other
intangibles are amortized on a straight-line basis over two to five years.
Amortization expense for 1993, 1994 and 1995 was approximately $1,209,000,
$1,000,000, and $2,724,000, of which approximately $139,000, $395,000, and
$845,000 relate to deferred financing costs.
CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK
Through December 31, 1995, the Company reflected accumulated unpaid and
undeclared dividends on its cumulative redeemable preferred stock as an increase
in the related issue with corresponding charges to additional paid-in capital,
to the extent available, and accumulated deficit. Pursuant to the
Recapitalization, all accrued preferred dividends at December 31, 1995
(approximately $12,614,000) were paid by the issuance of common stock at an
agreed price of $7.00 per share. Additionally, the holders of Series C and D
preferred stock have waived all dividends accruing after December 31, 1995. See
Note 8 "Stockholders' Equity" for a discussion of the terms of the
Recapitalization.
INCOME TAXES
The Company uses the liability method of accounting for income taxes. Under
this method, deferred income taxes are recorded to reflect the tax consequence
on future years of temporary differences between the tax basis of the assets and
liabilities and their financial amounts at year-end.
LOSS PER SHARE
Loss per common and common equivalent share amounts are calculated by
dividing loss applicable to common stock by the weighted average number of
common shares outstanding during each period, as restated for the two-for-one
stock split on July 7, 1993, and assuming the exercise, when dilutive, of all
stock options and warrants having an exercise price less than the average stock
market price of the common stock using the treasury stock method. Common stock
equivalents and other potentially dilutive securities have not been considered
because their effect was antidilutive in all years. Weighted average shares
outstanding used to determine earnings per common and common equivalent share
were 1,122,000, 1,457,000, and 4,255,000 in 1993, 1994 and 1995, respectively.
RECLASSIFICATIONS
Certain reclassifications have been made in prior year financial statements
to conform to the 1995 presentation. These reclassifications had no effect on
the results of operations previously reported.
RECENT PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
SFAS 121, which is effective for fiscal years beginning after December 15, 1995,
requires that long-lived assets and certain identifiable intangibles held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company does not believe that the adoption of this statement
will have a material effect on its financial statements.
F-43
<PAGE>
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation," which is effective for fiscal years beginning after
December 15, 1995. SFAS 123 establishes new financial accounting and reporting
standards for stock-based compensation plans. Entities will be allowed to
measure compensation expense for stock-based compensation under SFAS 123 or APB
Opinion No. 25, "Accounting for Stock Issued to Employees." Entities electing to
account for such compensation under APB Opinion No. 25 will be required to make
pro forma disclosures of net income and earnings per share as if SFAS 123 had
been applied. The Company is presently evaluating which alternative it will
adopt under SFAS 123 and has not yet quantified the potential impact on the
Company of adopting this new standard.
NOTE 3. ACQUISITIONS AND OTHER INVESTMENTS
PHYSICIANS AND SURGEONS HOSPITAL
The Company acquired Physicians and Surgeons Hospital ("P&S") in Midland,
Texas on May 1, 1993 for approximately $5,800,000 in cash and the assumption of
$1,200,000 in debt. The acquisition was accounted for as a purchase transaction
with operations reflected in the consolidated financial statements beginning May
1, 1993. The Company replaced P&S in the fourth quarter of 1995 with the newly
constructed 101 bed Westwood Medical Center. Total construction cost for the new
facility was approximately $39,017,000.
PSYCHIATRIC HEALTHCARE CORPORATION
On October 21, 1994, the Company acquired Psychiatric Healthcare Corporation
("PHC"), a privately held corporation headquartered in Birmingham, Alabama, by
the merger of PHC with and into a wholly-owned subsidiary of the Company. PHC
owned and operated two free-standing psychiatric hospitals with a combined total
of 219 beds located in Springfield, Missouri and Alexandria, Louisiana, and
owned a third free-standing psychiatric hospital located in Sherman, Texas, that
was closed and held for sale at the date of acquisition. The net purchase price,
including contingent consideration of $2,000,000 paid in 1995 and the assumption
of long-term debt, was approximately $24,600,000. The Company paid no cash to
PHC shareholders. Total consideration paid by the Company consisted of the
assumption of approximately $14,880,000 in long-term debt and the issuance of
the following securities to PHC shareholders: (i) 264,306 shares of Series D
preferred stock, (ii) $7,123,000 of 11% Senior Subordinated Notes with 213,690
detachable warrants to acquire common stock and (iii) options, which were
subsequently exercised, to acquire an additional 7,561 shares of Series D
Preferred Stock and $202,000 principal amount of 11% Senior Subordinated Notes
with 6,060 detachable warrants. The payment of contingent consideration had been
subject to the Company's receipt of up to $2,000,000 from a combination of the
sale of the Sherman, Texas facility, a recovery from a lawsuit and certain
specified Medicaid payments. All conditions for the payment of contingent
consideration were substantially met in 1995, including the sale of Sherman
Hospital for approximately $1,300,000 in March 1995. The acquisition was
accounted for as a purchase transaction with operations reflected in the
consolidated financial statements effective October 1, 1994. The Company has
completed its analysis of the assets acquired and liabilities assumed and has
allocated approximately $8,800,000 in excess purchase price to goodwill, which
is currently being amortized over a 20 year period.
AMERIHEALTH, INC.
On December 6, 1994, the Company merged with AmeriHealth, Inc. ("AHH"), a
Delaware corporation, with AHH being the surviving corporation resulting from
the merger (the "Combined Company"). The merger was accounted for as a
recapitalization of the Company with the Company as
F-44
<PAGE>
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. ACQUISITIONS AND OTHER INVESTMENTS (CONTINUED)
the acquiror (a reverse acquisition). Concurrent with the merger, the name of
the Combined Company was changed to Champion Healthcare Corporation, and the
Combined Company adopted the Company's certificate of incorporation provisions.
Pursuant to the merger, the Combined Company: (a) paid a cash distribution
of $0.085 cents per share to all common stockholders of AHH, (b) issued one
share of its Combined Company common stock for each 5.70358 shares of the
approximately 17.2 million outstanding shares of AHH's Common Stock, (c) issued
one share of Combined Company common stock for each of the approximately 1.2
million then outstanding shares of the Company common stock, and (d) issued one
share of newly authorized Combined Company preferred stock for each of the then
outstanding shares of the Company's preferred stock. The terms of the new voting
shares of Combined Company preferred stock are identical to those of the
Company's preferred stock outstanding prior to the merger. In addition, the
outstanding shares of AHH's $2.125 Increasing Rate Cumulative Convertible
Preferred Stock were canceled in exchange for cash equal to the redemption price
of such shares plus all unpaid dividends, which totaled approximately $47,000.
The net purchase price, including the assumption of approximately $17,700,000 in
debt, was approximately $38,876,000. The acquisition was accounted for as a
purchase transaction with operations reflected in the consolidated financial
statements effective December 1, 1994. The Company has completed its analysis of
the assets acquired and liabilities assumed and has allocated approximately
$8,946,000 in excess purchase price to goodwill, which is currently being
amortized over a 20 year period.
PARTNERSHIP WITH DAKOTA HOSPITAL
On December 21, 1994, a wholly owned subsidiary of the Company that owned
Heartland Medical Center, a 142 bed general acute care facility in Fargo, North
Dakota, entered into a partnership with Dakota Hospital ("Dakota"), a
not-for-profit corporation that owned a 199 bed general acute care hospital also
in Fargo, North Dakota. The partnership is operated as Dakota Heartland Health
System ("DHHS"). Also on December 21, 1994, the Company entered into an
operating agreement with the partnership and Dakota to manage the combined
operations of the two hospitals. Under the terms of the partnership agreement,
the Company is obligated to advance funds to DHHS to cover any and all operating
deficits of DHHS. DHHS began operations on December 31, 1994.
The Company and Dakota contributed their respective hospitals debt and lien
free (except for capitalized lease obligations), including certain working
capital components, and the Company contributed an additional $20,000,000 in
cash, each in exchange for 50% ownership in the partnership. A $20,000,000
special distribution was made to Dakota after capitalization of the partnership
in accordance with the terms of the partnership agreement. The Company will
receive 55% of the net income and distributable cash flow ("DCF") of the
partnership until such time as it has recovered on a cumulative basis an
additional $10,000,000 of DCF in the form of an "excess" distribution. As of
December 31, 1995, the Company has received $825,000 in cash distributions from
DHHS.
The partnership is administered by a Governing Board comprised of six
members appointed by Dakota, three members appointed by the Company and three
members appointed by mutual consent of the Dakota members and the Company
members. Certain Governing Board actions require the majority approval of each
of the Company and Dakota members. Because the partners through the partnership
agreement have delegated substantially all management of the partnership to the
Company through the operating agreement, the authority of the Governing Board is
limited.
Beginning July 1996, Dakota has the right to require the Company to purchase
its partnership interest free of debt or liens for a cash purchase price equal
to 5.5 times Dakota's pro rata share of earnings before depreciation, interest,
income taxes and amortization, as defined in the partnership agreement, less
Dakota's pro-rata share of the partnership's long-term debt. DHHS had earnings
F-45
<PAGE>
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. ACQUISITIONS AND OTHER INVESTMENTS (CONTINUED)
before depreciation, interest, income taxes and amortization of approximately
$19,000,000 for the year ended December 31, 1995. Beginning January 1998, the
purchase price for Dakota's partnership interest shall not be less than
$50,000,000. After receipt of written notice of Dakota's intent to sell its
partnership interest, the Company would have 12 months to complete the purchase.
Should the Company not complete the purchase during this period, Dakota has the
right to, among others, (i) terminate the operating agreement and engage an
outside party to manage the hospital, (ii) replace the Company's designees to
the Governing Board and (iii) enter into a fair market value transaction to sell
substantially all of the partnership's assets.
The Company accounts for its investment in DHHS under the equity method. The
following table summarizes certain financial information of DHHS as of December
31, 1994 and 1995, and for the year ended December 31, 1995 (dollars in
thousands). DHHS began operations on December 31, 1994.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C> <C>
INCOME STATEMENT DATA
Net revenue.......................................... $ 106,011
Net income........................................... 16,148
Company's equity in the earnings of DHHS............. 8,881
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
BALANCE SHEET DATA
Current assets....................................... $ 28,220 $ 39,008
Non-current assets................................... 44,298 55,854
Current liabilities.................................. 12,212 19,980
Non-current liabilities.............................. 129 57
Partners' equity..................................... 60,177 74,825
</TABLE>
SALT LAKE REGIONAL MEDICAL CENTER
On April 13, 1995, the Company acquired Salt Lake Regional Medical Center
("SLRMC") from Columbia/HCA Healthcare Corporation ("Columbia"). SLRMC is
comprised of a 200 bed tertiary care hospital and five clinics and is located in
Salt Lake City, Utah. Total acquisition cost for SLRMC was approximately
$61,042,000, which consisted of approximately $56,816,000 in cash and additional
consideration due to Columbia of approximately $1,767,000, as well as the
assumption of approximately $2,459,000 in capital lease obligations. Cash
consideration included approximately $11,783,000 for certain working capital
components, resulting in a net purchase price of approximately $49,259,000. The
Company funded the asset purchase from available cash and approximately
$30,000,000 in borrowings under its then outstanding credit facility. The
acquisition was accounted for as a purchase transaction with operations
reflected in the consolidated financial statements beginning April 14, 1995.
JORDAN VALLEY HOSPITAL
On March 1, 1996, the Company acquired Jordan Valley Hospital ("Jordan")
from Columbia. Jordan is a 50 bed acute care hospital located in West Jordan,
Utah, a suburb of Salt Lake City. The Company acquired Jordan in exchange for
Autauga Medical Center, an 85 bed acute care hospital, and Autauga Health Care
Center, a 72 bed skilled nursing facility, both in Prattville, Alabama, plus
preliminary cash consideration paid to the seller of approximately $10,750,000,
which included approximately $3,750,000 for certain net working capital
components, subject to adjustment, and reimbursement of certain capital
expenditures made previously by the seller. The transaction did not result in a
gain or loss. The Alabama facilities were acquired as part of the Company's
acquisition of AmeriHealth, Inc. on December 6, 1994.
F-46
<PAGE>
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. ACQUISITIONS AND OTHER INVESTMENTS (CONTINUED)
PRO FORMA FINANCIAL INFORMATION
The following selected unaudited pro forma financial information for the
years ended December 31, 1994 and 1995 assumes that the acquisition of SLRMC
occurred on January 1, 1994. The selected unaudited pro forma financial
information for the year ended December 31, 1994, assumes that the acquisitions
of AHH and PHC, and the formation of the DHHS partnership occurred on January 1,
1994. The pro forma financial information below does not purport to be
indicative of the results that actually would have been obtained had the
operations been combined during the periods presented, and is not intended to be
a projection of future results or trends.
<TABLE>
<CAPTION>
1994 1995
----------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Net revenue......................................................... $ 195,915 $ 189,540
----------- -----------
----------- -----------
Equity in earnings of DHHS.......................................... $ 5,443 $ 8,881
----------- -----------
----------- -----------
Income (loss) before extraordinary item............................. $ (3,198) $ 3,999
----------- -----------
----------- -----------
Net income (loss)................................................... $ (3,198) $ 2,881
----------- -----------
----------- -----------
Loss applicable to common stock..................................... $ (8,196) $ (8,450)
----------- -----------
----------- -----------
Loss per common share before extraordinary item..................... $ (1.94) $ (1.72)
----------- -----------
----------- -----------
Loss per common share............................................... $ (1.94) $ (1.99)
----------- -----------
----------- -----------
Weighted average number of common shares outstanding................ 4,224 4,255
----------- -----------
----------- -----------
</TABLE>
NOTE 4. ASSET WRITE-DOWN
In December 1993, the Company ceased providing medical services at Gulf
Coast Hospital ("GCH"), one of two Company-owned hospitals located in Baytown,
Texas, which it had acquired from HCA Health Services of Texas, Inc. on
September 1, 1992. The Company intended to use GCH for limited administrative
purposes only until it could arrange a sale. As a result, the Company wrote down
the GCH assets by $15,456,000, which reflected the estimated fair value of the
facility under limited use less ongoing operating costs and various rental
concessions previously granted the tenants. The book value of GCH prior to the
write-down was $16,681,000. The remaining net historical cost of $1,225,000
represented the equipment moved to the other Baytown campus. In June 1994, the
Company sold the former HCA facility to a physician group for nominal
consideration. The Company believes that assets associated with its other campus
in Baytown have not been impaired as the result of this change in operations.
NOTE 5. ACCRUED AND OTHER LIABILITIES
Accrued and other liabilities consisted of the following at December 31,
1994 and 1995 (dollars in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Accrued salaries and wages.............................................. $ 1,303 $ 3,851
Accrued vacation........................................................ 1,148 2,516
Accrued interest........................................................ 1,256 3,156
Other................................................................... 4,739 5,967
--------- ---------
Total accrued and other liabilities................................... $ 8,446 $ 15,490
--------- ---------
--------- ---------
</TABLE>
F-47
<PAGE>
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1994 and 1995
(dollars in thousands):
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Revolving Loan................................................................ -- $ 47,700
Term Loan..................................................................... $ 18,500 --
11% Senior Subordinated Notes (face amount of $99,089, net of a discount of
$642 at December 31, 1995)................................................... 62,703 98,447
Health Care REIT, Inc......................................................... 12,770 11,120
Wilmington Savings Fund Society............................................... 9,766 --
Other notes payable........................................................... 3,108 3,569
----------- -----------
Total debt.................................................................. 106,847 160,836
Less current portion.......................................................... (4,221) (1,166)
----------- -----------
Total long-term debt...................................................... $ 102,626 $ 159,670
----------- -----------
----------- -----------
</TABLE>
On June 12, 1995, the Company issued $35,000,000 face amount (less a
discount of approximately $668,000) of Senior Subordinated Notes (the "Notes")
maturing on December 31, 2003. The Notes bear interest at an annual effective
rate of 11.35% (11% stated rate). Interest is payable quarterly, and the stated
rate increases from 11% to 11.5% on March 31, 1996. The Notes include detachable
warrants for the purchase of 525,000 shares of common stock. The Notes are
subject to redemption on or after December 31, 1995, at the Company's option, at
prices declining from 112.5% of principal amount at December 31, 1995, to par at
December 31, 2002. Additionally, there is a requirement to repurchase all
outstanding Notes in the event of a change in control of the Company, at the
holder's option, based on a declining redemption premium ranging from 112.5% to
103% of principal. Proceeds from the issuance of Notes were used to paydown
approximately $31,500,000 principal amount outstanding under the Revolving Loan
with the remainder retained for general corporate purposes. The Notes are
uncollateralized obligations and are subordinated in right of payment to certain
senior indebtedness of the Company. Approximately $668,000 of the proceeds from
the issuance of the Notes were allocated to the warrants.
On May 31, 1995, the Company refinanced and paid a $50,000,000 term and
revolving credit facility ("old credit facility") obtained in November 1993 with
a $100,000,000 revolving credit facility (the "Revolving Loan") with Banque
Paribas, as agent, AmSouth Bank of Alabama, Bank One of Texas, N.A., CoreStates
Bank, N.A., and NationsBank of Texas, N.A. Amounts available under the Revolving
Loan are subject to certain limitations, and the total amount available under
the Revolving Loan declines to $80,000,000 on the third anniversary date. The
Revolving Loan also provides for short-term letters of credit of up to
$5,000,000. The Revolving Loan matures no later than March 31, 1999, and bears
interest at a lender defined incremental rate plus, at the Company's option, the
LIBOR or Prime rate. The incremental rate to be applied is based upon the
Company meeting certain operational performance targets, as defined, and ranges
from 2.5% to 3.0% with respect to the LIBOR rate option and from 1.0% to 1.5%
with respect to the Prime rate option. The interest rates on the Revolving Loan
and old credit facility were 8.85% and 9.12%, respectively, at December 31, 1995
and 1994. The Company currently has approximately $649,000 outstanding under
letters of credit. Proceeds from the refinancing were used to pay approximately
$48,000,000 principal amount outstanding under the Company's old credit facility
and approximately $9,533,000 principal amount of debt held by Wilmington Savings
Fund Society ("WSFS"). The interest rate on the WSFS Loan was 11.5% and 10.5% at
May 31, 1995 (the date of payment) and December 31, 1994, respectively. With the
exception of certain assets collateralizing debt assumed in the Company's 1994
acquisition of PHC, the Revolving Loan is collateralized by substantially all of
the Company's assets. The terms of the Revolving Loan eliminated the requirement
under the Company's previous bank credit facility to maintain a
F-48
<PAGE>
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. LONG-TERM DEBT (CONTINUED)
cash collateral account with the lender in the amount of $5,000,000. The
Company's future acquisitions and divestitures may require, in certain
circumstances, consent by lenders under this agreement.
In connection with the Company's refinancing and payment of its old credit
facility, the Company wrote off unamortized deferred financing costs of
$1,118,000, which had no tax effect. This amount has been recorded as an
extraordinary loss in the accompanying consolidated statement of operations. The
Company also prepaid the WSFS Loan with no material financial impact.
On December 30, 1994, pursuant to commitments obtained from the original
purchasers of the 11% Senior Subordinated Notes issued on December 31, 1993, the
Company issued an additional $19,133,000 of Notes with detachable warrants for
the purchase of 573,990 shares of common stock. No value was allocated to the
warrants at the time of issuance because the interest rate on the Notes was
considered a market rate and the exercise price was greater than the estimated
fair value of the common stock. The Notes bear interest at an effective annual
rate of 11%. All other terms of the Notes are substantially the same as those
discussed above.
In connection with the Company's acquisition of PHC, the Company issued
approximately $7,123,000 principal amount of Notes, and assumed approximately
$12,970,000 of mortgage financing on the PHC facilities, $257,000 in capitalized
leases, $159,000 in notes payable and a working capital credit facility with a
balance of approximately $1,494,000, which was repaid from available cash of the
Company and PHC. The Notes bear interest at an effective annual rate of 11%. All
other terms of the Notes are substantially the same as those discussed above.
The mortgage notes are payable to Health Care REIT, Inc. and bear interest
at an annual rate that increases yearly from 13.44% at December 31, 1995, to
15.4% at November 1, 2001. Thereafter, the mortgage bears interest at an annual
rate equal to the seven year US Treasuries rate plus 500 basis points.
Approximately $10,125,000 principal balance of the mortgage matures on December
1, 2008, with principal payments on that portion commencing in December 1995,
based on 25 year amortization. The remaining balance of the mortgage requires
quarterly principal payments of $200,000 through 1997. The Company sold the
Sherman, Texas facility for approximately $1,300,000 on March 22, 1995. In
connection with the sale, the Company made a required principal payment of
$850,000 on the mortgage collateralized by this facility and obtained a release
of collateral from the lender. The remaining principal balance is now
collateralized by the Company's hospital in Alexandria, Louisiana.
Other notes payable bear interest at rates ranging from 5.1% to 11.8% and
are generally collateralized by the underlying assets to which they relate.
On November 5, 1993, the Company refinanced its subsidiary term and
revolving credit loans obtained in August 1991, with a $50,000,000 credit
facility comprised of a $20,000,000 term loan and a $30,000,000 revolving credit
facility (collectively, the "old credit facility," as referred to above). In
connection with the refinancing, a prepayment premium and unamortized deferred
financing costs of $1,230,000, net of an income tax benefit of $634,000, were
written off and recorded as an extraordinary loss.
The Company capitalized approximately $1,462,000 and $294,000 in interest
costs associated with the construction of a hospital and other medical related
facilities at December 31, 1995 and 1994, respectively. The Company had no
capitalized interest for the year ended December 31, 1993.
The Revolving Loan, Notes and Mortgages referenced above contain restrictive
covenants which include, among others, restrictions on additional indebtedness,
the payment of dividends and other
F-49
<PAGE>
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. LONG-TERM DEBT (CONTINUED)
distributions, the repurchase of common stock and related securities under
certain circumstances, and the requirement to maintain certain financial ratios.
The Company was in compliance with or has obtained permanent waivers for all
loan covenants to which it was subject as of December 31, 1994 and 1995.
Maturities of debt as of December 31, 1995, were as follows (dollars in
thousands):
<TABLE>
<S> <C>
1996............................................................. $ 1,166
1997............................................................. 2,514
1998............................................................. 885
1999............................................................. 47,785
2000............................................................. 79
Thereafter....................................................... 108,407
---------
$ 160,836
---------
---------
</TABLE>
NOTE 7. REDEEMABLE PREFERRED STOCK
Redeemable preferred stock consisted of the following at December 31, 1994
and 1995 (See Note 8 "Stockholders' Equity" for a discussion of the effect of
the Recapitalization on the outstanding series of preferred stock):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Series D - Cumulative convertible redeemable preferred stock, $.01 par, 2,200,000 shares
authorized; 2,105,258 and 2,156,903 shares issued and outstanding at December 31, 1994 and
1995, respectively ($39,787 and $38,824 liquidation value in 1994 and 1995,
respectively)............................................................................. $ 38,754 $ 37,982
Series C - Cumulative convertible redeemable preferred stock, $.01 par, 500,000 shares
authorized; 448,811 shares issued and outstanding at December 31, 1994 and 1995 ($8,778
and $8,079 liquidation value in 1994 and 1995, respectively).............................. 8,740 8,047
Series BB - Cumulative convertible redeemable preferred stock, $.01 par; 1,577,547 shares
issued and outstanding at December 31, 1994............................................... 21,551 --
Series A-1 - Cumulative convertible redeemable preferred stock, $.01 par; 2,769,109 shares
issued and outstanding at December 31, 1994............................................... 3,206 --
Series A - Cumulative convertible redeemable preferred stock, $.01 par; 3,500,000 shares
issued and outstanding at December 31, 1994............................................... 4,043 --
--------- ---------
$ 76,294 $ 46,029
--------- ---------
--------- ---------
</TABLE>
SERIES D
The Series D cumulative convertible redeemable preferred stock ("Series D")
is convertible, at the holder's option, into the common stock at a price of
$9.00 per share until redemption date. The conversion price is subject to
adjustment upon the sale or issuance of additional common stock, including stock
rights, options and convertible securities, for consideration less than the
conversion price in effect immediately prior to the sale or issuance in
question. Redemption of Series D shares will occur only on the redemption date
of June 1, 2000, at the redemption price of $18.00 per share. If all outstanding
shares of Series D and Series C can not be redeemed at the same time, then
redemption of such shares will be prorated with preference given to Series D, as
defined. Series D shares are entitled to liquidation payments of $18.00 per
share. If the Company is unable to pay fully the Series D and Series C
stockholders, then liquidation of such shares will be prorated with preference
given to
F-50
<PAGE>
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. REDEEMABLE PREFERRED STOCK (CONTINUED)
Series D, as defined. Series D will participate in any dividends declared on
common stock on an as converted basis. At December 31, 1995, the Series D shares
were convertible into 4,313,806 shares of common stock.
The Company issued 51,645 shares of Series D preferred stock to PHC
shareholders in 1995 pursuant to the exercise of options and the issuance of
contingent consideration due under the terms of the PHC purchase agreement. On
October 21, 1994, the Company issued 212,661 shares of Series D preferred stock
to PHC shareholders in connection with its acquisition of PHC. On December 30,
1994, the Company issued 623,453 shares of Series D preferred stock pursuant to
existing commitments for the original purchasers of Series D. Cash proceeds from
the December 30, 1994 issuance were $11,222,000.
SERIES C
The Series C cumulative convertible redeemable preferred stock ("Series C")
is convertible, at the holder's option, into common stock at a price of $9.00
per share until the redemption date. The conversion price is adjustable upon the
same terms and conditions as Series D preferred stock. Redemption of Series C
shares will occur only on the redemption date of June 1, 2000, at the redemption
price of $18.00 per share. Series C will participate in any dividends declared
on common stock on an as converted basis. If all outstanding shares of Series D
and Series C can not be redeemed at the same time, then redemption of such
shares will be prorated with preference given to Series D, as defined. Series C
shares are entitled to liquidation payments of $18.00 per share. If the Company
is unable to pay fully the Series D and Series C stockholders, then liquidation
of such shares will be prorated with preference given to Series D, as defined.
At December 31, 1995, Series C shares were convertible into 897,622 shares of
common stock.
The Company has the right to convert all or any shares of Series D and C
into common stock upon the anticipated completion of a public offering of common
stock for net proceeds of not less than $25,000,000 at a per share offering
price of not less than $10.00 per share.
VOTING RIGHTS FOR SERIES C AND D PREFERRED STOCK. Series C and D preferred
stock have voting rights on all matters according to the number of common shares
into which each Series is convertible at the time of any shareholders' vote. The
issuance of a new class of stock or the increase of shares within an existing
class of stock that either ranks on parity with or is superior to a given series
of preferred stock as to dividends, redemption and liquidation requires the
following approvals by the then outstanding class or classes: (1) 75% of Series
C voting together as a class, and (2) 75% of Series D voting as a class. No
amendment of voting powers, designations, preferences or rights and no
amendments of Articles or Bylaws that materially adversely affect the rights of
Series C and D preferred stock shall occur without the following approvals by
the then outstanding class or classes: (1) 90% of Series C voting together as a
class and (2) 90% of the Series D voting as a class. Upon the occurrence of an
event of default, the preferred stock shareholders will have the right to
enlarge the Board of Directors and elect a controlling number of directors.
Pursuant to the Recapitalization, all outstanding shares of Series A, A-1,
and BB preferred stock, under their existing terms, were converted into common
stock at December 31, 1995, along with all accrued dividends as of December 31,
1995. In total, including additional consideration for the actions taken
pursuant to the Recapitalization, the holders of Series A, A-1, and BB preferred
stock received 5,889,523 shares of common stock. See Note 8 "Stockholders'
Equity" for a discussion of the terms of the Recapitalization.
F-51
<PAGE>
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. REDEEMABLE PREFERRED STOCK (CONTINUED)
SERIES BB
The Series BB cumulative convertible redeemable preferred stock ("Series
BB") was convertible, at the holder's option, into common stock at a price of
$5.90 per share until redemption date and was mandatorily redeemable on June 30,
2000, at $11.80 per share plus any accrued and unpaid dividends. Dividends had
accrued at a rate of 8% of the stated value of $11.80 per share and were payable
in cash under certain events, including, among others, a change in control or a
successful secondary public offering of the Company's common stock.
SERIES A-1
Series A-1 cumulative convertible redeemable preferred stock ("Series A-1")
was convertible, at the holder's option, into common stock at a conversion rate
of one share of common stock for each four shares of Series A-1 preferred stock.
Series A-1 shares were mandatorily redeemable, at the holder's option, at $1.00
per share within 90 days of receipt of written notice of a change of control or
a default event (as defined). Dividends on Series A-1 accrued at a rate of $.08
per share per annum. Dividends were payable in common stock and/or cash in the
event of a change of control, as defined, subject to the Company's existing
agreement with senior secured lenders and the approval of two-thirds of all
outstanding Series BB, C and D preferred stock. The Series A-1 preferred
stockholders were entitled to liquidation payments of $1.00 per share plus all
accrued but unpaid dividends, or ratable payments among all Series A and A-1
preferred stockholders if such amounts were not available for payment by the
Company. Liquidation payments were subject to the prior liquidation rights of
the Series BB through D preferred stockholders.
SERIES A
Series A cumulative convertible redeemable preferred stock ("Series A") was
convertible, at the holder's option, into common stock at a conversion rate of
one share of common stock for each 3.685 shares of Series A Preferred Stock. All
other rights and preferences that apply to Series A-1 preferred stock apply to
Series A preferred stock.
F-52
<PAGE>
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. REDEEMABLE PREFERRED STOCK
The changes in redeemable preferred stock for the years ended December 31,
1993, 1994 and 1995 were as follows (dollars in thousands, except share data):
<TABLE>
<CAPTION>
SERIES D SERIES C SERIES BB SERIES A-1
--------------------- --------------------- ---------------------- -----------
SHARES AMOUNTS SHARES AMOUNTS SHARES AMOUNTS SHARES
---------- --------- ---------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993..................... 1,287,597 $ 15,272 2,769,109
Exercise of stock warrants................... 289,950 3,422
Issuance of preferred stock -- Series C
(net of $46 in issue costs)................. 448,811 $ 8,033
Issuance of preferred stock -- Series D
(net of $837 in issue costs)................ 1,269,144 $ 22,008
Preferred dividends accrued, including
accretion of issuance costs................. 56 1,301
---------- --------- ---------- --------- ----------- --------- -----------
BALANCE, DECEMBER 31, 1993................... 1,269,144 22,008 448,811 8,089 1,577,547 19,995 2,769,109
Issuance of preferred stock -- Series D
(net of $327 in issue costs)................ 836,114 14,723
Preferred dividends accrued, including
accretion of issuance costs................. 2,023 651 1,556
---------- --------- ---------- --------- ----------- --------- -----------
BALANCE, DECEMBER 31, 1994................... 2,105,258 38,754 448,811 8,740 1,577,547 21,551 2,769,109
Issuance of preferred stock -- Series D...... 51,645 930
Preferred dividends accrued, including
accretion of issuance costs................. 3,222 653 1,559
Dividends declared pursuant to the
Recapitalization............................ 3,610 751 739
Recapitalization............................. (8,534) (2,097) (1,577,547) (23,849) (2,769,109)
---------- --------- ---------- --------- ----------- --------- -----------
BALANCE, DECEMBER 31, 1995................... 2,156,903 $ 37,982 448,811 $ 8,047 -- $ -- --
---------- --------- ---------- --------- ----------- --------- -----------
---------- --------- ---------- --------- ----------- --------- -----------
<CAPTION>
SERIES A
------------------------
AMOUNTS SHARES AMOUNTS
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1993..................... $ 2,876 3,500,000 $ 3,598
Exercise of stock warrants...................
Issuance of preferred stock -- Series C
(net of $46 in issue costs).................
Issuance of preferred stock -- Series D
(net of $837 in issue costs)................
Preferred dividends accrued, including
accretion of issuance costs................. 128 167
----------- ----------- -----------
BALANCE, DECEMBER 31, 1993................... 3,004 3,500,000 3,765
Issuance of preferred stock -- Series D
(net of $327 in issue costs)................
Preferred dividends accrued, including
accretion of issuance costs................. 202 278
----------- ----------- -----------
BALANCE, DECEMBER 31, 1994................... 3,206 3,500,000 4,043
Issuance of preferred stock -- Series D......
Preferred dividends accrued, including
accretion of issuance costs................. 234 314
Dividends declared pursuant to the
Recapitalization............................ 110 139
Recapitalization............................. (3,550) (3,500,000) (4,496)
----------- ----------- -----------
BALANCE, DECEMBER 31, 1995................... $ -- -- $ --
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-53
<PAGE>
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. STOCKHOLDERS' EQUITY
RECAPITALIZATION
Effective December 31, 1995, the Company, pursuant to the 1995
Recapitalization Agreement, entered into several transactions to reduce the
complexity of the Company's capital structure and eliminate the accrual of
future dividends on its outstanding preferred stock and the resulting impact on
earnings per share. As a part of these transactions (i) all outstanding shares
of Series A, A-1, and BB preferred stock, pursuant to their terms, converted
into 4,797,161 shares of common stock, (ii) all accrued dividends at December
31, 1995, totaling approximately $12,614,000 on all classes of the Company's
outstanding preferred stock were paid by issuing 1,801,900 shares of common
stock at an agreed upon price of $7.00 per share, and (iii) the holders of
Series C and D preferred stock agreed to waive the future accrual of
preferential dividends. As a further part of these transactions, the Company
issued an additional 1,006,783 shares of common stock to all holders of its then
outstanding preferred stock as consideration for actions taken and agreed to
reduce the exercise prices of one series of warrants totaling 680,104 from $5.90
to $5.25 per share and two series of warrants totaling 2,447,670 from $9.00 to
$7.00 per share until May 13, 1996, after which the exercise prices revert to
their prior amounts. Warrant holders have the right to tender subordinated debt
in lieu of cash, where applicable. Shareholders approved the Recapitalization
and an Amended Certificate of Incorporation at a special shareholders meeting
held on February 12, 1996. As a result of the Recapitalization, common shares
outstanding at December 31, 1995, increased from 4,262,386 to 11,868,230, and
preferred shares outstanding decreased from 10,452,370 to 2,605,714. Other than
for fractional shares, no cash consideration was paid under the terms of the
Recapitalization. On a pro forma basis, assuming the Recapitalization had
occurred on January 1, 1995, primary and fully diluted earnings per share would
have been $0.27 and $0.19, respectively, for the year ended December 31, 1995.
Under the terms of the Company's amended Certificate of Incorporation, the
Company is authorized to issue 25,000,000 shares of common stock, and 2,700,000
shares of preferred stock, divided into two series as follows: (i) 500,000
shares of Series C, and (ii) 2,200,000 shares of Series D.
COMMON STOCK
In connection with the Company's merger with AmeriHealth, Inc. ("AHH") on
December 6, 1994, the Company issued one share of $0.01 par value common stock
in exchange for each share of Company common stock outstanding prior to the
consummation of the merger. The stockholders' equity accounts were retroactively
restated to reflect the issuance of $0.01 par value common stock (See Note 3
"Acquisitions and Other Investments"). Additionally, the Company paid a cash
distribution of $0.085 per share to all AHH common stockholders.
Currently, payment of any cash dividends or other distributions or
repurchases of any capital stock of the Company are prohibited.
STOCK OPTION PLANS
The Company has six nonstatutory stock option plans in which certain
officers and/or directors are eligible to participate: Employee Stock Option
Plan, dated December 31, 1991 ("Plan No. 1"), Employee Stock Option Plan No. 2,
dated May 27, 1992 ("Plan No. 2"), Employee Stock Option Plan No. 3, dated
September 1992 ("Plan No. 3"), Senior Executive Stock Option Plan No. 4, dated
January 5, 1994 ("Plan No. 4"), Selected Executive Stock Option Plan No. 5,
dated May 25, 1995 ("Plan No. 5"), and Directors' Stock Option Plan, dated 1992
(the "Directors' Plan") (collectively, the "Plans"). Additionally, the Company
has options issued and outstanding to certain executive officers and key
employees under other authorized plans from which additional options are not
actively being issued.
F-54
<PAGE>
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. STOCKHOLDERS' EQUITY (CONTINUED)
At the Company's annual stockholders meeting on May 25, 1995, the
stockholders approved the adoption of Plan No. 5, which authorized 144,500
shares of common stock for issuance under the Plan.
As a result of the Company's merger with AmeriHealth, Inc. on December 6,
1994, all AmeriHealth options then outstanding became fully vested. At December
31, 1994, 244,017 options granted to certain former AmeriHealth directors,
officers and key employees were outstanding and fully vested.
The Plans are presently administered by the Option and Compensation
Committee (the "Committee") of the Board of Directors. Officers, other key
employees and, under limited circumstances, members of the Board of Directors
are eligible to participate in Plan No. 1. Officers and executive personnel of
the Company are eligible to participate in Plans No. 2 through 5. The Directors'
Plan is available to members of the Board of Directors who are not members of
management or elected as representatives of the Company's preferred stockholders
pursuant to a voting agreement.
With the exception of Plan No. 1, options granted under the Plans can not be
less than 80% of the fair market value of common stock on the date of the grant.
Under Plan No. 1, the per share price can not be less than 100% of the fair
market value of the common stock on the date of grant. The Plans provide that no
stock option shall be exercisable later than 10 years and one day from the date
of grant.
The following table summarizes the activity under these stock option plans
and any special grants authorized by the Board of Directors:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
----------- ------------------
<S> <C> <C>
STOCK OPTIONS OUTSTANDING AT JANUARY 1, 1993.......................... 690,000 $1.00 to $6.25
Granted............................................................... 15,000 $5.90 to $9.00
-----------
STOCK OPTIONS OUTSTANDING AT DECEMBER 31, 1993........................ 705,000 $1.00 to $9.00
Granted............................................................... 367,566 $9.00
Grants to former AmeriHealth employees................................ 244,017 $1.07 to $35.65
-----------
STOCK OPTIONS OUTSTANDING AT DECEMBER 31, 1994........................ 1,316,583 $1.00 to $35.65
Granted............................................................... 159,000 $9.00
Exercised............................................................. (18,411) $5.35
Expired............................................................... (4,943) $3.92 to $35.65
-----------
STOCK OPTIONS OUTSTANDING AT DECEMBER 31, 1995........................ 1,452,229 $1.00 to $25.67
-----------
-----------
</TABLE>
At December 31, 1995, options for the purchase of 1,044,852 common shares
were exercisable.
SHARES RESERVED. Shares covered by stock options that expire or otherwise
terminate unexercised become available for awards under the respective Plans. At
December 31, 1995, the Company had reserved 1,811,147 shares of common stock for
awards under its various stock option plans, of which 358,918 were available for
new grants.
WARRANTS
As of December 31, 1995, the Company had issued and outstanding a total of
2,858,541 warrants to purchase 3,244,412 shares of common stock at exercise
prices ranging from $0.01 per share to $9.00 per share. Such warrants expire
December 31, 1997 through December 31, 2003. Pursuant to the Recapitalization
approved by the shareholders on February 12, 1996, the exercise prices on
certain of the warrants were reduced until May 13, 1996, after which the
exercise prices revert to their prior amounts (see Recapitalization above).
F-55
<PAGE>
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. INCOME TAXES
The provision for income taxes consisted of the following for the years
ended December 31, 1993, 1994 and 1995:
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................................................. $ 1,310 $ (1,600) $ 100
State................................................................... 236 200 50
--------- --------- ---------
Total current provision (benefit)..................................... 1,546 (1,400) 150
--------- --------- ---------
Deferred:
Federal................................................................. (537) 1,600 --
State................................................................... -- -- --
--------- --------- ---------
Total deferred expense (benefit)...................................... (537) 1,600 --
--------- --------- ---------
Provision for income taxes................................................ $ 1,009 $ 200 $ 150
--------- --------- ---------
--------- --------- ---------
</TABLE>
The reconciliation of the statutory federal income tax rate to the provision
for income taxes was as follows:
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Federal income tax provision (benefit) at statutory rate of 34%........... $ (4,004) $ 831 $ 838
State income taxes, net of federal benefit................................ 156 132 33
Changes in valuation allowance............................................ 4,359 (849) (580)
Extraordinary item........................................................ (634) -- --
Net operating loss for which no benefit is recognizable................... 525 -- --
Other..................................................................... (27) 86 (141)
--------- --------- ---------
Provision for income taxes................................................ 375 200 150
Amount allocated to extraordinary item.................................... 634 -- --
--------- --------- ---------
Total provision for income taxes.......................................... $ 1,009 $ 200 $ 150
--------- --------- ---------
--------- --------- ---------
</TABLE>
The components of the deferred tax assets and (liabilities) at December 31,
1994 and 1995 were as follows:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net operating loss carryforward................................................ $ 5,894 $ 7,062
Depreciable equipment.......................................................... (12,532) (11,680)
Amounts expensed for book purposes not
currently deductible for tax.................................................. 4,237 2,779
Investments in partnerships.................................................... (800) (140)
Tax credits.................................................................... 441 388
Less valuation allowance....................................................... (2,046) (3,281)
---------- ----------
Net deferred tax liability................................................... (4,806) (4,872)
Less current portion......................................................... (1,671) (2,521)
---------- ----------
Noncurrent portion........................................................... $ (6,477) $ (7,393)
---------- ----------
---------- ----------
</TABLE>
F-56
<PAGE>
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. INCOME TAXES (CONTINUED)
The current deferred tax asset was included in prepaid expenses and other
current assets in 1995 and 1994. The noncurrent deferred tax liability in 1994
and 1995 was included in other long-term liabilities.
At December 31, 1995, the Company had net operating losses and tax credit
carryforwards for income tax purposes of approximately $18,587,000 and $388,000,
respectively, which will expire in years 1999 through 2009. The tax credit
carryforwards consist of several business credits and alternative minimum tax
("AMT") credits of approximately $68,000 and $320,000, respectively.
For federal income tax purposes, due to certain changes in ownership of
AmeriHealth, Inc., its net operating loss carryforward of $7,727,000 (included
in the Company's net operating loss carryforward) may be limited to
approximately $1,900,000 per year under the Internal Revenue Service Code. If
the available amount is not used to reduce taxes in any year, the unused amount
increases the allowable limit in subsequent years. These loss carryforwards
expire in years 1999 through 2008. AmeriHealth, Inc. also has General Business
Credit and AMT Credit carryforwards of approximately $68,000 and $100,000,
respectively, which may also be limited because of the change in ownership.
NOTE 10. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income taxes paid....................................................... $ 478 $ 878 $ 95
Interest paid........................................................... 2,762 5,582 12,528
</TABLE>
NOTE 11. DEFINED CONTRIBUTION PLAN
The Company sponsors a defined contribution 401(k) plan for qualified
employees of the Company. For those employees of the Company electing to
participate, the Company matches certain employee contributions and may make
additional discretionary contributions.
Total expense for employer contributions to the plan for 1993, 1994 and 1995
was $84,000, $258,000 and $319,000, respectively.
NOTE 12. RELATED PARTY TRANSACTIONS
Management Prescriptives, Inc. ("MPI"), a company owned by a Director of the
Company, has provided specialized consulting services to certain of the
Company's hospitals. MPI received approximately $283,000 and $421,000 in fees
from the Company for the years ended December 31, 1994 and 1995, respectively.
NOTE 13. COMMITMENTS AND CONTINGENCIES
The Company has entered into various operating lease agreements related to
buildings and equipment. Future annual minimum lease payments under
noncancelable operating leases with initial or remaining terms of one year or
more were as follows at December 31, 1995 (dollars in thousands):
<TABLE>
<S> <C>
1996.............................................................. $ 2,649
1997.............................................................. 2,266
1998.............................................................. 1,842
1999.............................................................. 1,544
2000.............................................................. 1,230
Thereafter........................................................ 2,379
---------
$ 11,910
---------
---------
</TABLE>
F-57
<PAGE>
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Rent expense for 1993, 1994 and 1995 was approximately $2,348,000,
$2,648,000 and $3,530,000, respectively.
LITIGATION. The Company is from time to time subject to claims and suits
arising in the ordinary course of operations. In the opinion of management, the
ultimate resolution of such pending legal proceedings will not have a material
effect on the Company's financial position, results of operations or liquidity.
PROFESSIONAL LIABILITY. The Company is self-insured up to $1,000,000 per
occurrence for the payment of claims arising from professional liability risks.
The Company has accrued liabilities for potential professional liability risks
based on estimates for losses limited to $1,000,000 per occurrence and
$4,000,000 in the aggregate. The Company is further insured by a commercial
insurer for claims in excess of these limits up to an additional $10,000,000
over its self-insured retention. At December 31, 1994 and 1995, the Company had
accrued approximately $2,681,000 and $3,171,000, respectively, related to such
claims. In the opinion of management, any unaccrued damages awarded will not
have a material adverse effect on the Company's financial position, results of
operations or liquidity.
NOTE 14. QUARTERLY RESULTS (UNAUDITED)
The following tables summarize the Company's quarterly financial data for
the years ended December 31, 1994 and 1995 (dollars in thousands, except per
share data).
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1994 QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------------ ------- ---------- ------- -------
<S> <C> <C> <C> <C>
Net revenue....................................................... $24,563 $23,403 $23,331 $32,896
Net income (loss)................................................. 1,473 757 1,028 (1,015)
Primary income (loss) per common share (3)........................ .21 (0.31) (0.12) (1.03)
Fully diluted income per common share (3)......................... .15 -- (1) -- (1) -- (1)
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1995(1) QUARTER QUARTER(2) QUARTER QUARTER
- ------------------------------------------------------------------ --------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Net revenue....................................................... $ 28,727 $ 43,319 $ 45,789 $ 49,685
Income before extraordinary item.................................. 177 829 791 1,635
Net income (loss)................................................. 177 (289) 791 1,635
Primary loss per common share: (3)
Loss before extraordinary item per common share................. (0.31) (0.16) (0.17) (1.22)
Loss per common share........................................... (0.31) (0.42) (0.17) (1.22)
</TABLE>
- ------------------------
(1) Fully diluted earnings per share for the period has not been presented due
to the antidilutive effect of such calculation.
(2) The net loss for the second quarter of 1995 included an extraordinary loss
of approximately $1,118,000 from the early extinguishment of debt.
Additionally, results for the quarter and six months ended June 30, 1995,
and the nine months ended September 30, 1995, have been restated from
amounts previously reported in Form 10Q and 10Q/A to eliminate the tax
benefit associated with the extraordinary loss due to a revision in the
Company's estimate of the impact of net operating loss carryforwards.
(3) Earnings per share is computed independently for each quarter presented;
therefore, the sum of the per share amounts does not equal the annual per
share amount due to quarterly fluctuations in weighted average common and
common equivalent shares outstanding.
F-58
<PAGE>
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15. CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS
CREDIT RISK
The Company's revenues consist primarily of amounts due from the Medicare
and Medicaid programs in addition to amounts due from insurance carriers and
individuals. The Company determines the adequacy of a patient's third-party
payor coverage upon admission. However, it generally does not require any
collateral prior to performing services. The Company maintains reserves for
contractual allowances and potential credit losses based on past experience and
management's current expectations. Medicare and Medicaid gross revenue accounted
for approximately 39% and 12% in 1993, 39% and 18% in 1994, and 42% and 19% in
1995, respectively, of the Company's total gross revenue.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying of cash and cash equivalents approximate fair value due to the
short term maturities of these instruments. The carrying amounts of the
Company's fixed rate long-term borrowings at December 31, 1994 and 1995
approximate their fair value.
The carrying value of the Company's revolving credit agreement approximates
fair value because the interest rate on such agreement is variable and based on
current market rates.
NOTE 16. SUBSEQUENT EVENTS
On January 31, 1996, the Company entered into a letter of intent to sell the
149 bed Lakeland Regional Hospital in Springfield, MO, to Columbia in exchange
for the 100 bed Poplar Springs Hospital in Petersburg, VA. Both facilities are
psychiatric hospitals. The Company anticipates receiving additional cash
consideration as a result of the sale, net of certain working capital components
and the respective facilities' long term debt. This transaction is subject to
numerous contingencies, including adequate due diligence and various regulatory
approvals; accordingly, the Company is presently unable to conclude whether
consummation of this transaction is more likely than not to occur.
F-59
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Governing Board of
Dakota Heartland Health System:
We have audited the accompanying balance sheet of Dakota Heartland Health
System (the Partnership) as of December 31, 1994 and 1995, and the related
statements of income, partners' equity and cash flows for the year ended
December 31, 1995. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Dakota Heartland Health
System as of December 31, 1994 and 1995, and the results of its operations,
partners' equity and cash flows for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
February 16, 1996
F-60
<PAGE>
DAKOTA HEARTLAND HEALTH SYSTEM
BALANCE SHEET
DECEMBER 31, 1994 AND 1995
ASSETS
<TABLE>
<CAPTION>
1994 1995
-------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents...................................................... $ 397,300 $ 19,062,865
Patient receivables, net of allowance for uncollectible accounts of $3,439,911
and $3,396,655 in 1994 and 1995, respectively................................. 21,530,288 17,339,282
Due from partners.............................................................. 4,000,000
Supplies inventory............................................................. 1,724,706 1,602,786
Prepaid expenses and other current assets...................................... 568,052 1,003,019
-------------- --------------
Total current assets......................................................... 28,220,346 39,007,952
Property and equipment, at cost.................................................. 42,333,642 52,940,547
Other assets:
Investment in and advances to affiliates....................................... 1,964,073 1,835,223
Organizational costs, less accumulated amortization of $45,291................. -- 1,057,215
Other.......................................................................... -- 20,943
-------------- --------------
Total assets................................................................. $ 72,518,061 $ 94,861,880
-------------- --------------
-------------- --------------
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable............................................................... $ 3,788,183 $ 12,380,016
Estimated third-party payor settlements........................................ 3,426,079 2,008,176
Accrued salaries, wages and employee benefits.................................. 4,754,690 3,548,505
Other current liabilities...................................................... 242,563 2,043,794
-------------- --------------
Total current liabilities.................................................... 12,211,515 19,980,491
Other liabilities................................................................ 91,404 --
Minority interest................................................................ 38,478 56,877
Partners' equity................................................................. 60,176,664 74,824,512
-------------- --------------
Total liabilities and partners' equity....................................... $ 72,518,061 $ 94,861,880
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-61
<PAGE>
DAKOTA HEARTLAND HEALTH SYSTEM
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Net patient service revenue.................................................. $ 99,098,598
Other revenue................................................................ 6,912,796
-------------
Net revenue................................................................ 106,011,394
-------------
Expenses:
Salaries and benefits...................................................... 38,796,941
Professional fees.......................................................... 20,446,296
Supplies................................................................... 16,299,957
Depreciation and amortization.............................................. 2,405,978
Repairs and maintenance.................................................... 1,079,489
Utilities.................................................................. 1,224,450
Insurance.................................................................. 789,648
Rents and leases........................................................... 2,003,288
Provision for uncollectible accounts....................................... 3,797,944
Property taxes............................................................. 910,264
Other...................................................................... 2,109,291
-------------
Total expenses........................................................... 89,863,546
-------------
Net income................................................................... $ 16,147,848
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-62
<PAGE>
DAKOTA HEARTLAND HEALTH SYSTEM
STATEMENT OF PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
CHAMPION DAKOTA TOTAL EQUITY
-------------- --------------- ---------------
<S> <C> <C> <C>
Net assets contributed......................................... $ 16,511,768 $ 39,664,896 $ 56,176,664
Cash contribution.............................................. 20,000,000 -- 20,000,000
Working capital contributions due from partners................ 2,000,000 2,000,000 4,000,000
Equalization of capital accounts............................... 1,576,564 (1,576,564) --
-------------- --------------- ---------------
Initial capital................................................ 40,088,332 40,088,332 80,176,664
Special distribution........................................... -- (20,000,000) (20,000,000)
-------------- --------------- ---------------
Partners' equity, December 31, 1994............................ 40,088,332 20,088,332 60,176,664
Net income..................................................... 8,881,316 7,266,532 16,147,848
Partners' distributions........................................ (825,000) (675,000) (1,500,000)
-------------- --------------- ---------------
Partners' equity, December 31, 1995............................ $ 48,144,648 $ 26,679,864 $ 74,824,512
-------------- --------------- ---------------
-------------- --------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-63
<PAGE>
DAKOTA HEARTLAND HEALTH SYSTEM
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income.................................................................. $ 16,147,848
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................. 2,405,978
Gain on sale of property, plant and equipment............................. (1,388)
Provision for uncollectible accounts...................................... 3,797,944
Minority interest......................................................... 18,399
Changes in operating assets and liabilities:
Patient receivables, net................................................ 393,062
Supplies inventory...................................................... 121,920
Prepaid expenses and other current assets............................... (434,967)
Other assets............................................................ (20,943)
Accounts payable........................................................ 8,591,833
Estimated third-party payor settlements................................. (1,417,903)
Accrued expenses........................................................ (1,206,185)
Other liabilities....................................................... 1,709,827
------------
Net cash provided by operating activities................................. 30,105,425
------------
Cash flows from investing activities:
Purchase of property and equipment.......................................... (12,967,592)
Payment for organizational costs............................................ (1,102,506)
Contribution from partners.................................................. 4,000,000
Other....................................................................... 130,238
------------
Net cash used in investing activities..................................... (9,939,860)
------------
Cash flows from financing activities:
Partners' draws............................................................. (1,500,000)
------------
Net cash used in financing activities..................................... (1,500,000)
------------
Increase in cash and cash equivalents......................................... 18,665,565
Cash and cash equivalents, beginning of year.................................. 397,300
------------
Cash and cash equivalents, end of year........................................ $ 19,062,865
------------
------------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest...................................... $ 15,236
Cash paid for taxes......................................................... 447,207
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-64
<PAGE>
DAKOTA HEARTLAND HEALTH SYSTEM
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND ACCOUNTING POLICIES:
On December 21, 1994, Dakota Heartland Health System, a general partnership
(the Partnership), was formed by a wholly owned subsidiary of Champion
Healthcare Corporation (Champion) that owned Heartland Medical Center, a 140-bed
general acute care facility in Fargo, North Dakota, and Dakota Hospital
(Dakota), a not-for-profit corporation that owned Dakota Hospital, a 199-bed
general acute care hospital also in Fargo, North Dakota. Champion and Dakota
contributed certain assets and liabilities, excluding long-term debt except
capital leases, of their respective hospitals, and Champion contributed an
additional $20,000,000 in cash, each in exchange for 50% ownership in the
Partnership. The Partnership then made a $20,000,000 cash distribution to
Dakota. Also on December 21, 1994, Champion entered into an operating agreement
with the Partnership to manage the combined operations of the two hospitals.
Champion will receive 55% of the net income and distributable cash flow (DCF) of
the Partnership until such time as it has recovered, on a cumulative basis, an
additional $10,000,000 of DCF in the form of an "excess" distribution (see also
Note 4).
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 net income during the reporting period.
Actual results could differ from those estimates. The most significant areas
which require the use of management's estimates relate to the determination of
the estimated third-party payor settlements, the allowance for uncollectible
accounts receivable and obsolete inventory.
CASH AND CASH EQUIVALENTS:
The Partnership considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
PATIENT RECEIVABLES:
Payments for services rendered to patients covered by third-party payor
programs are generally less than billed charges. Provisions for contractual
adjustments are made to reduce the charges to these patients to estimated
receipts based upon the third-party payor's principles of payment/ reimbursement
(either prospectively determined or retrospectively determined costs).
SUPPLIES INVENTORY:
Supplies inventory is stated at the lower of cost or market, with cost
determined substantially on the first-in, first-out basis.
PROPERTY AND EQUIPMENT:
Property and equipment acquisitions are recorded at cost at the date of
receipt. Depreciation is provided using the straight-line method over the
estimated useful lives of the respective assets, ranging from 4 to 25 years.
Maintenance and repairs are charged to expense as incurred while renewals and
betterments are capitalized. The costs and related accumulated depreciation on
asset disposals are removed from the accounts and any gain or loss is included
in income.
INCOME TAXES:
The Partnership's income is attributed to its partners for income tax
purposes. Accordingly, it has not accrued any liability for income taxes.
Entities owned by the Partnership have paid income taxes during 1995 totaling
$447,207.
F-65
<PAGE>
DAKOTA HEARTLAND HEALTH SYSTEM
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND ACCOUNTING POLICIES: (CONTINUED)
RECLASSIFICATIONS:
Certain reclassifications have been made in the 1994 financial statements to
conform to the 1995 presentation.
2. NET PATIENT SERVICE REVENUE:
The Company's facilities have entered into agreements with third-party
payors, including U.S. government programs and managed care health plans, under
which the Company is paid based upon established charges, cost of services
provided, predetermined rates by diagnosis, fixed per diem rates or discounts or
discounts from established charges.
Net patient service revenues are recorded at estimated amounts due from
patients and third-party payors for health care services provided, including
anticipated settlements under reimbursement agreements with third-party payors.
Payments for services rendered to patients covered by the Medicare and Medicaid
programs are generally less than billed charges. Provisions for contractual
adjustments are made to reduce charges to these patients to estimated receipts
based upon each program's principle of payment/reimbursement (either
prospectively determined or retrospectively determined costs). Final settlements
under these programs are subject to administrative review and audit. The Company
records adjustments, if any, resulting from such review or audits during the
period in which these adjustments become known. Allowance for contractual
adjustments under these programs are netted in accounts receivable in the
accompanying Balance Sheet. It is management's opinion that adequate allowance
has been provided for possible adjustments that might result from final
settlements under these programs.
3. PROPERTY AND EQUIPMENT:
A summary of property and equipment as of December 31, 1994 and 1995 is as
follows:
<TABLE>
<CAPTION>
1994 1995
-------------- --------------
<S> <C> <C>
Land and land improvements................................... $ 2,387,095 $ 2,360,412
Buildings and improvements................................... 20,087,268 21,624,868
Fixed equipment.............................................. 4,724,125 4,899,749
Major movable equipment...................................... 12,516,205 13,863,470
Minor movable equipment...................................... 1,101,633 1,003,318
Construction in progress..................................... 606,250 10,638,351
Property held for expansion.................................. 911,066 911,066
-------------- --------------
42,333,642 55,301,234
Less accumulated depreciation................................ -- 2,360,687
-------------- --------------
$ 42,333,642 $ 52,940,547
-------------- --------------
-------------- --------------
</TABLE>
F-66
<PAGE>
DAKOTA HEARTLAND HEALTH SYSTEM
NOTES TO FINANCIAL STATEMENTS
4. INVESTMENTS IN AND ADVANCES TO AFFILIATES:
The Partnership owns portions of several entities. The investments in these
entities are recorded on the equity method. The investments in and advances to
affiliated companies on the accompanying balance sheet consisted of the
following:
<TABLE>
<CAPTION>
INVESTMENTS AND ADVANCES
OWNERSHIP ----------------------------
CORPORATION PERCENTAGE 1994 1995
- ----------------------------------------------------------------------- --------------- ------------- -------------
<S> <C> <C> <C>
Orthopro, Inc.......................................................... 50% $ 203,155
Country Health, Inc.................................................... 49% 665,629 $ 805,632
Health Care Incinerators, Inc./Thom Linen.............................. 33% 193,235 210,701
Dakota Outpatient Center............................................... 50% 311,604 356,016
Dakota Day Surgery..................................................... 50% 590,450 462,874
------------- -------------
$ 1,964,073 $ 1,835,223
------------- -------------
------------- -------------
</TABLE>
During 1995, the Partnership sold its 50% interest in Orthopro, Inc.
The Partnership has a 50% interest in Dakota Outpatient Center (DOC), a
general partnership which owns and operates a medical and office building. As a
general partner, the Partnership is contingently liable on the outstanding debt
of DOC. As of December 31, 1995, the balance of the note was $2,416,564.
DOC also leases its real property to Dakota Hospital, Dakota Day Surgery
(DDS) and Dakota Clinic, Ltd. (an unrelated corporation), under noncancelable
10-year net operating leases. Future minimum annual lease payments to be paid by
the Hospital and DDS are $1,414,500 through 1998.
The Partnership also has a 50% interest in DDS, a general partnership which
provides outpatient surgical services. As a general partner, the Partnership is
contingently liable to cover any operating losses of DDS. DDS had operating
income in 1995.
5. CREDIT RISK
The Partnership's revenues consist primarily of amounts due from the
Medicare and Medicaid programs in addition to amounts due from insurance
carriers and individuals. The Partnership determines the adequacy of a patient's
third-party payor coverage upon admission. However, it generally does not
require any collateral prior to performing services. The Partnership maintains
reserves for contractual allowances and potential credit losses based on past
experience and management's current expectations. Medicare and Medicaid gross
revenue accounted for approximately 46% and 9% of the Partnership's total gross
revenue.
F-67
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Jordan Valley Hospital:
We have audited the accompanying balance sheet of Jordan Valley Hospital
(the "Hospital"), (formerly known as Holy Cross Jordan Valley Hospital), as of
September 30, 1995 and the related statements of income and change in owner's
equity and cash flows for the period from January 1, 1995 through September 30,
1995. These financial statements are the responsibility of the Hospital's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Jordan Valley Hospital as of
September 30, 1995 and the results of its operations and its cash flows for the
period from January 1, 1995 through September 30, 1995 in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Houston, Texas
December 28, 1995
F-68
<PAGE>
JORDAN VALLEY HOSPITAL
BALANCE SHEET
SEPTEMBER 30, 1995
(IN THOUSANDS)
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash............................................................................ $ 260
Accounts receivable, less allowance for doubtful accounts of $1,615............. 4,287
Supplies inventories............................................................ 650
Prepaid expenses and other assets............................................... 223
Deferred income taxes........................................................... 597
---------
Total current assets.......................................................... 6,017
Property and equipment, net....................................................... 14,197
Note receivable................................................................... 207
---------
Total assets.................................................................. $ 20,421
---------
---------
LIABILITIES AND OWNER'S EQUITY
Current liabilities:
Accounts payable................................................................ $ 692
Accrued and other liabilities................................................... 996
Accrued income taxes............................................................ 538
Due to third-party payors....................................................... 295
Due to owner.................................................................... 656
---------
Total current liabilities..................................................... 3,177
Deferred income taxes............................................................. 899
Commitments and contingencies
Owner's equity.................................................................... 16,345
---------
Total liabilities and owner's equity.......................................... $ 20,421
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-69
<PAGE>
JORDAN VALLEY HOSPITAL
STATEMENT OF INCOME AND CHANGE IN OWNER'S EQUITY
FOR THE PERIOD FROM JANUARY 1, 1995 THROUGH SEPTEMBER 30, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
Net patient service revenue....................................................... $ 15,516
Other revenue..................................................................... 345
---------
Net revenue................................................................... 15,861
Operating expenses:
Salaries, wages and benefits.................................................... 5,988
Supplies........................................................................ 2,087
Other operating expenses........................................................ 3,546
Provision for bad debts......................................................... 1,762
Depreciation.................................................................... 1,065
---------
Total expenses................................................................ 14,448
---------
Income before income taxes........................................................ 1,413
Provision for income taxes........................................................ 523
---------
Net income........................................................................ 890
Owner's equity at January 1, 1995................................................. 15,455
---------
Owner's equity at September 30, 1995.......................................... $ 16,345
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-70
<PAGE>
JORDAN VALLEY HOSPITAL
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1995 THROUGH SEPTEMBER 30, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income......................................................................... $ 890
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation..................................................................... 1,065
Provision for bad debts.......................................................... 1,762
Deferred income taxes............................................................ 127
Changes in operating assets and liabilities:
Accounts receivable............................................................ (1,460)
Supplies inventories........................................................... (31)
Prepaid expenses and other assets.............................................. 59
Accounts payable, accrued and other liabilities................................ 364
Accrued income taxes........................................................... 396
Due to third-party payors...................................................... 197
---------
Cash provided by operating activities........................................ 3,369
INVESTING ACTIVITIES
Additions to property and equipment................................................ (983)
Issuance of note receivable........................................................ (207)
---------
Cash used for investing activities........................................... (1,190)
FINANCING ACTIVITIES
Payment of debt to owner........................................................... (2,762)
---------
Cash used for financing activities........................................... (2,762)
---------
Change in cash and cash equivalents................................................ (583)
Cash and cash equivalents at beginning of period................................... 843
---------
Cash and cash equivalents at end of period......................................... $ 260
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-71
<PAGE>
JORDAN VALLEY HOSPITAL
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
Jordan Valley Hospital (the "Hospital") is a 50 bed tertiary care hospital
located in West Jordan, Utah. The Hospital was formerly a tax-exempt hospital,
Holy Cross Jordan Valley Hospital, which was owned by Holy Cross Health Systems
Corporation ("HCHSC"). The Hospital was acquired by HealthTrust, Inc. -- The
Hospital Company ("HTI") in August 1994. In October 1994, HTI and Columbia/ HCA
entered into an agreement and a Plan of Merger. The merger was approved by both
parties and effective in April 1995. In an agreement between the Federal Trade
Commission and Columbia/HCA, the Hospital is currently in the process of being
sold (see note 7). These financial statements are based on HCHSC historical cost
because the Columbia/HCA and HTI ownership of the hospital were temporary.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid debt instruments,
primarily U.S. government backed securities and certificates of deposit,
purchased with an original maturity of three months or less. The Company
maintains its cash in bank deposits which, at times, may exceed federally
insured limits.
ACCOUNTS RECEIVABLE AND NET PATIENT REVENUE
The Hospital has entered into agreements with third-party payors, including
U.S. government programs and managed care health plans, under which the Hospital
is paid based upon established charges, cost of providing services,
predetermined rates by diagnosis, fixed per diem rates or discounts from
established charges.
Net patient service revenues are recorded at estimated amounts due from
patients and third party payors for health care services provided, including
anticipated settlements under reimbursement agreements with third party payors.
Payments for services rendered to patients covered by the Medicare and Medicaid
programs are generally less than billed charges. Provisions for contractual
adjustments are made to reduce the charges to these patients to estimated
receipts based upon the programs' principles of payment/reimbursement (either
prospectively determined or retrospectively determined costs). Final settlements
under these programs are subject to administrative review and audit, and
provision is currently made for adjustments which may result during the period
in which such adjustments become known. Allowance for contractual adjustments
under these programs is netted in accounts receivable in the accompanying
balance sheet. Management is of the opinion that adequate allowance has been
provided for possible adjustments that might result from such final settlements.
Accounts receivable consists primarily of amounts due from the Medicare and
Medicaid programs, other government programs, managed care health plans,
commercial insurance companies and individual patients.
Current earnings are charged with an allowance for doubtful accounts based
on experience and other circumstances that may affect the ability of payors to
meet their obligations. Accounts deemed uncollectible are charged against that
allowance.
SUPPLIES INVENTORIES
Inventories are stated at cost, determined principally by the first-in,
first-out (FIFO) method, and are not in excess of market value.
F-72
<PAGE>
JORDAN VALLEY HOSPITAL
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded on the basis of cost, if purchased, or
fair market value at the date of donation. Depreciation of property and
equipment is recognized using the straight-line method over the expected useful
lives of the assets ranging from 8 to 40 years.
INCOME TAXES
The Hospital utilizes Statement of Financial Standards No. 109, "Accounting
for Income Taxes." Under this method, deferred taxes are determined based on
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted marginal tax rates currently in
effect when the differences reverse. The Hospital has recorded current and
deferred income tax expense for the period subsequent to the acquisition by HTI,
determined as if it were filing a separate tax return.
2. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at September 30, 1995:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
<S> <C>
Buildings and improvements........................................... $ 14,765
Equipment............................................................ 9,417
-------------
24,182
Less accumulated depreciation........................................ (10,505)
-------------
13,677
Land................................................................. 497
Construction in progress............................................. 23
-------------
$ 14,197
-------------
-------------
</TABLE>
3. ACCRUED AND OTHER LIABILITIES:
Details of accrued and other liabilities at September 30, 1995 were as
follows:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
<S> <C>
Accrued salaries and wages........................................... $ 563
Accrued vacation..................................................... 179
Property and sales tax............................................... 254
-------------
Total accrued and other liabilities................................ $ 996
-------------
-------------
</TABLE>
4. LEASES:
The Hospital leases certain land, buildings and equipment under operating
leases that expire at various dates through 2003. Rental expense, which includes
provisions for maintenance in some cases,
F-73
<PAGE>
JORDAN VALLEY HOSPITAL
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. LEASES: (CONTINUED)
amounted to approximately $151,000 in 1995. Future minimum rental commitments at
September 30, 1995, under noncancelable operating leases with a remaining term
of greater than one year were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR (IN THOUSANDS)
- ---------------------------------------------------------------------
<S> <C>
1996............................................................... $ 155
1997............................................................... 123
1998............................................................... 119
1999............................................................... 114
2000............................................................... 434
-----
Total............................................................ $ 945
-----
-----
</TABLE>
5. INCOME TAXES:
The provision for income taxes consisted of the following for the period
from January 1, 1995 through September 30, 1995:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Current:
Federal............................................................ $ 364
State.............................................................. 32
-----
Total current provision.......................................... 396
Deferred:
Federal............................................................ 117
State.............................................................. 10
-----
Total deferred expense........................................... 127
-----
Provision for income taxes........................................... $ 523
-----
-----
</TABLE>
The reconciliation of the statutory federal income tax rate to the provision
for income taxes is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Federal income tax benefit at statutory rate of 34%............................ $ 480
State income taxes, net of federal benefit..................................... 43
------
Total provision for income taxes............................................. $ 523
------
------
</TABLE>
The components of the deferred taxes were as follows:
<TABLE>
<S> <C>
Allowance for bad debts........................................ $ 597
Excess of book over tax basis in property and equipment........ (899)
------
Net deferred tax liability................................... (302)
Less current asset............................................. 597
------
Noncurrent liability......................................... $ (899)
------
------
</TABLE>
F-74
<PAGE>
JORDAN VALLEY HOSPITAL
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. RELATED PARTY TRANSACTIONS:
As of September 30, 1995, the Hospital has a liability due to owner of
approximately $656,000. This amount represents cash advances from its owner used
for normal operations.
The Hospital obtained its primary professional liability insurance through
premiums paid to Columbia/HCA totaling approximately $249,000 for the period
from January 1, 1995 through September 30, 1995. In addition, the Hospital has
limited its liability through the purchase of umbrella coverage from third-party
insurers.
Columbia/HCA provided certain management services in the normal course of
business to the Hospital. For 1995, the expenses allocated to the Hospital were
approximately $101,000.
7. SUBSEQUENT EVENT:
In November 1995, CHC -- Salt Lake City, Inc. entered into a definitive
agreement with Columbia/HCA to acquire the Hospital in exchange for Autauga
Medical Center, an 85 bed acute care hospital, and Autauga Health Care Center, a
72 bed skilled nursing facility, both in Prattville, Alabama, plus additional
cash consideration of approximately $7,500,000. The transaction is subject to
various third-party approvals, including that of the Federal Trade Commission.
F-75
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Salt Lake Regional Medical Center
We have audited the accompanying consolidated balance sheets of Salt Lake
Regional Medical Center (formerly known as Holy Cross Hospital of Salt Lake
City), and subsidiaries (the "Hospital"), as of May 31, 1994 and April 13, 1995,
and the related consolidated statements of income, equity, and cash flows for
each of the two years in the period ended May 31, 1994 and for the period from
June 1, 1994 through April 13, 1995. These financial statements are the
responsibility of the Hospital'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 Salt Lake
Regional Medical Center and subsidiaries as of May 31, 1994 and April 13, 1995,
and the consolidated results of their operations and their cash flows for each
of the two years in the period ended May 31, 1994 and for the period from June
1, 1994 through April 13, 1995 in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Houston, Texas
June 11, 1995
F-76
<PAGE>
SALT LAKE REGIONAL MEDICAL CENTER
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
APRIL 13,
MAY 31, 1994 1995
------------ -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents......................................................... $ 3,277 $ 535
Investments
Operating....................................................................... 1,839
Held by trustees................................................................ 418
------------ -------------
5,534 535
Accounts receivable, less allowance for doubtful accounts of $3,098 and $2,076,
respectively....................................................................... 13,501 14,116
Other accounts receivable........................................................... 1,185 694
------------ -------------
14,686 14,810
Supplies inventories................................................................ 1,100 1,123
Prepaid expenses and other current assets........................................... 89 1,094
------------ -------------
Total current assets.......................................................... 21,409 17,562
Investment assets limited as to use, net of current portion
Held by trustees.................................................................. 902
Board designated.................................................................. 5,902
Donor restricted and other........................................................ 1,578
------------
8,382
Property and equipment:
Land.............................................................................. 1,193 737
Buildings and improvements........................................................ 31,213 32,099
Equipment......................................................................... 42,779 45,017
Construction in progress.......................................................... 619 658
------------ -------------
Total property and equipment.................................................. 75,804 78,511
Less allowances for depreciation and amortization................................. 40,426 43,819
------------ -------------
Total property and equipment, net............................................. 35,378 34,692
Other assets........................................................................ 2,398 115
------------ -------------
Total assets.................................................................. $ 67,567 $ 52,369
------------ -------------
------------ -------------
LIABILITIES AND EQUITY
Current liabilities:
Current portion of capitalized lease obligation................................... $ 233 $ 545
Accounts payable.................................................................. 3,004 1,946
Due to third-party payors......................................................... 4,045 438
Accrued and other liabilities..................................................... 5,137 6,910
Due to HTI........................................................................ 6,015
------------ -------------
Total current liabilities..................................................... 12,419 15,854
Capitalized lease obligation, net of current portion................................ 16,857 1,914
Other long-term liabilities......................................................... 58 228
Due to HCHSC........................................................................ 2,072
Commitments and contingencies (Note 4)
Fund Balance:
General........................................................................... 34,583
Donor restricted.................................................................. 1,578
Owner's Equity:
Contributed capital............................................................... 32,663
Retained earnings................................................................. 1,710
------------ -------------
Total liabilities and equity.................................................. $ 67,567 $ 52,369
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-77
<PAGE>
SALT LAKE REGIONAL MEDICAL CENTER
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 1, 1994
THROUGH
YEAR ENDED YEAR ENDED APRIL 13,
MAY 31, 1993 MAY 31, 1994 1995
------------ ------------ -------------
<S> <C> <C> <C>
Net patient service revenue........................................... $ 81,358 $ 86,536 $ 65,585
Other revenue......................................................... 3,565 4,328 2,792
------------ ------------ -------------
Net revenue....................................................... 84,923 90,864 68,377
Operating expenses:
Salaries, wages and benefits........................................ 36,569 37,931 26,875
Supplies............................................................ 14,842 14,917 12,423
Other operating expenses............................................ 25,929 28,173 18,449
Provision for bad debts............................................. 3,623 3,464 3,573
Interest............................................................ 1,171 929 653
Depreciation and amortization....................................... 4,252 4,529 4,067
------------ ------------ -------------
Total expenses.................................................... 86,386 89,943 66,040
Income (loss) before income taxes and extraordinary item.............. (1,463) 921 2,337
Provision for income taxes............................................ 1,027
------------ ------------ -------------
Income (loss) before extraordinary item............................... (1,463) 921 1,310
Extraordinary item -- early extinguishment of debt (no tax benefit
recognized).......................................................... 846
------------ ------------ -------------
Net income (loss)..................................................... $ (1,463) $ 921 $ 464
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-78
<PAGE>
SALT LAKE REGIONAL MEDICAL CENTER
CONSOLIDATED STATEMENTS OF EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 1, 1994
THROUGH
YEAR ENDED YEAR ENDED APRI1 13,
MAY 31, 1993 MAY 31, 1994 1995
------------ ------------ -------------
<S> <C> <C> <C>
GENERAL
Balance, beginning of period......................................... $ 37,503 $ 36,817 $ 34,583
Net income (loss) prior to the acquisition by HTI.................... (1,463) 921 (1,246)
Fund Transfers....................................................... 135 174 20
Related Party Transfers.............................................. 642 (3,329) (6,339)
Capital contribution by HCHSC........................................ 5,645
Net assets transferred to HTI........................................ (32,663)
------------ ------------ -------------
Balance, end of period............................................. 36,817 34,583 --
DONOR RESTRICTED
Balance, beginning of period......................................... 3,088 3,152 1,578
Donations, gifts and bequests........................................ 945 785 7
Grants............................................................... 42 4
Fund transfers....................................................... (135) (174) (20)
Related party transfers.............................................. (290) (201)
Investment income.................................................... 121 235 (112)
Expenditures for donor restricted purposes........................... (619) (2,223) (351)
Other................................................................ (37)
Capital distribution to HCHSC........................................ (1,065)
------------ ------------ -------------
Balance, end of period............................................. 3,152 1,578 --
OWNER'S EQUITY
Net assets contributed by HTI........................................ 32,663
Net income for the period from August 16, 1994 through April 13,
1995................................................................ 1,710
-------------
Balance, end of period............................................. 34,373
------------ ------------ -------------
Total equity, end of period........................................ $ 39,969 $ 36,161 $ 34,373
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-79
<PAGE>
SALT LAKE REGIONAL MEDICAL CENTER
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 1, 1994
THROUGH
YEAR ENDED YEAR ENDED APRIL 13,
MAY 31, 1993 MAY 31, 1994 1995
------------ ------------ -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)..................................................... $ (1,463) $ 921 $ 464
Adjustments to reconcile net income (loss) to net cash provided (used)
by operating activities:
Extraordinary loss on early extinguishment of debt.................. 846
Depreciation and amortization....................................... 4,252 4,529 4,067
Loss on sale of assets.............................................. 84 24 47
Provision for bad debts............................................. 3,623 3,464 3,573
Deferred tax benefit................................................ (540)
Deferred revenue and other credits.................................. 31 (455) (58)
Changes in operating assets and liabilities:
Accounts receivable............................................... (5,273) (2,032) (14,972)
Supplies inventories.............................................. 83 (23)
Prepaid expenses and other assets................................. (706) 388 920
Due to third-party payors......................................... 2,024 631 663
Accounts payable, accrued liabilities and other liabilities....... 1,221 (1,056) 3,292
------------ ------------ -------------
Cash provided (used) by operating activities.................... 3,793 6,497 (1,721)
INVESTING ACTIVITIES
Net increase in current investments................................... 87 127 339
Net increase in investments limited as to use......................... (1,473) 1,764 6,702
Additions to property and equipment................................... (7,421) (3,427) (3,946)
Proceeds from sale of assets.......................................... 21 809 46
Other................................................................. 1,540 (859)
------------ ------------ -------------
Cash provided (used) for investing activities................... (7,246) (1,586) 3,141
FINANCING ACTIVITIES
Payments on long-term debt and refinancing............................ (204) (215) (5,853)
Issuance of debt from HCHSC........................................... 1,020
Issuance of debt from HTI............................................. 6,015
Payment of debt to HCHSC.............................................. (1,523) (2,072)
Other equity transactions, net........................................ 841 (4,729) (2,252)
------------ ------------ -------------
Cash used for financing activities.............................. (886) (3,924) (4,162)
------------ ------------ -------------
Change in cash and cash equivalents................................... (4,339) 987 (2,742)
Cash and cash equivalents at beginning of period...................... 6,629 2,290 3,277
------------ ------------ -------------
Cash and cash equivalents at end of period............................ $ 2,290 $ 3,277 $ 535
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-80
<PAGE>
SALT LAKE REGIONAL MEDICAL CENTER
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
On April 13, 1995, CHC-Salt Lake City, Inc. (the "Company") completed its
acquisition of Salt Lake Regional Medical Center (the "Hospital") from
Healthtrust, Inc. -- The Hospital Company ("HTI"). The Hospital is comprised of
a 200 bed tertiary care hospital and five clinics and is located in Salt Lake
City, Utah. The Hospital was formerly a tax-exempt hospital, Holy Cross Hospital
of Salt Lake, which was owned by Holy Cross Health Systems Corporation
("HCHSC"). The Hospital was acquired by HTI on August 15, 1994 and was sold
pursuant to a consent decree and settlement agreement between HTI and the
Federal Trade Commission. Consummation of the sale had been subject to approval
by the Federal Trade Commission, which was received on April 7, 1995. These
financial statements are based on HCHSC historical cost because HTI ownership of
the hospital was temporary.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Hospital
and its controlled ventures. All material intercompany transactions and account
balances have been eliminated in consolidation.
CASH EQUIVALENTS
Highly liquid investments, primarily U.S. government backed securities and
certificates of deposits with a maturity of three months or less when purchased,
excluding amounts for which use is limited by board or donor designation or by
trust agreements, have been defined as cash equivalents. The carrying amounts
reported in the balance sheets for cash equivalents approximate fair value.
ACCOUNTS RECEIVABLE AND NET PATIENT REVENUE
The Hospital has entered into agreements with third-party payors, including
U.S. government programs and managed care health plans, under which the Hospital
is paid based upon established charges, cost of providing services,
predetermined rates by diagnosis, fixed per diem rates or discounts from
established charges.
Net patient service revenues are recorded at estimated amounts due from
patients and third party payors for health care services provided, including
anticipated settlements under reimbursement agreements with third party payors.
Payments for services rendered to patients covered by the Medicare and Medicaid
programs are generally less than billed charges. Provisions for contractual
adjustments are made to reduce the charges to these patients to estimated
receipts based upon the programs' principles of payment/reimbursement (either
prospectively determined or retrospectively determined costs). Final settlements
under these programs are subject to administrative review and audit, and
provision is currently made for adjustments which may result during the period
in which such adjustments become known. Allowance for contractual adjustments
under these programs is netted in accounts receivable in the accompanying
balance sheet. Management is of the opinion that adequate allowance has been
provided for possible adjustments that might result from such final settlements.
Accounts receivable consists primarily of amounts due from the Medicare and
Medicaid programs, other government programs, managed care health plans,
commercial insurance companies and individual patients.
Current earnings are charged with an allowance for doubtful accounts based
on experience and other circumstances that may affect the ability of payors to
meet their obligations. Accounts deemed uncollectible are charged against that
allowance. For the years ended May 31, 1993 and 1994 and for
F-81
<PAGE>
SALT LAKE REGIONAL MEDICAL CENTER
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
the period ended April 13, 1995, respectively, approximately 39%, 40% and 38% of
total patient care revenue resulted from the Medicare program, and approximately
10%, 9% and 8%, respectively, resulted from Medicaid program.
INVESTMENTS
Investments acquired by purchase are stated at cost, adjusted for
impairments in value that are deemed to be other than temporary. Market values
for investments are based on quoted market prices. Investments limited as to
use, that are required for obligations classified as current liabilities and
Board designated investments and are immediately available to the Hospital for
their stated purpose, are reported in current assets.
Board designated investments limited as to use represent certain funds from
operations and other sources designated by the Board of Directors to be used to
fund future capital asset replacements, for the retirement of certain long-term
debt or for other purposes.
Certain donations, grants and bequests are restricted by donors and are
recorded at fair market value at the date of receipt. Income from and
expenditures of restricted donations are recorded as revenue and expenses in the
period used, or as general equity transfers if use is restricted for property or
equipment purchases. Bequests receivable are recorded at a nominal amount until
the Hospital receives the bequest.
SUPPLIES INVENTORIES
Inventories are stated at cost, determined principally by the last-in,
first-out (LIFO) method, and are not in excess of market value.
PROPERTY AND EQUIPMENT
Property and equipment are recorded on the basis of cost, if purchased, or
fair market value at the date of donation. Depreciation of property and
equipment is recognized using the straight-line method over the expected useful
lives of the assets ranging from 5 to 30 years. Amortization of capital leases
is included with depreciation expense.
UNAMORTIZED DEBT ISSUANCE COSTS
Debt issuance costs are amortized using the bonds outstanding method over
the repayment term of the related debt. Amortization is included in depreciation
and amortization expense.
CHARITY CARE
Consistent with its mission prior to the acquisition by HTI, the Hospital
provides medical care to all patients regardless of their ability to pay. In
accordance with the Hospital's policies related to the provision of charity
care, patients who were unable to pay for services were identified based on
patient financial information and other subsequent analysis. The Hospital did
not pursue collection from these patients and such amounts were excluded from
net patient revenue. Charity care charges foregone were approximately $1,014,000
in 1993, $1,440,000 in 1994, and $1,228,000 in 1995.
INCOME TAXES
The Hospital utilizes Statement of Financial Standards No. 109, "Accounting
for Income Taxes." Under this method, deferred taxes are determined based on
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted marginal tax rates currently in
effect when the differences reverse. As described in Note 1, the Hospital had
been a tax-exempt entity prior to the acquisition by HTI. Earnings for the
period from August 16, 1994 to
F-82
<PAGE>
SALT LAKE REGIONAL MEDICAL CENTER
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
April 13, 1995 were included in HTI consolidated tax return. The Hospital has
recorded current and deferred income tax expense for the period subsequent to
the acquisition by HTI, determined as if it were filing a separate tax return.
2. INVESTMENTS:
The composition of investment assets limited as to use at May 31, 1994, was
as follows:
<TABLE>
<CAPTION>
MARKET
COST VALUE
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Investments held by trustees under loan agreements:
Cash and short-term investments.............................. $ 201 $ 201
Funds invested in direct obligations of the U.S.
Government.................................................. 1,119 1,119
Less current portion......................................... (418) (418)
--------- ---------
902 902
Board designated investments:
Cash and short-term investments.............................. 5,902 5,902
--------- ---------
5,902 5,902
Donor restricted and other investments:
Cash and short-term investments.............................. 925 935
Common trust funds and other................................. 653 653
--------- ---------
1,578 1,588
--------- ---------
$ 8,382 $ 8,392
--------- ---------
--------- ---------
</TABLE>
Investment income, which is included in other revenue, net, was
approximately $693,000, $837,000 and $47,000 for 1993, 1994 and 1995,
respectively.
Investments consisted of commercial paper, money market instruments, U.S.
Government obligations, marketable equity securities and high grade corporate
bonds. The market values of investment were determined based on quoted market
rates.
3. ACCRUED AND OTHER LIABILITIES:
Details of accrued and other liabilities at May 31, 1994 and April 13, 1995
were as follows:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Accrued salaries and wages..................................... $ 1,834 $ 1,675
Accrued vacation............................................... 2,195 2,074
Income taxes payable to HTI.................................... 1,567
Other.......................................................... 1,108 1,594
--------- ---------
Total accrued and other liabilities.......................... $ 5,137 $ 6,910
--------- ---------
--------- ---------
</TABLE>
F-83
<PAGE>
SALT LAKE REGIONAL MEDICAL CENTER
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT:
Long-term debt, which included capital leases and amounts due to HCHSC, at
May 31, 1994 and April 13, 1995, were as follows:
<TABLE>
<CAPTION>
MATURITY 1994 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Series 1990 Salt Lake City, Utah, Flexible Rate Revenue
Bonds, principal payable at various dates through 2009,
interest payable monthly at variable rates ranging from
2.2% to 2.5%, collateralized by a renewable, irrevocable
letter of credit in the amount of $12,296,000 which expires
on February 1, 1997........................................ Various $ 7,323
Series 1986 Salt Lake City, Utah, Industrial Revenue Bonds,
principal payable annually, interest payable semiannually
at rates from 6.0% to 7.4%................................. 2018 9,480
Notes payable to owner, principal payable at various dates,
interest payable at 10.5%.................................. $ 6,015
Capital leases, principal and interest payable monthly,
interest payable monthly at rates ranging from 5.8% to
9%......................................................... Various 287 2,459
--------- ---------
17,090 8,474
Less current portion (including $6,015 for 1995 due to
HTI)..................................................... (233) (6,560)
--------- ---------
$ 16,857 $ 1,914
--------- ---------
--------- ---------
</TABLE>
The carrying amounts of the variable rate, long-term debt approximate their
fair values. The fair values of the fixed rate, long-term debt and capital lease
obligations were estimated using discounted cash flow analysis, based on current
incremental borrowing rates for similar types of borrowing arrangements. The
fair value of the fixed rate, long-term debt and capital lease obligations at
April 13, 1995, approximated their carrying amount.
Generally, mandatory deposits were required to be made to sinking and other
funds held by trustees for payment of principal and interest.
Prior to the acquisition by HTI, the Hospital extinguished the Series 1986
Industrial Revenue Bonds of approximately $9,480,000. The Hospital recognized an
extraordinary loss of approximately $846,000, for which no tax benefit was
recognized because HCHSC was tax-exempt. Additionally, the 1990 Series Flexible
Rate Revenue Bonds were distributed to the HCHSC concurrent with the HTI
acquisition.
OBLIGATED GROUP AND OTHER REQUIREMENTS
Under the Master Trust Indenture, HCHSC and certain of its subsidiaries,
which included the Hospital (the "Obligated Group") could issue obligations to
finance certain activities. Those members of the Obligated Group that elected to
obtain financing under the Master Trust Indenture were guarantors for the
repayment of obligations issued by other members of the Obligated Group up to
certain limits, although each issuer was considered the principal obligor.
F-84
<PAGE>
SALT LAKE REGIONAL MEDICAL CENTER
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT: (CONTINUED)
The Series 1990 Utah Pooled Financing Bonds and the Series 1986 Salt Lake
City Industrial Revenue Bonds were collateralized by a Master Trust Indenture
that was collateralized by all accounts, contract rights and receipts of the
Hospital. The obligations referenced above contained restrictive covenants that
included, among others, restrictions on additional indebtedness, the payment of
dividends and other distributions, the repurchase of common stock and related
securities under certain circumstances, and the requirement to maintain certain
financial ratios. The Hospital was in compliance with all loan covenants at May
31, 1994. The obligations referenced above were not acquired by HTI in the sale
of the Hospital by HCHSC.
The Master Trust Indenture requires establishment of certain funds, not
available for general purposes, which were held with and controlled by a trustee
for payment of certain construction costs, bond issuance costs, principal and
interest and maintenance of cash reserves. Details of funds held by the trustee
at May 31, 1994 were:
<TABLE>
<CAPTION>
1994
---------------
(IN THOUSANDS)
<S> <C>
Debt service reserve fund........................................... $ 902
Bond fund........................................................... 40
Interest fund....................................................... 378
-------
1,320
Less current portion.............................................. (418)
-------
$ 902
-------
-------
</TABLE>
INTEREST COSTS
During 1993, 1994 and 1995, interest costs totaled approximately $1,171,000,
$929,000 and $653,000, respectively, of which $81,000 was capitalized during
1994. Interest paid was approximately $1,149,000, $933,000, and $579,000 in
1993, 1994 and 1995, respectively.
5. LEASES:
The Hospital leases certain land, buildings and equipment under capital and
operating leases that expire at various dates through 2000. Rental expense,
which includes provisions for maintenance in some cases, amounted to
approximately $2,318,000, $2,693,000 and $1,698,000 in 1993, 1994 and 1995,
respectively. Future minimum rental commitments at April 13, 1995, under a
capital lease and noncancelable operating leases with a remaining term of
greater than one year were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR CAPITAL OPERATING
--------- -----------
- --------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
1996........................................................ $ 801 $ 636
1997........................................................ 701 570
1998........................................................ 624 472
1999........................................................ 624 132
2000........................................................ 208 46
--------- -----------
Total minimum obligations................................... 2,958 $ 1,856
-----------
-----------
Less amounts representing interest........................ 499
---------
Present value of minimum obligations........................ 2,459
Less current portion...................................... 545
---------
Long term obligations at April 13, 1995..................... $ 1,914
---------
---------
</TABLE>
F-85
<PAGE>
SALT LAKE REGIONAL MEDICAL CENTER
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES:
For the period from August 16, 1994 to April 13, 1995, the Hospital earned
approximately $2,737,000 in pre-tax income. The provision for income taxes
consisted of the following for the period from August 16, 1994 through April 13,
1995.
<TABLE>
<CAPTION>
PERIOD ENDED
APRIL 13, 1995
---------------
(IN THOUSANDS)
<S> <C>
Current:
Federal........................................................... $ 1,440
State............................................................. 127
-------
Total current provision......................................... 1,567
Deferred:
Federal........................................................... (496)
State............................................................. (44)
-------
Total deferred benefit.......................................... (540)
-------
Provision for income taxes.......................................... $ 1,027
-------
-------
</TABLE>
The reconciliation of the statutory federal income tax rate to the provision
for income taxes is as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
APRIL 13, 1995
---------------
(IN THOUSANDS)
<S> <C>
Federal income tax benefit at statutory rate of 34%................. $ 795
Loss for period in which no tax benefit recognized.................. 136
State income taxes, net of federal benefit.......................... 83
Other............................................................... 13
-------
Total provision for income taxes.................................. $ 1,027
-------
-------
</TABLE>
The reconciliation of the statutory federal income tax rate to the provision
for income taxes is based on earnings for the period in which the Hospital was
subject to federal income taxes. The components of the deferred tax assets and
(liabilities) at April 13, 1995 were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
APRIL 13, 1995
---------------
(IN THOUSANDS)
<S> <C>
Allowance for bad debts....................................................... $ 768
Excess of tax over book basis in property and equipment....................... (228)
------
Net deferred tax asset...................................................... 540
Less current portion.......................................................... (768)
------
Noncurrent portion.......................................................... $ (228)
------
------
</TABLE>
The current deferred tax asset is included in prepaid expenses and other
current assets. The noncurrent deferred tax liability is included in other
long-term liabilities.
7. RELATED PARTY TRANSACTIONS:
The Hospital purchased certain services from Shared Services which is the
administrator of the Holy Cross Employees Benefit Trust (the "Benefit Trust").
The Benefit Trust provided health, life and long-term disability benefits to
employees of the Hospital. Premiums for these benefits were approximately
$2,263,000, $2,332,000 and $527,000 for 1993, 1994 and 1995, respectively.
Havican
F-86
<PAGE>
SALT LAKE REGIONAL MEDICAL CENTER
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. RELATED PARTY TRANSACTIONS: (CONTINUED)
Insurance Company ("Havican"), a subsidiary of Shared Services, is the captive
insurance company from which the Hospital obtained its primary professional
liability insurance. Premiums paid to Havican were approximately $994,000,
$1,346,000 and $240,000 for 1993, 1994 and 1995, respectively. Premiums paid to
HTI for professional liability insurance during 1995 were approximately
$177,000. In addition, the Hospital has limited its liability through the
purchase of umbrella coverage from third-party insurers.
Through August 15, 1994, the Hospital provided pension benefits for
substantially all of its full-time employees through a defined benefit pension
plan sponsored by HCHSC. The Hospital withdrew from the plan in connection with
its acquisition by HTI. The liability or asset associated with the Hospital's
withdrawal, if any, was retained by HCHSC. Pension expense for the years ended
May 31, 1993 and 1994 and the period ended April 13, 1995, were $1,065,000,
$1,050,000 and $210,000, respectively.
HCHSC provided certain management services in the normal course of business
to the Hospital. For 1993, 1994 and 1995, the expenses allocated to the Hospital
were approximately $1,356,000, $1,486,000 and $304,000, respectively.
8. SALE OF ASSETS TO HTI:
As described in Note 1, HCHSC sold the Hospital to HTI in August 1994. At
the time of the sale, HTI assumed Hospital debts in excess of assets retained of
approximately $4,580,000, which has been reflected in the financial statements
as a capital distribution from donor restricted funds of $1,065,000 and a
capital contribution to general funds of $5,645,000.
F-87
<PAGE>
CHAMPION HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................... $ 7,583 $ 5,670
Accounts receivable, less allowance for doubtful accounts of $10,116 and $14,041 at
December 31, 1995 and March 31, 1996, respectively................................. 33,262 36,407
Supplies inventory.................................................................. 3,470 3,872
Prepaid expenses and other current assets........................................... 6,264 6,290
------------ -----------
Total current assets............................................................ 50,579 52,239
Property and equipment, less allowances for depreciation and amortization of $10,733
and $11,901 at December 31, 1995 and March 31, 1996, respectively.................. 158,382 166,997
Investment in Dakota Heartland Health System........................................ 48,145 52,118
Other assets........................................................................ 34,154 36,668
------------ -----------
Total assets...................................................................... $ 291,260 $ 308,022
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease obligations..................... $ 2,467 $ 2,834
Accounts payable.................................................................... 13,952 12,743
Due to third parties................................................................ 8,829 8,052
Other current liabilities........................................................... 15,490 12,860
------------ -----------
Total current liabilities........................................................... 40,738 36,489
Long-term debt and capital lease obligations........................................ 162,447 181,212
Other long-term liabilities......................................................... 10,177 10,445
Redeemable preferred stock.......................................................... 46,029 46,078
Common stock, $.01 par value:
Authorized -- 25,000,000 shares, 11,868,230 and 12,012,603 shares issued and
outstanding at December 31, 1995 and March 31, 1996, respectively................. 119 120
Common stock subscribed 80,000 shares at December 31, 1995 and March 31, 1996,
respectively....................................................................... 40 40
Common stock subscription receivable................................................ (40) (40)
Paid in capital..................................................................... 47,643 48,178
Accumulated deficit................................................................. (15,893) (14,500)
------------ -----------
Total liabilities and stockholders' equity........................................ $ 291,260 $ 308,022
------------ -----------
------------ -----------
</TABLE>
See notes to condensed consolidated financial statements.
F-88
<PAGE>
CHAMPION HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
(DOLLARS IN
THOUSANDS, EXCEPT
PER SHARE DATA)
Net patient service revenue............................................................. $ 27,625 $ 49,898
Other revenue........................................................................... 1,102 783
--------- ---------
Net revenue......................................................................... 28,727 50,681
Operating expenses:
Salaries and benefits................................................................. 12,762 22,006
Other operating and administrative.................................................... 10,913 19,232
Provision for bad debts............................................................... 2,073 3,670
Interest.............................................................................. 2,630 4,587
Depreciation and amortization......................................................... 1,532 3,016
Equity in earnings of Dakota Heartland Health System.................................. (1,478) (3,973)
--------- ---------
Total expenses...................................................................... 28,432 48,538
--------- ---------
Income before income taxes.......................................................... 295 2,143
Provision for income taxes.............................................................. 118 750
--------- ---------
Net income.......................................................................... $ 177 $ 1,393
--------- ---------
--------- ---------
Income (loss) applicable to common stock............................................ $ (1,312) $ 1,344
--------- ---------
--------- ---------
Income (loss) per common share:
Primary............................................................................. $ (.31) $ .10
--------- ---------
--------- ---------
Fully Diluted....................................................................... N/A $ .08
--------- ---------
--------- ---------
</TABLE>
See notes to condensed consolidated financial statements.
F-89
<PAGE>
CHAMPION HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Operating activities:
Net income.......................................................................... $ 177 $ 1,393
Equity in earnings of Dakota Heartland Health System................................ (1,478) (3,973)
Depreciation and amortization....................................................... 1,532 3,016
Provision for bad debts............................................................. 2,073 3,670
Changes in assets and liabilities, net of effects from acquisitions
Increase in assets................................................................ (1,008) (5,195)
Decrease in liabilities........................................................... (2,459) (4,477)
---------- ----------
Net cash used in operating activities........................................... (1,163) (5,566)
---------- ----------
Investing activities:
Additions to property and equipment................................................. (7,060) (2,697)
Investment in Jordan Valley Hospital................................................ (10,746)
Investment in Dakota Heartland Health System........................................ (2,000)
Investment in Salt Lake Regional Medical Center..................................... (3,000)
Proceeds from sale of property and equipment........................................ 1,300
Investment in note receivable....................................................... (793) (50)
Other............................................................................... (576) (575)
---------- ----------
Net cash used in investing activities........................................... (12,129) (14,068)
---------- ----------
Financing activities:
Proceeds from the issuance of long-term obligations................................. 18,512
Payments on long-term debt and capital lease obligations............................ (1,989) (768)
Other............................................................................... (235) (23)
---------- ----------
Net cash provided by (used in) financing activities............................. (2,224) 17,721
---------- ----------
Decrease in cash and cash equivalents........................................... (15,516) (1,913)
Cash and cash equivalents at beginning of period...................................... 48,424 7,583
---------- ----------
Cash and cash equivalents at end of period............................................ $ 32,908 $ 5,670
---------- ----------
---------- ----------
</TABLE>
See notes to condensed consolidated financial statements.
F-90
<PAGE>
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
the Company have been prepared in accordance with generally accepted accounting
principles for interim financial statements and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements
do not include all of the information and disclosures required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation of the results for the periods
presented have been reflected. Such financial statements include the accounts of
the Company and all wholly-owned and majority-owned subsidiaries and
partnerships. All significant intercompany transactions and accounts have been
eliminated in consolidation.
The year-end condensed consolidated balance sheet data was derived from
audited financial statements, but does not include all disclosures required by
generally accepted accounting principles.
These financial statements should be read in conjunction with the Company's
audited consolidated financial statements for the year ended December 31, 1995,
included in the Company's Annual Report on Form 10-K, as amended, for the year
ended December 31, 1995.
The Company's business is seasonal in nature and subject to general economic
conditions and other factors. Accordingly, operating results for the three
months ended March 31, 1996, are not necessarily indicative of the results that
may be expected for the year ended December 31, 1996.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation," which is effective for fiscal years beginning after
December 15, 1995. SFAS 123 establishes new financial accounting and reporting
standards for stock-based compensation plans. Entities will be allowed to
measure compensation expense for stock-based compensation under SFAS 123 or APB
Opinion No. 25, "Accounting for Stock Issued to Employees." The Company has
elected to continue accounting for such compensation under the provisions of APB
Opinion No. 25.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
SFAS 121, which is effective for fiscal years beginning after December 15, 1995,
requires that long-lived assets and certain identifiable intangibles held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company's adoption of SFAS 121 on January 1, 1996, had no
material effect on its financial statements.
2. SUMMARIZED FINANCIAL INFORMATION OF EQUITY AFFILIATE
The Company, through a wholly-owned subsidiary, owns 50% of a partnership
operated as Dakota Heartland Health System ("DHHS"). DHHS owns and operates two
general acute care hospitals with a total of 341 beds in Fargo, North Dakota,
and the Company manages the combined operations of the two facilities pursuant
to the partnership agreement and an operating agreement with DHHS. Under the
terms of the partnership agreement, the Company is entitled to 55% of DHHS's net
income and distributable cash flow ("DCF") until such time as it has recovered
on a cumulative basis an additional $10,000,000 of DCF. The Company is also
obligated to advance funds to DHHS to cover any and all operating deficits.
F-91
<PAGE>
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SUMMARIZED FINANCIAL INFORMATION OF EQUITY AFFILIATE (CONTINUED)
The Company accounts for its investment in DHHS under the equity method. The
following table summarizes certain financial information of DHHS (dollars in
thousands).
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1995 MARCH 31, 1996
------------------- -------------------
<S> <C> <C>
INCOME STATEMENT DATA
Net revenue................................................. $ 26,088 $ 27,623
Net income.................................................. 2,687 7,223
Company's equity in the earnings of DHHS.................... 1,478 3,973
<CAPTION>
DECEMBER 31, 1995 MARCH 31, 1996
------------------- -------------------
<S> <C> <C>
BALANCE SHEET DATA
Current assets.............................................. $ 39,008 $ 38,095
Non-current assets.......................................... 55,854 56,226
Current liabilities......................................... 19,980 12,258
Non-current liabilities..................................... 57 15
Partners' equity............................................ 74,825 82,048
</TABLE>
3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consisted of the following at
December 31, 1995 and March 31, 1996 (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
<S> <C> <C>
Revolving Loan.............................................................. $ 47,700 $ 66,200
11% Senior Subordinated Notes, net of discount (face amount of $99,089 and
$98,705 at December 31, 1995 and March 31, 1996, respectively)............. 98,447 98,076
Health Care REIT, Inc....................................................... 11,120 10,908
Other notes payable and capital lease obligations........................... 7,647 8,862
------------ -----------
Total debt and capital lease obligations.................................. 164,914 184,046
Less current portion........................................................ (2,467) (2,834)
------------ -----------
Total long-term debt and capital lease obligations........................ $ 162,447 $ 181,212
------------ -----------
------------ -----------
</TABLE>
The Company is subject to various loans, notes and mortgages that contain
restrictive covenants which include, among others, restrictions on additional
indebtedness, the payment of dividends and other distributions, the repurchase
of common stock and related securities under certain circumstances, and the
requirement to maintain certain financial ratios. The Company was in compliance
with or has obtained permanent waivers for all loan covenants to which it was
subject at March 31, 1996 and December 31, 1995.
4. ACQUISITIONS
JORDAN VALLEY HOSPITAL
On March 1, 1996, the Company acquired Jordan Valley Hospital ("Jordan")
from Columbia/ HCA Healthcare Corporation ("Columbia"). Jordan is a 50 bed acute
care hospital located in West Jordan, Utah, a suburb of Salt Lake City. Jordan
was acquired in exchange for Autauga Medical Center, an 85 bed acute care
hospital, and Autauga Health Care Center, a 72 bed skilled nursing facility,
both in Prattville, Alabama, plus preliminary cash consideration paid to
Columbia of approximately $10,750,000. Cash consideration included approximately
$3,750,000 for certain net working
F-92
<PAGE>
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
4. ACQUISITIONS (CONTINUED)
capital components, which are subject to adjustment and final settlement by the
parties, and reimbursement of certain capital expenditures made previously by
Columbia. The transaction did not result in a gain or loss. The Alabama
facilities were acquired as part of the Company's acquisition of AmeriHealth,
Inc. on December 6, 1994.
The following selected unaudited pro forma financial information for the
three months ended March 31, 1995 and 1996, assumes that the acquisition of
Jordan and Salt Lake Regional Medical Center ("SLRMC") occurred on January 1,
1995. The Company acquired SLRMC on April 13, 1995. The pro forma financial
information does not purport to be indicative of the results that actually would
have been obtained had the operations been combined during the periods
presented, and is not intended to be a projection of future results or trends.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1995 1996
--------- ---------
(DOLLARS IN
THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net revenue...................................................................... $ 49,353 $ 51,919
--------- ---------
--------- ---------
Net income....................................................................... $ 1,313 $ 1,268
--------- ---------
--------- ---------
Income (loss) applicable to common stock......................................... $ (176) $ 1,219
--------- ---------
--------- ---------
Income (loss) per common share:
Primary........................................................................ $ (0.04) $ 0.09
--------- ---------
--------- ---------
Fully diluted.................................................................. N/A $ 0.07
---------
---------
Weighted average number of common shares outstanding:
Primary........................................................................ 4,228 12,835
--------- ---------
--------- ---------
Fully diluted.................................................................. N/A 18,184
---------
---------
</TABLE>
5. INCOME PER SHARE
Primary income per common and common equivalent share is calculated by
dividing the income attributable to common stock (net income less preferred
stock dividend requirements and accretion of preferred stock issuance costs) by
the weighted average number of common and common equivalent shares outstanding
during each period, assuming the exercise of all stock options and warrants,
when dilutive, with an exercise price less than the average market price of the
common stock using the treasury stock method. Fully diluted income per share was
not presented for the quarter ended March 31, 1995, due to the anti-dilutive
effect of such calculation. The fully diluted income per share computation for
the quarter ended March 31, 1996, assumed the conversion of 2,608,176 shares of
convertible preferred stock into a weighted average of 5,216,027 common shares,
and that no preferred dividends on the preferred stock were provided (See Note
6).
The weighted average number of shares used in computing income (loss) per
share are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1995 1996
----------- -------------
<S> <C> <C>
Primary.......................................................... 4,277,975 12,835,211
----------- -------------
----------- -------------
Fully Diluted.................................................... N/A 18,183,900
-------------
-------------
</TABLE>
F-93
<PAGE>
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
6. CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK
Effective December 31, 1995, the Company and its Preferred shareholders
entered into the 1995 Recapitalization Agreement that, among other things,
eliminated the accrual of future dividends on its outstanding Preferred Stock.
At March 31, 1996, the Company had outstanding 2,608,176 shares of Series C and
D Cumulative Convertible Redeemable Preferred Stock (collectively, "Preferred
Stock") which were convertible into 5,216,352 shares of common stock. The
Company's Certificate of Incorporation, as amended, certain preferred stock
purchase agreements, and its Senior and other debt agreements prohibit or place
limitations on the payment of cash dividends to holders of preferred and common
stock.
7. INCOME TAXES
The income tax provision recorded for the quarters ended March 31, 1995 and
1996 differs from the expected income tax provision due to permanent
differences, the provision for state income taxes and the realization of net
deferred tax assets.
8. CONTINGENCIES
LITIGATION. The Company is subject to claims and legal actions arising in
the ordinary course of operations. In the opinion of management, the ultimate
resolution of such pending legal proceedings will not have a material effect on
the Company's financial position, results of operations or liquidity.
PROFESSIONAL LIABILITY. The Company is self-insured up to $1,000,000 per
occurrence for the payment of claims arising from professional liability risks.
The Company has accrued liabilities for potential professional liability risks
based on estimates for losses limited to $1,000,000 per occurrence and
$4,000,000 in the aggregate. The Company is further insured by a commercial
insurer for claims in excess of these limits up to an additional $10,000,000
over its self-insured retention. In the opinion of management, any unaccrued
damages awarded will not have a material adverse effect on the Company's
financial position, results of operations or liquidity.
9. SUBSEQUENT EVENT
Effective April 12, 1996, the Company executed a definitive Agreement and
Plan of Merger (the "Merger Agreement") with Paracelsus Healthcare Corporation,
a privately held California corporation ("Paracelsus") and PC Merger Sub., Inc.,
a newly formed Paracelsus subsidiary. The Merger Agreement provides for, among
other things, the merger of PC Merger Sub., Inc. with and into the Company (the
"Merger"). Each share of the Company's common stock will convert into one share
of Paracelsus common stock, and each share of the Company's Preferred Stock will
convert into two shares of Paracelsus common stock. Dr. Manfred George
Krukemeyer, currently the Chairman of the Board and sole shareholder of
Paracelsus, and members of Paracelsus management will own approximately 60% of
the Company, and current Company security holders will own approximately 40% of
Paracelsus common stock on a fully diluted basis. The consummation of the Merger
is conditioned upon, among other things, Dr. Krukemeyer entering into a
shareholder agreement (the "Shareholder Agreement") with Paracelsus to be
effective at the time of the Merger. The Shareholder Agreement, among other
things, set forth (i) restrictions on certain acquisitions and dispositions of
Paracelsus voting securities, (ii) certain rights and obligations relating to
board representation and (iii) certain rights of first refusal for Dr.
Krukemeyer. The Shareholder agreement will also impose other customary
standstill restrictions. The Merger is subject to a number of customary
conditions including filings with the Securities and Exchange Commission,
approval of the stockholders of the Company and Paracelsus, and antitrust
filings. In the event that the Merger Agreement is terminated, under certain
circumstances Paracelsus and the Company have agreed to pay a termination fee to
the other.
Effective April 12, 1996, the Company and holders of its 11% Senior
Subordinated Notes under agreements dated December 31, 1993, (the "Series D
Notes") and May 1, 1995, (the "Series E Notes")
F-94
<PAGE>
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
9. SUBSEQUENT EVENT (CONTINUED)
and certain holders of its Preferred Stock entered into an Agreement in
Contemplation of the Merger, that among other things provided (i) the parties
thereto holding shares of Preferred Stock agreed to vote their Preferred Shares
for the Merger, (ii) the holders of the Series D Notes agreed among other things
(a) to waive any rights to cause the Company to purchase from such holders the
Series D Notes in the event of a change in control caused by the Merger and (b)
surrender their Series D Notes for prepayment at a premium depending upon the
year of prepayment, and (iii) the holder of the Series E Notes agreed among
other things (x) to waive any rights to cause the Company to purchase from such
holders the Series E Notes in the event of a change in control caused by the
Merger and (y) to surrender their Series E Notes for prepayment at a premium
depending upon the year of such prepayment and upon whether warrants to purchase
Company common stock are surrendered in connection with such prepayment.
Pursuant to the 1995 Recapitalization Agreement entered into by the Company
and certain of its security holders effective December 31, 1995, the Company
agreed to reduce the exercise prices of one series of 680,104 warrants from
$5.90 to $5.25 per share and two series totaling 2,447,670 warrants from $9.00
to $7.00 per shares until May 13, 1996, after which the exercise prices revert
to their prior amounts. As of May 13, 1996, warrants have been exercised to
purchase approximately 2,370,000 shares of common stock, resulting in cash
proceeds to the Company of approximately $8,715,000 and the tender of
approximately $4,840,000 in Company subordinated notes in lieu of cash.
On January 31, 1996, the Company entered into a letter of intent to sell the
149 bed Lakeland Regional Hospital in Springfield, MO, to Columbia/HCA
Healthcare Corporation in exchange for the 100 bed Poplar Springs Hospital in
Petersburg, VA. Both facilities are psychiatric hospitals. On May 6, 1996, the
Company and Columbia mutually agreed to terminate this transaction.
F-95
<PAGE>
ANNEX A
AMENDED AND RESTATED
AGREEMENT AND PLAN
OF
MERGER
DATED AS OF MAY 29, 1996
BY AND AMONG
PARACELSUS HEALTHCARE CORPORATION,
CHAMPION HEALTHCARE CORPORATION
AND
PC MERGER SUB, INC.
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE I
CERTAIN DEFINITIONS....................................................................................... 5
ARTICLE II
THE MERGER................................................................................................ 9
Section 2.1 The Merger............................................................................ 9
Section 2.2 Effective Time........................................................................ 9
Section 2.3 Effects of the Merger................................................................. 9
Section 2.4 Certificate of Incorporation and Bylaws............................................... 9
Section 2.5 Company Directors and Officers........................................................ 10
Section 2.6 Parent Stock Split; Conversion of Company Stock in Merger............................. 10
Section 2.7 Dissenting Shares..................................................................... 10
Section 2.8 Exchange of Shares.................................................................... 10
Section 2.9 Time and Place of Closing............................................................. 12
Section 2.10 Deliveries at the Closing............................................................. 12
ARTICLE III
CORPORATE GOVERNANCE MATTERS RELATING TO PARENT AND THE COMPANY AT OR AFTER THE EFFECTIVE TIME............
12
Section 3.1 Charter Documents..................................................................... 12
Section 3.2 Directors and Officers of Parent Following the Effective Time......................... 13
Section 3.3 Rights Plan........................................................................... 13
Section 3.4 Parent Shareholder Arrangements....................................................... 13
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................. 13
Section 4.1 Organization and Qualification........................................................ 13
Section 4.2 Capitalization........................................................................ 14
Section 4.3 Authority............................................................................. 15
Section 4.4 Consents and Approvals; No Violation.................................................. 15
Section 4.5 SEC Reports and Financial Statements.................................................. 15
Section 4.6 Absence of Certain Changes or Events.................................................. 16
Section 4.7 Litigation............................................................................ 16
Section 4.8 Information Supplied.................................................................. 16
Section 4.9 Employee Benefit Plans; ERISA......................................................... 17
Section 4.10 Tax Matters........................................................................... 18
Section 4.11 Taxes................................................................................. 18
Section 4.12 Affiliate Agreements.................................................................. 19
Section 4.13 Opinion of Financial Advisor.......................................................... 19
Section 4.14 Brokers and Finders................................................................... 19
Section 4.15 Vote Required......................................................................... 19
Section 4.16 Medicare and Medicaid................................................................. 19
Section 4.17 Medicare Participation/Accreditation.................................................. 20
Section 4.18 Medical Staff Matters................................................................. 20
Section 4.19 Takeover Statutes..................................................................... 20
Section 4.20 Compliance with Laws.................................................................. 20
</TABLE>
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT.................................................................. 21
Section 5.1 Organization and Qualification........................................................ 21
Section 5.2 Capitalization........................................................................ 21
Section 5.3 Authority............................................................................. 22
Section 5.4 Consents and Approvals; No Violation.................................................. 22
Section 5.5 SEC Reports and Financial Statements.................................................. 22
Section 5.6 Absence of Certain Changes or Events.................................................. 23
Section 5.7 Litigation............................................................................ 23
Section 5.8 Information Supplied.................................................................. 23
Section 5.9 Employee Benefit Plans; ERISA......................................................... 23
Section 5.10 Taxes................................................................................. 25
Section 5.11 Affiliate Agreements.................................................................. 25
Section 5.12 Brokers and Finders................................................................... 25
Section 5.13 Vote Required......................................................................... 25
Section 5.14 Medicare and Medicaid................................................................. 25
Section 5.15 Medicare Participation/Accreditation.................................................. 26
Section 5.16 Medical Staff Matters................................................................. 26
Section 5.17 Takeover Statutes..................................................................... 26
Section 5.18 Compliance with Laws.................................................................. 26
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS................................................................. 27
Section 6.1 Conduct of Business of the Company Pending the Effective Time......................... 27
Section 6.2 Conduct of Business of Parent Pending the Effective Time.............................. 28
ARTICLE VII
ADDITIONAL COVENANTS AND AGREEMENTS....................................................................... 29
Section 7.1 Company Takeover Proposals............................................................ 29
Section 7.2 Parent Takeover Proposals............................................................. 30
Section 7.3 Access to Information................................................................. 30
Section 7.4 Form S-4 and Proxy Statement.......................................................... 31
Section 7.5 Stockholder Approval; Recommendation.................................................. 31
Section 7.6 Affiliates............................................................................ 31
Section 7.7 Agreement to Cooperate; Further Assurances............................................ 31
Section 7.8 Company Options, Rights and Warrants.................................................. 32
Section 7.9 Parent Rights......................................................................... 32
Section 7.10 Public Statements..................................................................... 33
Section 7.11 Letter of Company's Accountants....................................................... 33
Section 7.12 Letter of Parent's Accountants........................................................ 33
Section 7.13 Directors' and Officers' Indemnification.............................................. 33
Section 7.14 Stock Exchange Listing................................................................ 34
Section 7.15 Execution of the Other Agreements..................................................... 34
Section 7.16 Tax Treatment......................................................................... 35
Section 7.17 Other Actions by the Company and/or Parent............................................ 35
ARTICLE VIII
CONDITIONS................................................................................................ 35
Section 8.1 Conditions to Each Party's Obligation to Effect the Merger............................ 35
Section 8.2 Conditions to Obligation of the Company to Effect the Merger.......................... 36
Section 8.3 Conditions to Obligations of Parent to Effect the Merger.............................. 36
</TABLE>
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ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER......................................................................... 37
Section 9.1 Termination........................................................................... 37
Section 9.2 Effect of Termination................................................................. 38
Section 9.3 Amendment............................................................................. 38
Section 9.4 Waiver................................................................................ 38
Section 9.5 Procedure for Certain Terminations.................................................... 38
Section 9.6 Fees and Expenses..................................................................... 38
ARTICLE X
GENERAL PROVISIONS........................................................................................ 40
Section 10.1 Non-Survival of Representations, Warranties and Agreements............................ 40
Section 10.2 Notices............................................................................... 40
Section 10.3 Interpretation........................................................................ 41
Section 10.4 Miscellaneous......................................................................... 41
Section 10.5 Counterparts.......................................................................... 41
Section 10.6 Parties in Interest................................................................... 41
Section 10.7 Severability.......................................................................... 42
Section 10.8 Attorneys' Fees....................................................................... 42
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SCHEDULES
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Schedule 1.5 Terms of Company Investment Group Registration Rights Agreement
Schedule 1.11 Terms of Employment Agreements
Schedule 1.20 Independent Director Designees
Schedule 1.27 Terms of Parent Shareholder Registration Rights Agreement
Schedule 1.37 Terms of Services Agreement
Schedule 1.43 Terms of Voting Agreement
Schedule 2.4 Amendment to the Restated Certificate of Incorporation of the Company
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EXHIBITS
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Exhibit A Form of Shareholder Agreement
Exhibit B Form of Non-Compete Agreement
Exhibit C Form of Dividend and Note Agreement
Exhibit D Form of Amended and Restated Articles of Incorporation of Parent
Exhibit E Form of Amended and Restated Bylaws of Parent
</TABLE>
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
This AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of May 29,
1996 (the "Agreement"), by and among PARACELSUS HEALTHCARE CORPORATION, a
California corporation ("Parent"), CHAMPION HEALTHCARE CORPORATION, a Delaware
corporation (the "Company"), and PC MERGER SUB, INC., a Delaware corporation and
a wholly owned subsidiary of Parent ("Merger Sub").
WHEREAS, as of April 12, 1996 Parent, the Company and Merger Sub entered
into an Agreement and Plan of Merger, and Parent, the Company and Merger Sub
desire to amend and restate in its entirety such Agreement and Plan of Merger;
WHEREAS, the board of directors of each of Parent, Merger Sub and the
Company deem it advisable and in the best interests of their respective
stockholders that Merger Sub be merged with and into the Company (the "Merger")
in accordance with the General Corporation Law of the State of Delaware (the
"DGCL") upon the terms and subject to the conditions of this Agreement; and
WHEREAS, for Federal income tax purposes it is intended that the Merger
qualify as a reorganization within the meaning of section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder.
NOW, THEREFORE, in consideration of the foregoing, the mutual
representations, warranties, covenants and agreements set forth herein and 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:
ARTICLE I
CERTAIN DEFINITIONS
For purposes of this Agreement, the following terms shall have the following
meanings:
Section 1.1 "Affiliate" shall mean, as to any person, any other person that
directly or indirectly controls, or is under common control with or is
controlled by such person. For the purpose of this definition, "control," when
used with respect to any specified person, means the power to direct or cause
the direction of the management and policies of such person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" shall have meanings
correlative to the foregoing.
Section 1.2 "Agreement in Contemplation of Merger" shall mean the Champion
Healthcare Corporation Agreement in Contemplation of Merger, dated as of April
12, 1996, by and among the Company and the parties named therein.
Section 1.3 "BA Partners" shall mean BA Partners, financial advisors to
Parent.
Section 1.4 "Company Common Stock" shall mean the common stock, par value
$.01 per share, of the Company.
Section 1.5 "Company Investment Group Registration Rights Agreements" shall
mean the three Registration Rights Agreements to be entered into by Parent and
certain stockholders of the Company at or prior to the Closing on substantially
the terms set forth in Schedule 1.5 attached hereto.
Section 1.6 "Company Preferred Stock" shall mean, collectively, the Series C
Preferred Stock and the Series D Preferred Stock.
Section 1.7 "Company Stock" shall mean, collectively, the Company Common
Stock and the Company Preferred Stock.
Section 1.8 "Confidentiality Agreement" shall mean, collectively, the
Confidentiality Agreements, each dated November 10, 1995, by and among Parent
and the Company.
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Section 1.9 "Coopers & Lybrand" shall mean Coopers & Lybrand, L.L.P., the
Company's independent auditors.
Section 1.9A "Dividend and Note Agreement" shall mean the Dividend and Note
Agreement to be entered into between Parent and the Parent Shareholder at or
prior to the Closing, in the form attached as Exhibit C hereto.
Section 1.10 "DLJ" shall mean Donaldson, Lufkin & Jenrette Securities
Corporation, financial advisor to the Company.
Section 1.11 "Employment Agreements" shall mean the employment agreements to
be entered into prior to the time the Form S-4 becomes effective under the
Securities Act between Parent and each of Mr. R.J. Messenger, Mr. Charles R.
Miller, Mr. James G. VanDevender, Mr. Ronald R. Patterson and Mr. Robert C.
Joyner, in each case substantially on the terms set forth in Schedule 1.11
attached hereto.
Section 1.12 "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
Section 1.13 "ERISA Affiliate," with respect to any party, shall mean any
trade or business, whether or not incorporated, that together with such party
would be deemed a "single employer" within the meaning of Section 4001(b)(1) of
ERISA.
Section 1.14 "Ernst & Young" shall mean Ernst & Young LLP, Parent's
independent auditors.
Section 1.15 "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
Section 1.16 "Form S-4" shall mean the Registration Statement on Form S-4 of
Parent to be filed with the SEC under the Securities Act in connection with the
Merger for the purpose of registering the shares of Parent Common Stock to be
issued in the Merger.
Section 1.17 "GAAP" shall mean generally accepted accounting principles as
in effect from time to time in the United States of America.
Section 1.18 "Governmental Entity" shall mean any court, administrative
agency, commission or other governmental authority or instrumentality, domestic
or foreign.
Section 1.19 "HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
Section 1.20 "Independent Designees" shall mean the persons either
identified on Schedule 1.20 hereto or designated in accordance with the terms
thereof to become directors of Parent no later than immediately after the
Effective Time.
Section 1.21 "Material Adverse Effect," with respect to any party, shall
mean a material adverse effect (or any development which in the future is
reasonably likely to have a material adverse effect) on the business, assets,
financial or other condition or results of operations of such party and its
Subsidiaries, taken as a whole; PROVIDED, HOWEVER, that any such effect
resulting from any change (i) in law, rule or regulation or GAAP or
interpretations thereof that applies to both Parent and the Company or (ii) in
economic or business conditions generally or in the health care industry
specifically that similarly affects both Parent and the Company shall not be
considered when determining if a Material Adverse Effect has occurred.
Section 1.22 "Non-Compete Agreement" shall mean the non-compete agreement to
be entered into between Parent and Dr. Krukemeyer at or prior to Closing in the
form attached as Exhibit B hereto.
Section 1.23 "Officers" shall mean the senior executive officers of Parent
at the Effective Time.
Section 1.24 "Parent Bylaws" shall mean the Bylaws to be adopted by Parent
at or prior to the Closing in the form attached as Exhibit D hereto.
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Section 1.25 "Parent Common Stock" shall mean the Common Stock, no stated
value per share, of Parent.
Section 1.26 "Parent Shareholder" shall mean Dr. Manfred George Krukemeyer
or a corporation wholly owned by Dr. Krukemeyer.
Section 1.27 "Parent Shareholder Registration Rights Agreement" shall mean
the Registration Rights Agreement to be entered into by Parent and the Parent
Shareholder at or prior to the Closing substantially on the terms set forth in
Schedule 1.27 attached hereto.
Section 1.28 "PBGC" shall mean the Pension Benefit Guaranty Corporation.
Section 1.29 "Proxy Statement" shall mean the proxy statement/prospectus
included as part of the Form S-4 and filed by the Company pursuant to Section
14(a) of the Exchange Act to be distributed to holders of shares of Company
Stock in connection with the meeting of such holders to be held in connection
with the transactions contemplated by this Agreement.
Section 1.30 "Registration Rights Agreements" shall mean, collectively, the
Parent Shareholder Registration Rights Agreement and the Company Investment
Group Registration Rights Agreements.
Section 1.31 "Restated Articles of Incorporation" shall mean the amended and
restated articles of incorporation to be adopted by Parent at or prior to the
Closing in the form attached as Exhibit D hereto.
Section 1.32 "Rights Plan" shall mean a rights plan to be adopted and
implemented by Parent as promptly as practicable following the Closing meeting
the requirements of Section 3.3 hereof.
Section 1.33 "SEC" shall mean the Securities and Exchange Commission.
Section 1.34 "Securities Act" shall mean the Securities Act of 1933, as
amended.
Section 1.35 "Series C Preferred Stock" shall mean the Series C Preferred
Stock, par value $.01 per share, of the Company.
Section 1.36 "Series D Preferred Stock" shall mean the Series D Preferred
Stock, par value $.01 per share, of the Company.
Section 1.37 "Services Agreement" shall mean the Services Agreement to be
entered into between Parent and Dr. Krukemeyer at or prior to the Closing,
substantially on the terms set forth in Schedule 1.37 attached hereto.
Section 1.38 "Shareholder Agreement" shall mean the Shareholder Agreement to
be entered into between Parent and the Parent Shareholder at or prior to the
Closing, in the form attached as Exhibit A hereto.
Section 1.39 "Significant Subsidiary" shall have the meaning set forth in
Rule 1-02 of Regulation S-X of the SEC.
Section 1.40 "Subsidiary" shall have the meaning set forth in Rule 1-02 of
Regulation S-X of the SEC.
Section 1.41 "Takeover Proposal" with respect to a person means (i) any BONA
FIDE offer or proposal with respect to a merger, reorganization, consolidation
or other similar business combination or any transaction involving the purchase
of all or any significant portion of the assets, or 30% or more of such person's
equity securities (on a fully diluted basis), by tender offer or otherwise
(collectively, an "Acquisition"), of such person or any of its Subsidiaries;
(ii) any direct or indirect Acquisition by such person involving either the
issuance by such person or acquisition by such person of 30% or more of the
outstanding equity securities (on a fully diluted basis) of it or another
entity, or the acquisition of another entity or a business for consideration in
an amount valued at 30% or more of such person's aggregate equity market
capitalization (PROVIDED that this clause (ii) shall not apply to hospital
acquisitions made by such person so long as such hospital acquisitions are not
part of a series of
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transactions that would otherwise be a Takeover Proposal), or (iii) any issuance
of equity securities of such person through which another person becomes the
beneficial owner (other than through underwriting arrangements) of 30% or more
of the outstanding equity securities (on a fully diluted basis), in each case
other than the transactions contemplated by this Agreement.
Section 1.42 "Third Party" shall mean any person or group that is deemed to
be a "person" within the meaning of Section 13(d) of the Exchange Act, PROVIDED,
that with respect to any person, "Third Party" shall not include such person's
Affiliates not defined.
Section 1.43 "Voting Agreement" shall mean the Voting Agreement among the
Parent Shareholder, Mr. Charles R. Miller and Mr. James G. VanDevender to be
entered into at or prior to the Closing substantially on the terms set forth in
Schedule 1.43 attached hereto.
OTHER DEFINED TERMS
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TERM SECTION
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Acquisition................................................................................. 1.41
Agreement................................................................................... Recitals
AMEX........................................................................................ 7.14
Certificate................................................................................. 2.8(b)
Certificate of Merger....................................................................... 2.2
Closing..................................................................................... 2.9
Company..................................................................................... Recitals
Company Common Equivalents.................................................................. 7.8(b)
Company Disclosure Letter................................................................... 4.2(a)
Company ERISA Plans......................................................................... 4.9(a)
Company Expenses............................................................................ 9.6(b)
Company Hospitals........................................................................... 4.17
Company Issuable Securities................................................................. 4.2(a)
Company Option Plans........................................................................ 4.2(a)
Company Options and Rights.................................................................. 7.8(b)
Company Plans............................................................................... 4.9(a)
Company Requisite Vote...................................................................... 4.15
Company SEC Reports......................................................................... 4.5
Company Warrants............................................................................ 4.2(a)
Code........................................................................................ Recitals
Costs....................................................................................... 7.13(a)
DGCL........................................................................................ Recitals
Dissenting Shares........................................................................... 2.7
Effective Time.............................................................................. 2.2
Exchange Agent.............................................................................. 2.8(a)
Exchange Ratio.............................................................................. 2.6(b)
Expenses.................................................................................... 9.6(c)
Government Antitrust Entity................................................................. 7.7(b)
Indemnified Parties......................................................................... 7.13(a)
Insurance Agreement......................................................................... 7.15
Joint Commission on Accreditation........................................................... 4.17
maximum amount.............................................................................. 9.6(d)
Merger...................................................................................... Recitals
Merger Sub.................................................................................. Recitals
New Parent Board............................................................................ 3.2(a)
NYSE........................................................................................ 7.14
Parent...................................................................................... Recitals
Parent Common Equivalents................................................................... 7.8(b)
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TERM SECTION
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Parent Disclosure Letter.................................................................... 5.2(b)
Parent ERISA Plans.......................................................................... 5.9(a)
Parent Expenses............................................................................. 9.6(c)
Parent Hospitals............................................................................ 5.15
Parent Options and Rights................................................................... 7.8(c)
Parent Plans................................................................................ 5.9(a)
Parent PSAR Plan............................................................................ 7.9(b)
Parent Requisite Vote....................................................................... 5.13
Parent SEC Reports.......................................................................... 5.5
Parent Stock Split.......................................................................... 2.6(a)
payee....................................................................................... 9.6(d)
payor....................................................................................... 9.6(d)
Plans....................................................................................... 4.9(a)
PPSUs....................................................................................... 7.9(b)
PSARs....................................................................................... 7.9(b)
Representative.............................................................................. 7.1(a)
Series D Stockholder Agreement.............................................................. 4.2(b)
SPD......................................................................................... 4.9(b)
Split Ratio................................................................................. 2.6(a)
Surviving Subsidiary........................................................................ 2.1
Taxes....................................................................................... 4.11(c)
Tax Returns................................................................................. 4.11(c)
Termination Date............................................................................ 9.1(b)
Termination Fee............................................................................. 9.6(b)
</TABLE>
ARTICLE II
THE MERGER
Section 2.1 THE MERGER.
Upon the terms and subject to the satisfaction or waiver of the conditions
set forth in Article VIII and in accordance with the DGCL, at the Effective
Time, Merger Sub shall be merged with and into the Company. As a result of the
Merger, the separate corporate existence of Merger Sub shall cease and the
Company shall continue as the surviving corporation of the Merger (the
"Surviving Subsidiary") and shall become a wholly owned subsidiary of Parent.
From and after the Effective Time, the identity and separate existence of Merger
Sub shall cease, and the Company shall succeed, without other transfer, to all
the rights, properties, debts and liabilities of Merger Sub.
Section 2.2 EFFECTIVE TIME. At the time of the Closing, upon the terms and
subject to the satisfaction or waiver of the conditions set forth in Article
VIII, the parties shall cause the Merger to be consummated by filing a
certificate of merger (the "Certificate of Merger") with the Secretary of State
of the State of Delaware, in such form as required by, and executed in
accordance with the relevant provisions of, the DGCL (such time and date are
referred to herein as the "Effective Time").
Section 2.3 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in the DGCL.
Section 2.4 CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation of the Surviving Subsidiary shall be the Restated Certificate of
Incorporation of the Company as in effect immediately prior to the Effective
Time, except that Article IV thereof shall be amended to read in its entirety as
set forth in Schedule 2.4 hereto. The bylaws of Merger Sub as in effect
immediately prior to the Effective Time shall be the bylaws of the Surviving
Subsidiary, except that the name of the corporation specified therein shall be
"Champion Healthcare Corporation."
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Section 2.5 COMPANY DIRECTORS AND OFFICERS. The directors and officers of
Merger Sub at the Effective Time shall be the directors and officers,
respectively, of the Surviving Subsidiary until the earlier of their resignation
or removal or until their respective successors are duly elected and qualified,
as the case may be.
Section 2.6 PARENT STOCK SPLIT; CONVERSION OF COMPANY STOCK IN MERGER.
(a) Prior to the Effective Time Parent shall take all action necessary so
that each issued and outstanding share of Parent Common Stock shall be split
into and, without any action on the part of the holder thereof, shall become and
thereafter represent 66,159.426 shares (the "Split Ratio") of Parent Common
Stock (the "Parent Stock Split").
(b) At the Effective Time, following the adjustments to the Parent Common
Stock contemplated by Section 2.6(a), by virtue of the Merger and without any
action on the part of any holder of any capital stock of the Company, Parent or
Merger Sub (i) each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than any such shares owned by
Parent or any of its Subsidiaries, held in the Company's treasury or owned by
any Subsidiary of the Company) shall automatically be converted into one share
of Parent Common Stock (the "Exchange Ratio"); (ii) each share of Company
Preferred Stock issued and outstanding immediately prior to the Effective Time
(other than any such shares owned by Parent or any of its Subsidiaries, held in
the Company's treasury or owned by any Subsidiary of the Company, and other than
Dissenting Shares) shall automatically be converted into two shares of Parent
Common Stock; (iii) each share of Company Stock issued and outstanding
immediately prior to the Effective Time and owned by Parent or any of its
Subsidiaries, held in the Company's treasury or owned by any Subsidiary of the
Company shall be cancelled and cease to exist at and after the Effective Time by
virtue of the Merger and without any action on the part of the holder thereof
and no consideration shall be payable with respect thereto; and (iv) each share
of common stock, par value $.01 per share, of Merger Sub shall be converted into
and become one share of common stock, par value $.01 per share, of the Surviving
Subsidiary.
Section 2.7 DISSENTING SHARES. Notwithstanding anything in this Agreement
to the contrary, shares of Company Preferred Stock which are issued and
outstanding immediately prior to the Effective Time and which are held by a
stockholder who has not voted such shares of Company Preferred Stock in favor of
the Merger and who is entitled by the DGCL to appraisal rights, and who shall
have properly demanded in writing appraisal for such shares of Company Preferred
Stock in accordance with Section 262 of the DGCL (collectively, the "Dissenting
Shares"), shall not be converted into or represent the right to receive shares
of Parent Common Stock as set forth in Section 2.6, unless and until such holder
shall have failed to perfect or shall have effectively withdrawn or lost his
rights to appraisal and payment under the DGCL. If any such holder shall have so
failed to perfect or shall have effectively withdrawn or lost such right, such
holder's shares of Company Preferred Stock shall thereupon be deemed to have
been converted into and to have become exchangeable for, at the Effective Time,
shares of Parent Common Stock as set forth in Section 2.6(b). Prior to the
Effective Time, the Company shall not, except with the prior written consent of
Parent, make any payment with respect to, or settle or offer to settle, any such
demands. Any payments relating to Dissenting Shares shall be made solely by the
Surviving Subsidiary and no funds or other property have been or will be
provided by the Company or any of its other direct or indirect Subsidiaries for
such payment.
Section 2.8 EXCHANGE OF SHARES.
(a) As of the Effective Time, Parent shall deposit with a bank or trust
company designated by Parent and the Company (the "Exchange Agent"), for the
benefit of holders of shares of Company Stock, for exchange in accordance with
this Article II, through the Exchange Agent, certificates representing shares of
Parent Common Stock issuable pursuant to Section 2.6(b) in exchange for
outstanding shares of Company Stock.
(b) As soon as reasonably practicable after the Effective Time, the
Surviving Subsidiary shall cause the Exchange Agent to mail to each person who
was, immediately prior to the Effective Time, a
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holder of record of shares of Company Stock whose shares of Company Stock were
converted into shares of Parent Common Stock, (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to a
certificate which, immediately prior to the Effective Time, represented any
shares of the Company Stock (a "Certificate") shall pass, only upon proper
delivery of the Certificate to the Exchange Agent and shall be in such form and
have such other provisions consistent with the terms of this Agreement as Parent
and the Company may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificate in exchange for certificates
representing shares of Parent Common Stock. Upon surrender to the Exchange Agent
of a Certificate, together with such letter of transmittal, duly executed and
completed in accordance with the instructions thereto, and any other documents
as may be required pursuant to such instructions, including in the case of the
persons specified in Section 7.6 the agreements required to be delivered by such
persons thereunder, the holder of such Certificate shall be entitled to receive
in exchange therefor a certificate representing that number of shares of Parent
Common Stock that such holder has the right to receive under Section 2.6(b),
together with a check in the amount (after giving effect to any required tax
withholdings) of any cash dividends or other dividends or distributions that
such holder has the right to receive as provided in the last sentence of Section
2.8(c), and the Certificate so surrendered shall be cancelled. In the event of a
transfer of ownership of shares of Company Stock which is not registered in the
transfer records of the Company, a certificate representing the proper number of
shares of Parent Common Stock, and any related payment with respect to dividends
or distributions contemplated by the immediately preceding sentence, may be
issued to a transferee if the Certificate representing such shares of Company
Stock is presented to the Exchange Agent, accompanied by all documents required
to evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered in accordance with the
provisions of this Section 2.8, each Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender the certificate representing shares of Parent Common Stock and any
related payment with respect to dividends or distributions as contemplated
above.
(c) Subject to the effect of applicable laws, all shares of Parent Common
Stock to be issued pursuant to the Merger shall be deemed issued and outstanding
as of the Effective Time for purposes of determining holders of record of shares
of Parent Common Stock entitled to receive any dividend or other distribution
declared by Parent with a record date after the Effective Time. No dividends or
other distributions declared with respect to shares of Parent Common Stock with
a record date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of Parent Common Stock
represented thereby until the holder of such Certificate shall surrender such
Certificate in accordance with this Article II. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall be
paid to the record holder of the certificates representing whole shares of
Parent Common Stock issued in exchange therefor, without interest, (i) at the
time of such surrender, the amount of dividends or other distributions with a
record date after the Effective Time and theretofore paid with respect to such
shares of Parent Common Stock, and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to surrender
payable with respect to such shares of Parent Common Stock.
(d) All shares of Parent Common Stock issued upon the surrender for exchange
of shares of Company Stock in accordance with the terms hereof (including any
dividends paid pursuant to Section 2.8(c)) shall be deemed to have been issued
in full satisfaction of all rights pertaining to such shares of Company Stock,
subject, however, to the Surviving Subsidiary's obligation to pay any dividends
or make any other distributions with a record date prior to the Effective Time
which may have been declared or made by the Company on such shares of Company
Stock in accordance with the terms of this Agreement or prior to the date hereof
and which remain unpaid at the Effective Time, and there shall be no further
registration of transfers on the stock transfer books of the Surviving
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Subsidiary of shares of Company Stock which were outstanding immediately prior
to the Effective Time. If, after the Effective Time, Certificates are presented
to the Surviving Subsidiary for any reason, they shall be cancelled and
exchanged as provided in this Article II.
(e) TERMINATION OF EXCHANGE FUND. Any certificates representing shares of
Parent Common Stock that Parent has deposited with the Exchange Agent pursuant
to Section 2.8(a) that remains unclaimed by the stockholders of the Company for
180 days after the Effective Time shall be delivered to Parent. Any holders of
Certificates who have not theretofore complied with this Article II shall
thereafter look only to Parent for payment of their shares of Parent Common
Stock and any dividends and distributions in respect of the Parent Common Stock
payable as provided in the last sentence of Section 2.8(c) upon due surrender of
their Certificates (or affidavits of loss in lieu thereof), in each case,
without any interest thereon. Notwithstanding the foregoing, none of Parent, the
Surviving Subsidiary, the Exchange Agent or any other person shall be liable to
any former holder of shares of Company Stock for any amount properly delivered
to a public official pursuant to applicable abandoned property, escheat or
similar laws.
(f) LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming such Certificate to be lost, stolen or
destroyed and, if and as required by Parent, the posting by such person of a
bond in customary amount as indemnity against any claim that may be made against
it with respect to such Certificate, the Exchange Agent will issue in exchange
for such lost, stolen or destroyed Certificate the shares of Parent Common Stock
and any unpaid dividends or other distributions in respect of Parent Common
Stock pursuant to the last sentence of Section 2.8(c).
(g) AFFILIATES. Notwithstanding anything herein to the contrary,
Certificates surrendered for exchange by any "affiliate" (as determined pursuant
to Section 7.6) of the Company shall not be exchanged until Parent has received
the written agreement from such person as provided in Section 7.6.
Section 2.9 TIME AND PLACE OF CLOSING. The closing (the "Closing") of the
transactions in connection with the Merger shall take place at the offices of
Skadden, Arps, Slate, Meagher & Flom, 300 South Grand Avenue, Suite 3400, Los
Angeles, California, at 10:00 a.m. (local time) on or before the fifth business
day following the date on which all of the conditions to each party's
obligations hereunder have been satisfied or waived or at such other place or
time as Parent and the Company may agree.
Section 2.10 DELIVERIES AT THE CLOSING. At the Closing:
(a) There shall be delivered to Parent and the Company the certificates,
opinions and other documents and instruments required to be delivered
hereunder; and
(b) Parent, the Company and Merger Sub shall cause the Certificate of
Merger to be filed with the Secretary of State of the State of Delaware in
accordance with the relevant provisions of the DGCL.
ARTICLE III
CORPORATE GOVERNANCE MATTERS RELATING TO PARENT AND
THE COMPANY AT OR AFTER THE EFFECTIVE TIME
Section 3.1 CHARTER DOCUMENTS. Parent shall adopt and take any and all
action necessary to make effective, immediately prior to the Effective Time, the
Restated Certificate of Incorporation and the Parent Bylaws, which shall remain
effective through the Effective Time and thereafter may be amended only in
accordance with their terms and applicable law.
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Section 3.2 DIRECTORS AND OFFICERS OF PARENT FOLLOWING THE EFFECTIVE TIME.
(a) GOVERNANCE.
(i) Parent shall take any and all actions necessary (including without
limitation obtaining the resignation of any directors, as necessary) to
cause the directors comprising the full board of directors of Parent (the
"New Parent Board") at the Effective Time to be comprised of nine directors,
in order to enable (w) Mr. Charles R. Miller and Mr. James G. VanDevender to
be appointed as directors in Class III and Class II, respectively; (x) the
Independent Directors to be appointed as Directors, in the classes set forth
on Schedule 1.20 hereto; and (y) Dr. Krukemeyer and Mr. R.J. Messenger to be
appointed as directors in Class III, and one person chosen by the Parent
Shareholder to be appointed as a director in each of Class II and Class I,
in each case such appointments to be in accordance with the Restated
Articles of Incorporation effective immediately prior to the Effective Time
and to remain effective through and from the Effective Time in accordance
with Parent's charter documents and applicable law. Thereafter, all
nominations and elections shall be governed in accordance with the
Shareholder Agreement, the Restated Articles of Incorporation, the Parent
Bylaws and applicable law, each as amended from time to time.
(ii) Parent shall take any and all actions necessary such that at the
Effective Time the Officers shall become the officers of Parent.
(b) TENURE. The officers and directors of Parent shall hold their
positions until their resignation or removal or the election or appointment of
their successors in the manner provided by each corporation's respective charter
documents and applicable law.
Section 3.3 RIGHTS PLAN. The parties shall, prior to the Effective Time,
present to the New Parent Board the Rights Plan and, as approved by the New
Parent Board subject to fiduciary duties and applicable law, adopt and effect
the Rights Plan. The Rights Plan shall have customary terms and conditions and
such other provisions as may reasonably be agreed to by Parent and the Company,
provided that the Rights Plan shall exempt (a) the Parent Shareholder's
beneficial ownership of Parent Common Stock at the Effective Time, (b) any
acquisition of Parent Common Stock by the Parent Shareholder in accordance with
the Shareholder Agreement and (c) any acquisition of Parent Common Stock by
another Third Party in accordance with the Shareholder Agreement.
Section 3.4 PARENT SHAREHOLDER ARRANGEMENTS. (a) The Company acknowledges
that prior to the Effective Time and not as part of the Merger, Parent shall
declare a cash dividend, payable to the Parent Shareholder after the Effective
Time, in an aggregate amount not to exceed $21,113,387, plus, in the event that
the dividend is paid after July 30, 1996, an additional amount equal to
$3,574.26 for each day from and including July 31, 1996 to the date such
dividend is paid.
(b) Prior to the Effective Time, Parent shall enter into the Services
Agreement substantially on the terms set forth in Schedule 1.37 attached hereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Company represents and warrants to Parent as follows:
Section 4.1 ORGANIZATION AND QUALIFICATION. Each of the Company and its
Significant Subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation and has the
requisite power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted, and is duly qualified to do
business and in good standing in each jurisdiction in which the properties
owned, leased or operated by it, or where the nature of the business conducted
by it make such qualification necessary, except where the failure to so qualify
or be in good standing would not have a Material Adverse Effect on the Company.
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True and complete copies of the certificate of incorporation and bylaws of the
Company as in effect on the date hereof, including all amendments thereto, have
heretofore been made available or delivered to Parent.
Section 4.2 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of 25,000,000
shares of Company Common Stock, 500,000 shares of Series C Preferred Stock and
2,200,000 shares of Series D Preferred Stock. As of the close of business on May
24, 1996, there were (i) 14,463,997 shares of Company Common Stock issued and
outstanding, all of which are validly issued, fully paid and nonassessable and
are not subject to and were not issued in violation of any preemptive rights,
(ii) 448,811 shares of Series C Preferred Stock issued and outstanding, all of
which are validly issued, fully paid and nonassessable and are not subject to
and were not issued in violation of any preemptive rights, and which, as of the
date hereof and at or immediately prior to the Effective Time, in accordance
with their terms, are convertible into Company Common Stock at the rate of two
shares of Company Common Stock for every one share of Series C Preferred Stock,
(iii) 2,156,903 shares of Series D Preferred Stock issued and outstanding, all
of which are validly issued, fully paid and nonassessable and are not subject to
and were not issued in violation of any preemptive rights, and which, as of the
date hereof and at or immediately prior to the Effective Time, in accordance
with their terms, are convertible into Company Common Stock at the rate of two
shares of Company Common Stock for every one share of Series D Preferred Stock,
(iv) options to purchase an aggregate of 1,297,204 shares of Company Common
Stock are issued and outstanding under the Company Option Plans, (v) 81,250
shares of Company Common Stock reserved for issuance in connection with the
Brookside Non-Negotiable Exchangeable Promissory Notes, (vi) 50,067 shares of
Company Common Stock reserved for issuance in connection with the Select
Acquisition Convertible Notes, (vii) 15,000 shares of Company Common Stock
reserved for issuance under an Employment Agreement with Robert L. Hancock,
(viii) 80,000 shares of the Company Common Stock reserved for issuance under a
subscription agreement with Mr. VanDevender (such shares issued under the
agreements referenced in (v), (vi), (vii) and (viii), the "Company Issuable
Securities") and (ix) 422,286 shares of Company Common Stock reserved for
issuance pursuant to outstanding warrants to purchase shares of Company Common
Stock identified in Section 4.2(a) of the letter, dated the date hereof,
delivered by the Company to Parent in connection with this Agreement (the
"Company Disclosure Letter") (collectively, the "Company Warrants"). "Company
Option Plans" shall mean the AmeriHealth Amended and Restated 1988 Non-Qualified
Stock Option Plan, as modified May 27, 1993, the Company's Employee Stock Option
Plan, dated December 31, 1991, the Company's Employee Stock Option Plan No. 2,
dated May 27, 1992, the Company's Employee Stock Option Plan No. 3, dated
September 1992, the Company's Senior Executive Stock Option Plan No. 4, dated
January 5, 1994, the Company's Directors' Stock Option Plan, dated December 8,
1992, options granted to certain directors, officers and key employees of
AmeriHealth, Inc. in December 1994, the Company's Selected Executive Stock
Option Plan No. 5, approved May 25, 1995, the Company's Founders Stock Option
Plan, dated December 1990, and the Company's Physicians Stock Option Plan, dated
May 27, 1993. No Subsidiary of the Company holds any shares of Company Stock.
Other than as described in Section 4.2 of the Company Disclosure Letter, there
has been no change in the information set forth in the second sentence of this
Section 4.2(a) between the close of business on April 8, 1996 and the date
hereof.
(b) Except as set forth in Section 4.2(a) or pursuant to the Agreement in
Contemplation of Merger or the Series D Stockholders Agreement, dated December
31, 1993, by and between the Company and the holders of the Series C Preferred
Stock, the holders of the Series D Preferred Stock and certain other parties
named therein (the "Series D Stockholder Agreement"), there are not now, and at
the Effective Time there will not be, any outstanding shares of Company capital
stock or any options, warrants, calls, rights, subscriptions, convertible
securities or other rights or agreements, arrangements or commitments of any
kind obligating the Company or any of its Subsidiaries to issue, transfer or
sell any securities of the Company. All shares of Company Common Stock subject
to issuance as set forth in Section 4.2(a), upon issuance on the terms and
conditions specified in the
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instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable. There are no outstanding
contractual or other obligations of the Company or any of its Subsidiaries to
purchase, redeem or otherwise acquire any shares of Company Stock. Except for
the Agreement in Contemplation of Merger and the Series D Stockholder Agreement,
there is not now, and at the Effective Time there will not be, any stockholder
agreement, voting trust or other agreement or understanding to which the Company
or any of its Subsidiaries is a party or bound relating to the voting of any
shares of the capital stock of the Company or any of its Subsidiaries.
Section 4.3 AUTHORITY. The Company has all requisite corporate power and
authority to execute and deliver this Agreement and, subject to approval of this
Agreement by the Company Requisite Vote, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement, and the
consummation by the Company of the transactions contemplated hereby, have been
duly authorized by the Company's board of directors and no other corporate
proceedings on the part of the Company are necessary to authorize the execution
and delivery of this Agreement and the consummation by the Company of the
transactions contemplated hereby, except for the approval of this Agreement by
the Company Requisite Vote. This Agreement has been duly and validly executed
and delivered by the Company and, assuming the due authorization, execution and
delivery hereof by Merger Sub and Parent, constitutes a valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms, except that such enforceability may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other similar
laws now or hereafter in effect relating to or affecting creditors' rights
generally and (ii) by general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law).
Section 4.4 CONSENTS AND APPROVALS; NO VIOLATION. None of the execution
and delivery by the Company of this Agreement, the consummation by the Company
of the transactions contemplated hereby or compliance by the Company with any of
the provisions hereof will (i) conflict with or result in a breach of any
provision of the respective charters or bylaws (or similar governing documents)
of the Company or any of its Subsidiaries, (ii) require any consent, approval,
authorization or permit of, or filing with or notification to, any Governmental
Entity, except (A) pursuant to the Exchange Act, the Securities Act and the HSR
Act and (B) for filing the Certificate of Merger with respect to the Merger
pursuant to the DGCL, (iii) except as disclosed in Section 4.4 of the Company
Disclosure Letter, result in a default (or an event which with notice or lapse
of time or both would become a default) or give to any third party any right of
termination, cancellation, amendment or acceleration under, or result in the
creation of a lien or encumbrance on any of the assets of the Company or any of
its Subsidiaries pursuant to, any note, license, agreement or other instrument
or obligation to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries or any of their respective assets
may be bound or affected, or (iv) violate or conflict with any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company or any
of its Subsidiaries or any of their respective properties or assets, other than
(A) such defaults, rights of termination, cancellation, amendment or
acceleration, liens and encumbrances, violations and conflicts as set forth
pursuant to (iii) and (iv) above, and (B) such consents, approvals,
authorizations, permits or filings as set forth pursuant to (ii) above that are
not obtained, which, in the aggregate, would not have a Material Adverse Effect
on the Company, or would not prevent or delay in any material respect the
consummation of any of the transactions contemplated by this Agreement. Holders
of not less than 100% in aggregate principal amount of each of the Company's
Series D 11% Senior Subordinated Notes and 100% of the Series E 11% Senior
Subordinated Notes have entered into the Agreement in Contemplation of Merger
and such agreement is in full force and effect.
Section 4.5 SEC REPORTS AND FINANCIAL STATEMENTS. Each form, report,
schedule, registration statement and definitive proxy statement filed by the
Company with the SEC since December 31, 1994 (as such documents have since the
time of their filing been amended, the "Company SEC Reports"), which include all
the documents (other than preliminary material) that the Company was required to
file with the SEC since such date, as of their respective dates, complied in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and
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regulations of the SEC thereunder applicable to such Company SEC Reports. None
of the Company SEC Reports contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, except for such statements, if any, as have been modified
by subsequent filings prior to the date hereof. The financial statements of the
Company included in the Company SEC Reports comply as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto or, in the case of the
unaudited statements, as permitted by Form 10-Q under the Securities Act) and
fairly present (subject, in the case of the unaudited quarterly financial
statements, to the absence of notes, and to normal, recurring audit adjustments)
the consolidated financial position of the Company and its Subsidiaries as at
the dates thereof and the consolidated results of their operations and cash
flows (or changes in financial position prior to the adoption of FASB 95) for
the periods then ended. Since December 31, 1995, neither the Company nor any of
its Subsidiaries has incurred any liabilities or obligations, whether absolute,
accrued, fixed, contingent, liquidated, unliquidated or otherwise and whether
due or to become due, except (i) as disclosed in the Company SEC Reports filed
after December 31, 1995 and prior to the date hereof, (ii) as incurred in
connection with the transactions contemplated, or as provided, by this
Agreement, (iii) as incurred after December 31, 1995 in the ordinary course of
business and consistent with past practices and not in violation of Section 6.1,
or (iv) except as would not, individually or in the aggregate, have a Material
Adverse Effect on the Company.
Section 4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1995,
except as disclosed in the Company SEC Reports filed since December 31, 1995 and
prior to the date hereof, the Company and its Subsidiaries have conducted their
respective businesses only in the ordinary course, consistent with past
practice, and there has not occurred or arisen any event or events which,
individually or in the aggregate, have had or are reasonably likely to have, a
Material Adverse Effect on the Company or which is reasonably likely to prevent
or delay in any material respect the consummation of any of the transactions
contemplated by this Agreement.
Section 4.7 LITIGATION. Except as disclosed in (i) Section 4.7 of the
Company Disclosure Letter or (ii) the Annual Report on Form 10-K for the fiscal
year ended December 31, 1995 filed by the Company, there is no suit, action or
proceeding pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of its Subsidiaries or Affiliates (and the Company
is not aware of any basis for any such suit, action or proceeding) that,
individually or in the aggregate, is reasonably likely to (i) have a Material
Adverse Effect on the Company or (ii) prevent or delay in any material respect
the Company from performing its obligations under, or consummating the
transactions contemplated by, this Agreement. There is not any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator outstanding
against the Company or any of its Subsidiaries which has had or is reasonably
likely to have any Material Adverse Effect on the Company.
Section 4.8 INFORMATION SUPPLIED. The information supplied or to be
supplied by the Company or its Subsidiaries for inclusion or incorporation by
reference in the Form S-4 will not, either at the time the Form S-4 is filed
with the SEC or at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading. The information supplied or to be supplied by the Company or its
Subsidiaries for inclusion or incorporation by reference in the Proxy Statement,
including any amendments and supplements thereto, will not, either at the date
mailed to stockholders or at the time of the meeting of stockholders of the
Company to be held in connection with the transactions contemplated by this
Agreement and the Merger Agreement, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The Proxy Statement and the Form S-4
will each comply as to form in all material respects with all applicable laws,
including the provisions of the Securities Act and the
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Exchange Act and the rules and regulations promulgated thereunder, except that
no representation is made by the Company with respect to information supplied by
Parent for inclusion or incorporation by reference therein.
Section 4.9 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Section 4.9(a) of the Company Disclosure Letter contains a true and
complete list of each employment, bonus, deferred compensation, incentive
compensation, stock purchase, stock option, severance or termination pay,
hospitalization or other medical, life or other insurance, supplemental
unemployment benefits, profit-sharing, pension, or retirement plan, program,
agreement or arrangement, and each other employee benefit plan, program,
agreement or arrangement ("Plans"), sponsored, maintained or contributed to or
required to be contributed to by the Company or any ERISA Affiliate for the
benefit of any employee or former employee of the Company or any of its
Subsidiaries (the "Company Plans"). Section 4.9(a) of the Company Disclosure
Letter identifies each of the Company Plans that is an "employee welfare benefit
plan," or "employee pension benefit plan" as such terms are defined in sections
3(1) and 3(2) of ERISA (such plans being hereinafter referred to collectively as
the "Company ERISA Plans"). Neither the Company nor any of its ERISA Affiliates
has any formal plan or commitment to create any additional Company Plan or
modify or change any existing Company Plan that would affect any employee or
terminated employee of the Company or any such ERISA Affiliate.
(b) With respect to each of the Company Plans, the Company has heretofore
delivered or made available to Parent true and complete copies of each of the
following documents:
(i) a copy of the Company Plan (including all amendments thereto);
(ii) a copy of the annual report, if required under ERISA, with respect
to each such Company Plan for the last three years;
(iii) a copy of the actuarial report, if required under ERISA, with
respect to each such Company Plan for the last three years;
(iv) a copy of the most recent summary plan description ("SPD"), together
with all summaries of material modification issued with respect to such SPD,
required under ERISA with respect to such Company Plan;
(v) if the Company Plan is funded through a trust or any other funding
vehicle, a copy of the trust or other funding agreement (including all
amendments thereto) and the latest financial statements thereof;
(vi) all contracts relating to the Company Plans with respect to which
the Company or any of its ERISA Affiliates may have any liability,
including, without limitation, insurance contracts, investment management
agreements, subscription and participation agreements and record keeping
agreements; and
(vii) the most recent determination letter received from the Internal
Revenue Service with respect to each Company Plan that is intended to be
qualified under section 401 of the Code.
(c) No Company ERISA Plan is subject to Title IV of ERISA. No liability
under Title IV of ERISA has been incurred by the Company or any of its ERISA
Affiliates since the effective date of ERISA that has not been satisfied in
full, and no condition exists that presents a material risk to the Company or
any such ERISA Affiliate of incurring a liability under such Title, other than
liability for premiums due the PBGC, which payments have been or will be made
when due. To the extent this representation applies to sections 4064, 4069 or
4204 of Title IV of ERISA, it is made not only with respect to the Company ERISA
Plans but also with respect to any employee benefit plan, program, agreement or
arrangement subject to Title IV of ERISA to which the Company or any of its
ERISA Affiliates made, or was required to make, contributions during the
five-year period ending on the last day of the Company's most recent fiscal
year.
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(d) None of the Company, any of its ERISA Affiliates, any of the Company
ERISA Plans, any trust created thereunder nor any trustee or administrator
thereof has engaged in a transaction or has taken or failed to take any action
in connection with which the Company or any of its ERISA Affiliates may be
subject to either a civil penalty assessed pursuant to section 409 or 502(i) of
ERISA or a tax imposed pursuant to section 4975, 4976 or 4980B of the Code.
(e) Full payment has been made, or will be made in accordance with section
404(a)(6) of the Code, of all amounts which the Company or any of its ERISA
Affiliates is required to pay under the terms of each of the Company ERISA
Plans, and all such amounts properly accrued through the Effective Time with
respect to the current plan year thereof will be paid by the Company on or prior
to the Effective Time or will be properly recorded in accordance with GAAP. No
Company ERISA Plan is subject to section 412 of the Code.
(f) Each of the Company Plans has been operated and administered in all
material respects in accordance with applicable laws, including but not limited
to ERISA and the Code.
(g) Each of the Company ERISA Plans that is intended to be "qualified"
within the meaning of section 401(i) of the Code is so qualified.
(h) Each of the Company ERISA Plans that is intended to satisfy the
requirements of section 501(c)(9) of the Code has so satisfied such
requirements.
(i) Except as set forth in Section 4.9(a) of the Company Disclosure Letter,
no amounts payable or benefits accrued under the Company Plans or any other
agreement or arrangement to which the Company or any of its ERISA Affiliates is
a party will, as a result of the transactions contemplated hereby (A) become
payable, vested or exercisable on an accelerated basis or (B) fail to be
deductible for federal income tax purposes by virtue of section 280G of the
Code.
(j) No "leased employee," as that term is defined in section 414(n) of the
Code, performs services for the Company or any of its ERISA Affiliates.
(k) Except as set forth in Section 4.9(k) of the Company Disclosure Letter,
no Company Plan provides benefits, including without limitation death or medical
benefits (whether or not insured), with respect to current or former employees
after retirement or other termination of service (other than (i) coverage
mandated by applicable law, (ii) death benefits or retirement benefits under any
"employee pension plan," as that term is defined in section 3(2) of ERISA, (iii)
deferred compensation benefits accrued as liabilities on the books of the
Company or its ERISA Affiliates, or (iv) benefits, the full cost of which is
borne by the current or former employee (or his beneficiary)).
(l) With respect to each Company Plan that is funded wholly or partially
through an insurance policy, there will be no material liability of the Company
or any of its ERISA Affiliates, as of the Effective Time, under any such
insurance policy or ancillary agreement with respect to such insurance policy in
the nature of a retroactive rate adjustment, loss sharing arrangement or other
actual or contingent liability arising wholly or partially out of events
occurring prior to the Effective Time.
Section 4.10 TAX MATTERS. As of the date hereof, neither the Company nor
any of its Affiliates has taken or agreed to take any action, nor does the
Company have any knowledge of any fact or circumstance, that would prevent the
Merger and the other transactions contemplated by this Agreement from qualifying
as a "reorganization" within the meaning of section 368(a) of the Code.
Section 4.11 TAXES.
(a) The Company and each of its Subsidiaries have timely filed (or have had
timely filed on their behalf) or will file or cause to be timely filed, all
material Tax Returns required by applicable law to be filed by any of them on or
before the date of the Effective Time of the Merger, taking into account any
extension of the time within which to file such returns. All such Tax Returns
are, or will be at the time of filing, true, complete and correct in all
material respects.
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(b) The Company and each of its Subsidiaries have paid (or have had paid on
their behalf), or where payment is not yet due, have established (or have had
established on their behalf and for their sole benefit and recourse), or will
establish or cause to be established on or before the date of the Effective Time
of the Merger, an adequate accrual for the payment of, all material Taxes due
with respect to any period ending on or before the date of the Effective Time of
the Merger.
(c) For purposes of this Agreement, the following terms shall have the
following meanings:
(i) "Taxes" shall mean all Federal, state, local and foreign taxes, and
other assessments of a similar nature (whether imposed directly or through
withholding), including any interest, additions to tax, or penalties
applicable thereto.
(ii) "Tax Returns" shall mean all Federal, state, local and foreign tax
returns, declarations, statements, reports, schedules, forms and information
returns and any amended tax return relating to Taxes.
Section 4.12 AFFILIATE AGREEMENTS. Except for the Agreement in
Contemplation of Merger, the Series D Stockholder Agreement or as set forth in
Section 4.12 of the Company Disclosure Letter, as of the date of this Agreement
neither the Company nor any of its Subsidiaries is a party to any oral or
written agreement with any of its Affiliates, other than with any of its
Subsidiaries.
Section 4.13 OPINION OF FINANCIAL ADVISOR. The Company has received the
opinion of DLJ to the effect that, as of the date of such opinion, the Exchange
Ratio is fair to the holders of Company Common Stock from a financial point of
view.
Section 4.14 BROKERS AND FINDERS. Other than DLJ, whose fees will be paid
by the Company, none of the Company or any of its Subsidiaries, nor any of their
respective directors, officers or employees has employed any broker or finder or
incurred any liability for any financial advisory fees, brokerage fees,
commissions or similar payments in connection with the transactions contemplated
by this Agreement.
Section 4.15 VOTE REQUIRED. The only votes of the holders of any class or
series of Company capital stock necessary to approve the Merger (the "Company
Requisite Vote") are (i) the affirmative vote of the holders of a majority of
the total voting power represented by the outstanding shares of the Company
Common Stock, the Series C Preferred Stock and the Series D Preferred Stock,
voting as a single class, and (ii) the affirmative vote of the holders of at
least 90% of the outstanding shares of each of the Series C Preferred Stock and
the Series D Preferred Stock, voting as separate classes.
Section 4.16 MEDICARE AND MEDICAID. The Company and its Subsidiaries have
complied with all Medicare and Medicaid laws, rules and regulations and have
timely filed all returns, cost reports and other filings in the manner
prescribed, except where the failure to do so would not reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect on the
Company. All returns, cost reports and other filings made by the Company and its
Subsidiaries to Medicare, Medicaid or any other governmental health or welfare
related entity or third party payor are true and complete, except where the
failure to be so true and complete would not be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company, and
true and correct copies of all such cost reports for the three most recent
fiscal years of the Company have been furnished to Parent. No deficiency in any
such returns, cost reports and other filings, including deficiencies for late
filings, has been asserted or to the best of the Company's knowledge, after
reasonable investigation, threatened by any Governmental Entity or other
provider reimbursement entities relating to Medicare or Medicaid or third party
payor claims, and to the best of the Company's knowledge, after reasonable
investigation, there is no basis for any successful claims or requests for
reimbursement from any such Governmental Entity, other entity or third party
payor except for any deficiencies or bases which are not reasonably expected to
have, individually or in the aggregate, a Material Adverse Effect on the
Company. Since December 31, 1992, neither the Company nor any of
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its Subsidiaries has been subject to any audit or investigation relating to
fraudulent Medicare or Medicaid procedure or practices, except audits or
investigations which would not be reasonably expected to have, individually or
in the aggregate, a Material Adverse Effect on the Company.
Section 4.17 MEDICARE PARTICIPATION/ACCREDITATION. All of the hospitals
and other healthcare providers owned, operated or managed by the Company or any
of its Subsidiaries are certified for participation or enrollment in the
Medicare and Medicaid programs, have a current and valid provider contract with
the Medicare and Medicaid programs, are in substantial compliance with the
conditions of participation of such programs and have received all approvals or
qualifications necessary for capital reimbursement of the Company and its
Subsidiaries' assets. No validation review or program integrity review related
to any of the hospitals owned or operated by the Company or any of its
Subsidiaries (the "Company Hospitals"), the operation thereof, or the
consummation of the transactions contemplated hereby has been conducted by any
commission, board or agency in connection with the Medicare or Medicaid
programs, and to the knowledge of the Company, no such reviews are scheduled,
pending or threatened against or affecting any Company Hospital or the
consummation of the transaction contemplated hereby. All of the Company
Hospitals are in compliance in all material respects with all rules, regulations
and requirements of all Governmental Entities having jurisdiction over any of
the Company Hospitals. All of the Company Hospitals are accredited by the Joint
Commission on Accreditation of Health Care Organizations (the "Joint Commission
on Accreditation") and the Company has delivered to Parent true and complete
copies of each of such hospital's most recent Joint Commission on Accreditation
survey report and deficiency list, if any, and the most recent Statement of
Deficiencies and Plan of Correction. All deficiencies noted thereon have been
cured in all material respects. Neither the Company nor any of its Subsidiaries
has received notice from the regulatory authorities which enforce the statutory
or regulatory provisions in respect of either the Medicare or Medicaid program
of any pending or threatened investigations or surveys, and the Company has no
reason to believe that there are pending, threatened or imminent any such
investigations or surveys which, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect on the Company.
Section 4.18 MEDICAL STAFF MATTERS. There are no pending, or to the
Company's knowledge, threatened disputes with medical staff applicants, medical
staff members or health professional affiliates which, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect on the
Company, and all appeal periods in respect of any medical staff member or
applicant against whom an adverse action has been taken have expired.
Section 4.19 TAKEOVER STATUTES. No "fair price," "moratorium," "control
share acquisition" or other similar antitakeover statute or regulation enacted
under state or federal laws in the United States applicable to the Company
(including, without limitation, Section 203 of the DGCL) is applicable to the
Merger or the other transactions contemplated hereby. The Board of Directors of
the Company has taken all appropriate action to exempt the transactions
contemplated in this Agreement from Section 203 of the DGCL.
Section 4.20 COMPLIANCE WITH LAWS. Neither the Company nor any of its
Subsidiaries has violated or failed to comply with any statute, law, ordinance,
regulation, rule, judgment, decree or order of any Governmental Entity
applicable to its business or operations, except for violations and failures to
comply that would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect on the Company.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company as follows:
Section 5.1 ORGANIZATION AND QUALIFICATION.
(a) Each of Parent and its Significant Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has the requisite power and authority to own,
lease and operate its properties and to carry on its business as it is now being
conducted, and is duly qualified to do business and in good standing in each
jurisdiction in which the properties owned, leased or operated by it, or where
the nature of the business conducted by it make such qualification necessary,
except where the failure to so qualify or be in good standing would not have a
Material Adverse Effect on Parent. True and complete copies of the articles of
incorporation and bylaws of Parent as in effect on the date hereof, including
all amendments thereto, have heretofore been made available or delivered to the
Company.
(b) Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of Delaware. Merger Sub has been formed solely for the
purpose of engaging in the Merger and has not conducted any business prior to
the date hereof and has no, and prior to the Effective Time will have no,
assets, liabilities or obligations of any nature other than those incident to
its formation and pursuant to this Agreement and the Merger and the other
transactions contemplated by this Agreement.
Section 5.2 CAPITALIZATION.
(a) The authorized capital stock of Parent consists of 1,000 shares of
Parent Common Stock. As of the date hereof, there are 450 shares of Parent
Common Stock issued and outstanding, all of which are validly issued, fully paid
and nonassessable and are not subject to and were not issued in violation of any
preemptive rights and all of which are beneficially owned by the Parent
Shareholder. No Subsidiary of Parent holds any shares of Parent Common Stock.
(b) Except as set forth in Section 5.2(b) of the letter, dated the date
hereof, delivered by Parent to the Company in connection with this Agreement
(the "Parent Disclosure Letter") or pursuant to this Agreement, the options to
be issued pursuant to Section 7.9 hereof, the Shareholder Agreement, the
Registration Rights Agreement and the rights contemplated by the Rights Plan,
there are not now, and at the Effective Time there will not be, any outstanding
shares of Parent capital stock or any options, warrants, calls, rights,
subscriptions, convertible securities or other rights or agreements,
arrangements or commitments of any kind obligating Parent or any of its
Subsidiaries to issue, transfer or sell any securities of Parent. There are no
outstanding contractual or other obligations of Parent or any of its
Subsidiaries to purchase, redeem or otherwise acquire any shares of Parent
Common Stock. Except as set forth in Section 5.2(b) of the Parent Disclosure
Letter or pursuant to the Shareholder Agreement, the Registration Rights
Agreement and the Voting Agreement, there is not now, and at the Effective Time
there will not be, any stockholder agreement, voting trust or other agreement or
understanding to which Parent or any of its Subsidiaries is a party or bound
relating to the voting of any shares of the capital stock of Parent or any of
its Subsidiaries.
(c) The authorized capital stock of Merger Sub consists of 1,000 shares of
Common Stock, par value $.01 per share, all of which are validly issued and
outstanding. All of the issued and outstanding capital stock of Merger Sub is,
and at the Effective Time will be, owned by Parent, and there are (i) no other
shares of capital stock or other voting securities of merger Sub, (ii) no
securities of Merger Sub convertible into or exchangeable for shares of capital
stock or voting securities of Merger Sub and (iii) no options or other rights to
acquire from Merger Sub, and no obligations of Merger Sub to issue, any capital
stock, voting securities or securities convertible into or exchangeable for
capital stock or voting securities of Merger Sub.
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Section 5.3 AUTHORITY. Parent has all requisite corporate power and
authority to execute and deliver this Agreement and, subject to approval of this
Agreement by the Parent Requisite Vote, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement, and the
consummation by Parent of the transactions contemplated hereby, have been duly
authorized by Parent's board of directors and no other corporate proceedings on
the part of Parent are necessary to authorize the execution and delivery of this
Agreement and the consummation by Parent of the transactions contemplated hereby
and thereby, except for the approval of this Agreement by the Parent Requisite
Vote. This Agreement has been duly and validly executed and delivered by Parent
and Merger Sub, and, assuming the due authorization, execution and delivery
hereof by the Company, constitutes a valid and binding agreement of Parent and
Merger Sub, enforceable against Parent and Merger Sub in accordance with its
terms, except that such enforceability may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other similar
laws now or hereafter in effect relating to or affecting creditors' rights
generally and (ii) by general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law).
Section 5.4 CONSENTS AND APPROVALS; NO VIOLATION. None of the execution
and delivery by Parent of this Agreement, the consummation by Parent of the
transactions contemplated hereby or compliance by Parent with any of the
provisions hereof will (i) conflict with or result in a breach of any provision
of the respective charters or bylaws (or similar governing documents) of Parent
or any of its Subsidiaries, (ii) except as disclosed in Section 5.4 of the
Parent Disclosure Letter, require any consent, approval, authorization or permit
of, or filing with or notification to, any Governmental Entity, except (A)
pursuant to the Exchange Act, the Securities Act and the HSR Act and (B) for
filing the Certificate of Merger with respect to the Merger pursuant to the
DGCL, (iii) except as disclosed in Section 5.4 of the Parent Disclosure Letter,
result in a default (or an event which with notice or lapse of time or both
would become a default) or give to any third party any right of termination,
cancellation, amendment or acceleration under, or result in the creation of a
lien or encumbrance on any of the assets of Parent or any of its Subsidiaries
pursuant to, any note, license, agreement or other instrument or obligation to
which Parent or any of its Subsidiaries is a party or by which Parent or any of
its Subsidiaries or any of their respective assets may be bound or affected, or
(iv) violate or conflict with any order, writ, injunction, decree, statute, rule
or regulation applicable to Parent or any of its Subsidiaries or any of their
respective properties or assets, other than (A) such defaults, rights of
termination, cancellation, amendment or acceleration, liens and encumbrances,
violations and conflicts as set forth pursuant to (iii) and (iv) above, and (B)
such consents, approvals, authorizations, permits or filings, as set forth
pursuant to (ii) above that are not obtained, which, in the aggregate, would not
have a Material Adverse Effect on Parent, or would not prevent or delay in any
material respect the consummation of any of the transactions contemplated by
this Agreement or the Shareholder Agreement.
Section 5.5 SEC REPORTS AND FINANCIAL STATEMENTS. Each form, report,
schedule, registration statement and definitive proxy statement filed by Parent
with the SEC since September 30, 1994 (as such documents have since the time of
their filing been amended, the "Parent SEC Reports"), which include all the
documents (other than preliminary material) that Parent was required to file
with the SEC since such date, as of their respective dates, complied in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations of the SEC thereunder
applicable to such Parent SEC Reports. None of the Parent SEC Reports contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
for such statements, if any, as have been modified by subsequent filings prior
to the date hereof. The financial statements of Parent included in the Parent
SEC Reports comply as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto or, in the case of the unaudited statements, as permitted by Form
10-Q under the Securities Act) and fairly present (subject in the case of the
unaudited quarterly financial statements,
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to the absence of notes, and to normal, recurring audit adjustments) the
consolidated financial position of Parent and its Subsidiaries as at the dates
thereof and the consolidated results of their operations and cash flows (or
changes in financial position prior to the adoption of FASB 95) for the periods
then ended. Since December 31, 1995, neither Parent nor any of its Subsidiaries
has incurred any liabilities or obligations, whether absolute, accrued, fixed,
contingent, liquidated, unliquidated or otherwise and whether due or to become
due, except (i) as disclosed in the Parent SEC Reports filed since December 31,
1995 and prior to the date hereof, (ii) as incurred in connection with the
transactions contemplated, or as provided, by this Agreement, (iii) as incurred
after December 31, 1995 in the ordinary course of business and consistent with
past practices and not in violation of Section 6.2, or (iv) as would not,
individually or in the aggregate, have a Material Adverse Effect on Parent.
Section 5.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1995,
except as disclosed in the Parent SEC reports filed prior to the date hereof,
Parent and its Subsidiaries have conducted their respective businesses only in
the ordinary course, consistent with past practice, and there has not occurred
or arisen any event or events which, individually or in the aggregate, have had
or are reasonably likely to have, a Material Adverse Effect on Parent or which
is reasonably likely to prevent or delay in any material respect the
consummation of any of the transactions contemplated by this Agreement.
Section 5.7 LITIGATION. Except as disclosed in the Parent SEC Reports
filed prior to the date hereof or in Section 5.7 of the Parent Disclosure
Letter, there is no suit, action or proceeding pending or, to the knowledge of
Parent, threatened against or affecting Parent or any of Parent's Subsidiaries
or Affiliates (and Parent is not aware of any basis for any of such suit, action
or proceeding) that, individually or in the aggregate, is reasonably likely to
(i) have a Material Adverse Effect on Parent or (ii) prevent or delay in any
material respect Parent from performing its obligations under, or consummating
the transactions contemplated by, this Agreement. There is not any judgment,
decree, injunction, rule or order of any Governmental Entity or arbitrator
outstanding against Parent or any of its Subsidiaries which has had or is
reasonably likely to have a Material Adverse Effect on Parent.
Section 5.8 INFORMATION SUPPLIED. The information supplied or to be
supplied by Parent or its Subsidiaries for inclusion or incorporation by
reference in the Form S-4 will not, either at the time the Form S-4 is filed
with the SEC or at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading. The information supplied or to be supplied by Parent or its
Subsidiaries for inclusion or incorporation by reference in the Proxy Statement,
including any amendments and supplements thereto, will not, either at the date
mailed to shareholders of the Company or at the time of the meeting of
shareholders of the Company to be held in connection with the transactions
contemplated by this Agreement, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The Proxy Statement and the Form S-4 will each
comply as to form in all material respects with all applicable laws, including
the provisions of the Securities Act and the Exchange Act and the rules and
regulations promulgated thereunder, except that no representation is made by
Parent with respect to information supplied by the Company for inclusion or
incorporation by reference therein.
Section 5.9 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Section 5.9(a) of the Parent Disclosure Letter contains a true and
complete list of each Plan sponsored, maintained or contributed to or required
to be contributed to by Parent or any of its ERISA Affiliates for the benefit of
any employee or former employee of Parent or any of its Subsidiaries (the
"Parent Plans"). Section 5.9(a) of the Parent Disclosure Letter identifies each
of the Parent Plans that is an "employee welfare benefit plan," or "employee
pension benefit plan" as such terms are defined in sections 3(1) and 3(2) of
ERISA (such plans being hereinafter referred to collectively as the "Parent
ERISA Plans"). Neither Parent nor any of its ERISA Affiliates has any formal
plan or commitment to create any additional Parent Plan or modify or change any
existing Parent Plan that would affect any employee or terminated employee of
Parent or any such ERISA Affiliate of Parent.
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(b) With respect to each of the Parent Plans, Parent has heretofore
delivered or made available to the Company true and complete copies of each of
the following documents:
(i) a copy of the Parent Plan (including all amendments thereto);
(ii) a copy of the annual report, if required under ERISA, with respect
to each such Parent Plan for the last three years;
(iii) a copy of the actuarial report, if required under ERISA, with
respect to each such Parent Plan for the last three years;
(iv) a copy of the most recent SPD, together with all summaries of
material modification issued with respect to such SPD, required under ERISA
with respect to such Parent Plan;
(v) if the Parent Plan is funded through a trust or any other funding
vehicle, a copy of the trust or other funding agreement (including all
amendments thereto) and the latest financial statements thereof;
(vi) all contracts relating to the Parent Plans with respect to which
Parent or any of its ERISA Affiliates may have any liability, including,
without limitation, insurance contracts, investment management agreements,
subscription and participation agreements and record keeping agreements; and
(vii) the most recent determination letter received from the Internal
Revenue Service with respect to each Parent Plan that is intended to be
qualified under section 401 of the Code.
(c) No Parent ERISA Plan is subject to Title IV of ERISA. No liability under
Title IV of ERISA has been incurred by Parent or any of its ERISA Affiliates
since the effective date of ERISA that has not been satisfied in full, and no
condition exists that presents a material risk to Parent or any of its ERISA
Affiliates of incurring a liability under such Title, other than liability for
premiums due the PBGC, which payments have been or will be made when due. To the
extent this representation applies to sections 4064, 4069 or 4204 of Title IV of
ERISA, it is made not only with respect to the Parent ERISA Plans but also with
respect to any employee benefit plan, program, agreement or arrangement subject
to Title IV of ERISA to which Parent or any of its ERISA Affiliates made, or was
required to make, contributions during the five-year period ending on the last
day of Parent's most recent fiscal year.
(d) None of Parent, any of its ERISA Affiliates, any of the Parent ERISA
Plans, any trust created thereunder nor any trustee or administrator thereof has
engaged in a transaction or has taken or failed to take any action in connection
with which Parent or any of its ERISA Affiliates may be subject to either a
civil penalty assessed pursuant to section 409 or 502(i) of ERISA or a tax
imposed pursuant to section 4975, 4976 or 4980B of the Code.
(e) Full payment has been made, or will be made in accordance with section
404(a)(6) of the Code, of all amounts which Parent or any its ERISA Affiliates
is required to pay under the terms of each of the Parent ERISA Plans, and all
such amounts properly accrued through the Effective Time with respect to the
current plan year thereof will be paid by Parent on or prior to the Effective
Time or will be properly recorded in accordance with GAAP. No Parent ERISA Plan
is subject to section 412 of the Code.
(f) Each of the Parent Plans has been operated and administered in all
material respects in accordance with applicable laws, including but not limited
to ERISA and the Code.
(g) Each of the Parent ERISA Plans that is intended to be "qualified" within
the meaning of section 401(a) of the Code is so qualified.
(h) Each of the Parent ERISA Plans that is intended to satisfy the
requirements of section 501(c)(9) of the Code has so satisfied such
requirements.
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(i) Except as specifically contemplated by this Agreement or as set forth in
Section 5.9(i) of the Parent Disclosure Letter, no amounts payable or benefits
accrued under the Parent Plans or any other agreement or arrangement to which
Parent or any of its ERISA Affiliates is a party will, as a result of the
transactions contemplated hereby (A) become payable, vested or exercisable on an
accelerated basis or (B) fail to be deductible for federal income tax purposes
by virtue of section 280G of the Code.
(j) No "leased employee," as that term is defined in section 414(n) of the
Code, performs services for Parent or any of its ERISA Affiliates.
(k) No Parent Plan provides benefits, including without limitation death or
medical benefits (whether or not insured), with respect to current or former
employees after retirement or other termination of service (other than (i)
coverage mandated by applicable law, (ii) death benefits or retirement benefits
under any "employee pension plan," as that term is defined in section 3(2) of
ERISA, (iii) deferred compensation benefits accrued as liabilities on the books
of Parent or any of its ERISA Affiliates, or (iv) benefits, the full cost of
which is borne by the current or former employee (or his beneficiary)).
(l) With respect to each Parent Plan that is funded wholly or partially
through an insurance policy, there will be no material liability of Parent or
any of its ERISA Affiliates, as of the Effective Time, under any such insurance
policy or ancillary agreement with respect to such insurance policy in the
nature of a retroactive rate adjustment, loss sharing arrangement or other
actual or contingent liability arising wholly or partially out of events
occurring prior to the Effective Time.
Section 5.10 TAXES.
(a) Parent and each of its Subsidiaries have timely filed (or have had
timely filed on their behalf) or will file or cause to be timely filed, all
material Tax Returns required by applicable law to be filed by any of them on or
before the date of the Effective Time of the Merger, taking into account any
extension of the time within which to file such returns. All such Tax Returns
are, or will be at the time of filing, true, complete and correct in all
material respects.
(b) Parent and each of its Subsidiaries have paid (or have had paid on their
behalf), or where payment is not yet due, have established (or have had
established on their behalf and for their sole benefit and recourse), or will
establish or cause to be established on or before the date of the Effective Time
of the Merger, an adequate accrual for the payment of, all material Taxes due
with respect to any period ending on or before the date of the Effective Time of
the Merger.
Section 5.11 AFFILIATE AGREEMENTS. Except as set forth in Section 5.11 of
the Parent Disclosure Letter, as of the date of this Agreement neither Parent
nor any of its Subsidiaries is a party to any oral or written agreement with any
of its Affiliates, other than with any of its Subsidiaries.
Section 5.12 BROKERS AND FINDERS. Other than BA Partners, whose fees will
be paid by Parent, none of Parent or any of its Subsidiaries, nor any of their
respective directors, officers or employees, has employed any broker or finder
or incurred any liability for any financial advisory fees, brokerage fees,
commissions or similar payments in connection with the transactions contemplated
by this Agreement.
Section 5.13 VOTE REQUIRED. The affirmative vote of a majority of the
outstanding shares of Parent is the only vote of a holder of capital stock of
Parent required to approve this Agreement and the transactions contemplated
hereby (the "Parent Requisite Vote").
Section 5.14 MEDICARE AND MEDICAID. Parent and its Subsidiaries have
complied with all Medicare and Medicaid laws, rules and regulations and have
timely filed all returns, cost reports and other filings in the manner
prescribed, except where the failure to do so would not reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect on Parent.
All returns, cost reports and other filings made by Parent and its Subsidiaries
to Medicare, Medicaid or any other governmental health or welfare related entity
or third party payor are true and complete, except where the failure to be so
true and complete would not be reasonably expected to have, individually or in
the aggregate,
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a Material Adverse Effect on Parent, and true and correct copies of all such
reports for the three most recent fiscal years of Parent have been furnished to
the Company. No deficiency in any such returns, cost reports and other filings,
including deficiencies for late filings, has been asserted or to the best of
Parent's knowledge, after reasonable investigation, threatened by any
Governmental Entity or other provider reimbursement entities relating to
Medicare or Medicaid or third party payor claims, and to the best of Parent
knowledge, after reasonable investigation, there is no basis for any successful
claims or requests for reimbursement from any such Governmental Entity, other
entity or third party payor except for any deficiencies or bases which are not
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on Parent. Since December 31, 1992, neither Parent nor any of its
Subsidiaries has been subject to any audit or investigation relating to
fraudulent Medicare or Medicaid procedure or practices, except audits or
investigations which would not be reasonably expected to have, individually or
in the aggregate, a Material Adverse Effect on Parent.
Section 5.15 MEDICARE PARTICIPATION/ACCREDITATION. All of the hospitals
and other healthcare providers owned, operated or managed by Parent or its
Subsidiaries, except the psychiatric facilities set forth in Section 5.15 of the
Parent Disclosure Letter, are certified for participation or enrollment in the
Medicare and Medicaid programs, have a current and valid provider contract with
the Medicare and Medicaid programs, are in substantial compliance with the
conditions of participation of such programs and have received all approvals or
qualifications necessary for capital reimbursement of Parent and its
Subsidiaries' assets. No validation review or program integrity review related
to any of the hospitals owned or operated by Parent or any of its Subsidiaries
(the "Parent Hospitals"), the operation thereof, or the consummation of the
transactions contemplated hereby has been conducted by any commission, board or
agency in connection with the Medicare or Medicaid programs, and to the
knowledge of Parent, no such reviews are scheduled, pending or threatened
against or affecting any Parent Hospital or the consummation of the transaction
contemplated hereby. All of the Parent Hospitals are in compliance in all
material respects with all rules, regulations and requirements of all
Governmental Entities having jurisdiction over any of the Parent Hospitals.
Except as set forth in Section 5.15 of the Parent Disclosure Letter, all of the
Parent Hospitals are accredited by the Joint Commission on Accreditation and
Parent has delivered to Company true and complete copies of each of such
hospital's most recent Joint Commission on Accreditation survey report and
deficiency list, if any, and the most recent Statement of Deficiencies and Plan
of Correction. All deficiencies noted thereon have been cured in all material
respects. Neither Parent nor any of its Subsidiaries has received notice from
the regulatory authorities which enforce the statutory or regulatory provisions
in respect of either the Medicare or the Medicaid program of any pending or
threatened investigations or surveys, and Parent has no reason to believe that
there are pending, threatened or imminent any such investigations or surveys
which, individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on Parent.
Section 5.16 MEDICAL STAFF MATTERS. There are no pending, or to Parent's
knowledge, threatened disputes with medical staff applicants, medical staff
members or health professional affiliates which, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect on
Parent, and all appeal periods in respect of any medical staff member or
applicant against whom an adverse action has been taken have expired.
Section 5.17 TAKEOVER STATUTES. No "fair price," "moratorium," "control
share acquisition" or other similar antitakeover statute or regulation enacted
under state or federal laws in the United States applicable to Parent (including
without limitation pursuant to Chapter 12 of the California General Corporation
Law) is applicable to the Merger, the Shareholder Agreement or the other
transactions contemplated hereby or thereby.
Section 5.18 COMPLIANCE WITH LAWS. Neither Parent nor any of its
Subsidiaries has violated or failed to comply with any statute, law, ordinance,
regulation, rule, judgment, decree or order of any Governmental Entity
applicable to its business or operations, except for violations and failures to
comply that would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect on Parent.
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ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 6.1 CONDUCT OF BUSINESS OF THE COMPANY PENDING THE EFFECTIVE
TIME. Except as expressly permitted or contemplated by this Agreement or as
shall be consented to by Parent (which consent shall not be unreasonably
withheld or delayed), until the Effective Time the Company shall, and shall
cause each of its Subsidiaries to, conduct its operations in the ordinary and
usual course of business consistent with past practice and use its reasonable
best efforts (in the ordinary course of business consistent with past practice)
to preserve intact their respective business organizations' goodwill, keep
available the services of their respective present officers and key employees,
and preserve the goodwill and business relationships with suppliers,
distributors, customers and others having business relationships with them.
Without limiting the generality of the foregoing, and except as otherwise
permitted by this Agreement, prior to the Effective Time, without the consent of
Parent (which consent shall not be unreasonably withheld), the Company will not,
and will cause each of its Subsidiaries not to:
(a) amend or propose to amend their respective charters or bylaws (other
than as contemplated by this Agreement); or split, combine or reclassify
their outstanding capital stock or declare, set aside or pay any dividend or
distribution in respect of any capital stock (other than dividends paid by
subsidiaries of the Company solely to the Company or another wholly-owned
subsidiary of the Company) or issue or authorize or propose the issuance of
any other securities in respect of, in lieu of or in substitution for shares
of its capital stock;
(b) (i) issue or authorize or propose the issuance of, sell, pledge or
dispose of, or agree to issue or authorize or propose the issuance of, sell,
pledge or dispose of, any additional shares of, or any options (except for
up to 40,000 options under the Company's Directors' Stock Option Plan),
warrants or rights of any kind to acquire any shares of their capital stock
of any class or any debt or equity securities convertible into or
exchangeable for such capital stock, other than any such issuance pursuant
to options, warrants, rights or convertible securities outstanding as of the
date hereof in accordance with their terms as in effect on the date hereof;
(ii) acquire or 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 business or any corporation,
partnership, association or other business organization or division thereof
or otherwise acquire or agree to acquire any assets in each case which are
material, individually or in the aggregate, to Company and its Subsidiaries,
taken as a whole; (iii) sell (including by sale-leaseback), lease, pledge,
dispose of or encumber any assets or interests therein which are material,
individually or in the aggregate, to Company and its Subsidiaries, taken as
a whole, other than in the ordinary course of business and consistent with
past practice; (iv) incur or become contingently liable with respect to any
material indebtedness for borrowed money or guarantee any such indebtedness
or issue any debt securities or otherwise incur any material obligation or
liability (absolute or contingent) other than short-term indebtedness in the
ordinary course of business and consistent with past practice; (v) redeem,
purchase, acquire or offer to purchase or acquire any (x) shares of its
capital stock or any options, warrants or rights of any kind to acquire any
shares of their capital stock or any debt or equity securities convertible
into or exchangeable for such capital stock or (y) long-term debt, other
than as required by the governing instruments relating thereto or as
required by the terms of the Company Plans, the Company Options or the
Company Warrants as in effect on the date hereof; or (vi) enter into any
contract, agreement, commitment or arrangement with respect to any of the
foregoing;
(c) enter into or amend any employment, severance, special pay
arrangement with respect to termination of employment or other arrangements
or agreements with any directors, officers or key employees;
(d) adopt, enter into or amend any, or become obligated under any new,
bonus, profit sharing, compensation, stock option, pension, retirement,
deferred compensation, health care,
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employment or other employee benefit plan, agreement, trust, fund or
arrangement for the benefit or welfare of any employee or retiree, except as
required to comply with changes in applicable law occurring after the date
hereof and except, with respect to all plans other than bonus plans, in the
ordinary course of business and consistent with past practice;
(e) amend any agreements relating to its outstanding indebtedness or
capital stock, including without limitation the Agreement in Contemplation
of Merger or the Series D Stockholder Agreement; or
(f) make any material Tax election or settle any material Tax audit or
controversy.
Section 6.2 CONDUCT OF BUSINESS OF PARENT PENDING THE EFFECTIVE
TIME. Except as expressly permitted or contemplated by this Agreement or as
shall be consented to by the Company (which consent shall not be unreasonably
withheld or delayed), until the Effective Time Parent shall, and shall cause
each of its Subsidiaries to, conduct its operations in the ordinary and usual
course of business consistent with past practice and use their reasonable best
efforts to preserve intact their respective business organizations' goodwill,
keep available the services of their respective present officers and key
employees, and preserve the goodwill and business relationships with suppliers,
distributors, customers and others having business relationships with them.
Without limiting the generality of the foregoing, and except as otherwise
permitted by this Agreement, prior to the Effective Time, without the consent of
Company (which consent shall not be unreasonably withheld), Parent will not, and
will cause each of its Subsidiaries not to:
(a) amend or propose to amend their respective charters or bylaws (other
than as contemplated by this Agreement); or split, combine or reclassify
their outstanding capital stock or declare, set aside or pay any dividend or
distribution in respect of any capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock (other than (i) dividends paid
by Subsidiaries of Parent solely to Parent or another wholly-owned
subsidiary of Parent, (ii) the Parent Stock Split, (iii) as contemplated by
Section 3.4(a) hereof or (iv) as set forth in Section 6.2(a) of the Parent
Disclosure Letter);
(b) (i) except as contemplated by Article II or by Sections 7.8 and 7.9,
issue or authorize or propose the issuance of, sell, pledge or dispose of,
or agree to issue or authorize or propose the issuance of, sell, pledge or
dispose of, any additional shares of, or any options, warrants or rights of
any kind to acquire any shares of their capital stock of any class or any
debt or equity securities convertible into or exchangeable for such capital
stock, other than any such issuance pursuant to options, warrants, rights or
convertible securities outstanding as of the date hereof in accordance with
their terms in effect on the date hereof; (ii) acquire or 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 business or any corporation, partnership, association or other
business organization or division thereof or otherwise acquire or agree to
acquire any assets in each case which are material, individually or in the
aggregate, to Parent and its Subsidiaries, taken as a whole, other than
acquisitions of facilities with respect to which Parent has entered into
binding agreements prior to the date hereof and which are described in
Section 6.2 of the Parent Disclosure Letter (it being understood that, as
between the Company and Parent, Parent shall not be obligated to consummate
such acquisitions, and the failure to consummate any such acquisition shall
not affect any obligation of the parties hereunder, nor shall it be taken
into account in determining whether a Material Adverse Effect with respect
to Parent shall have occurred); (iii) sell (including by sale-leaseback),
lease, pledge, dispose of or encumber any assets or interests therein, which
are material, individually or in the aggregate, to such party and its
Subsidiaries, taken as a whole, other than in the ordinary course of
business and consistent with past practice; (iv) except as contemplated by
Section 7.17(b), or in connection with the Agreement in Contemplation of
Merger, incur or become contingently liable with respect to any material
indebtedness for borrowed money or guarantee any such indebtedness or issue
any debt securities
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or otherwise incur any material obligation or liability (absolute or
contingent) other than short-term indebtedness in the ordinary course of
business and consistent with past practice; (v) redeem, purchase, acquire or
offer to purchase or acquire any (x) shares of its capital stock or any
options, warrants or rights of any kind to acquire any shares of their
capital stock or any debt or equity securities convertible into or
exchangeable for such capital stock or (y) long-term debt, other than as
required by the governing instruments relating thereto or as required by the
Parent PSAR Plan or Section 7.9; or (vi) enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing;
(c) enter into or amend any employment, severance, special pay
arrangement with respect to termination of employment or other arrangements
or agreements with any directors, officers or key employees, except as
contemplated by Section 3.4(b) or Section 7.15 hereof;
(d) adopt, enter into, amend or become obligated under any new, bonus,
profit sharing, compensation, stock option, pension, retirement, deferred
compensation, health care, employment or other employee benefit plan,
agreement, trust, fund or arrangement for the benefit or welfare of any
employee or retiree, except (i) as required to comply with changes in
applicable law occurring after the date hereof, (ii) with respect to all
plans other than bonus plans, in the ordinary course of business and
consistent with past practice or (iii) as permitted by Sections 7.9 and 7.13
hereof; or
(e) make any material Tax election or settle any material Tax audit or
controversy.
ARTICLE VII
ADDITIONAL COVENANTS AND AGREEMENTS
Section 7.1 COMPANY TAKEOVER PROPOSALS.
(a) The Company shall not, nor shall it permit any of its Subsidiaries to,
nor shall it authorize or permit any officer, director or employee of or any
investment banker, attorney or other advisor or representative (each a
"Representative" and collectively, the "Representatives") of, the Company or any
of its Subsidiaries to, (i) solicit, initiate or encourage or otherwise
facilitate any inquiries or the making of any proposal or offer with respect to
a Takeover Proposal, (ii) except in accordance with Section 9.1(c), enter into
any agreement with respect to any Takeover Proposal, (iii) participate in any
discussions or negotiations regarding, or furnish to any person any nonpublic
information with respect to, a Takeover Proposal or (iv) otherwise facilitate
any effort or attempt to make or implement any Takeover Proposal; PROVIDED,
HOWEVER, that nothing contained in this Agreement shall prevent the Company or
its board of directors from (x) furnishing nonpublic information to, or entering
into discussions or negotiations with, any person in connection with an
unsolicited bona fide written Takeover Proposal to the Company or its
stockholders, or recommending such unsolicited bona fide written Takeover
Proposal to the stockholders of the Company, if and only to the extent that (A)
the board of directors of the Company determines in good faith based on the
written advice of its special outside legal counsel that such action is
necessary for the Company's directors to comply with their respective fiduciary
duties to the Company's stockholders under applicable law and (B) prior to
furnishing such nonpublic information to, or entering into discussions or
negotiations with, such person, the board of directors of the Company receives
from such person or entity an executed confidentiality agreement with terms no
less favorable to the Company than those contained in the Confidentiality
Agreement (it being understood that such confidentiality agreement may permit
the making by such person or entity of the Takeover Proposal), or (y) complying
with Rule 14e-2 promulgated under the Exchange Act with regard to a Takeover
Proposal. Without limiting the foregoing, it is understood that any violation of
the restrictions set forth in the preceding sentence by any Representative of
the Company or any of its Subsidiaries shall be deemed to be a breach of this
Section 7.1 by the Company. The Company shall immediately cease and cause to be
terminated any existing activities, discussions or negotiations by the Company
or any of its Representatives with any parties conducted heretofore with respect
to any of the foregoing.
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(b) The Company shall promptly advise Parent orally and in writing of any
Takeover Proposal or any inquiry or request for information with respect to or
which could lead to any Takeover Proposal and the identity of the person making
such Takeover Proposal or inquiry. The Company shall keep Parent promptly and
fully informed in all material respects of the status and details of any such
Takeover Proposal or inquiry.
Section 7.2 PARENT TAKEOVER PROPOSALS.
(a) Parent shall not, nor shall it permit any of its Subsidiaries to, nor
shall it authorize or permit any Representative of Parent or any of its
Subsidiaries to, (i) solicit, initiate or encourage or otherwise facilitate any
inquiries or the making of any proposal or offer with respect to a Takeover
Proposal, (ii) except in accordance with Section 9.1(d), enter into any
agreement with respect to any Takeover Proposal, (iii) participate in any
discussions or negotiations regarding, or furnish to any person any nonpublic
information with respect to, a Takeover Proposal or (iv) otherwise facilitate
any effort or attempt to make or implement any Takeover Proposal; PROVIDED,
HOWEVER, that nothing contained in this Agreement shall prevent Parent or its
board of directors from furnishing nonpublic information to, or entering into
discussions or negotiations with, any person in connection with an unsolicited
bona fide written Takeover Proposal to Parent or its shareholders, or
recommending such unsolicited bona fide written Takeover Proposal to the
shareholders of Parent, if and only to the extent that (x) the board of
directors of Parent determines in good faith based on the written advice of its
special outside legal counsel that such action is necessary for Parent's
directors to comply with their fiduciary duties to the Parent Shareholder under
applicable law and (y) prior to furnishing such nonpublic information to, or
entering into discussions or negotiations with, such person, the board of
directors of Parent receives from such person or entity an executed
confidentiality agreement, with terms no less favorable to Parent than those
contained in the Confidentiality Agreement (it being understood that such
confidentiality agreement may permit the making by such person or entity of the
Takeover Proposal). Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in the preceding sentence by any
Representative of Parent or any of its Subsidiaries shall be deemed to be a
breach of this Section 7.2 by Parent. Parent shall immediately cease and cause
to be terminated any existing activities, discussions or negotiations by Parent
or any of its Representatives with any parties conducted heretofore with respect
to any of the foregoing.
(b) Parent promptly shall advise the Company orally and in writing of any
Takeover Proposal or any inquiry or request for information with respect to or
which could lead to any Takeover Proposal and the identity of the person making
such Takeover Proposal or inquiry. Parent shall keep the Company promptly and
fully informed in all material respects of the status and details of any such
Takeover Proposal or inquiry.
Section 7.3 ACCESS TO INFORMATION. Subject to compliance with applicable
law, upon reasonable notice Parent and the Company shall each (and shall cause
each of their respective Subsidiaries to) afford to the other and the officers,
employees, accountants, counsel, financial advisors and other representatives of
the other, reasonable access during normal business hours throughout the period
prior to the Effective Time to all of its properties, books, contracts,
commitments and records and, during such period, each of Parent and the Company
shall (and shall cause each of their respective Subsidiaries to) furnish
promptly to the other or their counsel (a) a copy of each filing made by such
party with any Governmental Entity in connection with this Agreement and the
transactions contemplated hereby, including without limitation each report,
schedule, registration statement and other document filed or received by it
during such period pursuant to the requirements of Federal securities laws, (b)
frequent reports on operational matters of materiality and the general status of
ongoing operations and (c) all other information concerning its businesses,
properties and personnel as such other party may reasonably request. Unless
otherwise required by law, the parties will hold any such information which is
nonpublic in confidence pursuant to the terms of the Confidentiality Agreement.
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Section 7.4 FORM S-4 AND PROXY STATEMENT. As soon as is reasonably
practicable after the date hereof, the Company and Parent shall prepare and file
the Proxy Statement with the SEC and Parent shall promptly prepare and file with
the SEC the Form S-4 in which the Proxy Statement will be included. Each of the
Company and Parent shall use its best efforts to have the Form S-4 declared
effective under the Securities Act as promptly as practicable after such filing.
Parent shall also use its best efforts to take any action required to be taken
under applicable state securities and blue sky laws in connection with the
issuance of shares of Parent Common Stock in the Merger and the other
transactions contemplated by this Agreement. Parent and the Company shall
promptly furnish to each other all information, and take such other actions, as
may reasonably be requested in connection with any action by any of them in
connection with this Section 7.4.
Section 7.5 STOCKHOLDER APPROVAL; RECOMMENDATION.
(a) Subject to the fiduciary obligations of its directors under applicable
law, the Company will take, in accordance with applicable law and its
certificate of incorporation and bylaws, all action necessary to convene a
meeting of holders of shares of Company Stock as promptly as practicable after
the Form S-4 is declared effective to consider and vote upon the approval of
this Agreement and the Merger and any other proposals mutually agreed with
Parent. Subject to its fiduciary obligations under applicable law, the Company's
board of directors shall recommend such approval and shall take all lawful
action to solicit such approval.
(b) Subject to the fiduciary obligations of its directors under applicable
laws, Parent will take, in accordance with applicable law and its articles of
incorporation and bylaws, all action necessary to obtain the Requisite Parent
Vote, whether by written consent or at a meeting.
Section 7.6 AFFILIATES. The Company shall use its best efforts to cause
each principal executive officer, each director and each other person who may be
deemed to be an "affiliate," for purposes of Rule 145 under the Securities Act,
of the Company to deliver to Parent on or prior to the Effective Time a written
agreement to the effect that such person will not offer to sell, sell or
otherwise dispose of any shares of Parent Common Stock issued in the Merger,
except, in each case, pursuant to an effective registration statement or in
compliance with Rule 145, as amended from time to time, or in a transaction
which, in the opinion of legal counsel satisfactory to Parent, is exempt from
the registration requirements of the Securities Act.
Section 7.7 AGREEMENT TO COOPERATE; FURTHER ASSURANCES.
(a) Subject to the terms and conditions of this Agreement, each of the
parties hereto shall use all reasonable efforts to take, or cause to be taken,
all action and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations, subject to the requisite vote
of the stockholders of Parent and the Company, to consummate and make effective
the transactions contemplated by this Agreement and to satisfy the conditions
set forth in Article VIII hereof including providing information and using
reasonable efforts to obtain all necessary or appropriate waivers, consents and
approvals, and effecting all necessary registrations and filings (including
filings under the HSR Act) and executing, or causing the execution of, such
consents or resolutions on the part of Merger Sub as may be necessary to
consummate the transactions contemplated hereby. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers and directors of each party to
this Agreement shall take all necessary actions to the extent not inconsistent
with their other duties and obligations or applicable law.
(b) Without limiting the generality of the undertakings pursuant to this
Section 7.7, the Company (in the case of clauses (i) and (iii)) and Parent (in
all cases set forth below) agree to take or cause to be taken the following
actions: (i) provide promptly to any and all Federal, state, local or foreign
court or Government Entity with jurisdiction over enforcement of any applicable
antitrust laws
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("Government Antitrust Entity") information and documents requested by any
Government Antitrust Entity or necessary, proper or advisable to permit
consummation of the Merger and the transactions contemplated by this Agreement;
(ii) if necessary, the proffer by Parent of its willingness to promptly enter
into good faith negotiations with the relevant Government Antitrust Entity (and
to enter into agreements with the relevant Government Antitrust Entity with
respect thereto) with respect to actions reasonably necessary or advisable to
avoid the commencement of a proceeding to delay, restrain, enjoin or otherwise
prohibit consummation of the Merger by any Government Antitrust Entity; and
(iii) in the event that any permanent or preliminary injunction or other order
is entered or becomes reasonably foreseeable to be entered in any proceeding
which would make consummation of the Merger in accordance with the terms of this
Agreement unlawful or that would prevent or materially delay consummation of the
Merger or the other transactions contemplated by this Agreement, use its best
efforts to take promptly any and all steps (including the appeal thereof, the
posting of a bond or the taking of the steps contemplated by clause (ii) of this
paragraph) reasonably necessary to vacate, modify or suspend such injunction or
order so as to permit such consummation on a schedule as close as possible to
that contemplated by this Agreement.
Section 7.8 COMPANY OPTIONS, WARRANTS AND RIGHTS.
(a) The Board of Directors of the Company shall not take any action to cause
or cause the transactions contemplated by this Agreement to result in the
acceleration of payment, vesting or exercisability of any benefit under any
Company Options, Warrants or Rights, or any other incentive compensation
arrangement or agreement other than as required under the agreements evidencing
or under which the Company Options, Warrants or Rights were issued (or such
other incentive compensation arrangements or agreements), in each case as in
effect on the date hereof.
(b) As of the Effective Time, each outstanding option to purchase shares of
Company Common Stock and each outstanding stock appreciation right with respect
to Company Common Stock (collectively the "Company Options and Rights"), each
outstanding security of the Company under which Company Common Stock may be
issued on conversion, exchange or subscription (the "Company Issuable
Securities"), and the agreements relating thereto, and each outstanding Company
Warrant (the Company Options, the Company Warrants, the Rights and the Company
Issuable Securities being referred to herein collectively as the "Company Common
Equivalents") as of the Effective Time, shall be assumed by Parent and converted
into options, warrants, convertible or exchangeable securities or subscription
rights, as the case may be, to purchase shares of and stock appreciation rights
with respect to (collectively, "Parent Common Equivalents") that number of
shares of Parent Common Stock equal to the number of shares of Company Common
Stock subject to such Company Common Equivalents at an exercise, conversion or
subscription price, as applicable, equal to the per share exercise price of the
respective Company Common Equivalents, which respective Parent Common
Equivalents shall be subject as nearly as possible to the same terms and
conditions (including vesting schedule) as the respective Company Common
Equivalents.
(c) At or as soon as practicable after the Effective Time, Parent shall file
one or more registration statements on Form S-8 (or any successor or other
appropriate forms) with respect to the shares of Parent Common Stock subject to
the options to purchase and rights with respect to Parent Common Stock ("Parent
Options and Rights") outstanding or reserved for issuance as of the Effective
Time and shall use its reasonable efforts to maintain the effectiveness of such
registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as such
Parent Options and Rights remain outstanding. Parent shall use its best efforts
to administer the Parent Options and Rights assumed pursuant to this Section 7.8
in a manner that complies with Rule 16b-3 promulgated under the Exchange Act,
but only to the extent the Company Options and Rights complied with such Rule
prior to the Merger.
Section 7.9 PARENT RIGHTS.
(a) Except as provided in Section 7.9(b) below or is otherwise required
under the agreements evidencing or under which such benefits are provided, the
board of directors of Parent shall not take
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any action to cause the transactions contemplated by this Agreement to result in
the acceleration of payment, vesting or exercisability of any benefit under the
Parent PSAR Plan or any other incentive compensation arrangement or agreement.
(b) Effective as of the Effective Time of the Merger, the Board of Directors
of Parent shall take such steps as may be necessary to terminate the Paracelsus
Healthcare Corporation Phantom Equity Long-Term Incentive Plan (the "Parent PSAR
Plan") and provide that, subject to the receipt by Parent of all necessary
consents and releases, each participant under the Parent PSAR Plan shall receive
in full satisfaction of all rights accrued thereunder with respect to any
outstanding Phantom Stock Appreciation Rights ("PSARs") (whether or not vested)
and any outstanding Phantom Preferred Stock Units ("PPSUs") credited to such
participant under the Parent PSAR Plan, an allocable portion of the following
aggregate consideration: (i) options to purchase that number of shares of Parent
Common Stock equal to 3.0% of the number determined by dividing (a) the product
of 450 and the Split Ratio by (B) 0.57; and (ii) $20.5 million in cash. All such
options shall (x) be fully vested and exercisable, (y) have an exercise price
equal to $0.01 per share of Parent Common Stock subject to such option, and (z)
be issued pursuant to a new stock option plan adopted by Parent prior to the
time the Form S-4 becomes effective under the Securities Act in compliance with
the provisions of Rule 16b-3 promulgated under the Securities Act and section
162(m) under the Code and subject to such other terms and conditions as may be
set forth in such plan.
Section 7.10 PUBLIC STATEMENTS. The parties shall consult with each other
prior to issuing any public announcement or statement with respect to this
Agreement or the transactions contemplated hereby and shall not issue any such
public announcement or statement prior to such consultation, except as may be
required by law.
Section 7.11 LETTER OF COMPANY'S ACCOUNTANTS. The Company shall use its
best efforts to cause to be delivered to Parent letters of Coopers & Lybrand,
dated the date on which the Form S-4 shall become effective and the third
business day prior to the Effective Time and addressed to Parent, in form and
substance reasonably satisfactory to Parent and customary in scope and substance
for "comfort" letters delivered by independent public accountants in connection
with registration statements similar to the Form S-4.
Section 7.12 LETTER OF PARENT'S ACCOUNTANTS. Parent shall use its best
efforts to cause to be delivered to the Company letters of Ernst & Young, dated
the date on which the Form S-4 shall become effective and the third business day
prior to the Effective Time and addressed to the Company, in form and substance
reasonably satisfactory to the Company and customary in scope and substance for
"comfort" letters delivered by independent public accountants in connection with
registration statements similar to the Form S-4.
Section 7.13 DIRECTORS' AND OFFICERS' INDEMNIFICATION.
(a) From and after the Effective Time, Parent shall indemnify and hold
harmless, to the fullest extent permitted under applicable law (and Parent shall
also advance reasonable expenses as incurred to the fullest extent permitted
under applicable law provided that prior to any such advance the person to whom
expenses are so advanced provides to Parent an undertaking to repay such
advances if it is ultimately determined that such person is not entitled to
indemnification), each present and former director, officer and employee of the
Company and its Subsidiaries (collectively, the "Indemnified Parties") against
any costs or expenses (including reasonable attorneys' fees), judgments, fines,
losses, claims, damages or liabilities (collectively, "Costs") incurred in
connection with any action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative, arising out of or pertaining to
matters existing or occurring at or prior to the Effective Time, including the
transactions contemplated by this Agreement; PROVIDED that Parent shall not be
required to indemnify any Indemnified Party pursuant hereto unless the
Indemnified Party acted in good faith and in a manner such Indemnified Party
reasonably believed to be in, or not opposed to, the best interests of the
Company and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
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(b) For a period of six years after the Effective Time, Parent shall cause
to be maintained in effect policies of directors and officers' liability
insurance maintained by the Company for the benefit of those persons who are
currently covered by such policies on terms no less favorable than the terms of
such current insurance coverage; PROVIDED, HOWEVER, that Parent shall not be
required to expend in any year an amount in excess of 175% of the annual
aggregate premiums currently paid by the Company for such insurance, as
disclosed by the Company in Section 7.14 of the Company Disclosure Letter; and
PROVIDED, FURTHER, that if the annual premiums of such insurance coverage exceed
such amount, Parent shall be obligated to obtain a policy with the best coverage
available, in the reasonable judgment of the Parent Board, for a cost not
exceeding such amount.
(c) Any Indemnified Party wishing to claim indemnification under paragraph
(a) of this Section 7.13, upon learning of any such claim, action, suit,
proceeding or investigation, shall promptly notify Parent thereof, but the
failure to so notify shall not relieve Parent of any liability it may have to
such Indemnified Party if such failure does not materially prejudice the
indemnifying party. In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time) (i) Parent or
the Surviving Subsidiary shall have the right to assume the defense thereof and
Parent shall not be liable to such Indemnified Parties for any legal expenses of
other counsel or any other expenses subsequently incurred by such Indemnified
Parties in connection with the defense thereof, except that if Parent or the
Surviving Subsidiary elects not to assume such defense or if Parent is a party
to any such action, suit or proceeding and counsel for the Indemnified Parties
advises Parent in writing that there are issues which raise conflicts of
interest between Parent or the Surviving Subsidiary and the Indemnified Parties,
the Indemnified Parties may retain counsel, and, subject to the provisions of
Section 7.13(a) and applicable law and with respect to the advancement of
expenses, Parent or the Surviving Subsidiary shall pay all reasonable fees and
expenses of such counsel for the Indemnified Parties as statements therefor are
received; PROVIDED, HOWEVER, that Parent shall be obligated pursuant to this
paragraph (c) to pay for only one firm of counsel for all Indemnified Parties,
which counsel shall be reasonably satisfactory to Parent; (ii) the Indemnified
Parties shall cooperate in the defense of any such matter; and (iii) neither
Parent nor the Surviving Subsidiary shall be liable for any settlement effected
without their prior written consent (which shall not be unreasonably withheld).
Neither Parent nor the Surviving Subsidiary shall have any obligation hereunder
to any Indemnified Party if and when a court of competent jurisdiction shall
ultimately determine, and such determination shall have become final, that the
indemnification of such Indemnified Party in the manner contemplated hereby is
prohibited by applicable law.
(d) If Parent or the Surviving Subsidiary or any of its successors or
assigns (i) shall consolidate with or merge into any other corporation or entity
and shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) shall transfer all or substantially all of its
properties and assets or any individual, corporation or other entity, then and
in each such case, proper provisions shall be made so that the successors and
assigns of Parent or the Surviving Subsidiary shall assume all of the
obligations set forth in this Section 7.13.
(e) The provisions of this Section 7.13 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his or her heirs and
his or her representatives.
Section 7.14 STOCK EXCHANGE LISTING. The parties shall use their best
efforts to cause the shares of Parent Common Stock to be issued in the Merger
and as otherwise contemplated by Sections 7.8 and 7.9 hereof to be approved for
listing on the New York Stock Exchange, Inc. (the "NYSE"), or, if such listing
would not be available to Parent immediately following the Effective Time, the
American Stock Exchange, Inc. (the "AMEX"), in each case subject to official
notice of issuance, prior to the Effective Time. The Company shall use its best
efforts to cause the shares of Company Common Stock to be no longer listed on
the AMEX and de-registered under the Exchange Act as soon as practicable
following the Effective Time.
Section 7.15 EXECUTION OF THE OTHER AGREEMENTS. At or prior to the
Effective Time, Parent shall execute and deliver to the other parties thereto
(i) the Shareholder Agreement, (ii) the Voting
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Agreement, (iii) the Parent Shareholder Registration Rights Agreement, (iv) the
Company Investment Group Registration Rights Agreement, (v) the Employment
Agreements, (vi) the Services Agreement and the Insurance Agreement (the
"Insurance Agreement") between Dr. Krukemeyer and Paracelsus providing for a $1
million annual death benefit with payments commencing on his death and extending
to the tenth anniversary of the Effective Time, (vii) the Non-Compete Agreement
and (viii) the Dividend and Note Agreement.
Section 7.16 TAX TREATMENT. Each of the parties shall use its reasonable
best efforts, whether before or after the Effective Time, to cause the Merger to
qualify as a "reorganization" within the meaning of section 368(a) of the Code
and to obtain the opinions of counsel referred to in Sections 8.2(d) and 8.3(d)
and to provide counsel with such representations as are customarily necessary to
issue such opinions.
Section 7.17 OTHER ACTIONS BY THE COMPANY AND/OR PARENT.
(a) TAKEOVER STATUTE. If any takeover statute is or may become applicable
to the Merger, the Shareholder Agreement or the other transactions contemplated
by this Agreement, each of Parent and the Company and its board of directors
shall grant such approvals and take such actions as are necessary so that such
transactions may be consummated as promptly as practicable on the terms
contemplated by this Agreement or by the Merger and otherwise act to eliminate
or minimize the effects of such statute or regulation on such transactions.
(b) DEBT RESTRUCTURING. Parent and Company shall use their reasonable best
efforts to refinance, including without limitation by means of a public offering
of debt and/or equity securities as promptly as practicable after the Effective
Time, or obtain reasonable amendments or waivers to the currently outstanding
debt of Parent and Company or guarantees of the outstanding senior indebtedness
of such parties, as appropriate in order to effect the Closing and to facilitate
the combined operations of the companies after the Effective Time. Parent agrees
that, from and after the Effective Time, it shall guarantee the then outstanding
debt obligations of the Surviving Subsidiary if and to the extent required by
the Agreement in Contemplation of Merger.
ARTICLE VIII
CONDITIONS
Section 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment or waiver, at or prior to the Effective Time, of the
following conditions:
(a) This Agreement and the transactions contemplated hereby shall have
been approved and adopted by (i) the Company Requisite Vote and (ii) the
Parent Requisite Vote;
(b) The waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated;
(c) The Form S-4 shall have become effective in accordance with the
provisions of the Securities Act, and no stop order suspending such
effectiveness shall have been issued and remain in effect;
(d) No temporary restraining order, preliminary or permanent injunction
or other order or decree by any court or Governmental Entity of competent
jurisdiction which prevents the consummation of the Merger or the
transactions contemplated hereby shall have been issued and remain in
effect;
(e) No action shall have been taken, and no statute, rule or regulation
shall have been enacted, by any state or Federal government or governmental
agency which would prevent the consummation of the Merger or the
transactions contemplated hereby;
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(f) The shares of Parent Common Stock required to be issued hereunder
shall have been approved for listing on the NYSE or AMEX, as the case may
be, subject to official notice of issuance; and
(g) The Employment Agreements shall have been executed and delivered by
(i) Parent and (ii) each of the respective parties.
Section 8.2 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER. The obligation of Company to effect the Merger shall be subject to the
fulfillment or waiver, at or prior to the Effective Time, of the following
additional conditions:
(a) Parent shall have performed in all material respects its agreements
contained in this Agreement required to be performed on or prior to the
Effective Time and the representations and warranties of Parent contained in
this Agreement shall be true and correct on and as of the date of this
Agreement and on and as of the Effective Time as if made on and as of such
date, except as contemplated or permitted by this Agreement and the Company
shall have received a certificate of the Chief Executive Officer and the
Chief Financial Officer of Parent to that effect;
(b) Parent shall have obtained the consent or approval of each person
whose consent or approval shall be required in connection with the
transactions contemplated hereby under any loan or credit agreement, note,
mortgage, indenture, lease, license or other agreement or instrument, except
those for which failure to obtain such consents and approvals would not,
individually or in the aggregate, have a Material Adverse Effect on Parent,
or upon the consummation of the transactions contemplated hereby;
(c) The Company shall have received the letter of Ernst & Young referred
to in Section 7.12 hereof;
(d) The Company shall have received an opinion from Sullivan & Cromwell
substantially to the effect that (i) the Merger will qualify as a
reorganization within the meaning of section 368(a) of the Code and (ii) no
gain or loss will be recognized by the Company stockholders who receive
shares of Parent Common Stock in the merger in exchange for shares of
Company Stock, except with respect to cash received with respect to
Dissenting Shares by holders of Company Preferred Stock who properly
exercise appraisal rights in accordance with Section 2.7;
(e) (i) Parent and the Parent Shareholder or Dr. Krukemeyer shall have
executed and delivered (x) the Shareholder Agreement, (y) the Non-Compete
Agreement and (z) the Dividend and Note Agreement; and (ii) Parent shall
have executed and delivered the Company Investment Group Registration Rights
Agreement; and
(f) The Company shall have received an opinion from Skadden, Arps,
Slate, Meagher & Flom substantially to the effect that the Restated Articles
of Incorporation do not violate the applicable provisions of the California
General Corporation Law.
Section 8.3 CONDITIONS TO OBLIGATIONS OF PARENT TO EFFECT THE MERGER. The
obligations of Parent to effect the Merger shall be subject to the fulfillment
or waiver, at or prior to the Effective Time, of the additional following
conditions:
(a) The Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior
to the Effective Time and the representations and warranties of the Company
contained in this Agreement shall be true and correct on and as of the date
of this Agreement and on and as of the Effective Time as if made on and as
of such date, except as contemplated by this Agreement, and Parent shall
have received a certificate of the Chief Executive Officer and the Chief
Financial Officer of the Company to that effect;
(b) The Company shall have obtained the consent or approval of each
person whose consent or approval shall be required in connection with the
transactions contemplated hereby under any
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loan or credit agreement, note, mortgage, indenture, lease, license or other
agreement or instrument, except those for which failure to obtain such
consents and approvals would not, individually or in the aggregate, have a
Material Adverse Effect on the Company, or upon the consummation of the
transactions contemplated hereby;
(c) Parent shall have received the letter of Coopers & Lybrand referred
to in Section 7.11 hereof;
(d) Parent shall have received an opinion from Skadden, Arps, Slate,
Meagher & Flom substantially to the effect that the Merger will qualify as a
reorganization under section 368(a) of the Code; and
(e) The following agreements shall have been executed and delivered by
the relevant parties thereto (other than Parent and the Parent Shareholder):
(i) the Voting Agreement and (ii) the Parent Shareholder Registration Rights
Agreement.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval by the
stockholders of the Company:
(a) by the mutual written consent of Parent and the Company;
(b) by either Parent or the Company if (i) at a duly held stockholders
meeting of the Company, or any adjournment or postponement thereof, the
Company's stockholders shall not have approved the Merger by the Company
Requisite Vote; (ii) the Parent Shareholder shall not have approved this
Agreement and the transactions contemplated hereby by the Parent Requisite
Vote; (iii) the Merger shall not have been consummated on or before December
31, 1996 (the "Termination Date"); PROVIDED that the right to terminate this
Agreement under this Section 9.1(b)(iii) shall not be available to any party
whose willful and material failure to fulfill any obligation under this
Agreement has been the cause of or resulted in, the failure of the Effective
Time to occur on or before the Termination Date; (iv) in the event of a
breach by the other party of any representation, warranty, covenant or
agreement set forth herein which (x), would give rise to a failure of a
condition set forth in Section 8.2(a) or 8.3(a), as applicable, and (y)
cannot be or has not been cured within 30 days after the giving of written
notice to the breaching party of such breach (PROVIDED that the terminating
party is not then in breach of any representation, warranty, covenant or
other agreement that would give rise to a failure of a condition as
described in clause (x) above); (v) any Governmental Entity, the consent of
which is a condition to the obligations of Parent and the Company to
consummate the transactions contemplated hereby shall have determined not to
grant its consent and all appeals of such determination shall have been
taken and have been unsuccessful; or (vi) any court of competent
jurisdiction in the United States or any State shall have issued an order,
judgment or decree (other than a temporary restraining order) restraining,
enjoining or otherwise prohibiting either of the Merger and such order,
judgment or decree shall have become final and nonappealable;
(c) by the Company if the board of directors of the Company shall
concurrently approve, and the Company shall concurrently enter into, a
binding written agreement concerning a transaction that constitutes a
Takeover Proposal; PROVIDED, HOWEVER, that (i) the board of directors of the
Company shall have complied with Section 9.5 in connection with such
Takeover Proposal; (ii) no termination pursuant to this Section 9.1(c) shall
be effective unless the Company shall simultaneously make the payments
required by Section 9.6; and (iii) the right to terminate this Agreement
under this Section 9.1(c) shall not be available to the Company if the
Company at such time is in material breach of any of the terms of this
Agreement; or
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(d) by Parent if the board of directors of Parent shall concurrently
approve, and Parent shall concurrently enter into, a binding written
agreement concerning a transaction that constitutes a Takeover Proposal;
PROVIDED, HOWEVER, that (i) the board of directors of Parent shall have
complied with Section 9.5 in connection with such Takeover Proposal; (ii) no
termination pursuant to this Section 9.1 shall be effective unless Parent
shall simultaneously make the payments required by Section 9.6; and (iii)
the right to terminate this Agreement under this Section 9.1(d) shall not be
available to Parent if Parent at such time is in material breach of any of
the terms of this Agreement.
Section 9.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Parent or the Company as provided in Section 9.1 hereof,
this Agreement shall forthwith become void (except as set forth in this Section
9.2 and in Article X, the last sentence of Sections 7.3 and Section 9.6 hereof
and in the Confidentiality Agreement, all of which shall survive the
termination) and there shall be no liability on the part of Parent, the Company
or Merger Sub or their respective officers or directors except for any breach of
any of its obligations under this Section 9.2 and the last sentence of Section
7.3 and Section 9.6 hereof. Notwithstanding the foregoing, no party hereto shall
be relieved from liability for any willful, material breach of this Agreement.
Section 9.3 AMENDMENT. This Agreement may be amended by the parties hereto
at any time before or after approval hereof by the shareholders of Parent or the
Company, PROVIDED that after any such approval, no amendment shall be made which
(a) changes the number of shares of Parent Common Stock into which shares of
Company Stock are converted pursuant to the terms hereof or (b) in any way
materially adversely affects the rights of holders of shares of Parent Common
Stock or Company Stock. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
Section 9.4 WAIVER. At any time prior to the Effective Time, the parties
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid if set forth in an instrument in writing
signed on behalf of such party.
Section 9.5 PROCEDURE FOR CERTAIN TERMINATIONS. A terminating party shall
provide to the other party written notice prior to any termination of this
Agreement pursuant to Section 9.1(c) or 9.1(d), as applicable, advising such
other party (i) that the board of directors of the terminating party intends to
enter into a binding written agreement concerning a Takeover Proposal in
accordance with the terms of this Agreement, and (ii) as to the material terms
of any such Takeover Proposal. At any time after five business days following
receipt of such notice, the terminating party may terminate this Agreement as
provided in Section 9.1(c) or 9.1(d), as applicable, only if the board of
directors of the terminating party determines that such proposal is more
favorable to its shareholders than the transactions contemplated by this
Agreement (taking into account all terms of such Takeover Proposal and this
Agreement, including all conditions, and which determination shall be made in
light of any revised proposal made by the non-terminating party prior to the
expiration of such five business day period) and concurrently enters into a
binding written agreement providing for the implementation of the transactions
contemplated by such Takeover Proposal.
Section 9.6 FEES AND EXPENSES.
(a) The Surviving Subsidiary shall pay all charges and expenses of the
Company and the Exchange Agent, in connection with the transactions contemplated
by Article II, and Parent shall reimburse the Surviving Subsidiary for such
charges and expenses. Except as otherwise provided in this Section 9.6, whether
or not the Merger is consummated, all costs and expenses incurred in connection
with this Agreement, the Shareholder Agreement, the Voting Agreement and the
other transactions contemplated hereby and thereby shall be paid by the party
incurring such costs or
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expenses, except that expenses incurred in connection with the filing fee for
the Form S-4, printing and mailing the Proxy Statement and the Form S-4 and
actions required to be taken under applicable state securities and blue sky laws
shall be shared equally by Parent and the Company.
(b) If this Agreement is terminated (i) pursuant to Section 9.1(d) hereof or
(ii) pursuant to (x) Section 9.1(b)(ii), (y) Section 9.1(b)(iii) (PROVIDED, that
the Company shall not be entitled to any Termination Fee or Company Expenses in
connection with a termination pursuant to Section 9.1(b)(iii) if (A) any
conditions in Article VIII (other than the condition in Section 8.1(a)(ii)) of
Parent to consummate the Merger have not been satisfied or waived and (B) as of
the Termination Date Parent shall have taken all actions required to be taken by
it under this Agreement and otherwise shall not be in material breach of its
obligations under this Agreement; PROVIDED, FURTHER, that nothing herein shall
be construed to affect the parties' obligations under Section 7.7) or (z)
Section 9.1(b)(iv) hereof, and in each case within twelve months from such
termination a Takeover Proposal involving Parent shall be consummated, then
Parent shall (in the case of Section 9.6(b)(i) upon such termination, and in the
case of Section 9.6(b)(ii) upon the consummation of such Takeover Proposal)
promptly (and in any event within two days of receipt by Parent of written
notice from the Company) pay to the Company (by wire transfer of immediately
available funds to an account designated by the Company) a termination fee of
$7,500,000 (the "Termination Fee"), and shall reimburse the Company for all
documented out-of-pocket expenses (including all fees and expenses of its
counsel, advisors, accountants and consultants) incurred by or on behalf of the
Company in connection with the transactions contemplated by this Agreement up to
an additional $2,500,000 ("Company Expenses"). Parent's payment shall be the
sole and exclusive remedy of the Company against Parent and any of its
Subsidiaries and their respective directors, officers, employees, agents,
advisors or other representatives with respect to the breach of any covenant or
agreement giving rise to such payment, other than with respect to any claims for
willful breach or bad faith by Parent or Merger Sub.
(c) If this Agreement is terminated (i) pursuant to Section 9.1(c) hereof,
or (ii) pursuant to (x) Section 9.1(b)(i), (y) Section 9.1(b)(iii) (PROVIDED,
that Parent shall not be entitled to any Termination Fee or Parent Expenses in
connection with a termination pursuant to Section 9.1(b)(iii) if (A) any
conditions in Article VIII (other than the condition in Section 8.1(a)(i)) of
Company to consummate the Merger have not been satisfied or waived and (B) as of
the Termination Date Company shall have taken all actions required to be taken
by it under this Agreement and otherwise shall not be in material breach of its
obligations under this Agreement; PROVIDED, FURTHER, that nothing herein shall
be construed to affect the parties' obligations under Section 7.7) or (z)
Section 9.1(b)(iv) hereof, and in each case within twelve months from such
termination a Takeover Proposal involving the Company shall be consummated, then
the Company shall (in the case of Section 9.6(c)(i) upon such termination, and
in the case of Section 9.6(c)(ii) upon the consummation of such Takeover
Proposal) promptly (and in any event within two days of receipt by the Company
of written notice from Parent) pay to Parent (by wire transfer of immediately
available funds to an account designated by Parent) the Termination Fee, and
shall reimburse Parent for all documented out-of-pocket expenses (including all
fees and expenses of its counsel, advisors, accountants and consultants)
incurred by or on behalf of Parent in connection with the transactions
contemplated by this Agreement up to an additional $2,500,000 ("Parent
Expenses," and hereinafter "Expenses" shall mean Parent Expenses or Company
Expenses, as applicable). The Company's payment shall be the sole and exclusive
remedy of Parent against the Company and any of its Subsidiaries and their
respective directors, officers, employees, agents, advisors or other
representatives with respect to the breach of any covenant or agreement giving
rise to such payments, other than with respect to any claim for willful breach
or bad faith by the Company.
(d) If payment of a Termination Fee and Expenses is required hereunder in
connection with a Takeover Proposal that is intended to be accounted for as a
"pooling of interests" under APB 16 and any applicable interpretations thereof
and, but for such payment of the Termination Fee and Expenses, such accounting
treatment would be available for the transaction involved in such Takeover
Proposal, then such Termination Fee and Expenses shall be reduced to the maximum
amount that would permit such accounting treatment (the "maximum amount");
PROVIDED, that, in order for a
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party obligated to pay a Termination Fee and Expenses (a "payor") to reduce the
Termination Fee and Expenses pursuant to this Section 9.6(d), (i) such payor
shall (in the case of a termination pursuant to Sections 9.1(c) and (d), upon
termination, and in the case of Section 9.1(b)(i), (ii), (iii) or (iv),
reasonably prior to the time such Termination Fee and Expenses is payable)
provide the party entitled to the Termination Fee and Expenses (the "payee") a
written opinion of a nationally recognized accounting firm that such Takeover
Proposal qualifies for such accounting treatment and providing such firm's
estimation of the maximum amount and (ii) a nationally recognized accounting
firm retained by the payee must not reasonably object to such opinions. In the
event of a disagreement between the payor and payee accounting firms, those
firms shall mutually agree on a third nationally recognized accounting firm
whose judgment as to these matters shall be final.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. Except for the last sentence of Section 7.7(a) and Sections 7.8(c)
and (d), 7.13, 7.16 and 9.6(a), and this Article X, none of the representations,
warranties and agreements in this Agreement shall survive the Effective Time.
Section 10.2 NOTICES. Any notices or other communications required or
permitted hereunder shall be in writing and shall be deemed duly given upon (a)
transmitter's confirmation of a receipt of a facsimile transmission, (b)
confirmed delivery by a standard overnight carrier or when delivered by hand, or
(c) the expiration of five business days after the day when mailed by certified
or registered mail, postage prepaid, addressed at the following addresses (or at
such other address as the parties hereto shall specify by like notice):
If to Parent, to:
Paracelsus Healthcare Corporation
155 North Lake Avenue
Suite 1100
Pasadena, California 91101
Telecopy No. (818) 304-9588
Attention: R.J. Messenger,
President and Chief Executive Officer
with a copy to: Robert C. Joyner,
Vice President and General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue
Los Angeles, California 90071
Telecopy No. (213) 687-5600
Attention: Thomas C. Janson, Jr.
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If to the Company, to:
Champion Healthcare Corporation
515 West Greens Road
Suite 800
Houston, Texas 77067
Telecopy No. (713) 878-6686
Attention: Charles R. Miller,
President and Chief Executive Officer
with a copy to: James G. VanDevender,
Executive Vice President and Chief Financial
Officer
with a copy to:
Sullivan & Cromwell
125 Broad Street
New York, NY 10004-2498
Telecopy No. (212) 558-3588
Attention: Neil T. Anderson
and a copy to:
Michener, Larimore, Swindle, Whitaker
Flowers, Sawyer, Reynolds & Chalk, L.L.P.
3500 City Center Tower II
301 Commerce Street
Fort Worth, Texas 76102
Telecopy No. (817) 335-6935 or (817) 878-0706
Attention: Wayne Whitaker
Section 10.3 INTERPRETATION. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
Section 10.4 MISCELLANEOUS. This Agreement (including the documents and
instruments referred to herein) (a) together with the Shareholder Agreement, the
Confidentiality Agreement and the Voting Agreement, constitutes the entire
agreement and supersedes all other prior agreements and understandings, both
written and oral, among the parties, or any of them, with respect to the subject
matter hereof; (b) shall not be assigned by operation of law or otherwise
without the prior written consent of the other parties hereto; and (c) shall be
governed in all respects, including validity, interpretation and effect, by the
laws of the State of Delaware (without giving effect to the provisions thereof
relating to conflicts of law). The parties hereby acknowledge that, except as
hereinafter agreed to in writing, no party shall have the right to acquire or
shall be deemed to have acquired shares of capital stock of the other party
pursuant to the Merger until consummation thereof.
Section 10.5 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
Section 10.6 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and their
respective successors and permitted assigns and, except as otherwise
specifically provided in Section 7.13 hereof, nothing in this Agreement, express
or implied, is intended to confer upon any other person any rights or remedies
of any nature whatsoever under or by reason of this Agreement.
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Section 10.7 SEVERABILITY. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
Section 10.8 ATTORNEYS' FEES. If any action at law or equity, including an
action for declaratory relief, is brought to enforce or interpret any provision
of this Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees and expenses from the other party, which fees and expenses shall
be in addition to any other relief which may be awarded.
IN WITNESS WHEREOF, Parent, the Company and Merger Sub have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
<TABLE>
<S> <C> <C>
PARACELSUS HEALTHCARE CORPORATION
By: /s/ ROBERT C. JOYNER
----------------------------------------
Name: Robert C. Joyner
Title:Vice President and General Counsel
CHAMPION HEALTHCARE CORPORATION
By: /s/ JAMES G. VANDEVENDER
----------------------------------------
Name: James G. VanDevender
Title: Executive Vice President and
Chief Financial Officer
PC MERGER SUB, INC.
By: /s/ ROBERT C. JOYNER
----------------------------------------
Name: Robert C. Joyner
Title: Director
</TABLE>
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ANNEX B
FORM OF
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
PARACELSUS HEALTHCARE CORPORATION
A CALIFORNIA CORPORATION
R.J. MESSENGER and ROBERT C. JOYNER certify that:
1. They are the duly elected and acting President and Assistant Secretary,
respectively, of the corporation named above.
2. The articles of incorporation of the corporation shall be amended and
restated to read in full as follows:
FIRST. The name of the corporation is PARACELSUS HEALTHCARE CORPORATION.
SECOND. The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California ("GCLC") other than the banking business, the trust company
business or the practice of a profession permitted to be incorporated by the
California Corporations Code.
THIRD. The total number of shares of all classes of stock which the
corporation shall have authority to issue is 175,000,000, of which 150,000,000
shares of the par value of $[ ] per share shall be designated as Common Stock
and 25,000,000 shares of the par value of $.01 per share shall be designated as
Preferred Stock. Shares of Preferred Stock may be issued in series from time to
time by the board of directors, and the board of directors is expressly
authorized to fix by resolution or resolutions the designations and the powers,
preferences and rights, and the qualifications, limitations and restrictions
thereof, of the shares of each series of Preferred Stock, including without
limitation the following:
(a) the distinctive serial designation of such series which shall
distinguish it from other series;
(b) the number of shares included in such series, which number may be
increased or decreased from time to time unless otherwise provided by the
board of directors in the resolution or resolutions providing for the issue
of such series;
(c) the dividend rate (or method of determining such rate, which may be
fixed or variable) payable to the holders of the shares of such series, any
conditions upon which such dividends shall be paid and the date or dates
upon which such dividends shall be payable;
(d) whether dividends on the shares of such series shall be cumulative
and, in the case of shares of any series having cumulative dividend rights,
the date or dates or method of determining the date or dates from which
dividends on the shares of such series shall be cumulative;
(e) the amount or amounts which shall be payable out of the assets of
the corporation to the holders of the shares of such series upon voluntary
or involuntary liquidation, dissolution or winding up the corporation;
(f) the price or prices at which, the period or periods within which and
the terms and conditions upon which the shares of such series may be
purchased or redeemed, in whole or in part, at the option of the corporation
or at the option of the holder or holders thereof or upon the happening of a
specified event or events;
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(g) the obligation, if any, of the corporation to purchase or redeem
shares of such series pursuant to a sinking fund or otherwise and the price
or prices at which, the period or periods within which and the terms and
conditions upon which the shares of such series shall be redeemed or
purchased, in whole or in part, pursuant to such obligation;
(h) whether or not the shares of such series shall be convertible or
exchangeable, at any time or times at the option of the holder or holders
thereof or at the option of the corporation or upon the happening of a
specified event or events, into shares of any other class or classes or any
other series of the same or any other class or classes of stock or debt
securities of the corporation or of any other entity, and the price or
prices or rate or rates of exchange or conversion and any adjustments
applicable thereto; and
(i) the voting rights, if any, of the holders of the shares of such
series.
FOURTH. The board of directors of the corporation is expressly authorized
to adopt, amend or repeal the by-laws of the corporation. This Article Fourth
and the by-laws of the corporation may not be amended, modified or repealed by
the holders of the capital stock of the corporation except by the affirmative
vote of the holders of not less than a majority of the Total Voting Power (as
hereinafter defined) of the corporation and the affirmative vote of the holders
of a majority of the voting power of all outstanding Public Shares (as
hereinafter defined), each considered for purposes hereof as a single class.
For the purposes of these Articles, the following terms shall have the
following meanings: The term "Public Shares" shall mean shares of capital stock
of the corporation not beneficially owned (as determined pursuant to Rule 13d-3
or Rule 13d-5 of the Securities Exchange Act of 1934, as amended, as in effect
on the date this Restated Certificate of Incorporation becomes effective (the
"Exchange Act")) by any individual, partnership, corporation, limited liability
company, trust or other entity (a "Controlling Person") that is a member of any
group (as defined under Rule 13d-5 of the Exchange Act) that beneficially owns
25 percent or more of the Total Voting Power of the corporation; PROVIDED that
the Independent Directors (as hereinafter defined) shall have the power and duty
to construe and apply the provisions of this definition and to make all
determinations necessary or desirable to implement such provisions. The term
"Independent Directors" shall mean the directors of the corporation who are not
employed by, affiliated with or nominees or representatives of any Controlling
Person or employed by or affiliated with the corporation or any of their
respective Subsidiaries (as hereinafter defined), excluding for the purpose of
the foregoing any affiliation by reason of being a member on the Board of
Directors (but not an officer) of the corporation or its Subsidiaries. The term
"Subsidiary" with respect to any person shall mean any corporation or other
organization, whether incorporated or unincorporated, of which at least a
majority of the voting power of all outstanding securities entitled by the terms
thereof to vote generally in the election of directors, or others performing
similar functions with respect to such corporation or other organization, is
directly or indirectly beneficially owned by such person. The term "Total Voting
Power" shall mean the non-diluted aggregate number of votes that may be cast by
the holders of outstanding Voting Securities. The term "Voting Securities" shall
mean securities entitled to vote in the ordinary course in the election of
directors or of persons serving in a similar governing capacity, including the
voting rights attached to such securities and rights or options to acquire such
securities.
FIFTH. The number of directors of the corporation shall be fixed from time
to time pursuant to the by-laws of the corporation but in no case to be less
than nine.
The directors of the corporation shall be divided into three classes, as
nearly equal in number as possible, as determined by the board of directors,
with the initial term of office of Class I to expire at the first annual meeting
of shareholders thereafter, the initial term of office of Class II to expire at
the second annual meeting of shareholders thereafter and the initial term of
office of Class III to expire at the third annual meeting of shareholders
thereafter, with each class of directors to hold office until their successors
have been duly elected and qualified. At each annual meeting of shareholders
following such initial classification and election, directors elected to succeed
the directors whose terms
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expire at such annual meeting shall be elected to hold office for a term
expiring at the annual meeting of shareholders in the third year following the
year of their election and until their successors have been duly elected and
qualified. If the number of directors is changed, any increase or decrease shall
be apportioned among the classes so as to maintain or attain a number of
directors in each class as nearly equal as possible, but no decrease in the
number of directors may shorten the term of any incumbent director. This
provision shall become effective only when the corporation becomes a listed
corporation within the meaning of Section 301.5 of the GCLC.
Shareholders shall not be entitled to cumulate votes in the election of
directors. This provision shall become effective only when the corporation
becomes a listed corporation within the meaning of Section 301.5 of the GCLC.
No director may be removed except for cause as set forth in Sections 302 and
304 of the GCLC, except as otherwise provided by Section 303 of the GCLC.
In the event that the holders of any class or series of stock of the
corporation shall be entitled, voting separately as a class, to elect any
directors of the corporation, then the number of directors that may be elected
by such holders shall be in addition to the number fixed pursuant to the by-laws
and, except as otherwise expressly provided in the terms of such class or
series, the terms of the directors elected by such holders shall expire at the
annual meeting of shareholders next succeeding their election without regard to
the classification of the remaining directors.
This Article Fifth may not be amended, modified or repealed except by the
affirmative vote of the holders of not less than eighty percent (80%) of the
Total Voting Power and the affirmative vote of the holders of a majority of the
voting power of all outstanding Public Shares, each considered for purposes
hereof as a single class.
SIXTH. No action required or permitted to be taken by the holders of any
class or series of stock of the corporation, including but not limited to the
election of directors, may be taken by written consent or consents and must be
taken at a duly called annual meeting or at a special meeting of shareholders.
This Article Sixth may not be amended, modified or repealed except by the
affirmative vote of the holders of not less than seventy-five percent (75%) of
the Total Voting Power of the corporation and the affirmative vote of the
holders of a majority of the voting power of all outstanding Public Shares, each
considered for purposes hereof as a single class.
SEVENTH. (a) The Board of Directors may not alter, amend or repeal
Sections 2.3, 2.4, 2.7, 2.11, 2.12, 2.14, 2.16, 3.2, 3.3, 3.4, 3.5, 3.8, 3.9,
4.1, 4.4, Article VI or Article IX of the By-laws, except upon the affirmative
vote of not less than seventy-five percent (75%) of the entire Board of
Directors.
(b) In addition, any contract or transaction between the Corporation or any
of its subsidiaries and one or more of its directors or Controlling Persons (or
any of their "affiliates" as such term is defined in Rule 12b-2 of the
Securities and Exchange Act of 1934, as amended), or between the corporation or
any of its subsidiaries and any other corporation, partnership, association or
other organization in which one or more of its directors or Controlling Persons
have a material financial interest, shall require that (i) the material facts as
to his or her relationship or interest and as to the contract or transaction be
fully and fairly disclosed in good faith to the Board of Directors and (ii) the
Board of Directors in good faith authorize the contract or transaction by the
affirmative vote of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum. Common or interested directors
may be counted in determining the presence of a quorum at a meeting of the Board
of Directors which authorizes the contract or transaction. A mere common
directorship does not constitute a material financial interest within the
meaning of this subdivision. A director is not interested within the meaning of
this subdivision in a resolution fixing the compensation of another director as
a director, officer or employee of the corporation, notwithstanding the fact
that the first director is also receiving compensation from the corporation.
If the other provisions hereinabove are met, no such contract or other
transaction contemplated above, or vote of a director, whether one or more, or
the Board of Directors, shall be void or voidable
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solely because a director is not a disinterested director with respect to a
matter and is present at or participates in the meeting of the Board of
Directors or committee thereof which authorizes the contract or transaction to
which such director is not a disinterested director or solely because his or her
or their votes are counted for such approval.
(c) Dividends on the outstanding shares of the corporation, if any, shall
not be declared except upon the affirmative vote of not less than seventy-five
percent (75%) of the whole Board of Directors at any regular or special meeting.
Dividends may be paid by the corporation in cash, in property, or in the
corporation's own shares, but only as permitted under Chapter 5 of the GCLC.
Subject to limitations upon the authority of the Board of Directors imposed by
any law, the declaration of and provision for payment of dividends shall be at
the discretion of the Board of Directors.
(d) The Board of Directors may, by resolution passed by the affirmative vote
of at least seventy-five percent (75%) of the whole Board of Directors, appoint
from its membership, annually, an Executive Committee of two or more directors,
which shall include the Chief Executive Officer and the President of the
corporation. The appointment or removal of any member (or alternate members) of
the Executive Committee shall require the affirmative vote of not less than
seventy-five percent (75%) of the whole Board of Directors.
This Article Seventh may not be amended, modified or repealed by the holders
of the capital stock of the corporation except by the affirmative vote of the
holders of not less than a majority of the Total Voting Power of the corporation
and the affirmative vote of the holders of a majority of the voting power of all
outstanding Public Shares, each considered for purposes hereof as a single
class.
EIGHTH. The corporation shall not enter into or recommend any Acquisition
Proposal except upon the affirmative vote of not less than seventy-five percent
(75%) of the entire Board of Directors. For purposes of this Article Eighth, an
Acquisition Proposal shall mean any BONA FIDE offer or proposal for (i) a merger
or other business combination (other than a Surviving Company Merger (as
hereinafter defined)) involving the corporation, (ii) the acquisition of any
Voting Securities representing more than 50% of the Total Voting Power of the
corporation after giving effect to such Acquisition Proposal or (iii) the
acquisition of all or substantially all of the assets of the corporation. For
purposes of this Article Eighth, a "Surviving Company Merger" shall mean any
merger or other business combination or reorganization (i) where the transaction
has been approved by a unanimous vote of the entire Board of Directors or (ii)
where the holders of Voting Securities of the corporation prior to such
transaction will beneficially own (as determined pursuant to Rule 13d-3 or Rule
13d-5 of the Exchange Act) in the aggregate at least 60% of the surviving
corporation's Total Voting Power immediately after giving effect to such
transaction.
This Article Eighth may not be amended, modified or repealed except by the
affirmative vote of the holders of not less than a majority of the Total Voting
Power of the corporation and the affirmative vote of the holders of a majority
of the voting power of all outstanding Public Shares, each considered for
purposes hereof as a single class.
NINTH. The liability of directors of the corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law. No
amendment, modification or repeal of this Article Ninth shall adversely affect
any right or protection of a director that exists at the time of such amendment,
modification or repeal.
This Article Ninth may not be amended, modified or repealed except by the
affirmative vote of the holders of not less than eighty percent (80%) of the
Total Voting Power of the corporation and the affirmative vote of the holders of
a majority of the voting power of all outstanding Public Shares, each considered
for purposes hereof as a single class.
TENTH. The corporation is authorized to indemnify the directors, officers,
employees or other agents of the corporation to the fullest extent permissible
under California law.
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[ELEVENTH. The Board of Directors is expressly authorized to adopt, amend
or repeal a shareholder protection rights plan, which plan may distinguish
between shares of Common Stock or other securities of the same class or series
and may distinguish between shareholders of Common Stock or other securities of
the same class or series.]
[This Article Eleventh may not be amended, modified or repealed except by
the affirmative vote of the holders of not less than eighty percent (80%) of the
Total Voting Power and the affirmative vote of the holders of a majority of the
voting power of all outstanding Public Shares, each considered for purposes
hereof as a single class.]
3. The foregoing amendment and this certificate have been approved by the
Board of Directors of the corporation.
4. The foregoing amendment was approved by the required vote of the
shareholder of the corporation in accordance with Section 902 of the GCLC; the
corporation has only one class of shares and the total number of outstanding
shares of such class entitled to vote with respect to the foregoing amendment
was 450 shares; and the total number of shares of such class voting in favor of
the foregoing amendment equaled or exceeded the vote required, such required
vote being a majority of the outstanding shares of such class.
Each of the undersigned declares under penalty of perjury under the laws of
the State of California that he has read the foregoing certificate and knows the
contents thereof and that the same is true of his own knowledge.
Dated:
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ANNEX C
FORM OF
AMENDED AND RESTATED BYLAWS
OF
PARACELSUS HEALTHCARE CORPORATION
ARTICLE I
CORPORATE OFFICES
1.1 PRINCIPAL OFFICE
The Board of Directors shall fix the location of the principal executive
office of the corporation at any place within or outside the State of
California. If the principal executive office is located outside California and
the corporation has one or more business offices in California, then the Board
of Directors shall fix and designate a principal business office in California.
Unless and until redesignated by the Board of Directors, the principal executive
office of the corporation is 500 Greens Road, Suite 800, Houston, Texas 77067.
1.2 OTHER OFFICES
The Board of Directors may at any time establish branch or subordinate
offices at any place or places.
ARTICLE II
MEETINGS OF SHAREHOLDERS
2.1 PLACE OF MEETINGS
Except as otherwise provided in these Bylaws, meetings of shareholders shall
be held at any place within or outside the State of California designated by the
Board of Directors. In the absence of any such designation, shareholders'
meetings shall be held at the principal executive office of the corporation or
at any place consented to in writing by all persons entitled to vote at such
meeting, given before or after the meeting and filed with the Secretary of the
corporation.
2.2 ANNUAL MEETING
The annual meeting of shareholders shall be held each year on a date and at
a time designated by the Board of Directors. At each annual meeting, directors
shall be elected and any other proper business may be transacted.
2.3 SPECIAL MEETINGS
Special meetings of the shareholders may be called at any time, subject to
the provisions of Sections 2.4 and 2.5 of these Bylaws, by the Board of
Directors, the Chairman of the Board, the President or the holders of shares
entitled to cast not less than ten percent (10%) of the votes at that meeting;
PROVIDED, that no special meeting shall be held during the period of sixty (60)
days preceding or forty-five (45) days succeeding the date fixed for the annual
meeting of shareholders.
If a special meeting is called by anyone other than the Board of Directors
or the President or the Chairman of the Board, then the request shall be in
writing, specifying the time of such meeting and the general nature of the
business proposed to be transacted, and shall be delivered personally or sent by
registered mail or by other written communication to the Chairman of the Board,
the President, any Vice President or the Secretary of the corporation. The
officer receiving the request forthwith shall cause notice to be given to the
shareholders entitled to vote, in accordance with the provisions of Sections 2.4
and 2.5 of these Bylaws, that a meeting will be held at the time requested by
the person or persons calling the meeting, so long as that time is not less than
thirty-five (35) nor more than sixty
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(60) days after the receipt of the request. If the notice is not given within
twenty (20) days after receipt of the request, then the person or persons
requesting the meeting may give the notice. Nothing contained in this paragraph
of this Section 2.3 shall be construed as limiting, fixing or affecting the time
when a meeting of shareholders called by action of the Board of Directors may be
held.
2.4 NOTICE OF SHAREHOLDERS' MEETINGS
All notices of meetings of shareholders shall be written and sent or
otherwise given in accordance with Section 2.5 of these Bylaws not less than ten
(10) (or, if sent by third-class mail pursuant to Section 2.5 of these Bylaws,
not less than thirty (30)) nor more than sixty (60) days before the date of the
meeting to each shareholder entitled to vote thereat. Such notice shall state
the place, date, and hour of the meeting and (i) in the case of a special
meeting, the general nature of the business to be transacted, and no business
other than that specified in the notice may be transacted, or (ii) in the case
of the annual meeting, those matters which the Board of Directors, at the time
of the mailing of the notice, intends to present for action by the shareholders,
but, subject to the provisions of the next paragraph of this Section 2.4, any
proper matter may be presented at the meeting for such action. The notice of any
meeting at which Directors are to be elected shall include the names of nominees
intended at the time of the notice to be presented by the Board for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the California Corporations Code (the
"Code"), (ii) an amendment of the Restated Articles of Incorporation, pursuant
to Section 902 of the Code, (iii) a reorganization of the corporation, pursuant
to Section 1201 of the Code, (iv) a voluntary dissolution of the corporation,
pursuant to Section 1900 of the Code, or (v) a distribution in dissolution other
than in accordance with the rights of any outstanding preferred shares, pursuant
to Section 2007 of the Code, then the notice shall also state the general nature
of that proposal.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Notice of a shareholders' meeting shall be given either personally or by
first-class mail, or, if the corporation has outstanding shares held of record
by five hundred (500) or more persons (determined as provided in Section 605 of
the Code) on the record date for the shareholders' meeting, notice may be sent
by third-class mail, or other means of written communication, addressed to the
shareholder at the address of the shareholder appearing on the books of the
corporation or given by the shareholder to the corporation for the purpose of
notice; or if no such address appears or is given, at the place where the
principal executive office of the corporation is located or by publication at
least once in a newspaper of general circulation in the county in which the
principal executive office is located. The notice shall be deemed to have been
given at the time when delivered personally or deposited in the mail or sent by
other means of written communication.
If any notice (or any report referenced in Article VII of these Bylaws)
addressed to a shareholder at the address of such shareholder appearing on the
books of the corporation is returned to the corporation by the United States
Postal Service marked to indicate that the United States Postal Service is
unable to deliver the notice to the shareholder at that address, all future
notices or reports shall be deemed to have been duly given without further
mailing if the same shall be available to the shareholder upon written demand of
the shareholder at the principal executive office of the corporation for a
period of one (1) year from the date of the giving of the notice or report to
all other shareholders.
An affidavit of mailing or other means of giving any notice or report in
accordance with the provisions of this Section 2.5, executed by the Secretary,
Assistant Secretary or any transfer agent, shall be prima facie evidence of the
giving of the notice or report.
Except as otherwise prescribed by the Board of Directors in particular
instances and except as otherwise provided by subdivision (c) of Section 601 of
the Code, the Secretary shall prepare and give, or cause to be prepared and
given, the notice of meetings of shareholders.
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2.6 ORGANIZATION OF MEETINGS
The Chairman of the Board of Directors, if any, shall preside at each
meeting of shareholders, or in the absence of the Chairman of the Board of
Directors the Vice-Chairman of the Board of Directors, if any, or in the absence
of the Vice-Chairman the President, or in the absence of the President the Chief
Financial Officer of the Company, or in the absence of the Chief Financial
Officer, by a chairman designated by the Board of Directors, in the absence of
such designation, by a chairman chosen at the meeting. The Secretary shall act
as secretary of all meetings of shareholders and keep the records of such
meetings, and in the absence of the Secretary, his or her duties shall be
performed by any other officer authorized by the Board of Directors or in the
absence of such authorization any officer authorized by these Bylaws or if no
such officer is available or willing to so act, by any person appointed by
resolution duly adopted at the meeting.
The order of business at each such meeting shall be as determined by the
chairman of the meeting. The chairman of the meeting shall have the right and
authority, subject to applicable law and the provisions of the Restated Articles
of Incorporation and these Bylaws, to prescribe such rules, regulations and
procedures and to do all such acts and things as are necessary or desirable for
the proper conduct of the meeting, including without limitation, the
establishment of procedures for the maintenance of order and safety, limitation
on the time allotted to questions or comments on the affairs of the corporation,
restrictions on entry to such meetings after the time prescribed for the
commencement thereof and the opening and closing of the voting polls.
2.7 QUORUM
Unless otherwise provided in the Restated Articles of Incorporation, a
majority of the shares entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of the shareholders. The shareholders
present at a duly called or held meeting at which a quorum is present may
continue to transact business until adjournment notwithstanding the withdrawal
of enough shareholders to leave less than a quorum, if any action taken (other
than adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
In the absence of a quorum, any meeting of shareholders may be adjourned
from time to time by the vote of a majority of the shares represented either in
person or by proxy, but no other business may be transacted, except as provided
in the last sentence of the preceding paragraph.
2.8 ADJOURNED MEETING; NOTICE
Any shareholders' meeting, annual or special, whether or not a quorum is
present, may be adjourned from time to time by the vote of the majority of the
shares represented at that meeting, either in person or by proxy.
When any meeting of shareholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if its
time and place are announced at the meeting at which the adjournment is taken.
However, if the adjournment is for more than forty-five (45) days from the date
set for the original meeting or if a new record date for the adjourned meeting
is fixed, a notice of the adjourned meeting shall be given to each shareholder
of record entitled to vote at the adjourned meeting in accordance with the
provisions of Sections 2.4 and 2.5 of these Bylaws. At any adjourned meeting,
the corporation may transact any business which might have been transacted at
the original meeting.
2.9 VOTING
The shareholders entitled to vote at any meeting of shareholders shall be
determined in accordance with the provisions of Section 2.12 of these Bylaws,
subject to the provisions of Chapter 7 of the Code.
Elections for directors and voting on any other matter at a shareholders'
meeting need not be by ballot unless a shareholder demands election by ballot at
the meeting and before the voting begins.
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Except as provided in the last paragraph of this Section 2.9, or as may be
otherwise provided in the Restated Articles of Incorporation, each outstanding
share, regardless of class, shall be entitled to one vote on each matter
submitted to a vote of the shareholders. Any holder of shares entitled to vote
on any matter may vote part of the shares in favor of the proposal and refrain
from voting the remaining shares or may vote them against the proposal other
than elections to office, but, if the shareholder fails to specify the number of
shares such shareholder is voting affirmatively, it will be conclusively
presumed that the shareholder's approving vote is with respect to all shares
which the shareholder is entitled to vote.
The affirmative vote of the majority of the shares represented and voting at
a duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute at least a majority of the required quorum) shall
be the act of the shareholders, unless the vote of a greater number or
percentage of voting shares is required by the Code or by the Restated Articles
of Incorporation.
Except as otherwise provided by law, no shareholder shall be entitled to
cumulate votes for any candidate or candidates. Directors shall be elected by a
plurality of the votes of the shares present in person or represented by proxy
at the meeting and entitled to vote on the election of directors.
2.10 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT
The transactions of any meeting of shareholders, either annual or special,
however called and noticed, and wherever held, are as valid as though they had
been taken at a meeting duly held after regular call and notice, if a quorum be
present either in person or by proxy, and if, either before or after the
meeting, each of the persons entitled to vote, not present in person or by
proxy, signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. Neither the business to be
transacted at nor the purpose of any annual or special meeting of shareholders
need be specified in any written waiver of notice or consent to the holding of
the meeting or approval of the minutes thereof, unless otherwise provided in the
Restated Articles of Incorporation or these Bylaws, and except that if action is
taken or proposed to be taken for approval of any of those matters specified in
the second paragraph of Section 2.4 of these Bylaws, the waiver of notice or
consent or approval shall state the general nature of the proposal. All such
waivers, consents, and approvals shall be filed with the corporate records or
made a part of the minutes of the meeting.
Attendance of a person at a meeting shall constitute a waiver of notice of
and presence at that meeting, except when the person objects, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters required by the
Code to be included in the notice of such meeting but not so included, if such
objection is expressly made at the meeting.
2.11 ACTION BY WRITTEN CONSENT
Except as otherwise provided in the Restated Articles of Incorporation, any
action which may be taken at any annual or special meeting of shareholders may
be taken without a meeting and without prior notice, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
shares having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted.
All such consents shall be filed with the Secretary of the corporation and
shall be maintained in the corporate records. Any shareholder giving a written
consent, or the shareholder's proxyholders, or a transferee of the shares, or a
personal representative of the shareholder, or their respective proxyholders,
may revoke the consent by a writing received by the Secretary of the corporation
before written consents of the number of shares required to authorize the
proposed action have been filed with the Secretary, but may not do so
thereafter.
If the consents of all shareholders entitled to vote have not been solicited
in writing, the Secretary shall give prompt notice to those shareholders
entitled to vote who have not consented in writing of
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the taking of any corporate action approved by shareholders without a meeting by
less than unanimous written consent. Such notice shall be given in accordance
with Section 2.5. In the case of approval of (i) contracts or transaction in
which a director has a direct or indirect material financial interest, pursuant
to Section 310 of the Code, (ii) indemnification of agents of the corporation,
pursuant to Section 317 of the Code, (iii) a reorganization of the corporation,
pursuant to Section 1201 of the Code or (iv) a distribution in dissolution other
than in accordance with the rights of outstanding preferred shares, pursuant to
Section 2007 of the Code, such notice shall be given at least ten (10) days
before the consummation of the action authorized by such approval, unless the
consents of all shareholders entitled to vote have been solicited in writing.
2.12 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS
Except as otherwise provided in the Restated Articles of Incorporation in
order that the corporation may determine the shareholders entitled to notice of
any meeting or to vote, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty (60) days nor less than ten (10) days
prior to the date of such meeting nor more than sixty (60) days before any other
action. Shareholders at the close of business on the record date are entitled to
notice and to vote, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date, except as
otherwise provided in the Restated Articles of Incorporation or the Code.
A determination of shareholders of record entitled to notice of or to vote
at a meeting of shareholders shall apply to any adjournment of the meeting
unless the Board of Directors fixes a new record date for the adjourned meeting,
but the Board of Directors shall fix a new record date if the meeting is
adjourned for more than forty-five (45) days from the date set for the original
meeting.
If the Board of Directors does not so fix a record date: (i) the record date
for determining shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the business day next
preceding the day on which notice is given or, if notice is waived, at the close
of business on the business day next preceding the day on which the meeting is
held; and (ii) the record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, when no prior action
by the Board has been taken, shall be the day on which the first written consent
is given.
The record date for any other purpose shall be as provided in Section 8.1 of
these Bylaws.
2.13 PROXIES
Every person entitled to vote for directors, or on any other matter, shall
have the right to do so either in person or by one or more agents authorized by
a written proxy signed by the person and filed with the Secretary of the
corporation. A proxy shall be deemed signed if the shareholder's name or other
authorization is placed on the proxy (whether by manual signature, typewriting,
telegraphic or electronic transmission or otherwise) by the shareholder or the
shareholder's attorney-in-fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i) the
person who executed the proxy revokes it prior to the time of voting by
delivering a writing to the corporation stating that the proxy is revoked or by
executing a subsequent proxy and presenting it to the meeting or by attendance
at such meeting and voting in person, or (ii) written notice of the death or
incapacity of the maker of that proxy is received by the corporation before the
vote pursuant to that proxy is counted; PROVIDED, HOWEVER, that no proxy shall
be valid after the expiration of eleven (11) months from the date thereof,
unless otherwise provided in the proxy. The dates contained on the forms of
proxy presumptively determine the order of execution, regardless of the postmark
dates on the envelopes in which they are mailed. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Sections 705(e) and 705(f) of the Code.
2.14 ADVANCE NOTICE
(a) Only persons who are nominated in accordance with the following
procedures shall be eligible for election as directors of the corporation,
except as may be otherwise provided in the
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Restated Articles of Incorporation of the corporation with respect to the right
of holders of certain classes of stock of the corporation to nominate and elect
a specified number of directors in certain circumstances. Nominations of persons
for election to the Board of Directors may be made at any annual meeting of
shareholders, or at any special meeting of shareholders called for the purpose
of electing directors, (i) by or at the direction of the Board of Directors (or
any duly authorized committee thereof) or (ii) by the shareholder of the
corporation (x) who is a shareholder of record on the date of the giving of the
notice provided for in this Section 2.14 and on the record date for the
determination of shareholders entitled to vote at such meeting and (y) who
complies with the notice procedures set forth in this Section 2.14.
In addition to any other applicable requirements, for a nomination to be
made by a shareholder, such shareholder must have given timely notice thereof in
proper written form to the Secretary of the Corporation.
To be timely, a shareholders's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the corporation not
less than sixty (60) days nor more than ninety (90) days prior to the
anniversary date of the immediately preceding annual meeting of the
shareholders; PROVIDED, HOWEVER, that (i) in the event that the annual meeting
is called for a date that is not within thirty (30) days before or after such
anniversary date notice by the shareholder in order to be timely must be so
received not later than the close of business on the tenth (10th) day following
the day on which such notice of the date of the annual meeting was mailed for
such public disclosure of the date of the annual meeting was made, whichever
first occurs; and (ii) in the case of a special meeting of shareholders called
for the purpose of electing directors, not later than the close of business on
the tenth (10th) day following the day on which notice of the date of the
special meeting was mailed or public disclosure of the date of the special
meeting was made, whichever first occurs.
To be in proper written form, a shareholder's notice to the Secretary must
set forth (x) as to each person whom the shareholder proposes to nominate for
election as a director (i) the name, age, business address and residence address
of the person, (ii) the principal occupation or employment of the person, (iii)
the class or series and number of shares of capital stock of the corporation
which are owned beneficially or of record by the person and (iv) any other
information relating to the person that would be required to be disclosed in a
proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder; and (y) as to the shareholder giving the
notice (i) the name and record address of such shareholder, (ii) the class or
series and number of shares of capital stock of the corporation which are owned
beneficially (as determined pursuant to Rule 13d-3 of the Exchange Act) or of
record by such shareholder, (iii) a description of all arrangements or
understandings between such shareholder and each proposed nominee and any other
person or persons (including their names) pursuant to which the nomination(s)
are to be made by such shareholder, (iv) a representation that such shareholder
intends to appear in person or by proxy at the meeting to nominate the persons
named in its notice and (v) any other information relating to such shareholder
that would be required to be disclosed in a proxy statement or other filings
required to be made in connection with solicitations of proxies for election of
directors pursuant to Section 14 of the Exchange Act and the rules and
regulations promulgated thereunder. Such notice must be accompanied by a written
consent of each proposed nominee to being named as a nominee and to serve as a
director if elected.
No person shall be eligible for election as a director of the corporation
unless nominated in accordance with the procedures set forth in this Section
2.14. If the Chairman of the meeting determines that a nomination was not made
in accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the nomination was defective and such defective nomination shall be
disregarded.
(b) No business may be transacted at an annual meeting of shareholders,
other than business that is either (a) specified in the notice of meeting (or
any supplement thereto) given by or at the
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direction of the Board of Directors (or any duly authorized committee thereof),
(b) otherwise properly brought before the annual meeting by or at the direction
of the Board of Directors (or any duly authorized committee thereof) or (c)
otherwise properly brought before the annual meeting by any shareholder of the
corporation (i) who is a shareholder of record on the date of the giving of the
notice provided for in this Section 2.14 and on the record date for the
determination of shareholders entitled to vote at such annual meeting and (ii)
who complied with the notice procedures set forth in this Section 2.14.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a shareholder, such shareholder
must have given timely notice thereof in proper written form to the Secretary of
the corporation.
To be timely, a shareholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the corporation not
less than sixty (60) days nor more than ninety (90) days prior to the
anniversary date of the immediately preceding annual meeting of shareholders;
PROVIDED, HOWEVER, that in the event that the annual meeting is called for a
date that is not within thirty (30) days before or after such anniversary date,
notice by the shareholder in order to be timely must be so received not later
than the close of business on the tenth (10th) day following the day on which
such notice of the date of the annual meeting was mailed for such public
disclosure of the date of the annual meeting was made, whichever first occurs.
To be in proper written form, a shareholder's notice to the Secretary must
set forth as to each matter such shareholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and record address of such shareholder, (iii) the class
or series and number of shares of capital stock of the corporation which are
owned beneficially (as determined pursuant to Rule 13d-3 of the Exchange Act) or
of record by such shareholders, (iv) a description of all arrangements or
understandings between such shareholder and any other person or persons
(including their names) in connection with the proposal of such business by such
shareholder and any material interest of such shareholder in such business and
(v) a representation that such shareholder intends to appear in person or by
proxy at the annual meeting to bring such business before the meeting.
No business shall be conducted at the annual meeting of shareholders except
business brought before the annual meeting in accordance with the procedures set
forth in this Section 2.14, PROVIDED, HOWEVER, that, once business has been
properly brought before the annual meeting in accordance with such procedures,
nothing in this Section 2.14 shall be deemed to preclude discussion by any
shareholder of any such business. If the Chairman of an annual meeting
determines that business was not properly brought before the annual meeting in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the business was not properly brought before the meeting and such
business shall not be transacted.
(c) For so long as the Shareholder Agreement, dated , 1996, between
the corporation and (the "Shareholder Agreement") shall be in effect,
nothing in Sections 2.14(a) or 2.15(b) shall be deemed to limit the rights and
other provisions under the Shareholder Agreement, including without limitation
Sections 6, 7 and 9 thereof.
2.15 INSPECTORS OF ELECTION
In advance of any meeting of shareholders, the Board of Directors may
appoint inspectors of election to act at the meeting and any adjournment
thereof. If inspectors of election are not so appointed or designated or if any
persons so appointed fail to appear or refuse to act, then the Chairman of the
meeting may, and on the request of any shareholder or a shareholder's proxy
shall, appoint inspectors of election (or persons to replace those who so fail
to appear) at the meeting. The
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number of inspectors shall be either one (1) or three (3). If appointed at a
meeting on the request of one (1) or more shareholders or proxies, the majority
of shares represented in person or by proxy shall determine whether one (1) or
three (3) inspectors are to be appointed.
The inspectors of election shall determine the number of shares outstanding
and the voting power of each, the shares represented at the meeting, the
existence of a quorum and the authenticity, validity, and effect of proxies,
receive votes, ballots or consents, hear and determine all challenges and
questions in any way arising in connection with the right to vote, count and
tabulate all votes or consents, (if permitted by the Restated Articles of
Incorporation), determine when the polls shall close, determine the result and
do any other acts that may be proper to conduct the election or vote with
fairness to all shareholders. If there are three (3) inspectors or election the
decision, act or certificate of a majority is effective in all respects as to
the decision, act or certificate or all. Any report or certificate made by the
inspectors of election is prima facie evidence of the facts stated therein.
2.16 COUNTING CONSENTS.
In the event of an amendment to the Restated Articles of Incorporation or
these Bylaws to permit shareholders action by written consent and except as
otherwise provided by the Restated Articles of Incorporation or by these Bylaws,
within three business days of the receipt of the first dated consent delivered
to the corporation in the manner provided by law and these Bylaws, the Secretary
shall engage nationally recognized independent inspectors of elections for the
purpose of performing a ministerial review of the validity of the consents and
revocations. The cost of retaining inspectors of elections shall be borne by the
corporation.
Consents and revocations shall be delivered to the inspectors upon receipt
by the corporation, the shareholder or shareholders soliciting consents or
soliciting revocations in opposition to action by consent proposed by the
corporation (the "Soliciting Shareholders") or their proxy solicitors or other
designated agents. As soon as consent and revocations are received, the
inspectors shall review the consents and revocations and shall maintain a count
of the number of valid and unrevoked consents. The inspectors shall keep such
count confidential and shall not reveal the count to the corporation, the
Soliciting Shareholders or their representatives or any other person. As soon as
practicable after the earlier of (i) sixty days after the date of the earliest
dated consent delivered to the corporation in the manner provided by law and
these Bylaws or (ii) a written request therefor by the corporation or the
Soliciting Shareholders, whichever is soliciting consents (which request may be
made no earlier than the commencement of the applicable solicitation or consents
and notice of which request shall be given to the party opposing the
solicitation of consents, if any), which request shall state that the
corporation or the Soliciting Shareholders, as the case may be, have a good
faith belief that the requisite number of valid and unrevoked consents to
authorize or take the action specified in the consents has been received in
accordance with these Bylaws, the inspectors shall issue a preliminary report to
the corporation and the Soliciting Shareholders stating: (i) the number of valid
consents; (ii) the number of valid revocations; (iii) the number of valid and
unrevoked consents; (iv) the number of invalid consents; (v) the number of
invalid revocations; and (vi) whether, based on their preliminary count, the
requisite number of valid and unrevoked consents has been obtained to authorize
or take the action specified in the consents. For purposes of this Bylaw, to the
extent that a proxy statement or an information statement is required by law to
be furnished to the corporation's shareholders, a consent solicitation shall be
deemed to have commenced when a proxy statement or information statement
containing the information required by law is first furnished to the
corporation's shareholders.
Unless the corporation and the Soliciting Shareholders agree to a shorter or
longer period, the corporation and Soliciting Shareholders shall have
forty-eight hours to review the consents and revocations and to advise the
inspectors and the opposing party in writing as to whether they intend to
challenge the preliminary report of the inspectors. If no written notice of an
intention to challenge the preliminary report is received within forty-eight
hours after the inspectors' issuance of the preliminary report, the inspectors
shall issue to the corporation and the Soliciting Shareholders their final
report containing the information from the inspectors' determination with
respect to whether the
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requisite number of valid and unrevoked consents was obtained to authorize and
take the action specified in the consents. If the corporation or the Soliciting
Shareholders issue written notice of an intention to challenge the inspectors'
preliminary report, within forty-eight hours after the issuance of that report,
a challenge session shall be scheduled by the inspectors as promptly as
practicable. A transcript of the challenge session shall be recorded by a
certified court reporter. Following completion of the challenge session, the
inspectors shall as promptly as practicable issue their final report to the
Soliciting Shareholders and the corporation, which report shall contain the
information included in the preliminary report, plus all changes in the totals
as a result of the challenge and a certification of whether the requisite number
of valid and unrevoked consents was obtained to authorize or take the action
specified in the consents. A copy of the final report of the inspectors shall be
included in the book in which the proceedings of meetings of shareholders are
recorded.
The corporation shall give prompt notice to the shareholders of the results
of any consent solicitation or the taking of corporate action without a meeting.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the Code and any limitations in the Restated
Articles of Incorporation and these Bylaws relating to action required to be
approved by the shareholders or by the outstanding shares, the business and
affairs of the corporation shall be managed and all corporate powers shall be
exercised by or under the direction of the Board of Directors. The Board may
delegate the management of the day-to-day operation of the business of the
corporation to a management company or other person provided that the business
and affairs of the corporation shall be managed and all corporate powers shall
be exercised under the ultimate direction of the Board.
3.2 NUMBER OF DIRECTORS
The authorized number of directors of the corporation shall be not less than
nine (9) nor more than twelve (12), and the exact number of directors shall be
nine (9) until changed, within the limits specified above, by a resolution
amending such exact number, duly adopted by at least seventy-five percent (75%)
of the entire Board of Directors or by the shareholders, in accordance with the
provisions set forth in the Restated Articles of Incorporation, these Bylaws and
applicable laws. In accordance with the provisions set forth in the Restated
Articles of Incorporation and subject to the limitations contained therein, the
minimum and maximum number of directors may be changed, or a definite number may
be fixed without provision for an indefinite number, by a duly adopted amendment
to the Restated Articles of Incorporation or by an amendment to this Bylaw duly
adopted by the vote or written consent, if permitted by the Restated Articles of
Incorporation, of shareholders entitled to vote in such manner as set forth in
the Restated Articles of Incorporation; PROVIDED, HOWEVER, that an amendment
reducing the fixed number or the minimum number of directors to a number less
than five (5) cannot be adopted if the votes cast against its adoption at a
meeting, or the shares not consenting in the case of an action by written
consent, are equal to more than sixteen and two-thirds percent (16 2/3%) of the
outstanding shares entitled to vote thereon.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS AND REMOVAL
At each annual meeting of shareholders, directors shall be elected to hold
office until the next election of the class for which such directors were
designated and until their successors have been elected and qualified, in
accordance with the provisions set forth in the Restated Articles of
Incorporation and in these Bylaws. Each director, including a director elected
to fill a vacancy, shall hold office,
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in accordance with the provisions set forth in the Restated Articles of
Incorporation and on these Bylaws, until the expiration of the term for which
elected and until a successor has been elected and qualified, except in the case
of the death, resignation, or removal of such a director.
No director may be removed from office, except as provided by the Restated
Articles of Incorporation or by law.
3.4 CLASS OR SERIES DIRECTORS
Whenever the holders of any class or series of stock are entitled to elect
one or more directors by the articles of incorporation, the provisions of the
last sentence of Section 3.3 shall apply, with respect to the removal without
cause of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class or series and not to the vote of the
outstanding shares as a whole. Unless otherwise provided in the articles of
incorporation or these Bylaws, vacancies and newly created directorships
resulting from any increase in the authorized number of directors elected by all
of the stockholders having the right to vote as a single class or from any other
cause may be filled by a majority of the directors then in office, although less
than a quorum, or by the sole remaining director. Whenever the holders of any
class or classes of stock or series thereof are entitled to elect one or more
directors by the articles of incorporation, vacancies and newly created
directorships of such class or classes or series may be filled by a majority of
the directors elected by such class or classes or series thereof then in office,
or by the sole remaining director so elected. Any director elected or appointed
to fill a vacancy shall hold office until the next election of the class of
directors of the director which such director replaced, and until and his or her
successor is elected and qualified or until his or her earlier resignation or
removal.
3.5 RESIGNATION AND VACANCIES
(a) Any director may resign effective upon giving oral or written notice to
the Chairman of the Board, the President, the Secretary or the Board of
Directors, unless the notice specifies a later time for the effectiveness of
such resignation. If the resignation of a director is effective at a future
time, the Board of Directors may elect a successor to take office when the
resignation becomes effective.
(b) Unless otherwise provided in the Restated Articles of Incorporation of
these Bylaws, vacancies on the Board of Directors may be filled by a majority of
the remaining directors, although less than a quorum, or a sole remaining
director.
(c) The shareholders may elect a director to fill any vacancy not filled by
the directors in accordance with law and with the provisions of the Restated
Articles of Incorporation and these Bylaws.
(d) A vacancy or vacancies in the Board of Directors shall be deemed to
exist (i) in the event of the death, resignation or removal of any director,
(ii) if the Board of Directors by resolution declares vacant the office of a
director who has been declared of unsound mind by an order of court or convicted
of a felony, (iii) if the authorized number of directors is increased as
provided in the Restated Articles of Incorporation, or (iv) if the shareholders
fail, at any meeting of shareholders at which any director or directors are
elected, to elect the full authorized number of directors to be elected at that
meeting, as provided in the Restated Articles of Incorporation.
(e) Notwithstanding anything to the contrary in this Section 3.5, for so
long as the Shareholder Agreement shall be in effect:
(i) In the event that the size of the Board of Directors is increased in
accordance with the provisions of the Shareholder Agreement, the nominees to
the vacancies created by such increase shall be Independent Directors (as
defined in the Shareholder Agreement) in accordance with the terms of the
Shareholder Agreement); and
(ii) Vacancies among the Shareholder Directors and the Transferee
Directors (each as defined in the Shareholder Agreement) and among the
Independent Directors shall be filled in accordance with the terms of the
Shareholder Agreement.
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3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the Board of Directors may be held at any place within
or outside the State of California that has been designated from time to time by
resolution of the Board. In the absence of such a designation, regular meetings
shall be held at the principal executive office of the corporation. Special
meetings of the Board may be held at any place within or outside the State of
California that has been designated in the notice of the meeting or, if not
stated in the notice or if there is no notice, at the principal executive office
of the corporation.
Members of the Board may participate in a meeting through the use of
conference telephone or similar communications equipment, so long as all
directors participating in such meeting can hear one another. Participation in a
meeting pursuant to this paragraph constitutes presence in person at such
meeting.
3.7 REGULAR MEETINGS
Regular meetings of the Board of Directors may be held without notice if the
time and place of such meetings are fixed by the Board of Directors or by these
Bylaws.
3.8 SPECIAL MEETINGS; NOTICE
Subject to the provisions of the following paragraph, special meetings of
the Board of Directors for any purpose or purposes may be called at any time by
the Chairman of the Board, the President, any Vice President, the Secretary or
any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail,
telegram, charges prepaid, or by telecopier, addressed to each director at that
director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least four
(4) days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone or by telecopier or telegram, it shall be
delivered personally or by telephone or by telecopier or to the telegraph
company at least forty-eight (48) hours before the time of the holding of the
meeting. Any oral notice given personally or by telephone may be communicated
either to the director or to a person at the office of the director who the
person giving the notice has reason to believe will promptly communicate it to
the director. The notice need not specify the purpose of the meeting.
3.9 QUORUM
(a) Except as set forth below, a majority of the authorized number of
directors shall constitute a quorum for the transaction of business. Except as
otherwise provided for in the Restated Articles of Incorporation or these
Bylaws, every act or decision done or made by a majority of the directors
present at a meeting duly held at which a quorum is present is the act of the
Board of Directors, subject to the provisions of Section 310 of the Code (as to
approval of contracts or transactions in which a director has a direct or
indirect material financial interest), Section 311 of the Code (as to
appointment of committees), Section 317(e) of the Code (as to indemnification of
directors), the Restated Articles of Incorporation, and other applicable law,
and subject to any provisions in the Restated Articles of Incorporation or these
Bylaws requiring a vote by more than a simple majority of directors.
(b) A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for such
meeting.
(c) For so long as the Shareholder Agreement shall be in effect, the quorum
required for the transaction of business by the Board of Directors shall include
at least one director who is a Shareholder Director or a Transferee Director and
also one director who is an Independent Director, or their respective designees,
attending in person or, if necessary, via teleconference call or other permitted
means.
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3.10 WAIVER OF NOTICE
Notice of a meeting need not be given to any director who signs a waiver of
notice or a consent to holding the meeting or an approval of the minutes
thereof, whether before or after the meeting, or who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice to such
director. All such waivers, consents, and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting. A waiver of
notice need not specify the purpose of any regular or special meeting of the
Board of Directors.
3.11 ADJOURNMENT
A majority of the directors present, whether or not a quorum is present, may
adjourn any meeting to another time and place.
3.12 NOTICE OF ADJOURNMENT
If the meeting is adjourned for more than twenty-four (24) hours, notice of
any adjournment to another time and place shall be given prior to the time of
the adjourned meeting to the directors who were not present at the time of the
adjournment.
3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the Board of Directors under
the provisions of the Restated Articles of Incorporation and these Bylaws or
otherwise may be taken without a meeting, if all members of the Board
individually or collectively consent in writing to such action. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board. Such action by written consent shall have the same force and effect as a
unanimous vote of the Board of Directors.
3.14 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if any,
for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the Board of Directors. This Section 3.14 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
ARTICLE IV
COMMITTEES
4.1 EXECUTIVE COMMITTEE
EXECUTIVE COMMITTEE. In accordance with the provisions set forth in these
Bylaws and the Restated Articles of Incorporation, the Board of Directors may,
by resolution passed by the affirmative vote of at least seventy-five percent
(75%) of the whole Board of Directors, appoint from its membership, annually, an
Executive Committee of two or more directors, which shall include the Chief
Executive Officer and the President of the Corporation. The Board of Directors
may designate in such resolution one or more directors as alternate members of
the Executive Committee, who may replace any absent or disqualified member at
any meeting of the Committee. The Executive Committee, during the intervals
between meetings of the Board of Directors, shall have and there is hereby
granted to it all of the authority and power of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation be affixed to papers which may require it, except that
the Executive Committee shall have authority to act in the manner and to the
extent provided in the resolution of the Board and may have all the authority of
the Board, except with respect to:
(a) The approval of any action which, under the Code, also requires
shareholders' approval or approval of the outstanding shares.
(b) The filling of vacancies on the Board of Directors or in any
committee.
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(c) The fixing of compensation of the directors for serving on the Board
or on any committee.
(d) The amendment or repeal of these Bylaws or the adoption of new
Bylaws.
(e) The amendment or repeal of any resolution of the Board of Directors
which by its express terms is not so amendable or repealable.
(f) A distribution to the shareholders of the corporation, except at a
rate, in a periodic amount or within a price range set forth in the Restated
Articles of Incorporation or determined by the Board of Directors.
(g) The appointment of any other committees of the Board of Directors or
the members thereof.
The Executive Committee shall have no power or authority in reference to (i)
amending the Restated Articles of Incorporation (except that the Executive
Committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors,
fix the designations and any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the Corporation or the convention into, or the exchange of such shares for,
shares of any other class or classes of stock of the Corporation or fix the
number of shares of any series of stock or authorizing the increase or decrease
of the shares of any series), (ii) adopting a certificate of ownership or an
agreement of merger or consolidation, (iii) recommending to the shareholders the
sale, loans or exchange of all or substantially all of the Corporation's
property and assets, (iv) recommending to the shareholders a dissolution of the
Corporation or a revocation of a dissolution or (v) removing or indemnifying
directors.
The Executive Committee shall keep regular minutes of all business
transacted at its meetings, and all action of the Executive Committee shall be
reported to the Board of Directors at its next meeting. The minutes of the
Executive Committee shall be placed in the minute book of the Corporation.
Members of the Executive Committee shall receive such compensation as may be set
forth in the resolution appointing such member and shall be reimbursed for
reasonable expenses actually incurred by reason of membership on the Executive
Committee.
4.2 OTHER COMMITTEES OF DIRECTORS
(a) The Board of Directors may, by resolution adopted by a majority of the
authorized number of directors, designate one or more other committees, each
consisting of two (2) or more directors, to serve at the pleasure of the Board
of Directors. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent member at any meeting of the
committee. The appointment of members or alternate members of a committee
requires the vote of a majority of the authorized number of directors. Any such
committee shall have authority to act, in the manner and to the extent provided
in the resolution of the Board of Directors and may have all the authority of
the Board, except with respect to the limitations as set forth in Section 4.1.
(b) The Board of Directors may, by resolution adopted by a majority of the
authorized number of directors, appoint from its membership an Audit Committee,
a Compensation and Stock Option Committee and a Finance and Strategic Planning
Committee.
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4.3 MEETINGS AND ACTIONS OF COMMITTEES
Meetings and actions of committees permitted by the provisions of the
Restated Articles of Incorporation shall be governed by, and held and taken in
accordance with each of the provisions of Article III of these Bylaws, with such
changes in the context of those Bylaws as are necessary to substitute the
committee and its members for the Board of Directors and its members; provided,
however, that the time of regular meetings of committees may be determined
either by resolution of the Board of Directors or by resolution of the
committee, that special meetings of committees may also be called by resolution
of the Board of Directors, and that notice of special meetings of committees
shall also be given to all alternate members, who shall have the right to attend
all meetings of the committee. The Board of Directors may adopt rules for the
government of any committee not inconsistent with the provisions of these Bylaws
and the Restated Articles of Incorporation.
4.4 COMPOSITION OF COMMITTEES
For so long as the Shareholder Agreement shall remain in effect, each
committee of the Board of Directors, other than the Audit Committee and the
Compensation and Stock Option Committee, shall contain such numbers of
Shareholder Directors or Transferee Directors so that the number of Shareholder
Directors or Transferee Directors on each such committee shall be as nearly as
possible proportional to the total number of Shareholder Directors on the Board
of Directors and the Audit Committee shall be comprised solely of Independent
Directors. For so long as the Shareholder is entitled to nominate Shareholder
Directors under the Shareholder Agreement, the Compensation and Stock Option
Committee shall be comprised solely of one non-employee Shareholder Director,
one Independent Director and an additional non-employee director.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a Chief Executive Officer, a
President, a Secretary, and a Chief Financial Officer. The corporation may also
have, at the discretion of the Board of Directors, a Chairman of the Board, a
Vice Chairman of the Board, one or more Vice Presidents, one or more Assistant
Secretaries, one or more Assistant Treasurers, and such other officers as may be
appointed in accordance with the provisions of Section 5.3 of these Bylaws. Any
number of offices may be held by the same person.
5.2 APPOINTMENT OF OFFICERS
The officers of the corporation, except such officers as may be appointed in
accordance with the provisions of Section 5.3 or Section 5.5 of these Bylaws,
shall be chosen by the Board and serve at the pleasure of the Board of
Directors, subject to the rights, if any, of an officer under any contract of
employment.
5.3 SUBORDINATE OFFICERS
The Board of Directors may appoint, or may empower the Chairman of the Board
or the President to appoint, such other officers as the business of the
corporation may require, each of whom shall hold office for such period, have
such authority, and perform such duties as are provided in these Bylaws or as
the Board of Directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, all officers serve at the pleasure of the Board of Directors and any
officer may be removed, either with or without cause, by the Board of Directors
at any regular or special meeting of the Board or, except in case of an officer
chosen by the Board of Directors, by any officer upon whom such power of removal
may be conferred by the Board of Directors.
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Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these Bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
The Chairman of the Board, if such an officer be elected, shall, if present,
preside at meetings of the Board of Directors and exercise and perform such
other powers and duties as may from time to time be assigned by the Board of
Directors or as may be prescribed by these Bylaws or by law.
5.7 CHIEF EXECUTIVE OFFICER
Subject to such supervisory powers, if any, as may be given by the Board of
Directors to the Chairman of the Board, if there be such an officer, the Chief
Executive Officer shall have general supervision, direction, and control of the
business and the officers of the corporation. The Chief Executive Officer shall
preside at all meetings of the shareholders and, in the absence or nonexistence
of a Chairman of the Board, at all meetings of the Board of Directors. The Chief
Executive Officer shall have the general powers and duties of management usually
vested in the office of Chief Executive Officer of a corporation, and shall have
such other powers and duties as may be prescribed by the Board of Directors or
these Bylaws.
5.8 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the Board of
Directors to the Chief Executive Officer, if there be such an officer, the
President shall have general supervision, direction, and control of the business
and the officers of the corporation. The President shall preside at all meetings
of the shareholders and, in the absence or nonexistence of a Chief Executive
Officer, at all meetings of the Board of Directors. The President shall have the
general powers and duties of management usually vested in the office of
President of a corporation, and shall have such other powers and duties as may
be prescribed by the Board of Directors or these Bylaws.
5.9 VICE PRESIDENTS
In the absence or disability of the President, the Vice Presidents, if any,
in order of their rank as fixed by the Board of Directors or, if not ranked, a
Vice President designated by the Board of Directors, shall perform all the
duties of the President and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the President. The Vice Presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the Board of Directors, these Bylaws, the
President or the Chairman of the Board.
5.10 SECRETARY
The Secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the Board of Directors may
direct, a book of minutes of all meetings and actions of Directors, committees
of directors and shareholders. The minutes shall show the time and place of each
meeting, whether regular or special (and, if special, how authorized and the
notice given), the names of those present at directors' meetings or committee
meetings, the number of shares present or represented at shareholders' meetings,
and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the Board of Directors, a share
register, or a duplicate share register, showing the names of all shareholders
and
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their addresses, the number and classes of shares held by each, the number and
date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the Board of Directors required to be given by law or by
these Bylaws. The Secretary shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the Board of Directors or by these Bylaws.
5.11 CHIEF FINANCIAL OFFICER
The Chief Financial Officer shall keep and maintain, or cause to be kept and
maintained, adequate and correct books and records of accounts of the properties
and business transactions of the corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained earnings,
and shares. The books of account shall at all reasonable times be open to
inspection by any director.
The Chief Financial Officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the Board of Directors. The Chief Financial Officer shall disburse
the funds of the corporation as may be ordered by the Board of Directors, shall
render to the President and directors, whenever they request it, an account of
all of his or her transactions as Chief Financial Officer and of the financial
condition of the corporation, and shall have such other powers and perform such
other duties as may be prescribed by the Board of Directors or these Bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS
The corporation shall, to the maximum extent and in the manner permitted by
the Code, indemnify each of its directors against expenses (as defined in
Section 317(a) of the Code), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding (as defined
in Section 317(a) of the Code), arising by reason of the fact that such person
is or was a director of the corporation. For purposes of this Article VI, a
"director" of the corporation includes any person (i) who is or was a director
of the corporation, (ii) who is or was serving at the request of the corporation
as a director of another foreign or domestic corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was a director of a corporation
which was a predecessor corporation of the corporation or of another enterprise
at the request of such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the extent and in the manner
permitted by the Code, to indemnify each of its employees, officers, and agents
(other than directors) against expenses (as defined in Section 317(a) of the
Code), judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding (as defined in Section 317(a) of the
Code), arising by reason of the fact that such person is or was an employee,
officer, or agent of the corporation. For purposes of this Article VI, an
"employee" or "officer" or "agent" of the corporation (other than a director)
includes any person (i) who is or was an employee, officer, or agent of the
corporation, (ii) who is or was serving at the request of the corporation as an
employee, officer, or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee, officer, or agent of a corporation which was a predecessor corporation
of the corporation or of another enterprise at the request of such predecessor
corporation.
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6.3 PAYMENT OF EXPENSES IN ADVANCE
Expenses and attorneys' fees incurred in defending any civil or criminal
action or proceeding for which indemnification is required pursuant to Section
6.1, or if otherwise authorized by the Board of Directors, shall be paid by the
corporation in advance of the final disposition of such action or proceeding
upon receipt of an undertaking by or on behalf of the indemnified party to repay
such amount if it shall ultimately be determined that the indemnified party is
not entitled to be indemnified as authorized in this Article VI.
6.4 INDEMNITY NOT EXCLUSIVE
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any By-law, agreement, vote of shareholders or directors or
otherwise, both as to action in an official capacity and as to action in another
capacity while holding such office. The rights to indemnity hereunder shall
continue as to a person who has ceased to be a director, officer, employee, or
agent and shall inure to the benefit of the heirs, executors, and administrators
of the person.
6.5 INSURANCE INDEMNIFICATION
The corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation against any liability asserted against or incurred by such person in
such capacity or arising out of that person's status as such, whether or not the
corporation would have the power to indemnify that person against such liability
under the provisions of this Article VI.
6.6 CONFLICTS
No indemnification or advance shall be made under this Article VI, except
where such indemnification or advance is mandated by law or the order, judgment
or decree of any court of competent jurisdiction, in any circumstance where it
appears:
(1) That it would be inconsistent with a provision of the Restated
Articles of Incorporation, these Bylaws, a resolution of the shareholders or
an agreement in effect at the time of the accrual of the alleged cause of
the action asserted in the proceeding in which the expenses were incurred or
other amounts were paid, which prohibits or otherwise limits
indemnification; or
(2) That it would be inconsistent with any condition expressly imposed
by a court in approving a settlement.
6.7 RIGHT TO BRING SUIT
If a claim under this Article VI is not paid in full by the corporation
within 90 days after a written claim has been received by the corporation
(either because the claim is denied or because no determination is made), the
claimant may at any time thereafter bring suit against the corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall also be entitled to be paid the expenses of prosecuting such
claim. The corporation shall be entitled to raise as a defense to any such
action that the claimant has not met the standards of conduct that make it
permissible under the Code for the corporation to indemnify the claimant for the
claim. Neither the failure of the corporation (including its Board of Directors,
independent legal counsel, or its shareholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
permissible in the circumstances because he or she has met the applicable
standard of conduct, if any, nor an actual determination by the corporation
(including its Board of Directors, independent legal counsel, or its
shareholders) that the claimant has not met the applicable standard of conduct,
shall be a defense to such action or create a presumption for the purposes of
such action that the claimant has not met the applicable standard of conduct.
6.8 INDEMNITY AGREEMENTS
The Board of Directors is authorized to enter into a contract with any
director, officer, employee or agent of the corporation, or any person who is or
was serving at the request of the corporation as a
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director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, including employee benefit plans, or any
person who was a director, officer, employee or agent of a corporation which was
a predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation, providing for indemnification rights
equivalent to or, if the Board of Directors so determines and to the extent
permitted by applicable law, greater than, those provided for in this Article
VI.
6.9 AMENDMENT, REPEAL OR MODIFICATION
Any amendment, repeal or modification of any provision of this Article VI
shall not adversely affect any right or protection of a director or agent of the
corporation existing at the time of such amendment, repeal or modification.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER
The corporation shall keep either at its principal executive office or at
the office of its transfer agent or registrar (if either be appointed), as
determined by resolution of the Board of Directors, a record of its shareholders
listing the names and addresses of all shareholders and the number and class of
shares held by each shareholder.
A shareholder or shareholders of the corporation holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation or who hold at least one percent (1%) of such voting shares and have
filed a Schedule 14B with the United States Securities and Exchange Commission
relating to the election of directors, shall have an absolute right to do either
or both of the following (i) inspect and copy the record of shareholders' names,
addresses, and shareholdings during usual business hours upon five (5) days'
prior written demand upon the corporation, or (ii) obtain from the transfer
agent for the corporation, upon written demand and upon the tender of such
transfer agent's usual charges for such list (the amount of which charges shall
be stated to the shareholder by the transfer agent upon request), a list of the
shareholders' names and addresses who are entitled to vote for the election of
directors, and their shareholdings, as of the most recent record date for which
it has been compiled or as of a date specified by the shareholder subsequent to
the date of demand. The list shall be made available on or before the later of
five (5) business days after the demand is received or the date specified
therein as the date as of which the list is to be compiled.
The record of shareholders shall also be open to inspection and copying by
any shareholder or holder of a voting trust certificate at any time during usual
business hours upon written demand on the corporation, for a purpose reasonably
related to the holder's interests as a shareholder or holder of a voting trust
certificate.
Any inspection and copying under this Section 7.1 may be made in person or
by an agent or attorney of the shareholder or holder of a voting trust
certificate making the demand.
7.2 MAINTENANCE AND INSPECTION OF BYLAWS
The corporation shall keep at its principal executive office or, if its
principal executive office is not in the State of California, at its principal
business office in California, the original or a copy of these Bylaws as amended
to date, which shall be open to inspection by the shareholders at all reasonable
times during office hours. If the principal executive office of the corporation
is outside the State of California and the corporation has no principal business
office in such state, then it shall, upon the written request of any
shareholder, furnish to such shareholder a copy of these Bylaws as amended to
date.
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS
The accounting books and records and the minutes of proceedings of the
shareholders and the Board of Directors, and committees of the Board of
Directors shall be kept at such place or places as
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are designated by the Board of Directors or, in absence of such designation, at
the principal executive office of the corporation. The minutes shall be kept in
written form, and the accounting books and records shall be kept either in
written form or in any other form capable of being converted into written form.
The minutes and accounting books and records shall be open to inspection
upon the written demand on the corporation of any shareholder or holder of a
voting trust certificate at any reasonable time during usual business hours, for
a purpose reasonably related to such holder's interests as a shareholder or as
the holder of a voting trust certificate. Such inspection by a shareholder or
holder of a voting trust certificate may be made in person or by an agent or
attorney and the right of inspection includes the right to copy and make
extracts. Such rights of inspection shall extend to the records of each
subsidiary corporation of the corporation.
7.4 INSPECTION BY DIRECTORS
Every director shall have the absolute right at any reasonable time to
inspect and copy all books, records, and documents of every kind and to inspect
the physical properties of the corporation and each of its subsidiary
corporations, domestic or foreign. Such inspection by a director may be made in
person or by an agent or attorney and the right of inspection includes the right
to copy and make extracts.
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER
The Board of Directors shall cause an annual report to be sent to the
shareholders not later than one hundred twenty (120) days after the close of the
fiscal year adopted by the corporation. Such report shall be sent to the
shareholders at least fifteen (15) (or, if sent by third-class mail, thirty-five
(35)) days prior to the annual meeting of shareholders to be held during the
next fiscal year and in the manner specified in Section 2.5 of these Bylaws for
giving notice to shareholders of the corporation.
The annual report shall contain a balance sheet as of the end of the fiscal
year and an income statement and statement of changes in financial position for
the fiscal year, accompanied by any report thereon of independent accountants
or, if there is no such report, the certificate of an authorized officer of the
corporation that the statements were prepared without audit from the books and
records of the corporation.
The foregoing requirement of an annual report shall be waived so long as the
shares of the corporation are held by fewer than one hundred (100) holders of
record.
7.6 FINANCIAL STATEMENTS
If no annual report for the fiscal year has been sent to shareholders, then
the corporation shall, upon the written request of any shareholder made more
than one hundred twenty (120) days after the close of such fiscal year, deliver
or mail to the person making the request, within thirty (30) days thereafter, a
copy of a balance sheet as of the end of such fiscal year and an income
statement and statement of changes in financial position for such fiscal year.
A shareholder or shareholders holding at least five percent (5%) of the
outstanding shares of any class of the corporation may make a written request to
the corporation for an income statement of the corporation for the three-month,
six-month or nine-month period of the current fiscal year ended more than thirty
(30) days prior to the date of the request and a balance sheet of the
corporation as of the end of that period. The statements shall be delivered or
mailed to the person making the request within thirty (30) days thereafter. A
copy of the statements shall be kept on file in the principal office of the
corporation for twelve (12) months and it shall be exhibited at all reasonable
times to any shareholder demanding an examination of the statements or a copy
shall be mailed to the shareholder. If the corporation has not sent to the
shareholders its annual report for the last fiscal year, the statements referred
to in the first paragraph of this Section 7.6 shall likewise be delivered or
mailed to the shareholder or shareholders within thirty (30) days after the
request.
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The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report thereon, if any, of any independent
accountants engaged by the corporation or the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The Chairman of the Board, the Vice Chairman of the Board, the President,
any Vice President, the Chief Financial Officer, the Secretary or Assistant
Secretary of this corporation, or any other person authorized by the Board of
Directors or the President or a Vice President, is authorized to vote,
represent, and exercise on behalf of this corporation all rights incident to any
and all shares of any other corporation or corporations standing in the name of
this corporation. The authority herein granted may be exercised either by such
person directly or by any other person authorized to do so by proxy or power of
attorney duly executed by such person having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the shareholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action, other than with
respect to notice or voting at a shareholders meeting, the Board of Directors
may fix, in advance, a record date, which shall not be more than sixty (60) days
prior to any such action. Only shareholders of record at the close of business
on the record date are entitled to receive the dividend, distribution or
allotment of rights, or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation after
the record date, except as otherwise provided in the Restated Articles of
Incorporation or the Code.
If the Board of Directors does not so fix a record date, then the record
date for determining shareholders for any such purpose shall be at the close of
business on the day on which the Board adopts the resolution relating thereto or
the sixtieth (60th) day prior to the date of that action, whichever is later.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the Board of Directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The Board of Directors, except as otherwise provided in these Bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.4 CERTIFICATES FOR SHARES
A certificate or certificates for shares of the corporation shall be issued
to each shareholder when any of such shares are fully paid. The Board of
Directors may authorize the issuance of certificates for shares partly paid
provided that these certificates shall state the total amount of the
consideration to be paid for them and the amount actually paid. All certificates
shall be signed in the name of the corporation by the Chairman of the Board or
the Vice Chairman of the Board or the President or a Vice
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President and by the Chief Financial Officer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, certifying the number of shares and the
class or series of shares owned by the shareholder. Any or all of the signatures
on the certificate may be by facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed on a certificate has ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if that person were an
officer, transfer agent or registrar at the date of issue.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares shall
be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation or its transfer agent or registrar and cancelled
at the same time. The Board of Directors may, in case any share certificate or
certificate for any other security is lost, stolen or destroyed (as evidenced by
a written affidavit or affirmation of such fact), authorize the issuance of
replacement certificates on such terms and conditions as the Board may require;
the Board may require indemnification of the corporation secured by a bond or
other adequate security sufficient to protect the corporation against any claim
that may be made against it, including any expense or liability, on account of
the alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Code shall govern the construction of these
Bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person.
ARTICLE IX
AMENDMENTS
9.1 AMENDMENT BY SHAREHOLDERS
Except as otherwise provided in the Restated Articles of Incorporation or in
these Bylaws new Bylaws may be adopted or these Bylaws may be amended or
repealed by the vote or written consent of holders of a majority of the
outstanding shares entitled to vote; provided, however, that if the Restated
Articles of Incorporation of the corporation set forth the number of authorized
Directors of the corporation, then the authorized number of Directors may be
changed only by an amendment of the Restated Articles of Incorporation.
9.2 AMENDMENT BY DIRECTORS
Except as otherwise provided in the Restated Articles of Incorporation or in
these Bylaws, these Bylaws including amendments adopted by the shareholders may
be altered, amended or repealed by a majority vote of the whole Board of
Directors at any regular or special meeting of the Board of Directors provided
that the shareholders may from time to time specify particular provisions of the
Bylaws which shall not be amended by the Board of Directors. Notwithstanding the
foregoing, any alteration, amendment or repeal of Sections 2.3, 2.4, 2.11, 2.12,
2.14, 2.16, 3.2, 3.3, 3.4, 3.5, 3.8, 3.9, 4.1, 4.4 Article VI or Article IX
shall require the affirmative vote of not less than seventy-five percent (75%)
of the whole Board of Directors.
9.3 RECORD OF AMENDMENTS
Whenever an amendment or new Bylaw is adopted, it shall be copied in the
book of minutes with the original Bylaws. If any Bylaw is repealed, the fact of
repeal, with the date of the meeting at which the repeal was enacted or written
consent was filed, shall be stated in said book.
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ARTICLE X
INTERPRETATION
Reference in these Bylaws to any provision of the California Corporations
Code shall be deemed to include all amendments thereof.
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ANNEX D
Donaldson, Lufkin & Jenrette
Donaldson, Lufkin & Jenrette, Inc.
277 Park Avenue, New York, New York 10172 - (212) 892-3000
July 18, 1996
Board of Directors
Champion Healthcare Corporation
515 West Greens Road
Suite 800
Houston, Texas 77067
Dear Madams and Sirs:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of common stock $0.01 par value
(the "Champion Common Stock") of Champion Healthcare Corporation (the "Company")
of the exchange ratio for the exchange of common shares in the merger (the
"Merger") of PC Merger Sub, Inc., a wholly owned subsidiary of Paracelsus
Healthcare Corporation ("Paracelsus"), with and into the Company pursuant to the
terms of the Amended and Restated Agreement and Plan of Merger dated as of May
29, 1996 among Paracelsus, the Company and PC Merger Sub, Inc. (the
"Agreement").
Pursuant to the Agreement, in the Merger each share of common stock of the
Company will be converted into the right to receive 1.00 shares of common stock,
no par value per share, of Paracelsus (the "Exchange Ratio"). The terms of the
Merger are more fully described in the Agreement.
In arriving at our opinion, we have reviewed the Proxy Statement/Prospectus
of Champion for use at Champion's special meeting of stockholders, the
Agreement, including exhibits and schedules attached thereto, including the form
of the Shareholder Agreement to be dated the Closing Date (as defined in the
Agreement), and certain related documents. We also have reviewed financial and
other information that was publicly available or furnished to us by the Company
and Paracelsus including information provided during discussions with their
respective managers. Included in the information provided during discussions
with the respective managements were certain financial projections of the
Company prepared by the management of the Company and certain financial
projections of Paracelsus prepared by the management of the Company based on
financial assumptions provided by the management of Paracelsus. In addition, we
have compared certain financial and securities data of the Company and
Paracelsus with various other companies whose securities are traded in public
markets, reviewed the historical stock prices and trading volumes of the common
stock of the Company, reviewed prices and premiums paid in other business
combinations and conducted such other financial studies, analyses and
investigations as we deemed appropriate for purposes of this opinion. We were
not requested to, nor did we, solicit the interest of any other party in
acquiring the Company.
In rendering our opinion, we have relied upon and assumed the accuracy,
completeness and fairness of all of the financial and other information that was
available to us from public sources, that was provided to us by the Company and
Paracelsus or its representatives, or that was otherwise reviewed by us. In
particular, we have relied upon the estimates of the management of the Company
of the operating synergies achievable as a result of the Merger and upon our
discussion of such synergies with the management of Paracelsus. With respect to
the financial projections supplied to us, we have assumed that they have been
reasonably prepared on a basis reflecting the best currently available estimates
and judgments of the managements of the Company and Paracelsus as to the future
operating and financial performance of the Company and Paracelsus. We have not
assumed any
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responsibility for making an independent evaluation of the assets or liabilities
of the Company or Paracelsus or for making any independent verification of any
of the information reviewed by us. We have relied as to all legal matters on
advice of counsel to the Company.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. Our opinion does not address the relative
merits of the Merger or a merger or similar transaction between the Company and
any other third party. Moreover, we are expressing no opinion herein as to the
prices at which Paracelsus' common stock will trade at any time. Our opinion
does not constitute a recommendation to any stockholder as to how such
stockholder should vote on the proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. DLJ has performed
investment banking and other services for the Company in the past and has
received usual and customary compensation for such services. As reported in
Amendment No. 3 to the Schedule 13D of Donaldson, Lufkin & Jenrette, Inc. filed
with respect to the Company on May 2, 1996 DLJ and its affiliates beneficially
own 2,785,452 shares of Champion Common Stock, calculated on a fully diluted
basis. Also, Janet A. Hickey, a general partner of Sprout Group, an affiliate of
DLJ, serves on the Company's Board of Directors. In addition, DLJ has performed
investment banking and other services for Paracelsus in the past, including
acting as a lead manager in the sale of $75 million senior subordinated notes in
October 1993. DLJ was paid usual and customary fees for such services. In
addition, the letter agreement pursuant to which the Company engaged DLJ to act
as its exclusive financial advisor in connection with the Merger provides that
DLJ has the right to act as sole placement agent or lead managing underwriter in
connection with any debt or equity financing which is used to finance all or a
portion of the Merger on which is effected at any time within nine months of
consummation of the Merger.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the Exchange Ratio is fair, from a financial point of view,
to the holders of Champion Common Stock.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:_/s/ W. Patrick McMullan, III
W. Patrick McMullan, III
MANAGING DIRECTOR
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ANNEX E
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
The following is a reproduction of Section 262 of the General Corporation
Law, as amended, of the State of Delaware (Title 8, Chapter 1 of the Delaware
Code):
262 APPRAISAL RIGHTS. -- (a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation: the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the holders of the surviving corporation as provided in
subsections (f) or (g) of Section251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
SectionSection251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers. Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
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(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are
available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of his shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of his
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do
so by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation
who has complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of stock
of such constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of the
merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within twenty days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the effective
date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the
merger or consolidation notifying each of the holders of any class or series
of stock of such constituent corporation that are entitled to appraisal
rights of the effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second notice to all
such holders on or within 10 days after such effective date; provided,
however, that if such second notice is sent more than 20 days following the
sending of the first notice, such second notice need only be sent to each
stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary or of the transfer agent
of the corporation that is required to give either
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notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be not
more than 10 days prior to the date the notice is given; provided that, if
the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day
on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting Corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may
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proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted his certificates of stock to the Register
in Chancery, if such is required, may participate fully in all proceedings until
it is finally determined that he is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation. (LAST AMENDED BY CH. 79, L.
'95, EFF. 7-1-95.)
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ANNEX F
PLAN PROPOSAL TO AMEND
THE DIRECTORS' STOCK OPTION PLAN
It is proposed that the Directors' Stock Option Plan be amended as follows:
1. To amend Section 3(b) thereof to increase the number of shares of Champion
Common Stock available for grant under the Directors' Stock Option Plan, as
adjusted to reflect the 2-for-1 stock split in the Champion Common Stock
that occurred on July 7, 1993, to 100,000 shares.
2. To amend Section 11(b) thereof by deleting the first sentence of such
section and replacing it with the following:
"A Stock Option and Stock Appreciation Right shall expire on the first to
occur of the applicable date set forth in paragraph (a) next above or ninety
(90) days after the date that the key director ceases to be a director of
the Company for any reason other than death or disability; PROVIDED,
HOWEVER, that this sentence shall not apply to a key director who ceases to
be a director of the Company in connection with a merger to which the
Company is a party."
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ANNEX G
PLAN PROPOSAL TO AMEND
THE SELECTED EXECUTIVE STOCK OPTION PLAN
It is proposed that Section 9 of the Selected Executive Stock Option Plan be
amended to read in its entirety as follows:
9. DISSOLUTION, MERGER AND CONSOLIDATION. Except as otherwise provided in
Section 6(c)(ii), upon the dissolution or liquidation of the Company or upon
a merger or consolidation of the Company in which the Company is not the
surviving corporation and for which the plan or agreement of merger or
consolidation does not provide for assumption by the surviving or
consolidated corporation of Stock Options and/or Stock Appreciation Rights
granted hereunder, each Stock Option and Stock Appreciation Right granted
hereunder shall expire as of the effective date of such dissolution or
liquidation; provided, however, that the Board shall give at least 30 days
prior written notice of such event to each optionee during which time he or
she shall have a right to exercise his or her (1) vested or (2) if
specifically provided in the option grant, vested and unvested, wholly or
partially unexercised Stock Option (without regard to installment exercise
limitations, if any) or Stock Appreciation Right and, subject to prior
expiration pursuant to Section 11(b) or (c), each Stock Option and Stock
Appreciation Right shall be exercisable after receipt of such written notice
and prior to the effective date of such transaction. Any term or provision
in this Plan to the contrary notwithstanding, in the event of a merger or
consolidation of the Company in which the Company is not the surviving
corporation or in which the Company becomes a wholly owned subsidiary of a
corporation that is party to the plan or agreement of merger of
consolidation, and for which the plan or agreement of merger or
consolidation does provide for assumption by the surviving or consolidated
corporation or the corporation party to the plan or agreement of Stock
Options and Stock Appreciation Rights granted hereunder, each Stock Option
and Stock Appreciation Right granted hereunder shall survive such merger or
consolidation, and shall become and remain an obligation of the surviving
corporation or such corporation party to the plan or agreement, and shall be
adjusted according to the adjustment provisions of Section 8 of the Plan.
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ANNEX H
PLAN PROPOSAL TO AMEND
THE FOUNDERS' STOCK OPTION PLAN
It is proposed that Section 3 of the Founders' Stock Option Plan be amended
to read in its entirety as follows:
3. MANNER OF EXERCISE. Said option shall be exercised in whole or in part at
any time during the option period, by delivery to the Company of a written
notice that the option is being exercised. The Optionee may pay the option
price by means of (i) delivery of cash or cash equivalents, (ii) delivery of
previously acquired shares of Stock having a fair market value on the date
of payment equal to the option price, (iii) delivery of an executed
irrevocable exercise notice to the Company and irrevocable instructions to a
broker-dealer to sell a sufficient portion of the shares of Stock otherwise
issuable upon exercise of said option to pay the option price and deliver
the sale proceeds directly to the Company and/or any other cashless exercise
procedure approved by the Company, or (iv) any combination of (i), (ii) and
(iii) such that the sum thereof equals the option price. In addition, the
Optionee shall be entitled to satisfy any tax withholding obligations
incurred in connection with such exercise through such cashless exercise
procedure. Upon receipt of payment for the Stock being purchased, the
Company shall, as expediently as possible, deliver to the Optionee at the
principal office of the Company, or at such other place as shall be mutually
acceptable, a certificate or certificates for the Stock being purchased.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 317 of the California Corporations Code authorizes a court to award,
or a corporation's Board of Directors to grant, indemnity to directors and
officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act. Article IV of Paracelsus' Amended
and Restated Articles of Incorporation (Exhibit 3.5) and Article V of
Paracelsus' Amended and Restated Bylaws (Exhibit 3.6 hereto) provide for
indemnification of its directors, officers, employees and other agents to the
maximum extent permitted by the California Corporations Code. In addition,
Paracelsus has agreed to enter into Indemnification Agreements (Exhibit 10.56
hereto) with its officers and directors. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers or persons controlling Paracelsus pursuant to the foregoing provisions,
Paracelsus has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
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2.1 Amended and Restated Agreement and Plan of Merger dated as of May 29, 1996, by and
among Paracelsus, Champion and PC Merger Sub. Inc. (attached as Annex A to the
Proxy Statement/Prospectus included in this Registration Statement)
3.1 Articles of Incorporation of Paracelsus (filed as Exhibit 3.1 to the Registration
Statement on Form S-1 filed by Paracelsus on August 5, 1993 and incorporated herein
by reference)
3.2 Bylaws of Paracelsus (filed as Exhibit 3.2 to the Registration Statement on Form
S-1 filed by Paracelsus on August 5, 1993 and incorporated herein by reference)
3.3 Restated Certificate of Incorporation of Champion (filed as Exhibit 3.01 to
Champion's Schedule 14A Definitive Proxy Statement dated January 22, 1996 and
incorporated herein by reference)
3.4 Bylaws of Champion (filed as Exhibit 4.2 to Champion's Form S-8 filed with the SEC
on or about August 3, 1995 and incorporated herein by reference)
3.5 Form of Amended and Restated Articles of Incorporation of Paracelsus (attached as
Annex B to the Proxy Statement/Prospectus included in this Registration Statement)
3.6 Form of Amended and Restated Bylaws of Paracelsus (attached as Annex C to the Proxy
Statement/Prospectus included in this Registration Statement)
4.1 Indenture, dated as of October 15, 1993, between Paracelsus and NationsBank of
Tennessee, N.A., as Trustee (filed as an exhibit to Paracelsus' Annual Report on
Form 10-K on December 23, 1993 and incorporated herein by reference)
4.2 Form of Shareholder Protection Rights Agreement between Paracelsus and the Rights
Agent
4.3 Series D Note and Stock Purchase Agreement, dated December 31, 1993, as amended,
between Champion and the parties listed therein (filed as Exhibit 10.5 to
Champion's Current Report on Form 8-K dated December 6, 1994 and incorporated
herein by reference)
4.4 Series E Note Purchase Agreement dated May 1, 1995, as amended, between Champion
and the parties listed therein (filed as Exhibit 4.01(d) to Champion's Annual
Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by
reference)
4.5 Form of Warrant issued pursuant to Champion Series E Note Purchase Agreement, dated
May 1, 1995, as amended (filed as Exhibit 10.23(g) to Champion's Annual Report on
Form 10-K for the year ended December 31, 1995 and incorporated herein by
reference)
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4.6 Form of Warrant issued pursuant to Champion Series D Note and Stock Purchase
Agreement dated December 31, 1993, as amended (filed as Exhibit 10.23(f) to
Champion's Annual Report on Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference)
4.7 Amended and Restated Loan Agreement dated as of May 31, 1995, among Champion,
Banque Paribas as agent and the banks named therein (filed as Exhibit 4.01(c) to
Champion's Annual Report on Form 10-K for the year ended December 31, 1995 and
incorporated herein by reference)
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom
8.1 Opinion of Sullivan & Cromwell
10.1 Promissory Note Agreement, dated May 1, 1994, between Paracelsus and Dr. Hartmut
Krukemeyer in the amount of $5,000,000 (filed as Exhibit 4.1 to Paracelsus'
Quarterly Report on Form 10-Q filed by Paracelsus on May 16, 1994 and incorporated
herein by reference)
10.2 Indenture, dated as of October 15, 1993, between Paracelsus and NationsBank of
Tennessee, N.A., as Trustee (filed as Exhibit 4.2 to the Registration Statement on
Form S-1 filed by Paracelsus on August 5, 1993 (Commission File No. 33-67040) and
incorporated herein by reference)
10.3 Note, dated as of August 23, 1994, by Dr. Manfred George Krukemeyer in favor of INC
Capital Corporation (filed as Exhibit 4.2 to Paracelsus' Current Report on Form 8-K
filed by Paracelsus on September 6, 1994 and incorporated herein by reference)
10.4 Pledge Agreement, dated as of August 23, 1994, by and between Dr. Manfred George
Krukemeyer and INC Capital Corporation (filed as Exhibit 4.2 to Paracelsus' Current
Report on Form 8-K filed by Paracelsus on September 6, 1994 and incorporated herein
by reference)
10.5 Agreement and Consent, dated as of August 23, 1994, by and between Paracelsus and
INC Capital Corporation (filed as Exhibit 4.3 to Paracelsus' Current Report on Form
8-K filed by Paracelsus on September 6, 1994 and incorporated herein by reference)
10.6 Agreement, dated as of August 23, 1994, by and among Dr. Manfred Krukemeyer,
Paracelsus, Bank of America and NationsBank (filed as Exhibit 4.4 to Paracelsus'
Current Report on Form 8-K filed by Paracelsus on September 6, 1994 and
incorporated herein by reference)
10.7 Second Amended and Restated Guaranty and Pledge Agreement, dated as of August 23,
1994, by and among Dr. Manfred G. Krukemeyer and Bank of America (filed as Exhibit
4.6 to Paracelsus' Current Report on Form 8-K filed by Paracelsus on September 6,
1994 and incorporated herein by reference)
10.8 Pooling Agreement, dated as of April 16, 1993, among PHC Funding Corp. II ("PFC
II"), Sheffield Receivables Corporation and Bankers Trust Company, as trustee ("the
Trustee") (filed as Exhibit 10.1 to the Registration Statement on Form S-1 filed by
Paracelsus on August 5, 1993 (Commission File Number 33-67040) and incorporated
herein by reference)
10.9 Servicing Agreement, dated as of April 16, 1993, among PFC II, Paracelsus and the
Trustee (filed as Exhibit 10.2 to the Registration Statement on Form S-1 filed by
Paracelsus on August 5, 1993 (Commission File Number 33-67040) and incorporated
herein by reference)
10.10 Guarantee, dated as of April 16, 1993, by Paracelsus in favor of PFC II (filed as
Exhibit 10.3 to the Registration Statement on Form S-1 filed by Paracelsus on
August 5, 1993 (Commission File Number 33-67040) and incorporated herein by
reference)
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10.11 Form of Sale and Servicing Agreement between subsidiaries of Paracelsus (the
"Hospitals") and PFC II (filed as Exhibit 10.4 to the Registration Statement on
Form S-1 filed by Paracelsus on August 5, 1993 (Commission File Number 33-67040)
and incorporated herein by reference)
10.12 Form of Subordinate Note by PFC II in favor of Hospitals (filed as Exhibit 10.5 to
the Registration Statement on Form S-1 filed by Paracelsus on August 5, 1993
(Commission File Number 33-67040) and incorporated herein by reference)
10.13 Lease, dated as of March 1, 1993, between AHP of New Orleans, Inc., as lessor and
Paracelsus Elmwood Medical Center, Inc. as lessee (filed as Exhibit 10.6 to the
Registration Statement on Form S-1 filed by Paracelsus on August 5, 1993
(Commission File Number 33-67040) and incorporated herein by reference)
10.14 Lease, dated as of June 30, 1993, between AHP of New Orleans, Inc., as lessor and
Paracelsus Halstead Hospital, Inc. as lessee (filed as Exhibit 10.7 to the
Registration Statement on Form S-1 filed by Paracelsus on August 5, 1993
(Commission File Number 33-67040) and incorporated herein by reference)
10.15 Service and Consulting Agreement, dated as of July 4, 1983, between Paracelsus and
European Investors Inc. and Incofinas Limited ("Consulting Agreement") (filed as
Exhibit 10.14 to the Registration Statement on Form S-1 filed by Paracelsus on
August 5, 1993 (Commission File Number 33-67040) and incorporated herein by
reference)
10.16 The Restated Paracelsus Healthcare Corporation Supplemental Executive Retirement
Plan
10.17 Form of Amendment No. 1 to the Supplemental Executive Retirement Plan
10.18 Phantom Equity Long-Term Incentive Plan (filed as Exhibit 10.16 to the Registration
Statement on Form S-1 filed by Paracelsus on August 5, 1993 (Commission File Number
33-67040) and incorporated herein by reference)
10.19 Paracelsus Annual Incentive Plan (filed as Exhibit 10.17 to the Registration
Statement on Form S-1 filed by Paracelsus on August 5, 1993 (Commission File Number
33-67040) and incorporated herein by reference)
10.20 Promissory Note, dated as of December 1, 1993, of Dr. Hartmut Krukemeyer d/b/a
Paracelsus Klinik in favor of Paracelsus in the amount of $3,200,000 (filed as
Exhibit 4.11 to the Registration Statement on Form S-1 filed by Paracelsus on
August 5, 1993 (Commission File Number 33-67040) and incorporated herein by
reference)
10.21 Facility Lease dated as of June 7, 1991, between Bell Atlantic Tricon Leasing
Corporation (Landlord) and Chico Rehabilitation Hospital, Inc. (Tenant) (filed as
Exhibit 10.1 to Paracelsus' Quarterly Report on Form 10-Q filed by Paracelsus on
August 11, 1994 and incorporated herein by reference)
10.22 Amendment to Lease dated June 30, 1994, between Tricon Capital (Landlord) and Chico
Rehabilitation Hospital, Inc. (Tenant)(filed as Exhibit 10.2 to Paracelsus'
Quarterly Report on Form 10-Q filed by Paracelsus on August 11, 1994 and
incorporated herein by reference)
10.23 Amendment to Lease dated June 30, 1994, between Tricon Capital (Landlord) and
Beaumont Rehab Associates Limited Partnership (Tenant) (filed as Exhibit 10.3 to
Paracelsus' Quarterly Report on Form 10-Q filed by Paracelsus on August 11, 1994
and incorporated herein by reference)
10.24 Amended and Restated Know-How Contract, dated as of October 1, 1994, between
Paracelsus Klinik and Paracelsus (filed as Exhibit 10.35 to Paracelsus' Annual
Report on Form 10-K for the fiscal year ended September 30, 1994 and incorporated
herein by reference)
10.25 Asset Purchase Agreement, dated as of March 29, 1996, between Paracelsus and FHP,
Inc.
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10.26 Stock Purchase Agreement by and between Paracelsus and General Hospitals of Galen,
Inc., dated as of November 28, 1995 (filed as Exhibit 10.40 to Paracelsus' Annual
Report on Form 10-K for the fiscal year ended September 30, 1995 and incorporated
herein by reference)
10.27 Asset Exchange Agreement by and between Paracelsus Halstead Hospital Inc.,
Paracelsus Elmwood Medical Center, Inc., Paracelsus Peninsula Medical Center, Inc.,
and Paracelsus Real Estate Corporation and Pioneer Valley Hospital, Inc. and
Medical Center of Santa Rosa, Inc., dated November 28, 1995 (filed as Exhibit 10.41
to Paracelsus' Annual Report on Form 10-K for the fiscal year ended September 30,
1995 and incorporated herein by reference)
10.28 Amended and Restated Partnership Agreement of Dakota/Champion Partnership dated
December 21, 1994 (filed as Exhibit 10 to Champion's Form 8-K dated December 21,
1994 and incorporated herein by reference)
10.29 Operating Agreement between Dakota/Champion Partnership and the Registrant, dated
December 21, 1994 (filed as Exhibit 10 to Champion's Form 8-K dated December 21,
1994 and incorporated herein by reference)
10.30 Asset Purchase Agreement, dated January 25, 1995, as amended, among Medical
Services of Salt Lake City, Inc., HealthTrust, Inc. -- The Hospital Company, CHC --
Salt Lake City, Inc. and Champion Healthcare Corporation (filed as Exhibit 10.1 to
Champion's Form 8-K dated April 13, 1995 and incorporated herein by reference)
10.31 Second Amended and Restated Credit Agreement, dated as of December 8, 1995, among
Paracelsus, Bank of America National Trust and Savings Association ("B of A"),
NationsBank of Texas, N.A., The Bank of New York, Mellon Bank, N.A., Toronto-
Diminion (Texas), Inc., Wells Fargo Bank, N.A., and the Bank of California, N.A.,
as lenders, B of A, as lead agent for lenders, and NationsBank, as co-agent (filed
as Exhibit 4.1 to Paracelsus' Current Report on Form 8-K filed by Paracelsus on
December 12, 1995 and incorporated herein by reference)
10.32 Agreement in Contemplation of Merger, dated April 12, 1996, between Champion and
the Champion investors listed therein (filed as Exhibit 10.1 to Champion's Current
Report on Form 8-K dated April 12, 1996 and incorporated herein by reference)
10.33 Form of Restated Champion Healthcare Corporation Founders' Stock Option Plan
10.34 Form of License Agreement between Dr. Manfred George Krukemeyer and Paracelsus
10.35 Asset Exchange Agreement dated November 9, 1995, by and between Champion Healthcare
Holdings, CHC-Prattville, Inc. and CHC-Nursing Center, Inc. and West Jordan
Hospital Corporation (filed as Exhibit 10.1 to Champion's Form 8-K dated March 1,
1996 and incorporated herein by reference)
10.36 Form of Registration Rights Agreement between Paracelsus and Park Hospital GmbH
10.37 Form of Voting Agreement between Park Hospital GmbH and Messrs. Miller and
VanDevender
10.38 Form of Services Agreement between Paracelsus and Dr. Manfred George Krukemeyer
10.39 Form of Insurance Agreement between Paracelsus and Dr. Manfred George Krukemeyer
10.40 Form of Non-Compete Agreement between Paracelsus and Dr. Manfred George Krukemeyer
10.41 Form of Shareholder Agreement between Paracelsus and Park Hospital GmbH, as
guaranteed by Dr. Manfred George Krukemeyer
10.42 Form of Dividend and Note Agreement between Paracelsus and Park Hospital GmbH
10.43 Form of Employment Agreement between Charles R. Miller and Paracelsus
10.44 Form of Employment Agreement between R.J. Messenger and Paracelsus
10.45 Form of Employment Agreement between James G. VanDevender and Paracelsus
10.46 Form of Employment Agreement between Ronald R. Patterson and Paracelsus
10.47 Form of Employment Agreement between Robert C. Joyner and Paracelsus
10.48 Form of Paracelsus Healthcare Corporation 1996 Stock Incentive Plan
10.49 Form of Paracelsus Healthcare Corporation Executive Officer Performance Bonus Plan
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
10.50 Form of First Refusal Agreement Among Park Hospital GmbH, Dr. Manfred George
Krukemeyer and Messrs. Messenger, Miller, VanDevender and Patterson
10.51 Form of Champion Healthcare Corporation 1996 Annual Bonus Plan
10.52 Subscription Agreement between Champion and Mr. VanDevender dated February 10,
1990, as amended (filed as Exhibit 10.13 to Champion's Annual Report on Form 10-K
for the year ended December 31, 1994 and incorporated herein by reference)
10.53 Clarification Letter to the Subscription Agreement between Champion and James G.
VanDevender dated July 12, 1996
10.54 Form of Registration Rights Agreement among Paracelsus and certain Champion
Investors
10.55 Donaldson, Lufkin & Jenrette Securities Corporation Engagement Letter with
Champion, dated April 10, 1996
10.56 Form of Indemnity and Insurance Coverage Agreement between Paracelsus and certain
Champion and Paracelsus executive officers
10.57 AmeriHealth Amended and Restated 1988 Non-Qualified Stock Option Plan (filed as
Exhibit 10.06 to AmeriHealth's Annual Report on Form 10-K for the year ended
December 31, 1992 and incorporated herein by reference)
10.58 Champion Employee Stock Option Plan dated December 31, 1991, as amended (filed as
Exhibit 10.14 to Champion's Annual Report on Form 10-K for the year ended December
31, 1994 and incorporated herein by reference)
10.59 Champion Employee Stock Option Plan No. 2 dated May 27, 1992, as amended (filed as
Exhibit 10.15 to Champion's Annual Report on Form 10-K for the year ended December
31, 1994 and incorporated herein by reference)
10.60 Champion Employee Stock Option Plan No. 3, dated September 1992, as amended (filed
as Exhibit 10.16 to Champion's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference)
10.61 Champion Employee Stock Option Plan No. 4, dated January 5, 1994, as amended (filed
as Exhibit 10.17 to Champion's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference)
10.62 Champion Selected Executive Stock Option Plan, dated May 25, 1995 (filed as Exhibit
4.12 to Champion's Form S-8 filed on or about August 3, 1995 and incorporated
herein by reference)
10.63 Champion Directors' Stock Option Plan, dated 1992 (filed as Exhibit 10.18 to
Champion's Annual Report on Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference)
10.64 Form of Paracelsus' 6.51% Subordinated Note Due 2006
11.1 Statement regarding computation of per share earnings of Champion
11.2 Statement regarding computation of per share earnings of Paracelsus
21.1 List of Subsidiaries of Paracelsus (filed as Exhibit 21.1 to the Registration
Statement on Form S-1 filed by Paracelsus on August 5, 1993 (Commission File Number
33-67040) and incorporated herein by reference)
23.1 Consent of Ernst & Young LLP
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Skadden, Arps, Slate, Meagher & Flom (to be included in Exhibit 5.1
hereto)
23.4 Consent of Sullivan & Cromwell (to be included in Exhibit 8.1 hereto)
23.5 Consent of James A. Conroy
23.6 Consent of Charles R. Miller
23.7 Consent of James G. VanDevender
23.8 Consent of Angelo R. Mozilo
23.9 Consent of Daryl J. White
23.10 Consent of Donaldson, Lufkin & Jenrette Securities Corporation
24.1 Power of Attorney (included on page II-7 hereto)
99.1 Form of Proxy for Champion Healthcare Corporation's Special Meeting
</TABLE>
II-5
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES
Report of Independent Auditors -- Ernst & Young LLP
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<S> <C>
II Paracelsus Healthcare Corporation -- Valuation and Qualifying Accounts
Report of Independent Accountants on Financial Statements Schedules -- Coopers & Lybrand L.L.P.
<CAPTION>
SCHEDULE DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<S> <C>
I Champion Healthcare Corporation -- Condensed Balance Sheet
I Champion Healthcare Corporation -- Condensed Statement of Operations
I Champion Healthcare Corporation -- Condensed Statement of Cash Flows
I Champion Healthcare Corporation -- Notes to Condensed Financial Statements
II Champion Healthcare Corporation -- Valuation and Qualifying Accounts
</TABLE>
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-6
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints R.J.
Messenger, James T. Rush and Robert C. Joyner, and each of them, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, and to take such actions in, and file with the appropriate
authorities in, whatever states said attorneys-in-fact and agents, and each of
them, shall determine, such applications, statements, consents and other
documents as may be necessary or expedient to register securities of the Company
for sale, granting unto said attorneys-in-fact and agents full power and
authority to do so and perform such and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agents or any of them, or their or his substitute
of substitutes, may lawfully do or cause to be done by virture hereof and the
registrant hereby confers like authority on its behalf.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on this 19th day of July, 1996.
PARACELSUS HEALTHCARE CORPORATION
By: /s/ JAMES T. RUSH
-----------------------------------
Name: James T. Rush
Title: Vice President, Finance and
Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ --------------------------------------- ----------------
/s/ DR. MANFRED G. KRUKEMEYER
------------------------------------------- Chairman of the Board and Director July 19, 1996
Dr. Manfred G. Krukemeyer
/s/ R.J. MESSENGER President, Chief Executive Officer,
------------------------------------------- Secretary and Director (principal July 19, 1996
R.J. Messenger executive officer)
/s/ JAMES T. RUSH Vice President, Finance and Chief
------------------------------------------- Financial Officer (principal financial July 19, 1996
James T. Rush officer)
</TABLE>
II-7
<PAGE>
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ --------------------------------------- ----------------
/s/ SCOTT BARTON
------------------------------------------- Assistant Vice President and Corporate July 19, 1996
Scott Barton Controller (controller)
/s/ MICHAEL D. HOFMANN
------------------------------------------- Director July 19, 1996
Michael D. Hofmann
/s/ CHRISTIAN A. LANGE
------------------------------------------- Director July 19, 1996
Christian A. Lange
</TABLE>
II-8
<PAGE>
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of Paracelsus
Healthcare Corporation as of September 30, 1994 and 1995, and for each of the
three years in the period ended September 30, 1995, and have issued our report
thereon dated December 14, 1995 (included elsewhere in this Registration
Statement). Our audits also included the financial statement schedule listed in
Item 21(b) of this Registration Statement. This schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Los Angeles, California
December 14, 1995
S-1
<PAGE>
PARACELSUS HEALTHCARE CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED
BEGINNING COSTS AND TO OTHER BALANCE AT
OF YEAR EXPENSES ACCOUNTS(1) DEDUCTIONS(2) END OF YEAR
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1993:
Allowance for doubtful accounts...... $ 18,867 $ 26,629 $ 10,034 $ (25,103) $ 30,427
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Year ended September 30, 1994:
Allowance for doubtful accounts...... $ 30,427 $ 33,110 $ 342 $ (33,041) $ 30,838
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Year ended September 30, 1995:
Allowance for doubtful accounts...... $ 30,838 $ 39,277 $ (2,585) $ (42,305) $ 25,225
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
- ------------------------
(1) Reflects recoveries of amounts previously written off.
(2) Reflects write-offs of uncollectible accounts.
S-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENTS SCHEDULES
Our report on the consolidated financial statements of Champion Healthcare
Corporation is included on Page F-36 of this Registration Statement. In
connection with our audits of such financial statements, we have also audited
the financial statement schedules on pages S-4 through S-8 of this Registration
Statement.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
Houston, Texas
February 27, 1996
S-3
<PAGE>
CHAMPION HEALTHCARE CORPORATION
SCHEDULE I -- CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 41,512 $ 2,822
Restricted cash...................................................... 5,000 --
Prepaid expenses and other current assets............................ 2,635 146
--------- ---------
Total current assets............................................... 49,147 2,968
Investments in and advances to subsidiaries............................ 117,562 240,100
Property and equipment................................................. 2,874 1,298
Less allowance for depreciation...................................... (376) (179)
--------- ---------
Property and equipment, net........................................ 2,498 1,119
Intangibles assets, net of accumulated amortization of $425 and
$1,017................................................................ 3,887 5,436
Other assets........................................................... 9,333 5,595
--------- ---------
Total assets....................................................... $ 182,427 $ 255,218
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities.................................................... $ 12,151 $ 17,798
Long-term debt......................................................... 83,376 148,260
Other liabilities...................................................... 12,773 11,262
Redeemable preferred stock............................................. 76,294 46,029
Common stock........................................................... 42 119
Common stock subscribed................................................ 50 40
Common stock subscription receivable................................... (50) (40)
Paid-in capital........................................................ 15,998 47,643
Accumulated deficit.................................................... (18,207) (15,893)
--------- ---------
Total liabilities and stockholders' equity......................... $ 182,427 $ 255,218
--------- ---------
--------- ---------
</TABLE>
See notes to condensed financial statements
S-4
<PAGE>
CHAMPION HEALTHCARE CORPORATION
SCHEDULE I -- CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Equity in earnings (loss) of subsidiaries..................... $ (5,544) $ 10,500 $ 24,682
Interest income............................................... 107 2,196 775
--------- --------- ---------
Net revenue................................................. (5,437) 12,696 25,457
Cost and expenses:
Salaries and benefits....................................... 1,340 1,978 4,875
Other operating and administrative expenses................. 1,231 2,967 4,792
Interest expense............................................ 1,906 5,508 12,258
--------- --------- ---------
Total expenses............................................ 4,477 10,453 21,925
--------- --------- ---------
Income (loss) before income taxes and extraordinary items... (9,914) 2,243 3,532
Provision for income taxes.................................... 1,009 -- 100
--------- --------- ---------
Income (loss) before extraordinary items.................... (10,923) 2,243 3,432
Extraordinary items:
Loss on early extinguishment of debt, net of a tax benefit
of $634 in 1993............................................ (1,230) -- (1,118)
--------- --------- ---------
Net income (loss)............................................. $ (12,153) $ 2,243 $ 2,314
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to condensed financial statements.
S-5
<PAGE>
CHAMPION HEALTHCARE CORPORATION
SCHEDULE I -- CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1993 1994 1995
---------- ---------- -----------
<S> <C> <C> <C>
Net cash used in operating activities....................................... $ (6,338) $ (11,941) $ (23,375)
Investing activities:
Additions to property and equipment....................................... (207) (103) (736)
Net payment for investment in partnership................................. -- (20,000) (2,000)
Cash acquired in acquisition.............................................. -- 4,341 --
Purchase of facilities.................................................... (5,813) -- (59,810)
Investment in note receivable............................................. -- (757) (2,494)
Advances to hospitals, net................................................ (970) (6,791) (17,479)
Proceeds from the sale of assets held for sale............................ -- -- 1,534
Other..................................................................... -- -- (31)
---------- ---------- -----------
Net cash used in investment activities.................................. (6,990) (23,310) (81,016)
Financing activities:
Proceeds from issuance long-term obligations.............................. 62,833 19,133 143,532
Payments on long-term obligations......................................... (20,006) (1,505) (80,347)
Payments on obligations assumed through acquisition....................... -- (10,911) --
Payments related to issuance of long-term debt obligations and other
finaning costs........................................................... (2,396) -- (3,927)
Proceeds from issuance of redeemable preferred stock and stock warrants... 34,345 11,223 793
Cash restricted under collateral agreement................................ -- (5,713) --
Cash released under collateral agreement.................................. -- -- 5,713
Other..................................................................... (883) -- (63)
---------- ---------- -----------
Net cash provided by financing activities............................... 73,893 12,227 65,701
---------- ---------- -----------
(Decrease) increase in cash and cash equivalents............................ 60,565 (23,024) (38,690)
Cash and cash equivalents at beginning of year.............................. 3,971 64,536 41,512
---------- ---------- -----------
Cash and cash equivalents at end of year.................................... $ 64,536 $ 41,512 $ 2,822
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See notes to condensed financial statements.
S-6
<PAGE>
CHAMPION HEALTHCARE CORPORATION
SCHEDULE I -- NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying condensed financial statements are presented in accordance
with the requirements of Regulation S-X Rule 12-04 and consequently do not
include all of the disclosures normally required by generally accepted
accounting principles. Accordingly, these financial statements should be read in
conjunction with the annual audited consolidated financial statements included
elsewhere in this document.
Certain reclassifications have been made in prior year financial statements
to conform to the 1995 presentation. These reclassifications had no effect on
the results of operations previously reported.
NOTE 2. AMOUNTS ELIMINATED IN CONSOLIDATION
The following accounts, as reflected in the attached condensed financial
statements, are fully eliminated when consolidated with the financial statements
of the Company's wholly-owned subsidiaries: Investment in subsidiaries; Advances
to subsidiaries; and Equity in earning (loss) of subsidiaries. In addition, the
following amounts are eliminated under the equity method of accounting for
intercompany transactions between the Company and its subsidiaries and are
therefore not included in the condensed statement of operations.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Management fee income....................................... $ 1,733 $ 2,283 $ 3,963
Interest income on intercompany receivable.................. 4,310 4,680 10,847
Allocation of income taxes.................................. 236 200 50
</TABLE>
S-7
<PAGE>
CHAMPION HEALTHCARE CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(1) DEDUCTIONS PERIOD
- -------------------------------------------------- ----------- ----------- ------------ ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1993:
Allowance for doubtful accounts, accounts
receivable..................................... $ 4,723 $ 5,669 $ 371 $ 7,194(2) $ 3,569
----------- ----------- ------------ ----------- -----------
----------- ----------- ------------ ----------- -----------
FOR THE YEAR ENDED DECEMBER 31, 1994:
Allowance for doubtful accounts, accounts
receivable..................................... $ 3,569 $ 7,812 $ 2,331 $ 8,753(3) $ 4,959
----------- ----------- ------------ ----------- -----------
----------- ----------- ------------ ----------- -----------
FOR THE YEAR ENDED DECEMBER 31, 1995:
Allowance for doubtful accounts, accounts
receivable..................................... $ 4,959 $ 12,016 $ 2,590 $ 9,449(2) $ 10,116
----------- ----------- ------------ ----------- -----------
----------- ----------- ------------ ----------- -----------
</TABLE>
- ------------------------
(1) Relates to valuation allowance established at acquired companies on the date
of acquisition.
(2) Represents accounts written off as bad debt during the period.
(3) Approximately $1,449,000 of deductions represent the allowance for bad debt
associated with accounts receivable contributed to the DHHS partnership with
the balance representing accounts written off as bad debt during the period.
S-8
<PAGE>
EXHIBIT 4.2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORM OF
SHAREHOLDER PROTECTION RIGHTS AGREEMENT
DATED AS OF
, 1996
BETWEEN
PARACELSUS HEALTHCARE CORPORATION
AND
-------------------------------------- ,
AS RIGHTS AGENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SHAREHOLDER PROTECTION RIGHTS AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
Article I
CERTAIN DEFINITIONS
Section 1.1 Certain Definitions...................................................................... 1
Article II
THE RIGHTS
Section 2.1 Summary of Rights........................................................................ 5
Section 2.2 Legend on Common Stock Certificates...................................................... 5
Section 2.3 Exercise of Rights; Separation of Rights................................................. 6
Section 2.4 Adjustments to Exercise Price; Number of Rights.......................................... 7
Section 2.5 Date on Which Exercise is Effective...................................................... 8
Section 2.6 Execution, Authentication, Delivery and Dating of Rights Certificates.................... 8
Section 2.7 Registration, Registration of Transfer and Exchange...................................... 8
Section 2.8 Mutilated, Destroyed, Lost and Stolen Rights Certificates................................ 9
Section 2.9 Persons Deemed Owners.................................................................... 9
Section 2.10 Delivery and Cancellation of Certificates................................................ 9
Section 2.11 Agreement of Rights Holders.............................................................. 10
Article III
ADJUSTMENTS TO THE RIGHTS IN THE EVENT OF
CERTAIN TRANSACTIONS
Section 3.1 Flip-in.................................................................................. 10
Section 3.2 Flip-over................................................................................ 12
Article IV
THE RIGHTS AGENT
Section 4.1 General.................................................................................. 12
Section 4.2 Merger or Consolidation or Change of Name of Rights Agent................................ 12
Section 4.3 Duties of Rights Agent................................................................... 13
Section 4.4 Change of Rights Agent................................................................... 14
Article V
MISCELLANEOUS
Section 5.1 Redemption............................................................................... 15
Section 5.2 Expiration............................................................................... 15
Section 5.3 Issuance of New Rights Certificates...................................................... 15
Section 5.4 Supplements and Amendments............................................................... 16
Section 5.5 Fractional Shares........................................................................ 16
Section 5.6 Rights of Action......................................................................... 16
Section 5.7 Holder of Rights Not Deemed a Shareholder................................................ 16
Section 5.8 Notice of Proposed Actions............................................................... 17
Section 5.9 Notices.................................................................................. 17
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
Section 5.10 Suspension of Exercisability............................................................. 17
<S> <C> <C>
Section 5.11 Costs of Enforcement..................................................................... 17
Section 5.12 Successors............................................................................... 17
Section 5.13 Benefits of this Agreement............................................................... 18
Section 5.14 Determination and Actions by the Qualified Directors or Board of Directors, Etc.......... 18
Section 5.15 Descriptive Headings..................................................................... 18
Section 5.16 Governing Law............................................................................ 18
Section 5.17 Counterparts............................................................................. 18
Section 5.18 Severability............................................................................. 18
EXHIBITS
Exhibit A Form of Rights Certificate
(Together with Form of Election to Exercise)
Exhibit B Form of Certificate of
Designation and Terms of
Participating Preferred Stock
</TABLE>
ii
<PAGE>
SHAREHOLDER PROTECTION RIGHTS AGREEMENT
SHAREHOLDER PROTECTION RIGHTS AGREEMENT (as amended from time to time, this
"Agreement"), dated as of , 1996, between Paracelsus Healthcare
Corporation a California corporation (the "Company"), and , a
, as Rights Agent (the "Rights Agent", which term shall include any
successor Rights Agent hereunder).
WITNESSETH:
WHEREAS, the Board of Directors of the Company has (a) authorized and
declared a dividend of one right ("Right") in respect of each share of Common
Stock (as hereinafter defined) held of record as of the close of business on
, 1996 (the "Record Time") and (b) as provided in Section 2.4,
authorized the issuance of one Right in respect of each share of Common Stock
issued after the Record Time and prior to the Separation Time (as hereinafter
defined) and, to the extent provided in Section 5.3, each share of Common Stock
issued after the Separation Time;
WHEREAS, subject to the terms and conditions hereof, each Right entitles the
holder thereof, after the Separation Time, to purchase securities of the Company
(or, in certain cases, of certain other entities) pursuant to the terms and
subject to the conditions set forth herein; and
WHEREAS, the Company desires to appoint the Rights Agent to act on behalf of
the Company, and the Rights Agent is willing so to act, in connection with the
issuance, transfer, exchange and replacement of Rights Certificates (as
hereinafter defined), the exercise of Rights and other matters referred to
herein;
NOW THEREFORE, in consideration of the premises and the respective
agreements set forth herein, the parties hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.1 CERTAIN DEFINITIONS. For purposes of this Agreement, the following
terms have the meanings indicated:
"Acquiring Person" shall mean any Person who is a Beneficial Owner of 25% or
more of the Total Voting Power of the Company; PROVIDED, HOWEVER, that the term
"Acquiring Person" shall not include any Person (i) who is the Beneficial Owner
of 25% or more of the Total Voting Power of the Company on the date of this
Agreement or who shall become the Beneficial Owner of 25% or more of the Total
Voting Power of the Company solely as a result of an acquisition by the Company
of Voting Securities of the Company, until such time hereafter or thereafter as
any of such Persons shall become the Beneficial Owner (other than by means of a
stock dividend or stock split or an acquisition in accordance with the
Shareholder Agreement) of any Voting Securities of the Company and is thereafter
the Beneficial Owner of 25% or more of the Total Voting Power of the Company,
(ii) who is the Beneficial Owner of 25% or more of the Total Voting Power of the
Company but who acquired Beneficial Ownership of Voting Securities without any
plan or intention to seek or affect control of the Company, if such Person
promptly enters into an irrevocable commitment promptly to divest, and
thereafter promptly divests (without exercising or retaining any power,
including voting, with respect to such shares), sufficient shares of Voting
Securities so that such Person ceases to be the Beneficial Owner of 25% or more
of the Total Voting Power of the Company, (iii) who Beneficially Owns Voting
Securities consisting solely of one or more of (A) Voting Securities of the
Company Beneficially Owned pursuant to the grant or exercise of an option
granted to such Person (an "Option Holder") by the Company in connection with an
agreement to merge with, or acquire, the Company entered into prior to a Flip-in
Date, (B) Voting Securities of the Company Beneficially Owned by such Option
Holder or its Affiliates or Associates at the time of grant of such option or
(C) shares of Voting Securities of the Company acquired by Affiliates or
Associates of such Option Holder after the time of such grant which, in the
aggregate, amount to less than 1% of the Total Voting Power of the Company or
(iv) who shall become the Beneficial Owner of any Voting Securities of the
Company solely as a result of an acquisition of Voting Securities of the Company
pursuant to the Shareholder Agreement for so long as such Person
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remains bound by and a party to the Shareholder Agreement, until such time as
such Person shall become the Beneficial Owner (other than by means of a stock
dividend, stock split or an acquisition in accordance with the Shareholder
Agreement) of any Voting Securities of the Company and such Person thereafter is
the Beneficial Owner of 25% or more of the Total Voting Power of the Company. In
addition, the Company, any wholly-owned Subsidiary of the Company and any
employee stock ownership or other employee benefit plan of the Company or a
wholly-owned Subsidiary of the Company shall not be an Acquiring Person.
"Affiliate" and "Associate" shall have the respective meanings ascribed to
such terms in Rule 12b-2 under the Securities Exchange Act of 1934, as such Rule
is in effect on the date of this Agreement.
A Person shall be deemed the "Beneficial Owner" and to have "Beneficial
Ownership" of, and to "Beneficially Own," any Voting Securities as to which such
Person or any of such Person's Affiliates or Associates is or may be deemed to
be the beneficial owner pursuant to Rule 13d-3 or 13d-5 under the Securities
Exchange Act of 1934, as such rules are in effect on the date of this Agreement,
as well as any Voting Securities as to which such Person or any of such Person's
Affiliates or Associates has the right to become Beneficial Owner (whether such
right is exercisable immediately or only after the passage of time or the
occurrence of conditions) pursuant to any agreement, arrangement or
understanding (other than customary agreements with and between underwriters and
selling group members with respect to a BONA FIDE public offering of
securities), or upon the exercise of conversion rights, exchange rights, rights
(other than the rights under the Rights Plan), warrants or options, or
otherwise; PROVIDED, HOWEVER, that the Shareholder (as defined in the
Shareholder Agreement) shall not be deemed to be the "Beneficial Owner" and to
have "Beneficial Ownership" of, and to "Beneficially Own," any voting securities
of Paracelsus by virtue of the Right of First Refusal Agreement dated the date
hereof between the Shareholder and certain persons or by virtue of the
acquisition by the Shareholder of such Voting Securities pursuant thereto;
PROVIDED, FURTHER, that a Person shall not be deemed the "Beneficial Owner", or
to have "Beneficial Ownership" of, or to "Beneficially Own", any Voting Security
(i) solely because such Voting Security has been tendered pursuant to a tender
or exchange offer made by such Person or any of such Person's Affiliates or
Associates until such tendered Voting Security is accepted for payment or
exchange or (ii) solely because such Person or any of such Person's Affiliates
or Associates has or shares the power to vote or direct the voting of such
Voting Security pursuant to a revocable proxy or consent given in response to a
public proxy or consent solicitation made pursuant to, and in accordance with,
the applicable rules and regulations under the Securities Exchange Act of 1934,
except if such power (or the arrangements relating thereto) is then reportable
under Item 6 of Schedule 13D under the Securities Exchange Act of 1934 (or any
similar provision of a comparable or successor report). For purposes of this
Agreement, in determining the percentage of the outstanding Voting Securities
with respect to which a Person is the Beneficial Owner, all shares as to which
such Person is deemed the Beneficial Owner shall be deemed outstanding.
"Business Day" shall mean any day other than a Saturday, Sunday or a day on
which banking institutions in The City of Los Angeles, California, Houston,
Texas, or New York, New York are generally authorized or obligated by law or
executive order to close.
"Close of business" on any given date shall mean 5:00 p.m. Houston time on
such date or, if such date is not a Business Day, 5:00 p.m. Houston time on the
next succeeding Business Day.
"Common Stock" shall mean the shares of Common Stock, no stated par value
per share, of the Company.
"Exchange Time" shall mean the time at which the right to exercise the
Rights shall terminate pursuant to Section 3.1(c) hereof.
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"Exercise Price" shall mean, as of any date, the price at which a holder may
purchase the securities issuable upon exercise of one whole Right. Until
adjustment thereof in accordance with the terms hereof, the Exercise Price shall
equal $ .
"Expiration Time" shall mean the earliest of (i) the Exchange Time, (ii) the
Redemption Time, (iii) the close of business on the tenth anniversary of the
Record Time and (iv) immediately prior to the effective time of a consolidation,
merger or share exchange (each, a "Business Combination") of the Company (x)
into another corporation or (y) with another corporation in which the Company is
the surviving corporation but Voting Securities are converted into cash and/or
securities of another corporation, in either case pursuant to an agreement
entered into prior to a Flip-in Date.
"Flip-in Date" shall mean the tenth business day after any Stock Acquisition
Date or such later date as a majority of the Qualified Director may from time to
time fix by resolution adopted prior to the Flip-in Date that would otherwise
have occurred.
"Flip-over Entity," for purposes of Section 3.2, shall mean (i) in the case
of a Flip-over Transaction or Event described in clause (i) of the definition
thereof, the Person issuing any securities into which Voting Securities are
being converted or exchanged and, if no such securities are being issued, the
other party to such Flip-over Transaction or Event and (ii) in the case of a
Flip-over Transaction or Event referred to in clause (ii) or (iii) of the
definition thereof, the Person receiving the greatest portion of the assets or
earning power being transferred in such Flip-over Transaction or Event, provided
in all cases if such Person is a subsidiary of a corporation, the parent
corporation shall be the Flip-Over Entity.
"Flip-over Stock" shall mean the capital stock (or similar equity interest)
with the greatest voting power in respect of the election of directors (or other
persons similarly responsible for direction of the business and affairs) of the
Flip-Over Entity.
"Flip-over Transaction or Event" shall mean a transaction or series of
transactions after a Flip-in Date in which, directly or indirectly, (i) the
Company shall consolidate or merge or participate in a share exchange with any
other Person if, at the time of the consolidation, merger or share exchange or
at the time the Company enters into any agreement with respect to any such
consolidation, merger or share exchange, the Acquiring Person Controls the Board
of Directors of the Company and either (A) any term of or arrangement concerning
the treatment of shares of capital stock in such consolidation, merger or share
exchange relating to the Acquiring Person is not identical to the terms and
arrangements relating to other holders of the Voting Securities or (B) the
Person with whom the transaction or series of transactions occurs is the
Acquiring Person or an Affiliate or Associate of the Acquiring Person, (ii) the
Company shall sell or otherwise transfer (or one or more of its Subsidiaries
shall sell or otherwise transfer) assets (A) aggregating more than 50% of the
assets (measured by either book value or fair market value) or (B) generating
more than 50% of the operating income or cash flow, of the Company and its
Subsidiaries (taken as a whole) to any Person (other than the Company or one or
more of its wholly owned Subsidiaries) or to two or more such Persons which are
Affiliates or Associates or otherwise acting in concert, if, at the time of the
entry by the Company (or any such Subsidiary) into an agreement with respect to
such sale or transfer of assets, the Acquiring Person Controls the Board of
Directors of the Company, or (iii) any Acquiring Person shall (A) sell,
purchase, lease, exchange, mortgage, pledge, transfer or otherwise acquire or
dispose of, to, from, or with, as the case may be, the Company or any of its
Subsidiaries, over any period of 12 consecutive calendar months, assets (x)
having an aggregate fair market value of more than $15,000,000 or (y) on terms
and conditions less favorable to the Company than the Company would be able to
obtain through arm's-length negotiations with an unaffiliated third party, (B)
receive any compensation for services from the Company or any of its
Subsidiaries, other than compensation for full-time employment as a regular
employee at rates in accordance with the Company's (or its Subsidiaries') past
practices, (C) receive the benefit, directly or indirectly (except
proportionately as a shareholder), over any period of 12 consecutive calendar
months, of any loans, advances, guarantees, pledges, insurance, reinsurance or
other financial assistance or any tax credits or other tax advantage provided by
the
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Company or any of its Subsidiaries involving an aggregate principal amount in
excess of $5,000,000 or an aggregate cost or transfer of benefits from the
Company or any of its Subsidiaries in excess of $5,000,000 or, in any case, on
terms and conditions less favorable to the Company than the Company would be
able to obtain through arm's-length negotiations with a third party or (D)
increase by more than 1% its proportionate share of the outstanding shares of
any class of equity securities or securities convertible into any class of
equity securities of the Company or any of its Subsidiaries as a result of any
acquisition from the Company (with or without consideration), any
reclassification of securities (including any reverse stock split), or
recapitalization, of the Company, any merger or consolidation of the Company or
any other transaction or series of transactions (whether or not with or into or
otherwise involving an Acquiring Person). For purposes of the foregoing
description, the term "Acquiring Person" shall include any Acquiring Person and
its Affiliates and Associates, counted together as a single Person. An Acquiring
Person shall be deemed to Control the Company's Board of Directors when,
following a Flip-in Date, the persons who were directors of the Company before
the Flip-in Date shall cease to constitute a majority of the Company's Board of
Directors.
"Market Price" per share of any securities on any date shall mean the
average of the daily closing prices per share of such securities (determined as
described below) on each of the 20 consecutive Trading Days through and
including the Trading Day immediately preceding such date; PROVIDED, HOWEVER,
that if an event of a type analogous to any of the events described in Section
2.4 hereof shall have caused the closing prices used to determine the Market
Price on any Trading Days during such period of 20 Trading Days not to be fully
comparable with the closing price on such date, each such closing price so used
shall be appropriately adjusted in order to make it fully comparable with the
closing price on such date. The closing price per share of any securities on any
date shall be the last reported sale price, regular way, or, in case no such
sale takes place or is quoted on such date, the average of the closing bid and
asked prices, regular way, for each share of such securities, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange, Inc.
or, if the securities are not listed or admitted to trading on the New York
Stock Exchange, Inc., as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the securities are listed or admitted to trading
or, if the securities are not listed or admitted to trading on any national
securities exchange, as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System or such other system then in use, or,
if on any such date the securities are not listed or admitted to trading on any
national securities exchange or quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional market maker
making a market in the securities selected by a majority of the Qualified
Directors; PROVIDED, HOWEVER, that if on any such date the securities are not
listed or admitted to trading on a national securities exchange or traded in the
over-the-counter market, the closing price per share of such securities on such
date shall mean the fair value per share of securities on such date as
determined in good faith by a majority of the Qualified Directors, after
consultation with a nationally recognized investment banking firm, and set forth
in a certificate delivered to the Rights Agent.
"Person" shall mean any individual, firm, partnership, association, group
(as such term is used in Rule 13d-5 under the Securities Exchange Act of 1934,
as such Rule is in effect on the date of this Agreement), corporation or other
entity.
"Preferred Stock" shall mean the series of Participating Preferred Stock,
par value $.01 per share, of the Company created by a Certificate of Designation
and Terms in substantially the form set forth in Exhibit B hereto appropriately
completed.
"Qualified Directors" shall mean the directors of the Company who are not
employed by, Affiliated with or nominees or representatives of any Acquiring
Person.
"Redemption Price" shall mean an amount equal to one cent, $0.01.
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"Redemption Time" shall mean the time at which the right to exercise the
Rights shall terminate pursuant to Section 5.1 hereof.
"Separation Time" shall mean the close of business on the earlier of (i) the
tenth business day (or such later date as a majority of the Qualified Directors
may from time to time fix by resolution adopted prior to the Separation Time
that would otherwise have occurred) after the date on which any Person commences
a tender or exchange offer which, if consummated, would result in such Person's
becoming an Acquiring Person and (ii) the Flip-in Date; PROVIDED, that if the
foregoing results in the Separation Time being prior to the Record Time, the
Separation Time shall be the Record Time and PROVIDED FURTHER, that if any
tender or exchange offer referred to in clause (i) of this paragraph is
cancelled, terminated or otherwise withdrawn prior to the Separation Time
without the purchase of any Voting Securities pursuant thereto, such offer shall
be deemed, for purposes of this paragraph, never to have been made.
"Shareholder Agreement" shall mean the Shareholder Agreement dated the date
hereof between the Company and Park Hospital GmbH.
"Stock Acquisition Date" shall mean the first date of public announcement by
the Company (by any means) that an Acquiring Person has become such.
"Subsidiary" of any specified Person shall mean any corporation or other
entity of which a majority of the voting power of the equity securities or a
majority of the equity interest is Beneficially Owned, directly or indirectly,
by such Person.
"Total Voting Power" shall mean the non-diluted aggregate number of votes
that may be cast by the holders of outstanding Voting Securities.
"Trading Day," when used with respect to any securities, shall mean a day on
which the New York Stock Exchange, Inc. is open for the transaction of business
or, if such securities are not listed or admitted to trading on the New York
Stock Exchange, Inc., a day on which the principal national securities exchange
on which such securities are listed or admitted to trading is open for the
transaction of business or, if such securities are not listed or admitted to
trading on any national securities exchange, a Business Day.
"Voting Securities" shall mean all securities entitled to vote in the
ordinary course in the election of directors or of Persons serving in a similar
governing capacity, including the voting rights attached to such securities and
rights or options to acquire such securities.
ARTICLE II
THE RIGHTS
2.1 SUMMARY OF RIGHTS. As soon as practicable after the Record Time, the
Company will mail a letter summarizing the terms of the Rights to each holder of
record of Common Stock as of the Record Time, at such holder's address as shown
by the records of the Company.
2.2 LEGEND ON COMMON STOCK CERTIFICATES. Certificates for the Common Stock
issued after the Record Time but prior to the Separation Time shall evidence one
Right for each share of Common Stock represented thereby and shall have
impressed on, printed on, written on or otherwise affixed to them the following
legend:
Until the Separation Time (as defined in the Rights Agreement referred
to below), this certificate also evidences and entitles the holder
hereof to certain Rights as set forth in a Rights Agreement, dated as of
, 1996 (as such may be amended from time to time, the
"Rights Agreement"), between Paracelsus Healthcare Corporation (the
"Company") and , as Rights Agent, the terms of which are hereby
incorporated herein by reference and a copy of which is on file at the
principal executive offices of the Company. Under certain circumstances,
as set forth in the Rights Agreement, such Rights may be
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<PAGE>
redeemed, may become exercisable for securities or assets of the Company
or of another entity, may be exchanged for shares of Common Stock or
other securities or assets of the Company, may expire, may become void
(if they are "Beneficially Owned" by an "Acquiring Person" or an
Affiliate or Associate thereof, as such terms are defined in the Rights
Agreement, or by any transferee of any of the foregoing) or may be
evidenced by separate certificates and may no longer be evidenced by
this certificate. The Company will mail or arrange for the mailing of a
copy of the Rights Agreement to the holder of this certificate without
charge after the receipt of a written request therefor.
Certificates representing shares of Common Stock that are issued and outstanding
at the Record Time shall evidence one Right for each share of Common Stock
evidenced thereby notwithstanding the absence of the foregoing legend.
2.3 EXERCISE OF RIGHTS; SEPARATION OF RIGHTS. (a) Subject to Sections 3.1,
5.1 and 5.10 and subject to adjustment as herein set forth, each Right will
entitle the holder thereof, after the Separation Time and prior to the
Expiration Time, to purchase, for the Exercise Price, one one-hundredth of a
share of Preferred Stock.
(b) Until the Separation Time, (i) no Right may be exercised and (ii) each
Right will be evidenced by the certificate for the associated share of Common
Stock (together, in the case of certificates issued prior to the Record Time,
with the letter mailed to the record holder thereof pursuant to Section 2.1) and
will be transferable only together with, and will be transferred by a transfer
(whether with or without such letter) of, such associated share.
(c) Subject to the terms and conditions hereof, after the Separation Time
and prior to the Expiration Time, the Rights (i) may be exercised and (ii) may
be transferred independent of shares of Common Stock. Promptly following the
Separation Time, the Rights Agent will mail to each holder of record of Common
Stock as of the Separation Time (other than any Person whose Rights have become
void pursuant to Section 3.1(b)), at such holder's address as shown by the
records of the Company (the Company hereby agreeing to furnish copies of such
records to the Rights Agent for this purpose), (x) a certificate (a "Rights
Certificate") in substantially the form of Exhibit A hereto appropriately
completed, representing the number of Rights held by such holder at the
Separation Time and having such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any national securities
exchange or quotation system on which the Rights may from time to time be listed
or traded, or to conform to usage, and (y) a disclosure statement describing the
Rights.
(d) Subject to the terms and conditions hereof, Rights may be exercised on
any Business Day after the Separation Time and prior to the Expiration Time by
submitting to the Rights Agent the Rights Certificate evidencing such Rights
with an Election to Exercise (an "Election to Exercise") substantially in the
form attached to the Rights Certificate duly completed, accompanied by payment
in cash, or by certified or official bank check or money order payable to the
order of the Company, of a sum equal to the Exercise Price multiplied by the
number of Rights being exercised and a sum sufficient to cover any transfer tax
or charge which may be payable in respect of any transfer involved in the
transfer or delivery of Rights Certificates or the issuance or delivery of
certificates for shares or depositary receipts (or both) in a name other than
that of the holder of the Rights being exercised.
(e) Upon receipt of a Rights Certificate, with an Election to Exercise
accompanied by payment as set forth in Section 2.3(d), and subject to the terms
and conditions hereof, the Rights Agent will thereupon promptly (i)(A)
requisition from a transfer agent stock certificates evidencing such number of
shares or other securities to be purchased (the Company hereby irrevocably
authorizing its transfer agents to comply with all such requisitions) and (B) if
the Company elects pursuant to Section 5.5 not to issue certificates
representing fractional shares, requisition from the depositary selected by the
Company depositary receipts representing the fractional shares to be purchased
or requisition from
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the Company the amount of cash to be paid in lieu of fractional shares in
accordance with Section 5.5 and (ii) after receipt of such certificates,
depositary receipts and/or cash, deliver the same to or upon the order of the
registered holder of such Rights Certificate, registered (in the case of
certificates or depositary receipts) in such name or names as may be designated
by such holder.
(f) In case the holder of any Rights shall exercise less than all the Rights
evidenced by such holder's Rights Certificate, a new Rights Certificate
evidencing the Rights remaining unexercised will be issued by the Rights Agent
to such holder or to such holder's duly authorized assigns.
(g) The Company covenants and agrees that it will (i) take all such action
as may be necessary to ensure that all shares delivered upon exercise of Rights
shall, at the time of delivery of the certificates for such shares (subject to
payment of the Exercise Price), be duly and validly authorized, executed, issued
and delivered and fully paid and nonassessable; (ii) take all such action as may
be necessary to comply with any applicable requirements of the Securities Act of
1933 or the Securities Exchange Act of 1934, and the rules and regulations
thereunder, and any other applicable law, rule or regulation, in connection with
the issuance of any shares upon exercise of Rights; and (iii) pay when due and
payable any and all federal and state transfer taxes and charges which may be
payable in respect of the original issuance or delivery of the Rights
Certificates or of any shares issued upon the exercise of Rights, provided that
the Company shall not be required to pay any transfer tax or charge which may be
payable in respect of any transfer involved in the transfer or delivery of
Rights Certificates or the issuance or delivery of certificates for shares in a
name other than that of the holder of the Rights being transferred or exercised.
2.4 ADJUSTMENTS TO EXERCISE PRICE; NUMBER OF RIGHTS. (a) In the event the
Company shall at any time after the Record Time and prior to the Separation Time
(i) declare or pay a dividend on Common Stock payable in Common Stock, (ii)
subdivide the outstanding Common Stock or (iii) combine the outstanding Common
Stock into a smaller number of shares of Common Stock, (x) the Exercise Price in
effect after such adjustment will be equal to the Exercise Price in effect
immediately prior to such adjustment divided by the number of shares of Common
Stock (the "Expansion Factor") that a holder of one share of Common Stock
immediately prior to such dividend, subdivision or combination would hold
thereafter as a result thereof and (y) each Right held prior to such adjustment
will become that number of Rights equal to the Expansion Factor, and the
adjusted number of Rights will be deemed to be distributed among the shares of
Common Stock with respect to which the original Rights were associated (if they
remain outstanding) and the shares issued in respect of such dividend,
subdivision or combination, so that each such share of Common Stock will have
exactly one Right associated with it. Each adjustment made pursuant to this
paragraph shall be made as of the payment or effective date for the applicable
dividend, subdivision or combination.
In the event the Company shall at any time after the Record Time and prior
to the Separation Time issue any shares of Common Stock otherwise than in a
transaction referred to in the preceding paragraph, each such share of Common
Stock so issued shall automatically have one new Right associated with it, which
Right shall be evidenced by the certificate representing such share. To the
extent provided in Section 5.3, Rights shall be issued by the Company in respect
of shares of Common Stock that are issued or sold by the Company after the
Separation Time.
(b) In the event the Company shall at any time after the Record Time and
prior to the Separation Time issue or distribute any securities or assets in
respect of, in lieu of or in exchange for Common Stock (other than pursuant to a
regular periodic cash dividend or a dividend paid solely in Common Stock)
whether by dividend, in a reclassification or recapitalization (including any
such transaction involving a merger, consolidation or share exchange), or
otherwise, the Company shall make such adjustments, if any, in the Exercise
Price, number of Rights and/or securities or other property purchasable upon
exercise of Rights as a majority of the Qualified Directors, in their sole
discretion, may deem to be appropriate under the circumstances in order to
adequately protect the interests of the holders of Rights generally, and the
Company and the Rights Agent shall amend this Agreement as necessary to provide
for such adjustments.
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(c) Each adjustment to the Exercise Price made pursuant to this Section 2.4
shall be calculated to the nearest cent. Whenever an adjustment to the Exercise
Price is made pursuant to this Section 2.4, the Company shall (i) promptly
prepare a certificate setting forth such adjustment and a brief statement of the
facts accounting for such adjustment and (ii) promptly file with the Rights
Agent and with each transfer agent for the Common Stock a copy of such
certificate.
(d) Rights Certificates shall represent the securities purchasable under the
terms of this Agreement, including any adjustment or change in the securities
purchasable upon exercise of the Rights, even though such certificates may
continue to express the securities purchasable at the time of issuance of the
initial Rights Certificates.
2.5 DATE ON WHICH EXERCISE IS EFFECTIVE. Each Person in whose name any
certificate for shares is issued upon the exercise of Rights shall for all
purposes be deemed to have become the holder of record of the shares represented
thereby on the date upon which the Rights Certificate evidencing such Rights was
duly surrendered and payment of the Exercise Price for such Rights (and any
applicable taxes and other governmental charges payable by the exercising holder
hereunder) was made; PROVIDED, HOWEVER, that if the date of such surrender and
payment is a date upon which the stock transfer books of the Company are closed,
such Person shall be deemed to have become the record holder of such shares on,
and such certificate shall be dated, the next succeeding Business Day on which
the stock transfer books of the Company are open.
2.6 EXECUTION, AUTHENTICATION, DELIVERY AND DATING OF RIGHTS
CERTIFICATES. (a) The Rights Certificates shall be executed on behalf of the
Company by the Chairman or Vice Chairman of the Board or the President or a Vice
President and by the Chief Financial Officer or an Assistant Treasurer or the
Secretary or any Assistant Secretary. The signature of any of these officers on
the Rights Certificates may be manual or facsimile.
Rights Certificates bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the countersignature and delivery of such Rights
Certificates.
Promptly after the Separation Time, the Company will notify the Rights Agent
of such Separation Time and will deliver Rights Certificates executed by the
Company to the Rights Agent for countersignature, and, subject to Section
3.1(b), the Rights Agent shall manually countersign and deliver such Rights
Certificates to the holders of the Rights pursuant to Section 2.3(c) hereof. No
Rights Certificate shall be valid for any purpose unless manually countersigned
by the Rights Agent.
(b) Each Rights Certificate shall be dated the date of countersignature
thereof.
2.7 REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE. (a) After the
Separation Time, the Company will cause to be kept a register (the "Rights
Register") in which, subject to such reasonable regulations as it may prescribe,
the Company will provide for the registration and transfer of Rights. The Rights
Agent is hereby appointed "Rights Registrar" for the purpose of maintaining the
Rights Register for the Company and registering Rights and transfers of Rights
after the Separation Time as herein provided. In the event that the Rights Agent
shall cease to be the Rights Registrar, the Rights Agent will have the right to
examine the Rights Register at all reasonable times after the Separation Time.
After the Separation Time and prior to the Expiration Time, upon surrender
for registration of transfer or exchange of any Rights Certificate, and subject
to the provisions of Section 2.7(c) and (d), the Company will execute, and the
Rights Agent will countersign and deliver, in the name of the holder or the
designated transferee or transferees, as required pursuant to the holder's
instructions, one or more new Rights Certificates evidencing the same aggregate
number of Rights as did the Rights Certificate so surrendered.
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(b) Except as otherwise provided in Section 3.1(b), all Rights issued upon
any registration of transfer or exchange of Rights Certificates shall be the
valid obligations of the Company, and such Rights shall be entitled to the same
benefits under this Agreement as the Rights surrendered upon such registration
of transfer or exchange.
(c) Every Rights Certificate surrendered for registration of transfer or
exchange shall be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the Company or the Rights Agent, as the case
may be, duly executed by the holder thereof or such holder's attorney duly
authorized in writing. As a condition to the issuance of any new Rights
Certificate under this Section 2.7, the Company may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto.
(d) The Company shall not be required to register the transfer or exchange
of any Rights after such Rights have become void under Section 3.1(b), been
exchanged under Section 3.1(c) or been redeemed or terminated under Section 5.1.
2.8 MUTILATED, DESTROYED, LOST AND STOLEN RIGHTS CERTIFICATES. (a) If any
mutilated Rights Certificate is surrendered to the Rights Agent prior to the
Expiration Time, then, subject to Sections 3.1(b), 3.1(c) and 5.1, the Company
shall execute and the Rights Agent shall countersign and deliver in exchange
therefor a new Rights Certificate evidencing the same number of Rights as did
the Rights Certificate so surrendered.
(b) If there shall be delivered to the Company and the Rights Agent prior to
the Expiration Time (i) evidence to their satisfaction of the destruction, loss
or theft of any Rights Certificate and (ii) such security or indemnity as may be
required by them to save each of them and any of their agents harmless, then,
subject to Sections 3.1(b), 3.1(c) and 5.1 and in the absence of notice to the
Company or the Rights Agent that such Rights Certificate has been acquired by a
BONA FIDE purchaser, the Company shall execute and upon its request the Rights
Agent shall countersign and deliver, in lieu of any such destroyed, lost or
stolen Rights Certificate, a new Rights Certificate evidencing the same number
of Rights as did the Rights Certificate so destroyed, lost or stolen.
(c) As a condition to the issuance of any new Rights Certificate under this
Section 2.8, the Company may require the payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in relation thereto and
any other expenses (including the fees and expenses of the Rights Agent)
connected therewith.
(d) Every new Rights Certificate issued pursuant to this Section 2.8 in lieu
of any destroyed, lost or stolen Rights Certificate shall evidence an original
additional contractual obligation of the Company, whether or not the destroyed,
lost or stolen Rights Certificate shall be at any time enforceable by anyone,
and, subject to Section 3.1(b) shall be entitled to all the benefits of this
Agreement equally and proportionately with any and all other Rights duly issued
hereunder.
2.9 PERSONS DEEMED OWNERS. Prior to due presentment of a Rights
Certificate (or, prior to the Separation Time, the associated Common Stock
certificate) for registration of transfer, the Company, the Rights Agent and any
agent of the Company or the Rights Agent may deem and treat the person in whose
name such Rights Certificate (or, prior to the Separation Time, such Common
Stock certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby for all purposes whatsoever, including the payment of the
Redemption Price and neither the Company nor the Rights Agent shall be affected
by any notice to the contrary. As used in this Agreement, unless the context
otherwise requires, the term "holder" of any Rights shall mean the registered
holder of such Rights (or, prior to the Separation Time, the associated shares
of Common Stock).
2.10 DELIVERY AND CANCELLATION OF CERTIFICATES. All Rights Certificates
surrendered upon exercise or for registration of transfer or exchange shall, if
surrendered to any Person other than the Rights Agent, be delivered to the
Rights Agent and, in any case, shall be promptly cancelled by the Rights Agent.
The Company may at any time deliver to the Rights Agent for cancellation any
Rights
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Certificates previously countersigned and delivered hereunder which the Company
may have acquired in any manner whatsoever, and all Rights Certificates so
delivered shall be promptly cancelled by the Rights Agent. No Rights
Certificates shall be countersigned in lieu of or in exchange for any Rights
Certificates cancelled as provided in this Section 2.10, except as expressly
permitted by this Agreement. The Rights Agent shall destroy all cancelled Rights
Certificates and deliver a certificate of destruction to the Company.
2.11 AGREEMENT OF RIGHTS HOLDERS. Every holder of Rights by accepting the
same consents and agrees with the Company and the Rights Agent and with every
other holder of Rights that:
(a) prior to the Separation Time, each Right will be transferable only
together with, and will be transferred by a transfer of, the associated
share of Common Stock;
(b) after the Separation Time, the Rights Certificates will be
transferable only on the Rights Register as provided herein;
(c) prior to due presentment of a Rights Certificate (or, prior to the
Separation Time, the associated Common Stock certificate) for registration
of transfer, the Company, the Rights Agent and any agent of the Company or
the Rights Agent may deem and treat the person in whose name the Rights
Certificate (or, prior to the Separation Time, the associated Common Stock
certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby for all purposes whatsoever, and neither the Company nor
the Rights Agent shall be affected by any notice to the contrary;
(d) Rights Beneficially Owned by certain Persons will, under the
circumstances set forth in Section 3.1(b), become void; and
(e) this Agreement may be supplemented or amended from time to time
pursuant to Section 2.4(b) or 5.4 hereof.
ARTICLE III
ADJUSTMENTS TO THE RIGHTS IN
THE EVENT OF CERTAIN TRANSACTIONS
3.1 FLIP-IN. (a) In the event that prior to the Expiration Time a Flip-in
Date shall occur, then, to the extent applicable law permits Rights owned by
certain Persons referred to in Section 3.1(b) to become void pursuant to the
provisions thereof, except as provided in this Section 3.1, each Right shall
constitute the right to purchase from the Company, upon exercise thereof in
accordance with the terms hereof (but subject to Section 5.10), that number of
shares of Common Stock having an aggregate Market Price on the Stock Acquisition
Date equal to twice the Exercise Price for an amount in cash equal to the
Exercise Price (such right to be appropriately adjusted in order to protect the
interests of the holders of Rights generally in the event that on or after such
Stock Acquisition Date an event of a type analogous to any of the events
described in Section 2.4(a) or (b) shall have occurred with respect to the
Common Stock).
(b) Notwithstanding the foregoing, to the extent permitted by applicable
law, any Rights that are or were Beneficially Owned on or after the Stock
Acquisition Date by an Acquiring Person or an Affiliate or Associate thereof or
by any transferee, direct or indirect, of any of the foregoing shall become void
and any holder of such Rights (including transferees) shall thereafter have no
right to exercise or transfer such Rights under any provision of this Agreement.
If any Rights Certificate is presented for assignment or exercise and the Person
presenting the same will not complete the certification set forth at the end of
the form of assignment or notice of election to exercise and provide such
additional evidence of the identity of the Beneficial Owner and its Affiliates
and Associates (or former Beneficial Owners and their Affiliates and Associates)
as the Company shall reasonably request, then a majority of the Qualified
Directors shall be entitled conclusively to deem the Beneficial
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Owner thereof to be an Acquiring Person or an Affiliate or Associate thereof or
a transferee of any of the foregoing and accordingly will, to the extent
permitted by applicable law, deem the Rights evidenced thereby to be void and
not transferable or exercisable.
(c) A majority of the Qualified Directors may, at their option, at any time
after a Flip-in Date and prior to the time that an Acquiring Person becomes the
Beneficial Owner of more than 50% of the Total Voting Power of the Company, but
only to the extent applicable law permits Rights owned by certain Persons
referred to in Section 3.1(b) to become void pursuant to the provisions thereof,
elect to exchange all (but not less than all) the then outstanding Rights (which
shall not include Rights that have become void pursuant to the provisions of
Section 3.1(b)) for shares of Common Stock at an exchange ratio of one share of
Common Stock per Right, appropriately adjusted in order to protect the interests
of holders of Rights generally in the event that after the Separation Time an
event of a type analogous to any of the events described in Section 2.4(a) or
(b) shall have occurred with respect to the Common Stock (such exchange ratio,
as adjusted from time to time, being hereinafter referred to as the "Exchange
Ratio").
Immediately upon the action of the Qualified Directors electing to exchange
the Rights, without any further action and without any notice, the right to
exercise the Rights will terminate and each Right (other than Rights that have
become void pursuant to Section 3.1(b)) will thereafter represent only the right
to receive a number of shares of Common Stock equal to the Exchange Ratio.
Promptly after the action of the Qualified Directors electing to exchange the
Rights, the Company shall give notice thereof (specifying the steps to be taken
to receive shares of Common Stock in exchange for Rights) to the Rights Agent
and the holders of the Rights (other than Rights that have become void pursuant
to Section 3.1(b)) outstanding immediately prior thereto by mailing such notice
in accordance with Section 5.9.
Each Person in whose name any certificate for shares is issued upon the
exchange of Rights pursuant to this Section 3.1(c) or Section 3.1(d) shall for
all purposes be deemed to have become the holder of record of the shares
represented thereby on, and such certificate shall be dated, the date upon which
the Rights Certificate evidencing such Rights was duly surrendered and payment
of any applicable taxes and other governmental charges payable by the holder was
made; PROVIDED, HOWEVER, that if the date of such surrender and payment is a
date upon which the stock transfer books of the Company are closed, such Person
shall be deemed to have become the record holder of such shares on, and such
certificate shall be dated, the next succeeding Business Day on which the stock
transfer books of the Company are open.
(d) Whenever the Company shall become obligated under Section 3.1(a) or (c)
to issue shares of Common Stock upon exercise of or in exchange for Rights, the
Company, at the option of the Qualified Directors by majority vote, may
substitute therefor shares of Preferred Stock, at a ratio of one one-hundredth
of a share of Preferred Stock for each share of Common Stock so issuable.
(e) In the event that there shall not be sufficient treasury shares or
authorized but unissued shares of Common Stock or Preferred Stock of the Company
to permit the exercise or exchange in full of the Rights in accordance with
Section 3.1(a) or (c), and the Qualified Directors elect not to, or the Company
is otherwise unable to, make the exchange referred to in Section 3.1(c), the
Company shall either (i) call a meeting of shareholders seeking approval to
cause sufficient additional shares to be authorized (provided that if such
approval is not obtained the Company will take the action specified in clause
(ii) of this sentence) or (ii) take such action as shall be necessary to ensure
and provide, to the extent permitted by applicable law and any agreements or
instruments in effect on the Stock Acquisition Date to which it is a party, that
each Right shall thereafter constitute the right to receive, (x) at the
Company's option, either (A) in return for the Exercise Price, debt or equity
securities or other assets (or a combination thereof) having a fair value equal
to twice the Exercise Price, or (B) without payment of consideration (except as
otherwise required by applicable law), debt or equity securities or other assets
(or a combination thereof) having a fair value equal to the Exercise Price, or
(y) if the Qualified Directors of the Company elect to exchange the Rights in
accordance with Section 3.1(c),
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debt or equity securities or other assets (or a combination thereof) having a
fair value equal to the product of the Market Price of a share of Common Stock
on the Flip-in Date times the Exchange Ratio in effect on the Flip-in Date,
where in any case set forth in (x) or (y) above the fair value of such debt or
equity securities or other assets shall be as determined in good faith by the
Qualified Directors, after consultation with a nationally recognized investment
banking firm.
3.2 FLIP-OVER. (a) Prior to the Expiration Time, the Company shall not
enter into any agreement with respect to, consummate or permit to occur any
Flip-over Transaction or Event unless and until it shall have entered into a
supplemental agreement with the Flip-over Entity, for the benefit of the holders
of the Rights, providing that, upon consummation or occurrence of the Flip-over
Transaction or Event (i) each Right shall thereafter constitute the right to
purchase from the Flip-over Entity, upon exercise thereof in accordance with the
terms hereof, that number of shares of Flip-over Stock of the Flip-over Entity
having an aggregate Market Price on the date of consummation or occurrence of
such Flip-over Transaction or Event equal to twice the Exercise Price for an
amount in cash equal to the Exercise Price (such right to be appropriately
adjusted in order to protect the interests of the holders of Rights generally in
the event that after such date of consummation or occurrence an event of a type
analogous to any of the events described in Section 2.4(a) or (b) shall have
occurred with respect to the Flip-over Stock) and (ii) the Flip-over Entity
shall thereafter be liable for, and shall assume, by virtue of such Flip-over
Transaction or Event and such supplemental agreement, all the obligations and
duties of the Company pursuant to this Agreement. The provisions of this Section
3.2 shall apply to successive Flip-over Transactions or Events.
(b) Prior to the Expiration Time, unless the Rights will be redeemed
pursuant to Section 5.1 hereof in connection therewith, the Company shall not
enter into any agreement with respect to, consummate or permit to occur any
Flip-over Transaction or Event if at the time thereof there are any rights,
warrants or securities outstanding or any other arrangements, agreements or
instruments that would eliminate or otherwise diminish in any material respect
the benefits intended to be afforded by this Rights Agreement to the holders of
Rights upon consummation of such transaction.
ARTICLE IV
THE RIGHTS AGENT
4.1 GENERAL. (a) The Company hereby appoints the Rights Agent to act as
agent for the Company in accordance with the terms and conditions hereof, and
the Rights Agent hereby accepts such appointment. The Company agrees to pay to
the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted to be done by the Rights Agent in connection with the
acceptance and administration of this Agreement, including the costs and
expenses of defending against any claim of liability.
(b) The Rights Agent shall be protected and shall incur no liability for or
in respect of any action taken, suffered or omitted by it in connection with its
administration of this Agreement in reliance upon any certificate for securities
purchasable upon exercise of Rights, Rights Certificate, certificate for other
securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper person or persons.
4.2 MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT. (a) Any
corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be
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consolidated, or any corporation resulting from any merger or consolidation to
which the Rights Agent or any successor Rights Agent is a party, or any
corporation succeeding to the shareholder services business of the Rights Agent
or any successor Rights Agent, will be the successor to the Rights Agent under
this Agreement without the execution or filing of any paper or any further act
on the part of any of the parties hereto, provided that such corporation would
be eligible for appointment as a successor Rights Agent under the provisions of
Section 4.4 hereof. In case at the time such successor Rights Agent succeeds to
the agency created by this Agreement any of the Rights Certificates have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Rights
Certificates so countersigned; and in case at that time any of the Rights
Certificates have not been countersigned, any successor Rights Agent may
countersign such Rights Certificates either in the name of the predecessor
Rights Agent or in the name of the successor Rights Agent; and in all such cases
such Rights Certificates will have the full force provided in the Rights
Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent is changed and at such
time any of the Rights Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Rights Certificates so countersigned; and in case at that time any
of the Rights Certificates shall not have been countersigned, the Rights Agent
may countersign such Rights Certificates either in its prior name or in its
changed name; and in all such cases such Rights Certificates shall have the full
force provided in the Rights Certificates and in this Agreement.
4.3 DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions,
by all of which the Company and the holders of Rights Certificates, by their
acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel will be full and
complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent deems it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by the persons believed by the Rights
Agent to be the Chairman or Vice Chairman of the Board or the President or a
Vice President and the Chief Financial Officer or an Assistant Treasurer or
the Secretary or any Assistant Secretary and delivered to the Rights Agent;
and such certificate will be full authorization to the Rights Agent for any
action taken or suffered in good faith by it under the provisions of this
Agreement in reliance upon such certificate.
(c) The Rights Agent will be liable hereunder only for its own
negligence, bad faith or willful misconduct.
(d) The Rights Agent will not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the
certificates for securities purchasable upon exercise of Rights or the
Rights Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and will be deemed
to have been made by the Company only.
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(e) The Rights Agent will not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof (except
the due authorization, execution and delivery hereof by the Rights Agent) or
in respect of the validity or execution of any certificate for securities
purchasable upon exercise of Rights or Rights Certificate (except its
countersignature thereof); nor will it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement or in any
Rights Certificate; nor will it be responsible for any change in the
exercisability of the Rights (including the Rights becoming void pursuant to
Section 3.1(b) hereof) or any adjustment required under the provisions of
Section 2.4, 3.1 or 3.2 hereof or responsible for the manner, method or
amount of any such adjustment or the ascertaining of the existence of facts
that would require any such adjustment (except with respect to the exercise
of Rights after receipt of the certificate contemplated by Section 2.4
describing any such adjustment); nor will it by any act hereunder be deemed
to make any representation or warranty as to the authorization or
reservation of any securities purchasable upon exercise of Rights or any
Rights or as to whether any securities purchasable upon exercise of Rights
will, when issued, be duly and validly authorized, executed, issued and
delivered and fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing by the
Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from
any person believed by the Rights Agent to be the Chief Executive Officer,
the President or any Vice President or the Secretary or any Assistant
Secretary or the Treasurer or any Assistant Treasurer of the Company, and to
apply to such persons for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or suffered by it in
good faith in accordance with instructions of any such person.
(h) The Rights Agent and any shareholder, director, officer or employee
of the Rights Agent may buy, sell or deal in Common Stock, Rights or other
securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were
not Rights Agent under this Agreement. Nothing herein shall preclude the
Rights Agent from acting in any other capacity for the Company or for any
other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by
or through its attorneys or agents, and the Rights Agent will not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company resulting from any
such act, default, neglect or misconduct, provided reasonable care was
exercised in the selection and continued employment thereof.
4.4 CHANGE OF RIGHTS AGENT. The Rights Agent may resign and be discharged
from its duties under this Agreement upon 90 days' notice (or such lesser notice
as is acceptable to the Company) in writing mailed to the Company and to each
transfer agent of Common Stock by registered or certified mail, and to the
holders of the Rights in accordance with Section 5.9. The Company may remove the
Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent and to
each transfer agent of the Common Stock by registered or certified mail, and to
the holders of the Rights in accordance with Section 5.9. If the Rights Agent
should resign or be removed or otherwise become incapable of acting, the Company
will appoint a successor to the Rights Agent. If the Company fails to make such
appointment within a period of 30 days after such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of any Rights (which holder shall,
with such notice, submit such holder's Rights Certificate for inspection by the
Company), then the holder of any Rights may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any successor Rights
Agent, whether appointed by the Company
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or by such a court, shall be a corporation organized and doing business under
the laws of the United States or of any state of the United States, in good
standing, which is authorized under such laws to exercise the powers of the
Rights Agent contemplated by this Agreement and is subject to supervision or
examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least
$50,000,000. After appointment, the successor Rights Agent will be vested with
the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company will file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Stock, and mail a notice thereof in writing to the holders of the
Rights. Failure to give any notice provided for in this Section 4.4, however, or
any defect therein, shall not affect the legality or validity of the resignation
or removal of the Rights Agent or the appointment of the successor Rights Agent,
as the case may be.
ARTICLE V
MISCELLANEOUS
5.1 REDEMPTION. (a) A majority of the Qualified Directors may, at their
option, at any time prior to the close of business on the Flip-in Date, elect to
redeem all (but not less than all) the then outstanding Rights at the Redemption
Price and the Company, at its option, may pay the Redemption Price either in
cash or shares of Common Stock or other securities of the Company deemed by a
majority of the Qualified Directors, in the exercise of their sole discretion,
to be at least equivalent in value to the Redemption Price.
(b) Immediately upon the action of the Qualified Directors electing to
redeem the Rights (or, if the resolution of the Qualified Directors electing to
redeem the Rights states that the redemption will not be effective until the
occurrence of a specified future time or event, upon the occurrence of such
future time or event), without any further action and without any notice, the
right to exercise the Rights will terminate and each Right will thereafter
represent only the right to receive the Redemption Price in cash or securities,
as determined by the Qualified Directors. Promptly after the Rights are
redeemed, the Company shall give notice of such redemption to the Rights Agent
and the holders of the then outstanding Rights by mailing such notice in
accordance with Section 5.9.
5.2 EXPIRATION. The Rights and this Agreement shall expire at the
Expiration Time and no Person shall have any rights pursuant to this Agreement
or any Right after the Expiration Time, except, if the Rights are exchanged or
redeemed, as provided in Section 3.1 or 5.1 hereof.
5.3 ISSUANCE OF NEW RIGHTS CERTIFICATES. Notwithstanding any of the
provisions of this Agreement or of the Rights to the contrary, the Company may,
at its option, issue new Rights Certificates evidencing Rights in such form as
may be approved by its Board of Directors to reflect any adjustment or change in
the number or kind or class of shares of stock purchasable upon exercise of
Rights made in accordance with the provisions of this Agreement. In addition, in
connection with the issuance or sale of shares of Common Stock by the Company
following the Separation Time and prior to the Expiration Time pursuant to the
terms of securities convertible or redeemable into shares of Common Stock or to
options, in each case issued or granted prior to, and outstanding at, the
Separation Time, the Company shall issue to the holders of such shares of Common
Stock, Rights Certificates representing the appropriate number of Rights in
connection with the issuance or sale of such shares of Common Stock; PROVIDED,
HOWEVER, in each case, (i) no such Rights Certificate shall be issued, if, and
to the extent that, the Company shall be advised by counsel that such issuance
would create a significant risk of material adverse tax consequences to the
Company or to the Person to whom such Rights Certificates would be issued, (ii)
no such Rights Certificates shall be issued if, and to the extent that,
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appropriate adjustment shall have otherwise been made in lieu of the issuance
thereof, and (iii) the Company shall have no obligation to distribute Rights
Certificates to any Acquiring Person or Affiliate or Associate of an Acquiring
Person or any transferee of any of the foregoing.
5.4 SUPPLEMENTS AND AMENDMENTS. The Company by a majority vote of the
Qualified Directors and the Rights Agent may from time to time supplement or
amend this Agreement without the approval of any holders of Rights (i) prior to
the close of business on the Flip-in Date, in any respect and (ii) after the
close of business on the Flip-in Date, to make any changes that the Company may
deem necessary or desirable and which shall not materially adversely affect the
interests of the holders of Rights generally or in order to cure any ambiguity
or to correct or supplement any provision contained herein which may be
inconsistent with any other provisions herein or otherwise defective; PROVIDED,
HOWEVER, that no person who is employed by, Affiliated with or a nominee (other
than a nominee for Independent Director (as such term is defined in the
Shareholder Agreement) or representative of any Person that is a member of any
group (as defined under Rule 13d-5 of the Securities Exchange Act of 1934, as
such Rule is in effect on the date of this Agreement) that Beneficially Owns 25
percent or more of the Total Voting Power of the Company or employed by or
Affiliated with any of such Person's Subsidiaries, excluding for the purpose of
the foregoing any Affiliation by reason of being a member on the Board of
Directors of the Company or its Subsidiaries, shall be a Qualified Director with
respect to any vote to amend this first proviso or any vote to exempt any member
of such Group or any Affiliates or Associates of such member from the definition
of Acquiring Person; PROVIDED, FURTHER, that a vote of 75% of the entire Board
will be required to amend this second proviso or the definition of Acquiring
Person with respect to any Person that is a party to the Shareholder Agreement.
The Rights Agent will duly execute and deliver any supplement or amendment
hereto requested by the Company which satisfies the terms of the preceding
sentence.
5.5 FRACTIONAL SHARES. If the Company elects not to issue certificates
representing fractional shares upon exercise or redemption of Rights, the
Company shall, in lieu thereof, in the sole discretion of the Board of
Directors, either (a) evidence such fractional shares by depositary receipts
issued pursuant to an appropriate agreement between the Company and a depositary
selected by it, providing that each holder of a depositary receipt shall have
all of the rights, privileges and preferences to which such holder would be
entitled as a Beneficial Owner of such fractional share, or (b) sell such shares
on behalf of the holders of Right and pay to the registered holder of such
Rights the appropriate fraction of price per share received upon such sale.
5.6 RIGHTS OF ACTION. Subject to the terms of this Agreement (including
Section 3.1(b)), rights of action in respect of this Agreement, other than
rights of action vested solely in the Rights Agent, are vested in the respective
holders of the Rights; and any holder of any Rights, without the consent of the
Rights Agent or of the holder of any other Rights, may, on such holder's own
behalf and for such holder's own benefit and the benefit of other holders of
Rights, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, such holder's
right to exercise such holder's Rights in the manner provided in such holder's
Rights Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened violations
of, the obligations of any Person subject to this Agreement.
5.7 HOLDER OF RIGHTS NOT DEEMED A SHAREHOLDER. No holder, as such, of any
Rights shall be entitled to vote, receive dividends or be deemed for any purpose
the holder of shares or any other securities which may at any time be issuable
on the exercise of such Rights, nor shall anything contained herein or in any
Rights Certificate be construed to confer upon the holder of any Rights, as
such, any of the rights of a shareholder of the Company or any right to vote for
the election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting shareholders (except as
provided in Section 5.8 hereof), or to receive dividends or subscription rights,
or otherwise, until such Rights shall have been exercised or exchanged in
accordance with the provisions hereof.
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5.8 NOTICE OF PROPOSED ACTIONS. In case the Company shall propose after
the Separation Time and prior to the Expiration Time (i) to effect or permit a
Flip-over Transaction or Event or (ii) to effect the liquidation, dissolution or
winding up of the Company, then, in each such case, the Company shall give to
each holder of a Right, in accordance with Section 5.9 hereof, a notice of such
proposed action, which shall specify the date on which such Flip-over
Transaction or Event, liquidation, dissolution, or winding up is to take place,
and such notice shall be so given at least 20 Business Days prior to the date of
the taking of such proposed action.
5.9 NOTICES. Notices or demands authorized or required by this Agreement
to be given or made by the Rights Agent or by the holder of any Rights to or on
the Company shall be sufficiently given or made if delivered or sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
Paracelsus Healthcare Corporation
515 West Greens Road
Suite 800
Houston, TX 77067
Attention: General Counsel
Any notice or demand authorized or required by this Agreement to be given or
made by the Company or by the holder of any Rights to or on the Rights Agent
shall be sufficiently given or made if delivered or sent by first-class mail,
postage prepaid, addressed (until another address is filed in writing with the
Company) as follows:
[Rights Agent address]
Attention:
Notices or demands authorized or required by this Agreement to be given or made
by the Company or the Rights Agent to or on the holder of any Rights shall be
sufficiently given or made if delivered or sent by first-class mail, postage
prepaid, addressed to such holder at the address of such holder as it appears
upon the registry books of the Rights Agent or, prior to the Separation Time, on
the registry books of the transfer agent for the Common Stock. Any notice which
is mailed in the manner herein provided shall be deemed given, whether or not
the holder receives the notice.
5.10 SUSPENSION OF EXERCISABILITY. To the extent that the Company
determines in good faith that some action will or need be taken pursuant to
Section 3.1 or to comply with federal or state securities laws, the Company by a
majority vote of the Qualified Directors may suspend the exercisability of the
Rights for a reasonable period in order to take such action or comply with such
laws. In the event of any such suspension, the Company shall issue as promptly
as practicable a public announcement stating that the exercisability or
exchangeability of the Rights has been temporarily suspended. Notice thereof
pursuant to Section 5.9 shall not be required.
Failure to give a notice pursuant to the provisions of this Agreement shall
not affect the validity of any action taken hereunder.
5.11 COSTS OF ENFORCEMENT. The Company agrees that if the Company or any
other Person the securities of which are purchasable upon exercise of Rights
fails to fulfill any of its obligations pursuant to this Agreement, then the
Company or such Person will reimburse the holder of any Rights for the costs and
expenses (including legal fees) incurred by such holder in actions to enforce
such holder's rights pursuant to any Rights or this Agreement.
5.12 SUCCESSORS. All the covenants and provisions of this Agreement by or
for the benefit of the Company or the Rights Agent shall bind and inure to the
benefit of their respective successors and assigns hereunder.
17
<PAGE>
5.13 BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any Person other than the Company, the Rights Agent and the
holders of the Rights any legal or equitable right, remedy or claim under this
Agreement and this Agreement shall be for the sole and exclusive benefit of the
Company, the Rights Agent and the holders of the Rights.
5.14 DETERMINATION AND ACTIONS BY THE QUALIFIED DIRECTORS OR BOARD OF
DIRECTORS, ETC. The Qualified Directors shall, except as otherwise expressly
granted to the entire Board of Directors, have the exclusive power and authority
to administer this Agreement and to exercise all rights and powers specifically
granted to the Qualified Directors or to the Company, or as may be necessary or
advisable in the administration of this Agreement, including, without
limitation, the right and power to (i) interpret the provisions of this
Agreement and (ii) make all determinations deemed necessary or advisable for the
administration of this Agreement. All such actions, calculations,
interpretations and determinations (including, for purposes of clause (y) below,
all omissions with respect to the foregoing) which are done or made by the
Qualified Directors or, as applicable, the Board of Directors in good faith,
shall (x) be final, conclusive and binding on the Company, the Rights Agent, the
holders of the Rights and all other parties and (y) not subject any member of
the Board of Directors of the Company to any liability to the holders of the
Rights.
5.15 DESCRIPTIVE HEADINGS. Descriptive headings appear herein for
convenience only and shall not control or affect the meaning or construction of
any of the provisions hereof.
5.16 GOVERNING LAW. THIS AGREEMENT AND EACH RIGHT ISSUED HEREUNDER SHALL
BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF INCORPORATION OF
THE COMPANY AND FOR ALL PURPOSES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF SUCH STATE APPLICABLE TO CONTRACTS TO BE MADE AND
PERFORMED ENTIRELY WITHIN SUCH STATE.
5.17 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
5.18 SEVERABILITY. If any term or provision hereof or the application
thereof to any circumstance shall, in any jurisdiction and to any extent, be
invalid or unenforceable, such term or provision shall be ineffective as to such
jurisdiction to the extent of such invalidity or unenforceability without
invalidating or rendering unenforceable the remaining terms and provisions
hereof or the application of such term or provision to circumstances other than
those as to which it is held invalid or unenforceable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first above written.
PARACELSUS HEALTHCARE CORPORATION
By:
--------------------------------------
Name:
Title:
[NAME OF RIGHTS AGENT]
By:
--------------------------------------
Name:
Title:
18
<PAGE>
EXHIBIT A
[Form of Rights Certificate]
Certificate No. W- _______ Rights
THE RIGHTS ARE SUBJECT TO REDEMPTION OR MANDATORY EXCHANGE, AT THE
OPTION OF THE COMPANY, ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.
TO THE EXTENT PERMITTED BY APPLICABLE LAW, RIGHTS BENEFICIALLY OWNED BY
ACQUIRING PERSONS OR AFFILIATES OR ASSOCIATES THEREOF (AS SUCH TERMS ARE
DEFINED IN THE RIGHTS AGREEMENT) OR TRANSFEREES OF ANY OF THE FOREGOING
WILL BE VOID.
RIGHTS CERTIFICATE
PARACELSUS HEALTHCARE CORPORATION
This certifies that _____________, or registered assigns, is the registered
holder of the number of Rights set forth above, each of which entitles the
registered holder thereof, subject to the terms, provisions and conditions of
the Shareholder Protection Rights Agreement, dated as of ____________, 1996 (as
amended from time to time, the "Rights Agreement"), between Paracelsus
Healthcare Corporation, a California corporation (the "Company"), and
________________, a ________________, as Rights Agent (the "Rights Agent," which
term shall include any successor Rights Agent under the Rights Agreement), to
purchase from the Company at any time after the Separation Time (as such term is
defined in the Rights Agreement) and prior to the close of business on
, 2006, one one-hundredth of a fully paid share of Participating
Preferred Stock, par value $.01 per share (the "Preferred Stock"), of the
Company (subject to adjustment as provided in the Rights Agreement) at the
Exercise Price referred to below, upon presentation and surrender of this Rights
Certificate with the Form of Election to Exercise duly executed at the principal
office of the Rights Agent in [The City of New York]. The Exercise Price shall
initially be $______ per Right and shall be subject to adjustment in certain
events as provided in the Rights Agreement.
In certain circumstances described in the Rights Agreement, the Rights
evidenced hereby may entitle the registered holder thereof to purchase
securities of an entity other than the Company or securities or assets of the
Company other than Preferred Stock, all as provided in the Rights Agreement.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates. Copies of
the Rights Agreement are on file at the principal office of the Company and are
available without cost upon written request.
This Rights Certificate, with or without other Rights Certificates, upon
surrender at the office of the Rights Agent designated for such purpose, may be
exchanged for another Rights Certificate or Rights Certificates of like tenor
evidencing an aggregate number of Rights equal to the aggregate number of Rights
evidenced by the Rights Certificate or Rights Certificates surrendered. If this
Rights Certificate shall be exercised in part, the registered holder shall be
entitled to receive, upon surrender hereof, another Rights Certificate or Rights
Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, each Right evidenced by
this Certificate may be (a) redeemed by the Company under certain circumstances,
at its option, at a redemption price of $0.01 per Right or (b) exchanged by the
Company under certain circumstances, at its option, for one share of Common
Stock or one one-hundredth of a share of Preferred Stock per Right (or, in
certain cases, other securities or assets of the Company), subject in each case
to adjustment in certain events as provided in the Rights Agreement.
No holder of this Rights Certificate, as such, shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of any securities
which may at any time be issuable on the exercise hereof, nor shall anything
contained in the Rights Agreement or herein be construed to confer upon
<PAGE>
the holder hereof, as such, any of the rights of a shareholder of the Company or
any right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
shareholders (except as provided in the Rights Agreement), or to receive
dividends or subscription rights, or otherwise, until the Rights evidenced by
this Rights Certificate shall have been exercised or exchanged as provided in
the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal.
<TABLE>
<S> <C>
Date: ------------------------
ATTEST: PARACELSUS HEALTHCARE CORPORATION
- ---------------------------------------- By
Secretary ----------------------------------------
Countersigned:
[INSERT NAME OF RIGHTS AGENT]
By
- -------------------------------------
Authorized Signature
</TABLE>
2
<PAGE>
[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer this Rights Certificate.)
FOR VALUE RECEIVED ________________ hereby sells, assigns and transfers unto
________________________________________________________________________________
(Please print name and address of transferee)
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _____________ Attorney, to
transfer the within Rights Certificate on the books of the within-named Company,
with full power of substitution.
Dated: ____________, 19__
<TABLE>
<S> <C>
Signature Guaranteed: -------------------------------------------
Signature
(Signature must correspond to name as
written upon the face of this Rights
Certificate in every particular, without
alteration or enlargement or any change
whatsoever)
</TABLE>
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or by a commercial bank or trust company having an office or correspondent
in the United States that is a member of a Medallion Signature Guaranty Program.
3
<PAGE>
- --------------------------------------------------------------------------------
(To be completed if true)
The undersigned hereby represents, for the benefit of all holders of Rights
and shares of Common Stock, that the Rights evidenced by this Rights Certificate
are not, and, to the knowledge of the undersigned, have never been, Beneficially
Owned by an Acquiring Person or an Affiliate or Associate thereof (as defined in
the Rights Agreement).
--------------------------------------
Signature
- --------------------------------------------------------------------------------
NOTICE
In the event the certification set forth above is not completed in
connection with a purported assignment, the Company will deem the Beneficial
Owner of the Rights evidenced by the enclosed Rights Certificate to be an
Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights
Agreement) or a transferee of any of the foregoing and accordingly will deem the
Rights evidenced by such Rights Certificate to be void and not transferable or
exercisable.
4
<PAGE>
[To be attached to each Rights Certificate]
FORM OF ELECTION TO EXERCISE
(To be executed if holder desires to
exercise the Rights Certificate.)
TO: PARACELSUS HEALTHCARE CORPORATION
The undersigned hereby irrevocably elects to exercise whole Rights
represented by the attached Rights Certificate to purchase the shares of
Participating Preferred Stock issuable upon the exercise of such Rights and
requests that certificates for such shares be issued in the name of:
______________________________________________________
Address: _____________________________________________
______________________________________________________
Social Security or Other Taxpayer
Identification Number: _______________________________
If such number of Rights shall not be all the Rights evidenced by this
Rights Certificate, a new Rights Certificate for the balance of such Rights
shall be registered in the name of and delivered to:
______________________________________________________
Address: _____________________________________________
______________________________________________________
Social Security or Other Taxpayer
Identification Number: _______________________________
Dated: ____________, 19__
<TABLE>
<S> <C>
Signature Guaranteed: -------------------------------------------
Signature
(Signature must correspond to name as
written upon the face of the attached Rights
Certificate in every particular, without
alteration or enlargement or any change
whatsoever)
</TABLE>
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or by a commercial bank or trust company having an office or correspondent
in the United States that is a member of a Medallion Signature Guaranty Program.
5
<PAGE>
- --------------------------------------------------------------------------------
(To be completed if true)
The undersigned hereby represents, for the benefit of all holders of Rights
and shares of Common Stock, that the Rights evidenced by the attached Rights
Certificate are not, and, to the knowledge of the undersigned, have never been,
Beneficially Owned by an Acquiring Person or an Affiliate or Associate thereof
(as defined in the Rights Agreement).
--------------------------------------
Signature
- --------------------------------------------------------------------------------
NOTICE
In the event the certification set forth above is not completed in
connection with a purported exercise, the Company will deem the Beneficial Owner
of the Rights evidenced by the attached Rights Certificate to be an Acquiring
Person or an Affiliate or Associate thereof (as defined in the Rights Agreement)
or a transferee of any of the foregoing and accordingly will deem the Rights
evidenced by such Rights Certificate to be void and not transferable or
exercisable.
6
<PAGE>
EXHIBIT 5.1
[Letterhead of Skadden, Arps, Slate, Meagher & Flom]
July 19, 1996
Paracelsus Healthcare Corporation
155 North Lake Avenue, Suite 1100
Pasadena, California 91101
Re: Paracelsus Healthcare Corporation
Registration Statement on Form S-4
----------------------------------
Ladies and Gentlemen:
We have acted as special counsel to Paracelsus Healthcare Corporation,
a California corporation (the "Company"), in connection with the transactions
contemplated by the Agreement and Plan of Merger, dated as of April 12, 1996 (as
amended on May 29, 1996, the "Merger Agreement"), by and among Champion
Healthcare Corporation, a Delaware corporation ("Champion"), PC Merger Sub,
Inc., a Delaware corporation ("Merger Sub"), and the Company.
Pursuant to the Merger Agreement, Merger Sub will be merged (the
"Merger") with and into Champion, and Champion will become a wholly owned
subsidiary of the Company. Pursuant to the Merger, (i) each outstanding share
of common stock, par value $0.01 per share, of Champion (the "Champion Common
Stock"), other than shares of Champion Common Stock held by Champion or any of
its subsidiaries (which will be cancelled) and other than shares for which
appraisal rights shall be perfected under Delaware law, will be converted into
the right to receive one share of the common stock, no stated par value, of the
Company (the "Company Common Stock"), (ii) each share of Series C Preferred
Stock of Champion (the "Series C Preferred Stock") and Series D Preferred Stock
of Champion (together with the Series C Preferred Stock, the "Champion Preferred
Stock"), other than shares of Champion Preferred Stock held by Champion or any
of its subsidiaries and shares of Champion Preferred Stock as to which appraisal
rights shall be perfected under Delaware law, will be converted into the right
to receive two
<PAGE>
Paracelsus Healthcare Corporation
July 19, 1996
Page 2
shares of Champion Common Stock and (iii) certain Champion securities, including
rights, options and warrants, will become convertible into or exchangeable for,
Company Common Stock (all such securities, together with the Champion Common
Stock and Champion Preferred Stock, the "Champion Securities").
In connection with the transactions contemplated by the Merger
Agreement, the Company is filing with the Securities and Exchange Commission
(the "Commission") a Registration Statement on Form S-4 (the "Registration
Statement") relating to the registration under the Securities Act of 1933, as
amended (the "Securities Act") of up to an aggregate of 20,177,711 shares (the
"Shares") of Common Stock to be issued pursuant to the Merger Agreement in
respect of outstanding Champion Securities.
This opinion is being delivered in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act.
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement, together with the forms of preliminary prospectus forming a part
thereof, (ii) the Articles of Incorporation of the Company as in effect on the
date hereof, (iii) the Bylaws of the Company as in effect on the date hereof,
(iv) the Amended and Restated Articles of Incorporation of the Company, to be
effective upon the consummation of the Merger, included as Exhibit 3.5 to the
Registration Statement ("Amended and Restated Articles"), (v) the Amended and
Restated Bylaws of the Company, to be effective upon the consummation of the
Merger, included as Exhibit 3.6 to the Registration Statement, (vi) the Merger
Agreement, (vii) a specimen certificate representing the Company Common Stock
and (viii) certain resolutions of the Board of Directors of the Company relating
to the issuance of the Shares and the filing of the Registration Statement. We
have also examined originals or copies, certified or otherwise identified to our
satisfaction, of such records of the Company and such agreements, certificates
of public officials, certificates of officers or other representatives of the
Company and others, and such other documents, certificates and
<PAGE>
Paracelsus Healthcare Corporation
July 19, 1996
Page 3
records as we have deemed necessary or appropriate as a basis for the opinions
set forth herein.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such latter documents. In making our
examination of documents executed or to be executed by parties other than the
Company, we have assumed that such parties had or will have the power, corporate
or other, to enter into and perform all obligations thereunder and have also
assumed the due authorization by all requisite action, corporate or other, and
execution and delivery by such parties of such documents and the validity and
binding effect thereof. As to any facts material to the opinions expressed
herein which we have not independently established or verified, we have relied
upon statements and representations of officers and other representatives of the
Company and others.
Members of our firm are admitted to the bar in the State of
California, and we do not express any opinion as to the laws of any other
jurisdiction.
Based upon and subject to the foregoing, we are of the opinion that:
The Shares have been duly and validly authorized by the Company and,
when (i) the Certificate of Merger is filed in accordance with the General
Corporation Law of the State of Delaware in accordance with the terms of the
Merger Agreement and (ii) the Amended and Restated Articles of the Company
become effective at the effective time of the Merger, the Shares will be validly
issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement. We also consent to the reference to
our firm under the caption "Legal Matters" in the Proxy State-
<PAGE>
Paracelsus Healthcare Corporation
July 19, 1996
Page 4
ment/Prospectus. In giving this consent, we do not thereby admit that we are
included in the category of persons whose consent is required under Section 7 of
the Act or the rules and regulations of the Commission.
Very truly yours,
Skadden, Arps, Slate, Meagher & Flom
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF SULLIVAN & CROMWELL]
July 19, 1996
Champion Healthcare Corporation,
515 West Greens Road,
Suite 800,
Houston, TX 77067.
Ladies and Gentlemen:
We have acted as special counsel to Champion Healthcare Corporation
("Champion") in connection with the Registration Statement on Form S-4 of
Paracelsus Healthcare Corporation ("Paracelsus") filed with the Securities and
Exchange Commission on July 19, 1996 (the "Registration Statement") and hereby
confirm to you our opinion as set forth under the heading "The Merger -- Certain
Federal Income Tax Consequences" in the Proxy Statement/Prospectus included in
the Registration Statement, subject to the assumptions set forth in this letter.
Capitalized terms used but not defined herein have the meanings specified in the
Agreement and Plan of Merger dated as of April 12, 1996, as amended and restated
as of May 29, 1996 (the "Merger Agreement").
In connection with our opinion, we have assumed the following with your
consent and the consent of Paracelsus:
(1) The Merger will be effected in accordance with the Merger Agreement.
(2) The facts and representations contained in letters to us from
Champion and Paracelsus dated July 19, 1996, respectively, were true and
correct when made and will remain true and correct through the date of the
Effective Time and, as to representations qualified by the best knowledge of
the management of Champion or Paracelsus, the underlying facts as of the
Effective Time will be consistent with such knowledge.
We hereby consent to the filing with the Securities and Exchange Commission
of this letter as an exhibit to the Registration Statement and the references to
us under the headings "Summary -- The Merger -- Certain Federal Income Tax
Consequences" and "The Merger -- Certain Federal Income Tax Consequences". In
giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
/s/ SULLIVAN & CROMWELL
<PAGE>
EXHIBIT 10.16
RESTATED PARACELSUS HEALTHCARE CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<PAGE>
RESTATED PARACELSUS HEALTHCARE CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
EFFECTIVE JANUARY 1, 1996
PURPOSE
The purpose of this Plan is to provide specified benefits to a select group
of management and highly compensated employees who contribute materially to the
continued growth, development and future business success of PARACELSUS
HEALTHCARE CORPORATION, a California corporation, and its subsidiaries, if any,
that sponsor this Plan. This Plan shall be unfunded for tax purposes and for
purposes of Title I of ERISA.
RECITALS
A. The Company established a Supplemental Executive Retirement Plan,
effective on January 1, 1986 (the "Original Plan").
B. The Company desires to terminate the Original Plan and to replace it in
its entirety by this Plan in order to clarify benefits and expand payment
options.
AGREEMENT
NOW, THEREFORE the Original Plan is hereby terminated and replaced by the
following:
ARTICLE 1
DEFINITIONS
For purposes hereof, unless otherwise clearly apparent from the context, the
following phrases or terms shall have the following indicated meanings:
1.1 "Actuarial Equivalent" shall mean an actuarial equivalent value of an
amount payable in a different form and/or at a different date computed in
accordance with actuarial principles, and based on the following actuarial
assumptions:
Mortality: 85% of the 1983 GAM Mortality Table
Interest Rate: Seven percent (7%)
As the Committee deems necessary, in its sole discretion, the above
actuarial assumptions may be adjusted from time to time, and no Participant
shall be deemed to have any right, vested or nonvested, regarding the
continued use of any previously adopted actuarial assumption; provided,
however, that the mortality table shall assume no shorter life expectancies
than the one provided above and provided further that the interest rate
assumption shall not exceed seven percent (7%). In addition, the interest
rate used by the Pension Benefit Guaranty Corporation to value immediate
and deferred annuities shall be used at the time of a calculation under
this Plan if its use will generate a greater benefit for or payment to a
Participant, or create a greater contribution obligation to the Trust, than
the interest rate set forth herein.
1.2 "Applicable Compensation Percentage" shall mean:
(a) In the case of Retirement or Termination of Employment: (i) with
respect to Officer Participants, 3.67% multiplied by such Participant's
Years of Service; and (ii) with respect to Nonofficer Participants,
2.33% times such Participant's Years of Service. If a Participant's
Years of Service exceed 15, for purposes of the calculation in the
previous sentence, such Participant's Years of Service shall be deemed
to be 15.
1
<PAGE>
(b) In the case of death: (i) if the Participation dies before he or she
would, but for not ceasing employment, be considered to have satisfied
the Early Retirement definition, zero; and (ii) if the Participant dies
on or after he or she would, but for not ceasing employment, be
considered to have satisfied the Early Retirement definition, forty-five
percent (45%) of the number calculated in (a)(i) or (a)(ii), as the case
may be.
(c) In the case of Disability, the Applicable Compensation Percentage
shall be calculated in the same manner as set forth in (a) above with
respect to Retirement, except that the period from the Disability Date
to what would otherwise have been such Participant's Normal Retirement
Date shall be considered "Years of Service" for purposes of the
calculation, whether or not such time period has expired at the time of
the calculation (the maximum of 15 shall continue to apply).
1.3 "Applicable Social Security Percentage" shall mean:
(a) In the case of Retirement or Termination of Employment: 6.67%
multiplied by such Participant's Years of Service, not to exceed 100%.
If a Participant's Years of Service exceed 15, for purposes of the
calculation in the previous sentence, such Participant's Years of
Service shall be deemed to be 15.
(b) In the case of death: (i) if the Participant dies before he or she
would, but for not ceasing employment, be considered to have satisfied
the Early Retirement definition, zero; and (ii) if the Participant dies
on or after he or she would, but for not ceasing employment, be
considered to have satisfied the Early Retirement definition, forty-five
percent (45%) of the number calculated in (a).
(c) In the case of Disability, the Applicable Social Security Percentage
shall be calculated in the same manner as set forth in (a) above with
respect to Retirement except that the period from the Disability Date to
what would otherwise have been such Participant's Normal Retirement Date
shall be considered "Years of Service" for purposes of the calculation,
whether or not such time period has expired at the time of the
calculation (the maximum of 15 shall continue to apply).
1.4 "Beneficiary" shall mean the individual designated, in accordance with
Article 9, that is entitled to receive benefits under this Plan upon the
death of a Participant.
1.5 "Beneficiary, Annuity Benefit and Payment Designation Form" shall mean the
form established from time to time by the Committee that a Participant
completes, signs and returns to the Committee to designate a Beneficiary,
in accordance with Article 9, his or her choice of annuity benefit, in
accordance with Section 1.42, and his or her initial payment elections, in
accordance with Section 4.3.
1.6 "Board" shall mean the board of directors of the Company.
1.7 "Change in Control" shall mean ninety (90) days prior to the first to
occur of any of the following events:
(a) Any "person" (as that term is used in Sections 13 and 14(d)(2) of the
Securities Exchange Act of 1934, as amended ("Exchange Act")), becomes
the beneficial owner (as that term is used in Section 13(d) of the
Exchange Act), directly or indirectly, of 50% or more of the Company's
capital stock entitled to vote in the election of directors;
(b) The shareholders of the Company approve any consolidation or merger of
the Company, other than a consolidation or merger of the Company in
which the holders of the common stock of the Company immediately prior
to the consolidation or merger hold more than 50% of the common stock of
the surviving corporation immediately after the consolidation or merger;
2
<PAGE>
(c) The shareholders of the Company approve any plan or proposal for the
liquidation or dissolution of the Company;
(d) The shareholders of the Company approve the sale or transfer of
substantially all of the assets of the Company to parties that are not
within a "controlled group of corporations" (as defined in Code Section
1563) in which the Company is a member;
(e) The Company offers any equity security pursuant to a registration
statement filed with and declared effective by the Securities Exchange
Commission under the Securities Act of 1933, as amended, other than in
connection with an employee benefit plan; or
(f) The shareholders of the Company approve any consolidation or merger of
the Company with, or the Company is acquired in a tax-free
reorganization defined in Code Section 368 by, a corporation that has
previously offered an equity security pursuant to a registration
statement filed with and declared effective by the Securities Exchange
Commission under the Securities Act of 1933, as amended, other than in
connection with an employee benefit plan, and such equity security
remains outstanding after the merger or consolidation.
1.8 "Claimant" shall have the meaning set forth in Section 8.1.
1.9 "Code" shall mean the Internal Revenue Code of 1986, as may be amended
from time to time.
1.10 "Committee" shall mean the committee described in Article 7.
1.11 "Company" shall mean PARACELSUS HEALTHCARE CORPORATION, a California
corporation.
1.12 "Compensation" shall mean the annual basic cash salary relating to
services performed during any calendar year and reportable on Federal
Income Tax Form W-2, whether or not paid in such calendar year or included
on the Federal Income Tax Form W-2 for such calendar year. Compensation
shall in no event include (whether or not included in the gross income or
Federal Income Tax Form W-2 income of the Participant) cash bonuses or
other cash incentive payments, overtime relocation expenses, non-monetary
awards, fringe benefits (cash or noncash), retainers, directors fees and
other fees, severance allowances, pay in lieu of vacations, insurance
premiums paid by an Employer, insurance benefits paid to the Participant or
his or her beneficiary, equity-based compensation arrangements such as
stock option plans or phantom stock plans, Employer contributions to
qualified or nonqualified plans, automobile allowances, or expense
allowances paid to or for a Participant by any Employer. Compensation
shall, however, be calculated before reduction for compensation voluntarily
deferred or contributed by the Participant pursuant to all qualified or
nonqualified plans and shall be calculated to include amounts not otherwise
included in the Participant's gross income under Code Sections 125,
402(e)(3), 402(h), or 403(b) pursuant to plans established by any Employer;
provided, however, that all such amounts will be included in compensation
only to the extent that, had there been no such plan, the amount would have
been payable in cash to the Participant. The determination of Compensation
in accordance with this definition shall be in the sole discretion of the
Committee.
1.13 "Complete Years of Service" shall mean the total number of full years in
which a Participant has been employed by one or more Employers. For
purposes of this definition, a year of employment shall be a 365-day period
(or 366-day period in the case of a leap year) that, for the first year of
employment, commences on the first day of the month of an employee's date
of hiring (whether or not it is before or after the adoption of this Plan)
and that, for any subsequent year, commences on the anniversary of such
date.
1.14 "Disability" shall mean a Participant ceasing to be an employee of all
Employers as a result of a permanent disability, as defined in the
Participant's Employer's long-term disability plan, or, if a Participant
does not participate in the Employer's plan, a permanent disability under
such a plan had the Participant been a participant in such a plan. The
interpretation of the definition
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of "permanent disability" under a plan shall be determined in the sole
discretion of the Committee. If the Participant's Employer does not sponsor
a long-term disability plan or discontinues to sponsor such a plan,
Disability shall be determined by the Committee in its sole discretion.
1.15 "Disability Date" shall mean the first day of the month following the date
of the Disability.
1.16 "Early Retirement" shall mean: (i) with respect Officer Participants, the
ceasing to be an employee of all Employers, other than a Termination For
Cause, on or after his or her attainment of both age fifty-five (55) and
fifteen (15) or more Years of Service, for any reason other than a leave of
absence, Normal Retirement, death or Disability; (ii) with respect to
Nonofficer Participants, the ceasing to be an employee of all Employers,
other than a Termination For Cause, on or after his or her attainment of
both age sixty (60) and fifteen (15) or more Years of Service, for any
reason other than a leave of absence, Normal Retirement, death or
Disability.
1.17 "Early Retirement Date" shall mean the first day of the month following
the date of Early Retirement.
1.18 "Employer(s)" shall mean the Company and/or any of its subsidiaries that
have been selected by the Board to participate in the Plan.
1.19 "Enrolled Actuary" shall mean a person enrolled by the Joint Board for the
Enrollment of Actuaries established under subtitle C of Title II of ERISA
who has been engaged by the Company to make and render all necessary
actuarial determinations, statements, opinions, assumptions, reports and
valuations under this Agreement. After a Change in Control, the Company
and/or Employer shall not change the Enrolled Actuary without the consent
of at least a majority of the Participants.
1.20 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
may be amended from time to time.
1.21 "Final Average Compensation" shall mean: (i) with respect to Officer
Participants, the average of such Participant's Compensation for his or her
last three calendar years of employment (which shall include as one of
those calendar years the annualized compensation for the calendar year in
which the event that entitled the Participant to a distribution of benefits
under this Plan oc-curred, if the result would be to increase the average);
and (ii) with respect to Nonofficer Participants, the average of such
Participant's Compensation for his or her last five calendar years of
employment (which shall include as one of those calendar years the
annualized compensation for the calendar year in which the event that
entitled the Participant to a distribution of benefits under this Plan
occurred, if the result would be to increase the average).
1.22 "Installment Payment Method" shall mean the Actuarial Equivalent of the
Participant's Vested SERP Benefit, calculated under the Lump Sum Payment
Method but payable in equal calendar quarter installments of principal over
5, 10 or 15 years, as properly elected by the Participant pursuant to the
Committee's rules and procedures as may be in effect from time to time,
with interest at the Moody's Rate, compounded annually. The "Moody's Rate"
for a Plan Year shall be an interest rate, stated as an annual rate, that
is published in Moody's Bond Record under the heading of "Moody's Corporate
Bond Yield Averages -- Av. Corp" (or any successor to this published rate),
for the most recently published rate prior to the commencement of the Plan
Year for which the rate is to be used. Payment shall commence on the
Retirement Date, Disability Date, or thirty (30) days after the date of
death, as the case may be.
1.23 "Joint and Survivor Annuity Benefit" shall mean a benefit that is
calculated in the form of an annuity, payable on a calendar quarter basis
on the first day of the calendar quarter, equal to ninety percent (90%) of
each calendar quarter payment that would be payable to the Participant if
he or she were to receive the Life Annuity Benefit, for the life of the
Participant, and
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forty-five percent (45%) of each calendar quarter payment that would be
payable to the Participant if he or she were to receive the Life Annuity
Benefit, for the life of such Participant's spouse. If the Participant's
spouse is more than fifteen (15) years younger than the Participant, he or
she shall be deemed, solely for purposes of this calculation, to have a
spouse with an age that is identical to the Participant's age.
1.24 "Joint and 50% Survivor Annuity Payment Method" shall mean the Actuarial
Equivalent of the Participant's Vested SERP Benefit, payable on a calendar
quarter basis on the first day of the calendar quarter, in the form of an
annuity for the life of the Participant with a 50% survivor annuity for the
life of the Participant's Beneficiary. Payments shall commence on the first
day of the calendar quarter immediately following the Retirement Date or
Disability Date, as the case may be.
1.25 "Joint and 100% Survivor Annuity Payment Method" shall mean the Actuarial
Equivalent of the Participant's Vested SERP Benefit, payable on a calendar
quarter basis on the first day of the calendar quarter, in the form of an
annuity for the life of the Participant with a 100% survivor annuity for
the life of the Participant's Beneficiary. Payments shall commence on the
first day of the calendar quarter immediately following the Retirement Date
or Disability Date, as the case may be.
1.26 "Life Annuity Payment Method" shall mean the Actuarial Equivalent of the
Participant's Vested SERP Benefit, payable on a calendar quarter basis on
the first day of the calendar quarter, in the form of an annuity for the
life of the Participant. Payments shall commence on the first day of the
calendar quarter immediately following the Retirement Date or Disability
Date, as the case may be.
1.27 "Life Annuity Benefit" shall mean a benefit that is calculated in the form
of an annuity, payable on a calendar quarter basis on the first day of the
calendar quarter and commencing on the first day of the calendar quarter
immediately following the date that gives rise to the benefit, for the life
of Participant, calculated using the actuarial assumptions set forth in the
definition of "Actuarial Equivalent."
1.28 "Lump Sum Payment Method" shall mean the Actuarial Equivalent of the
Participant's Vested SERP Benefit, payable in a lump sum on the Retirement
Date, Disability Date or thirty (30) days after the date of death, as the
case may be.
1.29 "Nonofficer" shall mean an employee of an Employer who is a hospital
administrator, corporate controller or corporate director of an Employer.
1.30 "Nonofficer Participant" shall mean a Participant who is an Nonofficer and
is designated as a "Nonofficer Participant" for purposes of this Plan in
such Participant's Plan Agreement.
1.31 "Normal Retirement" shall mean a Participant ceasing to be an employee of
all Employers, other than a Termination For Cause, on or after the
attainment of age sixty-five (65) for any reason other than a leave of
absence, death or Disability.
1.32 "Normal Retirement Date" shall mean the first day of the month following
the date of Normal Retirement.
1.33 "Officer" shall mean an employee of an Employer who is designated as an
officer of the Employer by the board of directors of the Employer.
1.34 "Officer Participant" shall mean a Participant who is an Officer and is
designated as an "Officer Participant" for purposes of this Plan in such
Participant Plan Agreement.
1.35 "Participant" shall mean any employee (i) who is selected to participate
in the Plan, (ii) who elects to participate in the Plan, (iii) who signs a
Plan Agreement and a Beneficiary, Annuity Benefit and Payment Designation
Form, (iv) whose signed Plan Agreement Form and Beneficiary, Annuity
Benefit and Payment Designation Form are accepted by the Committee, (v) who
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commences participation in the Plan, and (vi) whose Plan Agreement has not
terminated. Despite the foregoing, a spouse or former spouse of a
Participant shall not be treated as a Participant in the Plan, even if he
or she has an interest in the Participant's benefits under this Plan as a
result of state property or family law, or property settlements resulting
from a legal separation or divorce.
1.36 "Plan" shall mean the Company's Supplemental Executive Retirement Plan,
which shall be evidenced by this instrument and by each Plan Agreement, as
amended from time to time.
1.37 "Plan Agreement" shall mean a written agreement, as may be amended from
time to time, which is entered into by and between an Employer and a
Participant. Each Plan Agreement executed by a Participant shall provide
for the entire benefit to which such Participant is entitled under the
Plan, and the Plan Agreement bearing the latest date of acceptance by the
Committee shall govern such entitlement.
1.38 "Plan Year" shall begin on January 1 of each year and continue through
December 31.
1.39 "Post-Participation Change in Control" with respect to an affected
Participant shall mean a Change in Control that occurs after such person
has become a Participant. If a Change in Control occurs before an employee
becomes a Participant, such Change in Control shall not be considered a
Post-Participation Change in Control with respect to that Participant.
1.40 "Pre-retirement Survivor Annuity Payment Method" shall mean a benefit that
is the Actuarial Equivalent of the Participant's Vested SERP Benefit,
payable on a calendar quarter basis on the first day of the calendar
quarter, to such Participant's Beneficiary the form of an annuity for the
life of such Beneficiary. Payments shall commence on the first day of the
calendar quarter immediately following the dated death.
1.41 "Retirement," "Retires" or "Retired" shall mean, in each instance, Early
Retirement or Normal Retirement, as the case may be.
1.42 "Retirement Date" shall mean, in each instance, the Early Retirement Date
or the Normal Retirement Date, as the case may be.
1.43 "SERP Benefit" shall mean, in all cases other than Disability or
Termination of Employment, a Life Annuity Benefit, commencing on the
Retirement Date or the date of death, as the case may be, that provides an
annual amount equal to:
(a) the Participant's Final Average Compensation multiplied by the
Applicable Compensation Percentage; LESS
(b) the Social Security Benefit multiplied by the Applicable Social
Security Percentage.
In the case Disability or Termination of Employment, the SERP Benefits
shall be calculated in the manner provided above, except that the Life
Annuity Benefit shall be calculated commencing on the date that, but for
the Disability or Termination of Employment, would have been such
Participant's Normal Retirement Date.
If, at any time prior to Retirement, Disability, Termination of Employment
or death, a Participant is or becomes married, he or she may elect to have
the SERP Benefit calculated by substituting "Joint and Survivor Annuity
Benefit" for "Life Annuity Benefit" throughout this Section 1.43. This
election shall be made on the Beneficiary, Annuity Benefit and Payment
Designation Form and may be changed at any time prior to Retirement,
Disability, Termination of Employment or death. The Committee shall be
entitled to rely on the last Beneficiary, Annuity Benefit and Payment
Designation Form filed by the Participant and accepted by the Committee
prior to the Participant's Retirement, Disability, Termination of
Employment or death. If no election is made, or if the Participant is
unmarried at the time of the Participant's Retirement, Disability,
Termination of Employment or death, the SERP Benefit shall be calculated on
the basis of the Life Annuity Benefit.
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Notwithstanding anything to the contrary contained herein, in the event of
a Termination For Cause, a Participant's SERP Benefit shall be zero.
1.44 "Social Security Benefit" shall mean the annual amount resulting from
taking the Actuarial Equivalent of the Participant's anticipated benefits
under the Social Security Act as of the Retirement Date, Disability Date,
Termination Date or date of death, as the case may be, and recalculating
them as a Life Annuity Benefit commencing on the Retirement Date or date of
death, or, in the case of Disability or Termination of Employment,
calculated commencing on the date that, but for the Disability or
Termination of Employment, would have been such Participant's Normal
Retirement Date. In calculating a Participant's anticipated benefits under
the Social Security Act in all cases other than Disability and Termination
of Employment, it shall be assumed that (i) the Participant will receive no
future wages that would be treated as wages for purposes of the Social
Security Act, (ii) the Participant will begin receiving Social Security
benefits at age 65, and (iii) the Social Security benefits will be
calculated in accordance with the law in effect at the Retirement Date or
date of death, as the case may be. In the case of Disability or Termination
of Employment, it shall be assumed that (i) the Participant will receive
through age 65 future annual wages that would be treated as wages for
purposes of the Social Security Act equal to the greater of his or her
Compensation received in the year of the Disability or Termination of
Employment or the prior calendar year, (ii) the Participant will begin
receiving Social Security benefits at age 65, and (iii) the Social Security
benefits will be calculated in accordance with the law in effect at the
Disability Date or the Termination Date, as the case may be. The Social
Security Benefit, once calculated, shall be frozen as of the Retirement
Date, Disability Date, Termination Date or date of death, as the case may
be. If a Joint and Survivor Annuity Benefit election under Section 1.43 is
in effect, the Social Security Benefit shall be calculated by substituting
"Joint and Survivor Annuity Benefit" for "Life Annuity Benefit" throughout
this Section.
1.45 "Termination Date" shall mean the first day of the month following the
date of a Termination of Employment.
1.46 "Termination For Cause" shall mean ceasing to be an employee of all
Employers after a determination by an Employer that the Participant had
willfully violated a material Company policy that materially adversely
affected, or is reasonably believed will materially adversely affect, the
operations or financial condition of the Company.
1.47 "Termination of Employment" shall mean a Participant ceasing to be an
employee of all Employers, voluntarily or involuntarily, but shall exclude
cessation of employment with all Employers as a result of a leave of
absence, Retirement, death, Disability or a Termination For Cause.
1.48 "Trust" shall mean the trust established pursuant to that certain Master
Trust Agreement, dated as of March 13, 1996 between the Company and the
trustee named therein, as amended from time to time.
1.49 "Years of Service" shall mean the total number of full years and partial
years (calculated in complete calendar months) in which a Participant has
been employed by one or more Employers. For purposes of this definition, a
month of employment shall be a calendar month that, for the first month of
employment, commences on the first day of the month of an employee's date
of hiring (whether or not it is before or after the adoption of this Plan)
and that, for any subsequent month, is a complete calendar month. Any
partial month of employment shall not be counted.
1.50 "Vested SERP Benefit" shall mean: (i) in the case Retirement, death or
Disability, the SERP Benefit; and (ii) in the case of a Termination of
Employment, the benefit calculated in Section 3.1.
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ARTICLE 2
ELIGIBILITY
2.1 SELECTION BY COMMITTEE. Participation in the Plan shall be limited to a
select group of management and highly compensated employees of the
Employers. From that group, the Committee shall select, in its sole
discretion, employees to participate in the Plan.
2.2 ENROLLMENT REQUIREMENTS. As a condition to participation, each selected
employee shall complete, execute and return to the Committee a Plan
Agreement and a Beneficiary, Annuity Benefit and Payment Designation Form.
In addition, the Committee shall establish from time to time such other
enrollment requirements as it determines in its sole discretion are
necessary.
2.3 COMMENCEMENT OF PARTICIPATION. Provided an employee selected to
participate in the Plan has met all enrollment requirements set forth in
this Plan and required by the Committee, including returning all required
documents to the Committee, that employee shall commence participation in
the Plan on the date specified by the Committee. If a selected employee
fails to meet all such requirements prior to that date, that employee shall
not be eligible to participate in the Plan until the completion of those
requirements.
ARTICLE 3
VESTING; EMPLOYMENT TAXES
3.1 VESTING OF SERP BENEFIT IN CONNECTION WITH TERMINATION. Upon Termination
of Employment, the Participant shall be entitled to a Vested SERP Benefit
calculated as follows:
(a) With respect to Officer Participants, the SERP Benefit multiplied by
the Vesting Percentage. For purposes of this Section 3.1(a), the
"Vesting Percentage" shall be 6.67% times such Participant's Complete
Years of Service; provided, however, that the Vesting Percentage shall
in no event exceed 100%.
(b) With respect to Nonofficer Participants, the Vested SERP Benefit shall
be calculated as follows: (i) less than five Complete Years of Service:
zero; and (ii) five or more Complete Years of Service: 6.67% of the SERP
Benefit multiplied by the number of Complete Years of Service; provided,
however, that the Vested SERP Benefit shall in no event exceed 100% of
the SERP Benefit.
(c) Notwithstanding Subsections 3.1(a) and (b) above, on or after a
Post-Participation Change in Control, the Vested SERP Benefit of an
affected Participant shall be 100% of the SERP Benefit, calculated as if
the applicable annuity benefit will commence on the later of: (i) age
fifty-five (55), in the case of Officer Participants, or age sixty (60),
in the case of Nonofficer Participants, or (ii) the Termination Date.
3.2 FICA AND OTHER TAXES. A Participant's Employer shall withhold, from a
Participant's compensation otherwise payable during a Plan Year, the
Participant's share of FICA and other employment taxes, if any, that are
attributable to his or her benefits under this Plan. Such amounts shall be
withheld in a manner determined by the Employer.
ARTICLE 4
BENEFITS
4.1 ELIGIBILITY FOR BENEFITS. If a Participant dies, Retires or suffers a
Disability or a Termination of Employment, he, she and/or his or her
Beneficiary shall be entitled to his or her Vested SERP Benefit payable in
the manner provided in this Article.
4.2 COMMENCEMENT OF BENEFIT PAYMENTS. The payment of benefits shall commence
as follows:
(a) RETIREMENT OR TERMINATION OF EMPLOYMENT. If a Participant's benefits
become payable because of his or her Retirement or Termination of
Employment, such Participant's benefit
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payments shall commence as soon as administratively practicable after
the date on which such Participant Retired, consistent with the payment
method selected, or suffers a Termination of Employment.
(b) DISABILITY OR DEATH. If benefits become payable because of a
Participant's death or Disability, such benefit payments shall commence
as soon as administratively practicable following the Committee's
receipt of written proof or determination of such Participant's death or
Disability, consistent with the payment method selected.
(c) REASONABLE TIME; ADJUSTMENT IN PAYMENTS. For purposes of this Section
4.2, "as soon as administratively practicable" shall not exceed 120 days
from the date of the specified event, except in extraordinary
circumstances, as determined in the sole discretion of the Committee.
Payments under the method of payment elected by the Participant shall be
adjusted on an Actuarial Equivalent basis should the payments commence
on a date that is different than the date anticipated under the payment
method.
4.3 FORMS OF PAYMENT; ELECTIONS.
(a) RETIREMENT OR DISABILITY. A Participant who is entitled to receive a
benefit under Section 4.1 because of Retirement or Disability may elect
to receive the Vested SERP Benefit under the Joint and 50% Survivor
Annual Payment Method, the Joint and 100% Survivor Annuity Payment
Method, the Life Annuity Payment Method, the Lump Sum Payment Method or
the Installment Payment Method. A Participant may elect at any time
prior to one year before his or her Retirement or, in the case of a
Disability, at any time prior to suffering the Disability, to receive
his or her Vested SERP Benefit under any of these payment methods. The
election must be consented to in writing by the electing Participant's
spouse before the election is valid. Such an election shall be made in
accordance with the Committee's rules and procedures as may be in effect
from time to time. If no valid election is made within the time limits
set forth above, the Vested SERP Benefit will be paid under the Joint
and 50% Survivor Annuity Payment Method.
(b) DEATH. A Participant may elect to have his or her Beneficiary receive
the Vested SERP Benefit under the Pre-retirement Survivor Annuity
Payment Method, the Lump Sum Payment Method or the Installment Payment
Method. A Participant may elect at any time prior to death to have his
or her Beneficiary receive his or her Vested SERP Benefit under any of
these payment methods. The election must be consented to in writing by
the electing Participant's spouse before the election is valid. Such an
election shall be made in accordance with the Committee's rules and
procedures as may be in effect from time to time. If no valid election
is made prior to the Participant's death, the Vested SERP Benefit will
be paid under the Pre-retirement Survivor Annuity Payment Method.
(c) DEATH AFTER RETIREMENT OR DISABILITY. If a Participant dies after he
or she Retires or suffers a Disability, his or her payment of the Vested
SERP Benefit shall be governed by Section 4.3(a) and not Section 4.3(b).
(d) TERMINATION OF EMPLOYMENT. A Participant who is entitled to receive a
benefit under Section 4.1 because of a Termination of Employment shall
receive his or her Vested SERP Benefit under the Lump Sum Payment
Method.
(e) WITHDRAWAL ELECTION.
(i) BEFORE BENEFIT ELIGIBILITY. A Participant may elect, at any time
before he or she becomes eligible to receive benefit payments under
this Plan, to receive an amount equal to his or her Vested SERP
Benefit calculated as if the Participant's Termination of
Employment occurred as of the date of the election less a 10%
penalty (the net amount shall be referred to as the
"Pre-Termination Benefit Amount"). No election to partially
accelerate benefits shall be allowed. The Participant shall make
this election by giving the
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Committee advance written notice of the election in a form
determined from time to time by the Committee. The Participant
shall be paid the Pre-Termination Benefit Amount within 60 days of
his or her election. Once the Pre-Termination Benefit Amount is
paid, participation in the Plan shall terminate and the Participant
shall not be eligible to participate in the Plan in the future.
(ii) AFTER BENEFIT ELIGIBILITY. A Participant may elect, at any time
after he or she becomes eligible to receive benefit payments under
this Plan, to receive those payments in a lump sum, calculated as
follows: First, the amount he or she would have received at the
applicable commencement date set forth in Section 4.2 had the Lump
Sum Payment Method been elected (based on the Participant's life
expectancy as of the applicable commencement date) shall be
calculated. Next, the present value of all payments received
through the date of the election, calculated as of the applicable
commencement date and using the interest rate under the Actuarial
Equivalent definition in effect as of the election date as the
discount rate, shall be subtracted from the amount calculated in
the preceding sentence. The remainder described in the preceding
sentence shall next be increased for interest from the date of the
applicable commencement date to the date of the election, using an
interest rate equal to the interest rate under the Actuarial
Equivalent definition in effect as of the election date, compounded
annually. Finally, the figure arrived at in the preceding sentence
shall be reduced by a 10% penalty (this net amount shall be
referred to as the "Participant Benefit Amount").
A Beneficiary may elect, at any time after he or she becomes
eligible to receive benefit payments under this Plan, to receive
those payments in a lump sum, calculated as follows: First, the
present value of all payments he or she would be expected to
receive, calculated as of the date of the death of the Participant
(based on the Beneficiary's life expectancy as of the date of death
of the Participant, if life expectancy is involved in the
calculation) shall be calculated, using the interest rate under the
Actuarial Equivalent definition in effect as of the election date
as the discount rate. Next, the present value of all payments
received through the date of the election, calculated as of the
date of death of the Participant and using the interest rate under
the Actuarial Equivalent definition in effect as of the election
date as the discount rate, shall be subtracted from the amount
calculated in the preceding sentence. The remainder described in
the preceding sentence shall next be increased for interest from
the date of death of the Participant to the date of the election,
using an interest rate equal to the interest rate under the
Actuarial Equivalent definition in effect as of the election date,
compounded annually. Finally, the figure arrived at in the
preceding sentence shall be reduced by a 10% penalty (this net
amount shall be referred to as the "Beneficiary Benefit Amount").
No election to partially accelerate benefits shall be allowed. The
Participant or Beneficiary, as the case may be, shall make this
election by giving the Committee advance written notice of the
election in a form determined from time to time by the Committee.
The Participant or Beneficiary, as the case may be, shall be paid
the Participant Benefit Amount or Beneficiary Benefit Amount within
60 days of his or her election. Once the applicable Benefit Amount
is paid, participation in the Plan shall terminate and the
Participant, if still alive, shall not be eligible to participate
in the Plan in the future.
(f) COMMITTEE DISCRETION. Upon the request of a Participant, the
Committee, in its sole discretion and consistent with its established
procedures and rules, may consider other forms of benefit payments, or
the timing of benefit payments, as it deems necessary or prudent under
the circumstances.
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4.4 LIMITATION ON BENEFITS. Notwithstanding anything that could be construed
to the contrary in this Article 4, in no event shall a Participant or his
or her Beneficiary receive more than one form of benefit under this Article
4.
4.5 WITHHOLDING AND PAYROLL TAXES. Subject to the previous payment of taxes in
accordance with Section 3.2 above, the Employers shall withhold from any
and all benefits paid under this Article 4, all federal, state and local
income, employment and other taxes required to be withheld by the Employer
in connection with the benefits hereunder, in amounts and in a manner to be
determined in the sole discretion of the Employers.
ARTICLE 5
TERMINATION, AMENDMENT OR MODIFICATION OF THE PLAN
5.1 TERMINATION OR AMENDMENT OF PLAN. Each Employer reserves the right to
terminate the Plan or amend or modify the Plan in whole or in part with
respect to its participating employees at any time, by the actions of its
board of directors. A Participant or Beneficiary shall in all events retain
all benefits that have become payable under Section 4.1 and, in the case of
a Participant who is not yet entitled to receive payments under this Plan,
because Disability, Termination of Employment, death or Retirement has not
occurred, the termination or amendment of the Plan shall not decrease or
restrict a Participant's benefits below the benefit he or she would have if
he or she ceased to be an employee of all Employers, other than a
Termination For Cause, as of the date of the termination or amendment. The
Employer shall have the right to accelerate any benefits by paying the
Actuarial Equivalent value of such benefits in any manner it desires, and
upon the completion of those payments, the Participant's Plan Agreement
shall terminate. In addition to the requirements otherwise set forth in
this Section 5.1, after a Change in Control, this Plan may not be
terminated or amended in a manner that affects less than all of the
Participants and all Participants may only be affected in a uniform manner.
5.2 TERMINATION OF PLAN AGREEMENT. Absent the earlier termination,
modification or amendment of the Plan, the Plan Agreement of any
Participant shall terminate upon the full payment of the applicable benefit
provided under Article 4.
ARTICLE 6
OTHER BENEFITS AND AGREEMENTS
6.1 COORDINATION WITH OTHER BENEFITS. The benefits provided for a Participant
under this Plan are in addition to any other benefits available to such
Participant under any other plan or program for employees of the Employers.
The Plan shall supplement and shall not supersede, modify or amend any
other such plan or program except as may otherwise be expressly provided.
ARTICLE 7
ADMINISTRATION OF THE PLAN
7.1 COMMITTEE DUTIES. This Plan shall be administered by a Committee which
shall consist of the Board, or such committee as the Board shall appoint.
Members of the Committee may be Participants under this Plan. The Committee
shall also have the discretion and authority to (i) make, amend, interpret
and enforce all appropriate rules and regulations for the administration of
this Plan and (ii) decide or resolve any and all questions including
interpretations of this Plan, as may arise in connection with the Plan.
7.2 AGENTS. In the administration of this Plan, the Committee may employ
agents and delegate to them such administrative duties as it sees fit
(including acting through a duly appointed representative), and may from
time to time consult with counsel who may be counsel to any Employer.
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7.3 BINDING EFFECT OF DECISIONS. The decision or action of the Committee with
respect to any question arising out of or in connection with the
administration, interpretation and application of the Plan and the rules
and regulations promulgated hereunder shall be final and conclusive and
binding upon all persons having any interest in the Plan.
7.4 INDEMNITY OF COMMITTEE. All Employers shall indemnify and hold harmless
the members of the Committee against any and all claims, losses, damages,
expenses or liabilities arising from any action or failure to act with
respect to this Plan, except in the case of willful misconduct by the
Committee or any of its members.
7.5 EMPLOYER INFORMATION. To enable the Committee to perform its functions,
each Employer shall supply full and timely information to the Committee on
all matters relating to the compensation of its Participants, the date and
circumstances of the Retirement, Disability or death of its Participants,
and such other pertinent information as the Committee may reasonably
require.
ARTICLE 8
CLAIMS PROCEDURES
8.1 PRESENTATION OF CLAIM. Any Participant or Beneficiary of a deceased
Participant (such Participant or Beneficiary being referred to below as a
"Claimant") may deliver to the Committee a written claim for a
determination with respect to the amounts distributable to such Claimant
from the Plan. If such a claim relates to the contents of a notice received
by the Claimant, the claim must be made within 60 days after such notice
was received by the Claimant. The claim must state with particularity the
determination desired by the Claimant. All other claims must be made within
180 days of the date on which the event that caused the claim to arise
occurred. The claim must state with particularity the determination desired
by the Claimant.
8.2 NOTIFICATION OF DECISION. The Committee shall consider a Claimant's claim
within a reasonable time, and shall notify the Claimant in writing:
(i) that the Claimant's requested determination has been made, and
that the claim has been allowed in full; or
(ii) that the Committee has reached a conclusion contrary, in whole or
in part, to the Claimant's requested determination, and such notice
must set forth in a manner calculated to be understood by the
Claimant:
(1) the specific reason(s) for the denial of the claim, or any
part of it;
(2) specific reference(s) to pertinent provisions of the Plan upon
which such denial was based;
(3) a description of any additional material or information
necessary for the Claimant to perfect the claim, and an
explanation of why such material or information is necessary;
and
(4) an explanation of the claim review procedure set forth in
Section 8.3 below.
8.3 REVIEW OF A DENIED CLAIM. Within 60 days after receiving a notice from the
Committee that a claim has been denied, in whole or in part, a Claimant (or
the Claimant's duly authorized representative) may file with the Committee
a written request for a review of the denial of the claim. Thereafter, but
not later than 30 days after the review procedure began, the Claimant (or
the Claimant's duly authorized representative):
(i) may review pertinent documents;
(ii) may submit written comments or other documents; and/or
(iii) may request a hearing, which the Committee, in its sole
discretion, may grant.
12
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8.4 DECISION ON REVIEW. The Committee shall render its decision on review
promptly, and not later than 60 days after the filing of a written request
for review of the denial, unless a hearing is held or other special
circumstances require additional time, in which case the Committee's
decision must be rendered within 120 days after such date. Such decision
must be written in a manner calculated to be understood by the Claimant,
and it must contain:
(i) specific reason(s) for the decision;
(ii) specific reference(s) to the pertinent Plan provisions upon which
the decision was based; and
(iii) such other matters as the Committee deems relevant.
8.5 LEGAL ACTION. A Claimant's compliance with the foregoing provisions of
this Article 8 is a mandatory prerequisite to a Claimant's right to
commence any legal action with respect to any claim for benefits under this
Plan.
ARTICLE 9
BENEFICIARY DESIGNATION
9.1 BENEFICIARY. Each Participant shall have the right, at any time, to
designate his or her Beneficiary(ies) (both primary as well as contingent)
to receive any benefits payable under the Plan to a beneficiary upon the
death of a Participant. The Beneficiary designated under this Plan may be
the same as or different from the Beneficiary designation under any other
plan of an Employer in which the Participant participates.
9.2 BENEFICIARY DESIGNATION; CHANGE; SPOUSAL CONSENT. A Participant shall
designate his or her Beneficiary by completing and signing the Beneficiary,
Annuity Benefit and Payment Designation Form, and returning it to the
Committee or its designated agent. A Participant shall have the right to
change a Beneficiary by completing, signing and otherwise complying with
the terms of the Beneficiary, Annuity Benefit and Payment Designation Form
and the Committee's rules and procedures, as in effect from time to time.
If the Participant names someone other than his or her spouse as a
Beneficiary, a spousal consent, in the form designated by the Committee,
must be signed by that Participant's spouse and returned to the Committee.
Upon the acceptance by the Committee of a new Beneficiary, Annuity Benefit
and Payment Designation Form, all Beneficiary designations previously filed
shall be cancelled. The Committee shall be entitled to rely on the last
Beneficiary, Annuity Benefit and Payment Designation Form filed by the
Participant and accepted by the Committee prior to his or her death.
9.3 ACKNOWLEDGMENT. No designation or change in designation of a Beneficiary
shall be effective until received, accepted and acknowledged in writing by
the Committee or its designated agent.
9.4 NO BENEFICIARY DESIGNATION. If a Participant fails to designate a
Beneficiary as provided in Sections 9.1, 9.2 and 9.3 above or, if all
designated Beneficiaries predecease the Participant or die prior to
complete distribution of the Participant's benefits, then the Participant's
designated Beneficiary shall be deemed to be his or her surviving spouse.
If the Participant has no surviving spouse, the benefits remaining under
the Plan shall be payable to his or her estate (and if a life expectancy is
needed in order to calculate the benefits remaining, the estate will be
deemed to have a life expectancy equal to the Participant's life expectancy
at the date of death).
9.5 DOUBT AS TO BENEFICIARY. If the Committee has any doubt as to the proper
Beneficiary to receive payments pursuant to this Plan, the Committee shall
have the right, exercisable in its discretion, to cause the Participant's
Employer to withhold such payments until this matter is resolved to the
Committee's satisfaction.
13
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9.6 DISCHARGE OF OBLIGATIONS. The payment of benefits under the Plan to a
Beneficiary shall fully and completely discharge all Employers and the
Committee from all further obligations under this Plan with respect to the
Participant, and that Participant's Plan Agreement shall terminate upon
such full payment of benefits.
ARTICLE 10
TRUST
10.1 ESTABLISHMENT OF THE TRUST. The Company shall establish the Trust, and the
Employers shall at least annually transfer over to the Trust such amounts
as the Enrolled Actuary shall certify as necessary to fund all anticipated
Vested SERP Benefits, and for utilizing the aggregate cost method with the
following assumptions:
<TABLE>
<S> <C>
Annual earnings rate: 9.0%
Mortality:
Pre-retirement None
Post-retirement Death at age 80
Compensation Increases: 5.0% annually
Retirement age: 55
Social Security Increases: 3% annually
</TABLE>
10.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of the Plan
and the Plan Agreement shall govern the rights of a Participant to receive
distributions pursuant to the Plan. The provisions of the Trust shall
govern the rights of the Employers, Participants and the creditors of the
Employers to the assets transferred to the Trust. Each Employer shall at
all times remain liable to carry out its obligations under the Plan. Each
Employer's obligations under the Plan may be satisfied with Trust assets
distributed pursuant to the terms of the Trust, and any such distribution
shall reduce the Employer's obligations under this Agreement.
ARTICLE 11
MISCELLANEOUS
11.1 UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries,
successors and assigns shall have no legal or equitable rights, interests
or claims in any property or assets of an Employer. Any and all of an
Employer's assets shall be, and remain, the general, unpledged unrestricted
assets of the Employer. An Employer's obligation under the Plan shall be
merely that of an unfunded and unsecured promise to pay money in the
future.
11.2 EMPLOYER'S LIABILITY. An Employer's liability for the payment of benefits
shall be defined only by the Plan and the Plan Agreement, as entered into
between the Employer and a Participant. An Employer shall have no
obligation to a Participant under the Plan except as expressly provided in
the Plan and his or her Plan Agreement.
11.3 NONASSIGNABILITY. Neither a Participant nor any other person shall have
any right to commute, sell, assign, transfer, pledge, anticipate, mortgage
or otherwise encumber, transfer, hypothecate or convey in advance of actual
receipt, the amounts, if any, payable hereunder, or any part thereof, which
are, and all rights to which are, expressly declared to be unassignable and
non-transferable, except that the foregoing shall not apply to any family
support obligations set forth in a court order. No part of the amounts
payable shall, prior to actual payment, be subject to seizure or
sequestration for the payment of any debts, judgments alimony or separate
maintenance owed by a Participant or any other person, nor be transferable
by operation of law in the event of a Participant's or any other person's
bankruptcy or insolvency.
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11.4 NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of this Plan shall
not be deemed to constitute a contract of employment between any Employer
and the Participant. Such employment is hereby acknowledged to be an "at
will" employment relationship that can be terminated at any time for any
reason, with or without cause, unless otherwise expressly provided in a
written employment agreement. Nothing in this Plan shall be deemed to give
a Participant the right to be retained in the service of any Employer or to
interfere with the right of any Employer to discipline or discharge the
Participant at any time.
11.5 FURNISHING INFORMATION. A Participant or his or her Beneficiary will
cooperate with the Committee by furnishing any and all information
requested by the Committee and take such other actions as may be requested
in order to facilitate the administration of the Plan and the payments of
benefits hereunder, including but not limited to taking such physical
examinations as the Committee may deem necessary.
11.6 TERMS. Whenever any words are used herein in the masculine, they shall be
construed as though they were in the feminine in all cases where they would
so apply; and whenever any words are used herein in the singular or in the
plural, they shall be construed as though they were used in the plural or
the singular, the case may be, in all cases where they would so apply.
11.7 CAPTIONS. The captions of the articles, sections and paragraphs of this
Plan are for convenience only and shall not control or affect the meaning
or construction of any of its provisions.
11.8 GOVERNING LAW. Subject to ERISA, the provisions of this Plan shall be
construed and interpreted according to the internal laws of the State of
California without regard to its conflicts of laws principles.
11.9 NOTICE. Any notice or filing required or permitted to be given to the
Committee under this Plan shall be sufficient if in writing and
handelivered, or sent by registered or certified mail, to the address
below:
SERP Committee
PARACELSUS HEALTHCARE CORPORATION
155 North Lake Avenue, 11th Floor
Pasadena, California 91101
or to such other address as may be furnished to the Participant in writing
in accordance with this notice provision. Such notice shall be deemed given
as of the date of delivery or, if delivery is made by mail, as of the date
shown on the postmark on the receipt for registration or certification.
Any notice or filing required or permitted to be given to a Participant
under this Plan shall be sufficient if in writing and hand-delivered, or
sent by mail, to the last known address of the Participant.
11.10 SUCCESSORS. The provisions of this Plan shall bind and inure to the
benefit of the Participant's Employer and its successors and assigns and
the Participant and the Participant's Beneficiary.
11.11 SPOUSE'S INTEREST. The interest in the benefits hereunder of a spouse of a
Participant who has predeceased the Participant shall automatically pass to
the Participant and shall not be transferable by such spouse in any manner,
including but not limited to such spouse's will, nor shall such interest
pass under the laws of intestate succession.
11.12 VALIDITY. In case any provision of this Plan shall be illegal or invalid
for any reason, said illegality or invalidity shall not affect the
remaining parts hereof, but this Plan shall be construed and enforced as if
such illegal and invalid provision had never been inserted herein.
11.13 INCOMPETENT. If the Committee determines in its discretion that a benefit
under this Plan is to be paid to a minor, a person declared incompetent or
to a person incapable of handling the disposition of that person's
property, the Committee may direct payment of such benefit to the
15
<PAGE>
guardian, legal representative or person having the care and custody of
such minor, incompetent or incapable person. The Committee may require
proof of minority, incompetency, incapacity or guardianship, as it may deem
appropriate prior to distribution of the benefit. Any payment of a benefit
shall be a payment for the account of the Participant and the Participant's
Beneficiary, as the case may be, and shall be a complete discharge of any
liability under the Plan for such payment amount.
11.14 COURT ORDER. The Committee is authorized to make any payments directed by
court order in any action in which the Plan or the Committee has been named
as a party.
11.15 DISTRIBUTION IN THE EVENT OF TAXATION.
(a) GENERAL. If, prior to a Post-Participation Change in Control, all or
any portion of an affected Participant's benefit under this Plan becomes
taxable to the Participant for any reason prior to receipt, a
Participant may petition the Committee for a distribution of that
portion of his or her benefit that has become taxable. Upon the grant of
such a petition, which grant shall not be unreasonably withheld, a
Participant's Employer shall distribute to the Participant immediately
available funds in an amount that is sufficient to pay all federal,
state and local taxes that have resulted from any benefit that has
become taxable, plus interest and penalties thereon. If the petition is
granted, the tax liability distribution shall be made within 90 days of
the date when the Participant's petition is granted. Such a distribution
shall affect and reduce the benefits to be paid under this Plan.
If, after a Post-Participation Change in Control, all or any portion of an
affected Participant's benefit under this Plan becomes taxable to the
Participant for any reason prior to receipt, a Participant may petition the
Trustee for a distribution of an amount up to that portion of his or her
benefit that has become taxable. Upon the grant of such a petition, which
grant shall not be unreasonably withheld, the Trustee shall distribute to
the Participant immediately available funds in an amount that is sufficient
to pay all federal, state and local taxes that have resulted from any
benefit that has become taxable, plus interest and penalties thereon. If
the petition is granted, the tax liability distribution shall be made
within 90 days of the date when the Participant's petition is granted. Such
a distribution shall affect and reduce the benefits to be paid under this
Plan.
(b) TRUST. If the Trust terminates in accordance with Section 3.6(e) of
the Trust and benefits are distributed from the Trust to a Participant
in accordance with that Section, the Participant's benefits under this
Plan shall be reduced to the extent of such distributions.
11.16 LEGAL FEES TO ENFORCE RIGHTS AFTER A POST-PARTICIPATION CHANGE IN CONTROL.
The Company is aware that upon the occurrence of a Post-Participation
Change in Control, the Board (which might then be composed of new members)
or a shareholder of the Company, or of any successor corporation might then
cause or attempt to cause the Company or such successor to refuse to comply
with it obligations under the Plan and might cause or attempt to cause the
Company to institute, or may institute, litigation seeking to deny affected
Participant the benefits intended under the Plan. In these circumstances,
the purpose of the Plan could be frustrated. Accordingly, if, following a
Post-Participation Change in Control, it should appear to any affected
Participant that the Company or an Employer has failed to comply with any
of its obligations under the Plan or any agreement thereunder or, if the
Company, an Employer, or any other person takes any action to declare the
Plan void or unenforceable or institutes any litigation or other legal
action designed to deny, diminish or to recover from any Participant the
benefits intended to be provided, then the Company irrevocable authorizes
such Participant to retain counsel of his or her choice at the expense of
the Company to represent such Participant in connection with the initiation
or defense of any litigation or other legal action, whether by or against
the Company, an Employer or any director, officer, shareholder or other
person affiliated with the Company or an Employer or any successor thereto
in any jurisdiction.
16
<PAGE>
EXHIBIT 10.17
FORM OF
AMENDMENT NO. 1 TO
PARACELSUS HEALTHCARE CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
1. Section 1.7 of the Paracelsus Healthcare Corporation Supplemental
Executive Retirement Plan (the "SERP") is hereby amended by adding the following
clause thereto:
PROVIDED, HOWEVER, that subject to and effective immediately prior to the
closing of the proposed merger transaction among the Company, Champion
Healthcare Corporation, a Delaware corporation ("Champion"), and PC Merger Sub,
Inc., a Delaware corporation and a wholly owned subsidiary of the Company,
whereby Champion is to become a wholly owned subsidiary of the Company (the
"Merger"), "Change in Control" shall mean the first to occur of the following:
(A) any "person" (as such term is defined in Section 3(a)(9) of the
Securities Exchange Act of 1934 (the "Exchange Act") and as used in Sections
13(d)(3) and 14(d)(2) of the Exchange Act) becomes an Acquiring Person (as
such term is defined in the Company's Shareholder Protection Rights
Agreement to be adopted at the Effective Time of the Merger) or any person
that is not bound by the Shareholder Agreement of the Company to be entered
into in connection with the Merger (the "Shareholder Agreement") becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 25% or more of the
undiluted total voting power of the Company's then outstanding securities
eligible to vote for the election of members of the Board (the "Company
Voting Securities"); PROVIDED, HOWEVER, that no event described in the
immediately preceding clause shall be deemed to constitute a Change in
Control by virtue of any of the following: (I) an acquisition of Company
Voting Securities by the Company and/or one or more direct or indirect
majority-owned subsidiaries of the Company; (II) an acquisition of Company
Voting Securities by any employee benefit plan sponsored or maintained by
the Company or any corporation controlled by the Company; (III) an
acquisition by any underwriter temporarily holding securities pursuant to an
offering of such securities; or (IV) any acquisition by the Executive or any
"group" (as such term is defined in Rule 3d-5 under the Exchange Act) of
persons including the Executive; or
(B) individuals who, at the beginning of any period of twenty-four (24)
consecutive months, constitute the Board of Directors of the Company (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof; PROVIDED, HOWEVER, that any person becoming a director subsequent
to the beginning of such twenty-four (24) month period, whose election, or
nomination for election, by the Company's shareholders was approved by
either (i) the Board of Directors of the Company (the "Board") consistent
with the terms of the Shareholder Agreement, during the period the
Shareholder Agreement is in effect, or (ii) a vote of at least 75% of the
directors comprising the Incumbent Board (either by a specific vote or by
approval of the proxy statement of the Company in which such person is named
as a nominee for director, without objection to such nomination) shall be,
for purposes of this paragraph (B), considered as though such person were a
member of the Incumbent Board; PROVIDED, FURTHER, that no individual
initially elected or nominated as a director of the Company as a result of
an actual or threatened election contest with respect to directors or any
other actual or threatened solicitation of proxies or consents by or on
behalf of any person other than the Board shall be deemed to be a member of
the Incumbent Board; or
(C) there is consummated a merger or consolidation of the Company or a
subsidiary thereof with or into any other corporation other than a merger or
consolidation which would result in the holders of the voting securities of
the Company outstanding immediately prior thereto holding securities which,
in combination with the ownership of any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, represent
immediately after such merger or consolidation at least 60% of the combined
voting power of the then outstanding voting securities of either the Company
or the other entity which survives such merger or consolidation or any
parent of such other entity; or
<PAGE>
(D) the stockholders of the Company approve (i) a plan of complete
liquidation or dissolution of the Company or (ii) an agreement for the sale
or disposition by the Company of all or substantially all the Company's
assets.
2. Section 1.27 of the SERP is hereby clarified to read in its entirety as
follows:
1.28 "Lump Sum Payment Method" shall mean the Actuarial Equivalent of
the Participant's Vested SERP Benefit, payable in a lump sum on
the Retirement Date, Disability Date, Termination Date or thirty
(30) days after the date of death, as the case may be.
3. Section 3.1(c) of the SERP is hereby clarified to read in its entirety
as follows:
(c) Notwithstanding Subsections 3.1(a) and (b) above, on or after a
Post-Participation Change in Control, the Vested SERP Benefit of
an affected Participant shall be 100% of the SERP Benefit,
calculated assuming 15 Years of Service.
<PAGE>
EXHIBIT 10.25
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") is made and entered into as of
March 29, 1996, by and between Paracelsus Healthcare Corporation, a California
corporation ("Buyer"), and FHP, Inc., a California corporation ("Seller").
R E C I T A L S
- - - - - - - -
A. Seller or FHP of Utah, Inc., a Utah corporation and a wholly-owned
subsidiary of Seller ("FHP Sub") currently own, license or lease the assets used
in Seller's hospital and associated operations ("Operations") located on the FHP
Hospital Campus in Salt Lake City, Utah (the "Campus") including, (1) a general
acute care hospital (the "Hospital"), (2) a medical office building and
senior/specialty center (the "Senior Center"), (3) a child care center (the
"Child Care Center"), (4) a utilities building (the "Utilities Building"), (5)
certain excess land (the "Excess Land"), (6) a home health agency (the "Home
Health Agency"), and (7) an administration building known as the service center,
along with the associated land (the "Service Center"). It is the intent of the
parties hereto that Seller sell substantially all of the assets in and
constituting the Hospital, the Child Care Center, the Utilities Building, the
Home Health Agency, the buildings which house the Senior Center and the Service
Center, all of the Real Property (as such term is defined in Section 1.1(b)
below) (collectively, the "Facilities") and the other assets provided for in
Section 1.1 hereof used in the operation of the Campus.
B. Upon the terms and subject to the conditions set forth in this
Agreement (1) Seller desires to sell, assign and transfer to Buyer, and Buyer
desires to acquire from Seller, all of such assets, and (2) Seller desires to
assign to Buyer, and Buyer is willing to assume from Seller, certain specified
rights, obligations and liabilities relating to such assets.
NOW, THEREFORE, in consideration of the mutual promises and conditions set
forth herein, the parties hereto hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 PURCHASE OF ASSETS. On the basis of the representations and
warranties of the parties hereto and subject to the terms and conditions set
forth herein, Seller hereby agrees to sell, transfer, convey, assign and deliver
to Buyer, and Buyer agrees to purchase and acquire from Seller, on the Closing
Date (as such term is defined in Section 2.1 hereof), for the consideration
hereinafter provided, and, except for the Excluded Assets provided for in
Section 1.2 hereof, all of the following assets as of the Closing Date
(collectively, the "Purchased Assets"), it being understood and agreed that in
all instances where the provisions of this Agreement concern
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<PAGE>
Purchased Assets which are actually held or owned by FHP Sub, or obligations or
performance to be provided by FHP Sub, or representations and warranties to be
made by FHP Sub, Seller shall cause FHP Sub to provide the necessary compliance:
(a) all tangible personal property that is used or located in the
Hospital, Child Care Center, Utilities Building, and Home Health Agency,
including, without limitation, all supplies, materials, drugs, pharmaceuticals
and medicines, products and other items in inventory ("Supplies")determined in
accordance with Section 1.6 hereof, all artwork located in the Facilities, all
furniture, fixtures, equipment and improvements used or located in the Hospital,
Child Care Center, Utilities Building, the Service Center (except as identified
on Schedule 1.1(a)-6), and Home Health Agency, and, provided Buyer and Talbert
enter into the Radiology Agreement (as hereinafter defined), the radiology
equipment located in the Senior Center as set forth on Schedule 1.1(a), and all
owned or licensed computer systems, hardware and software and documentation
thereof, (to the extent such computer systems, hardware, software and
documentation are transferable and with any transfer fees to be paid by Buyer),
and to the extent they only serve the Hospital, Child Care Center, Utilities
Building, Home Health Agency, and Plant Operations (as hereinafter defined) and
are included on Schedule 1.1 (which schedule identifies items to be transferred
at Closing and items which may be transferred, at Buyer's option, upon
expiration of the Data Processing Services Agreement), and all additional items
set forth on Schedule 1.1(a) hereto relating to the Senior Center and 1.1(a)-l
relating to the Service Center (collectively, "Personal Property"), excluding
the Personal Property provided for on Schedule 1.1(a)-2 relating to the
Hospital, Schedule 1.1(a)-3 relating to the Senior Center, Schedule 1.1(a)-4
relating to the Child Care Center, Schedule 1.1(a)-5 relating to the Utilities
Building, and Schedule 1.1(a)-6 relating to the Service Center.
(b) all of the interests in real property owned by Seller and used in
the operation of the Campus, as more particularly described in the legal
description and on the plat attached hereto as Schedule 1.1(b)-l and Schedule
1.1(b)-2, respectively (the "Land"), including, without limitation, the
Hospital, the Child Care Center, the Service Center, the Senior Center, the
Utilities Building and the Excess Land and all other buildings, structures,
improvements, construction-in-progress and fixtures (collectively, the
"Buildings") of every kind and nature now or hereafter located on the Land or
forming a part thereof (the Land and the Buildings being referred to herein,
collectively, as the "Real Property");
(c) all property (including building systems) of Seller relating to
the mechanical operation of the physical plant of the Buildings (including HVAC,
plumbing and electrical systems and equipment, generators and the like) ("Plant
Operations");
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<PAGE>
(d) all intangible personal property ("Intangible Property") of
Seller relating to the Facilities, including, without limitation, the following:
1. all licenses, permits, certificates, franchises,
registrations, authorizations, filings, consents, accreditations, approvals and
other indicia of authority relating to the Hospital, Child Care Center,
Utilities Building, Home Health Agency, the Buildings or the Plant Operations,
or renovation or construction on the Real Property (collectively, the "Licenses
and Permits"), to the extent transferable, which transferable Licenses and
Permits include, without limitation, those Licenses and Permits listed on
Schedule 1.1(d)(1) attached hereto;
2. all operational and engineering information relating to the
Facilities Plant Operations, including, without limitation, all available
drawings and blueprints;
3. the rights of Seller under all manufacturer's warranties and
guarantees relating to the Purchased Assets;
4. the rights of Seller under all software licenses (to the
extent transferable and with any transfer fees to be paid by Buyer) which are
held by Seller and used only to serve the Hospital, Child Care Center, Utilities
Building, Home Health Agency, or Plant Operations listed on Schedule 1.1.
5. all prepaid expenses and deposits which result in economic
value to Buyer, and other advance payments relating to Contracts assumed by
Buyer pursuant to Section 1.1(d)6 hereof and set forth on Schedule 1.1(d)(6)
hereto ("Prepaid Expenses"), which amounts of Prepaid Expenses shall be
determined in accordance with Section 1.6 hereof;
6. the rights of Seller under all contracts relating to the
Hospital (including contracts with vendors and providers of services to be
provided to Seller's members and paid for by the Hospital, the Home Health
Agency or hospitals of Buyer through which the services are provided) or Plant
Operations and certain other specified contracts relating to the Operations (the
"Contracts"), including, without limitation, all leases, occupancy agreements,
licenses, concessions and all other rental contracts and similar agreements
affecting the Hospital, Child Care Center, Utilities Building, Home Health
Agency, the Buildings or Plant Operations or the use, occupancy, enjoyment,
development or improvement of the Real Property, including the Agreement for
Disposition of Land for Private Development dated July 2, 1990, between the
Redevelopment Agency of South Salt Lake City and FHP Sub, to the extent
permitted by the Redevelopment Agency, all of which Contracts, including those
identified as requiring consent, are identified on Schedule 1.1(d)(6) attached
hereto. (Buyer acknowledges that certain of the services provided by the Home
Health Agency are currently provided by third party providers pursuant to
agreements which are currently in full
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<PAGE>
force and effect, and that Buyer shall take the Home Health Agency subject to
all such agreements); and Buyer shall have the sole right to exclude any
unacceptable contract from being listed on Schedule 1.1(d)(6), and if so
excluded Buyer will not be liable therefor at any time.
7. all copyrights, trade names, trademarks, service marks and
patents listed on Schedule 1.1(d)(7) attached hereto ("Intellectual Property");
and
8. All Hospital, Child Care Center and Home Health Agency
accounts receivable of Seller or FHP Sub accrued and existing in respect to
services provided prior to Closing, including all rights to reimbursement from
payors (other than Medicare and Medicaid) relating to periods prior to the
Closing other than those provided for in Sections 1.2(h), 10.7 and 10.9.1
hereof, ("Accounts Receivable"), it being agreed that the Purchase Price shall
be adjusted accordingly by mutual agreement of the parties, prior to Closing;
(e) original or true and correct copies of all (i) financial
statements described in Section 3.4 hereof, (ii) books and records, Hospital
inpatient and outpatient medical records, Hospital inpatient and outpatient
lists, medical staff records, correspondence, files, manuals, policies and
procedures used in the operation of the Hospital, Child Care Center, Utilities
Building, Home Health Agency, the Buildings or Plant Operations and (iii)
employment and personnel records relating to the Employees (as defined in
Section 1.3) to be hired by Buyer pursuant to Article IX hereof;
1.2 EXCLUDED ASSETS. The following items which are related to the
Purchased Assets are not intended by the parties to be a part of the sale and
purchase contemplated by this Agreement and are excluded from the Purchased
Assets (said items being hereinafter referred to as the "Excluded Assets"): (a)
restricted and unrestricted cash and cash equivalents; (b) temporary
investments; (c) any records which by law, rule or regulation Seller is required
to retain in its possession; (d) all prepaid expenses associated with the Senior
Center or the Service Center and all prepaid expenses exhausted prior to Closing
in the ordinary course of business; (e) all Senior Center and Service Center
Supplies to the extent such supplies relate to Seller's business activities; (f)
all items of equipment transferred or disposed of in accordance with Section
5.3(e) hereof; (g) any proprietary information contained in Seller's employee or
operations manuals; (h) all notes and accounts receivable (other than the
Accounts Receivable provided for in Section 1.1(d)(8) hereof); (i) all data
processing equipment and systems not exclusively serving the Hospital, Child
Care Center, Home Health Agency, Utilities Building and Plant Operations; (j)
all data processing equipment or systems which Seller is not permitted to
transfer to Buyer, or which cannot reasonably be separated and reconfigured to
serve only the Hospital, Child Care Center, Home Health Agency, Utilities
Building and Plant Operations; (k) the artwork described on Schedule 1.2(k)
hereto;
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(l) all furniture, fixtures, trade fixtures and equipment located in the Senior
Center (other than the radiology equipment identified on Schedule 1.1(a)) and
identified on Schedule 1.1(a)(3) hereto; (m) all furniture, fixtures, trade
fixtures and equipment located in the Service Center and identified on Schedule
1.1(a)-6 hereto; (n) all copyrights, trade names, trademarks, service marks and
patents not listed on Schedule 1.1(d)(7) hereto; and (o) all patient records
other than Hospital, Home Health Agency or other related medical records.
1.3 ASSUMED LIABILITIES. As of Closing, Buyer agrees to assume the future
payment and performance of the following liabilities of Seller (collectively,
the "Assumed Liabilities"): (a) the Contracts; and (b) Seller's obligations as
of the Closing Date in respect of accrued vacation, sick leave and paid time off
but only to the extent such accrued vacation, sick leave and paid time off is
included as a credit to the Buyer in the Purchase Price adjustments set forth in
Section 1.6 below (the "Accrued Benefits") of Seller's employees at the
Hospital, Child Care Center, Home Health Agency, Utilities Building and Plant
Operations, except for those employees identified on Schedule 1.3,
("Employees"), the employment of whom as of the Closing Date shall be governed
by Article IX, below. Buyer shall not be liable for (c) any claims arising from
Seller's assignment and Buyer's assumption of the Assumed Liabilities to the
extent that such claims are based on such assignment being unauthorized where
consent is required, (d) uncured defaults in performance of the Assumed
Liabilities for periods prior to Closing, and (e) unpaid amounts in respect of
the Assumed Liabilities that are due prior to Closing.
1.4 EXCLUDED LIABILITIES. Except as expressly provided to the contrary in
Section 1.3 above, under no circumstance shall Buyer be obligated to pay or
assume, and none of the Purchased Assets shall be or become liable for or
subject to, any liability of Seller, including, without limitation, the
following, whether fixed or contingent, recorded or unrecorded, known or unknown
(collectively, the "Excluded Liabilities"):
(a) indebtedness and other obligations or guarantees of Seller,
including, without limitation, current liabilities of Seller and short-term and
long-term indebtedness;
(b) liabilities or obligations of Seller in respect of periods prior
to Closing arising under the terms of the Medicare, Blue Cross or other third
party payor programs, and any liability arising pursuant to the Medicare, Blue
Cross or any other third party payor program as a result of the consummation of
the transactions contemplated herein;
(c) federal, state or local income, sales or other tax liabilities or
obligations of Seller in respect of periods prior to Closing and any FICA, FUTA,
workers' compensation and any and all other taxes or amounts due and payable as
a result of the exercise by any of Seller's Employees of such Employees' right
to vacation, sick leave and paid time off accrued while in
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the employ of Seller (to the extent not assumed pursuant to Section 1.3);
(d) liability for any and all claims by or on behalf of Seller's
Employees relating to periods prior to Closing, including, without limitation,
liability for any pension, profit sharing, deferred compensation, or any other
employee health and welfare benefit plans, liability for any EEOC claim, wage
and hour claim, unemployment compensation claim or workers' compensation claim,
and liability for all employee wages and benefits, including, without
limitation, accrued vacation, sick leave and holiday pay and taxes or other
liability related thereto in respect of Seller's Employees (to the extent not
assumed pursuant to Section 1.3), and including liability for any penalties for
nonpayment of wages (whether in the form of wage continuation or otherwise) on
account of wages earned by Seller's Employees relating to periods prior to
Closing;
(e) liabilities or obligations of Seller relating to any contract or
commitment of Seller that is not assumed by Buyer;
(f) liabilities or obligations arising out of any breach by Seller
prior to Closing of any Contract;
(g) any liability arising out of or in connection with claims for
acts, omissions and medical malpractice relating to the ownership or operation
of the Purchased Assets which occurred prior to Closing;
(h) liability arising out of the failure to obtain any required
consent to the assignment to Buyer of any Contract.
1.5 PURCHASE PRICE. Buyer agrees to pay to Seller at Closing as the
Purchase Price hereunder (the "Purchase Price") and in the manner hereinafter
provided the amount of Seventy Million Dollars ($70,000,000):
(a) PLUS the amount of all Prepaid Expenses acquired by Buyer
determined in accordance with Section 1.6 below;
(b) PLUS the amount payable for Supplies, as calculated pursuant to
Section 1.6(d), below.
(c) MINUS the amount of the Accrued Benefits provided for in Section
1.3.
(d) PLUS the amount of the Accounts Receivable provided for in
Section 1.1(d)(8), the value of which shall be mutually agreed upon by the
parties prior to Closing.
The Purchase Price shall be paid in lawful money of the United States by wire
transfer of immediately available funds, and shall be paid into an escrow to be
established by mutual agreement of the parties, or in the event no such escrow
is established, at Closing.
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1.6 PURCHASE PRICE ADJUSTMENTS.
(a) The adjustments provided for in Sections 1.5(a) through 1.5(d)
shall initially be estimated as of the Closing Date. Using the latest available
month end Financial Statements of Seller prepared in a manner consistent with
the Financial Statements (as defined in Section 3.4), Seller shall prepare and
deliver to Buyer at Closing an Interim Schedule of Purchased Assets and
Adjustments as defined in Section 1.5 (the "Interim Schedule"). The Interim
Schedule shall be delivered to Buyer at least three (3) business days prior to
the Closing Date.
(b) Within sixty (60) days after the Closing Date, Buyer will prepare
and deliver to Seller a Final Schedule of Purchased Assets and Adjustment (the
"Final Schedule") in respect of the Purchased Assets and adjustments provided
for in Sections 1.5(a) through 1.5(d) as of the Closing Date and a schedule or
schedules detailing any adjustment of the Purchase Price required by such Final
Schedule. The Final Schedule, which shall be prepared in a manner consistent
with the Interim Schedule, shall be used to determine Purchase Price adjustments
for the items provided for at Sections 1.5(a) through 1.5(d). Until the parties
have finally resolved all post-Closing adjustments to the Purchase Price, Seller
shall have full access to the relevant financial books and records of Buyer for
a period of one hundred twenty (120) days following the Closing to confirm or
audit the Final Schedule and the values assigned to the items provided for at
Sections 1.5(a) through 1.5(d) as of the Closing Date.
(c) In the event Seller disputes any entry on the Final Schedule that
is relevant to the Purchase Price adjustments contemplated by Sections 1.5(a)
through 1.5(d), or Seller disputes the amount of any post-Closing adjustments
proposed by Buyer, and in the further event Buyer and Seller cannot resolve such
dispute(s) within thirty (30) days after Seller notifies Buyer in writing of
such dispute(s) (provided such notice from Seller must be sent to Buyer within
twenty (20) days of its receipt of the Final Balance Sheet from Buyer), then
Buyer and Seller agree that the firm of Arthur Andersen, independent certified
public accountants (the "Accountants") shall review the matter(s) in dispute.
Such review shall include an audit of the appropriate line items of the Final
Schedule necessary to calculate the post-Closing adjustments if such audit is
recommended by the Accountants in order best to conduct such review and such
recommendation is approved by Buyer and Seller. The cost of such review,
including such audit if so recommended and approved, shall be paid 50% by Buyer
and 50% by Seller. Within 30 days after Seller's receipt of the audited Final
Schedule from Buyer or, if disputed as set forth above, within five (5) days
after the parties resolve such matter (or within five (5) days after the
parties' receipt of the decision from the Accountants), the Purchase Price shall
be recalculated based on the relevant entries set forth in the Final Schedule as
such entries may be adjusted based on the resolution of the parties, if any, or
the decision of the Accountants; and, based on such recalculation, either (i)
Seller shall pay Buyer in cash in
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immediately available funds the amount of any decrease in the Purchase Price, or
(ii) Buyer shall pay Seller in cash in immediately available funds the amount of
any increase in the Purchase Price. Notwithstanding the foregoing, any proposed
Purchase Price adjustment must exceed $25,000 individually or $50,000 in the
aggregate before the Accountants shall be engaged, or any Purchase Price
adjustment paid. Disputed Purchase Price Adjustments below these amounts shall
be shared equally between Buyer and Seller.
(d) No more than ten (10) days prior to the Closing Date, Buyer and
Seller shall conduct a physical inventory of usable and nonobsolete Supplies on
hand (the "Inventory"). In the event either party disputes the characterization
of the Supplies included in this Inventory, such dispute shall be submitted to
the Accountants for resolution within three (3) days after the dispute arose.
The existence of such dispute shall not preclude or delay the Closing and the
decision of the Accountants will be reflected in a post-Closing adjustment to
the Purchase Price. Based on such inventory, Buyer and Seller shall value the
Inventory using the lesser of cost or fair market value as of the date of such
inventory and Seller shall prepare a schedule thereof. The value of the
Inventory shall be increased or decreased, as appropriate, to reflect the value
of the additions to, and deletions from, the Inventory on the Final Schedule.
1.7 PRORATION. After the Closing Date, Seller and Buyer shall prorate as
of the Closing Date, any amounts which become due and payable on and after the
Closing Date with respect to (a) the Contracts, (b) ad valorem taxes, if any, on
the Purchased Assets, (c) property taxes on the Purchased Assets, and (d) all
utilities servicing any of the Purchased Assets, including without limitation,
water, sewer, telephone, electricity and gas service.
1.8 ALLOCATION OF PURCHASE PRICE. For all purposes, including, without
limitation, federal and state income tax, and Medicare, Medicaid, CHAMPUS and
other third-party health insurance reporting, the Purchase Price shall be
allocated among the Purchased Assets, Seller's covenant not to compete as
described in Section 10.8 (Seller's Covenant Not to Compete) the Ancillary
Agreements (as defined in Section 7.12), and the tax increment (to the extent
transferable) provided for in Schedule 1.8(a), it being acknowledged and agreed
by Buyer and Seller that the value of such items account for a significant
portion of the Purchase Price, in the manner set forth on a Schedule 1.8(b) to
be mutually agreed upon on or before May 1, 1996, but in any event no later than
the Closing Date. Seller and Buyer shall report this transaction in accordance
with such allocation and shall file with the appropriate tax authorities all
forms or returns, including Internal Revenue Service Form 8594, required with
respect to such transaction. Each party shall also report this transaction to
Medicare, Medicaid, CHAMPUS and other third-party health insurance payors (to
the extent Seller's participation in any such programs makes such reporting
necessary) in accordance with such allocation.
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1.9 DISCLAIMER OF WARRANTIES. Except as expressly set forth in Article
III hereof, the Purchased Assets shall be transferred in their condition on the
Closing Date, "AS IS," WITH NO WARRANTIES, INCLUDING, WITHOUT LIMITATION, ANY
WARRANTY OF HABITABILITY OR FITNESS FOR HABITATION, WITH RESPECT TO LAND,
BUILDINGS AND IMPROVEMENTS, AND WITH NO WARRANTIES, INCLUDING, WITHOUT
LIMITATION, THE WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, WITH RESPECT TO THE EQUIPMENT, INVENTORY, AND SUPPLIES, ANY AND ALL OF
WHICH WARRANTIES (BOTH EXPRESS AND IMPLIED) SELLER HEREBY DISCLAIMS. All of the
Purchased Assets shall be further subject to normal wear and tear on the land,
buildings, improvements and equipment and normal and customary use of the
Supplies up to the Closing.
1.10 SENIOR CENTER FURNITURE, FIXTURES, EQUIPMENT AND IMPROVEMENTS. In
connection with the Senior Center furniture, fixtures, equipment and
improvements being retained by Seller pursuant to Section 1.2 hereof (the
"Excluded FF&E"), the parties hereby agree that Buyer shall have the right and
option at any time following the seventh (7th) anniversary of the Closing
hereunder to acquire the Excluded FF&E for a purchase price of One Hundred
Dollars ($100.00). Upon Buyer's exercise of such right and payment of the
purchase price, Seller will deliver to Buyer a bill of sale transferring
ownership of the Excluded FF&E to Buyer. Following Buyer's acquisition of the
Excluded FF&E, and for so long as the Senior Center is occupied by the original
tenant or a permitted successor ("Tenant") under the Senior Center Lease, Seller
shall have the right and option to lease the Excluded FF&E from Buyer for One
Dollar ($1.00) a year, and the right to sublease the Excluded FF&E to Tenant.
Seller shall at all times maintain the Excluded FF&E in good condition and
repair, including replacement as necessary, except for ordinary wear and tear.
All Senior Center furniture, fixtures and equipment acquired after the Closing
shall be and remain the property of the party who acquired it, except
replacement items.
1.11 DATA PROCESSING EQUIPMENT. The parties acknowledge that following the
Closing, the data processing equipment to be used by Seller or FHP Sub to
provide services pursuant to the Data Processing Services Agreement (the
"Services Equipment") and certain other data processing equipment (the "Other
Equipment") will remain in one or more of the Buildings for a period not to
exceed the greater of (i) six (6) months or (ii) the term of the Data Processing
Agreement plus an additional three (3) months. Buyer hereby agrees to permit
the Services Equipment and the Other Equipment to remain on such property at no
cost, to provide appropriate security and environmental conditions for such
equipment and reasonable access thereto.
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ARTICLE II
CLOSING
2.1 CLOSING/ANCILLARY AGREEMENTS. (a) Upon the satisfactory completion or
waiver of all conditions precedent set forth in Article VII and Article VIII of
this Agreement, consummation of the sale and purchase of the Purchased Assets
and the other transactions contemplated by and described in this Agreement (the
"Closing") shall take place on the later of May 1, 1996 or the beginning of the
Employee payroll period following the date on which Buyer's and Seller's
conditions precedent have been satisfied or waived (but in all events by July
31, 1996) (the "Closing Date"). The Closing shall take place at such location
as the parties may mutually designate in writing.
(b) If, for any reason (including the existence of a dispute between
the parties), the sale and purchase of the Purchased Assets provided for in this
Agreement has not been consummated by July 31, 1996, either party shall have the
right on written notice to the other to immediately terminate any or all of the
Ancillary Agreements provided for in Sections 2.2 (d) through 2.2 (n) and 2.3
(c) through 2.3 (m) hereof (to the extent entered into prior to the Closing).
Should either party exercise this right, except for this Section 2.1(b) (which
shall survive any termination of this Agreement), and except as provided in
Section 10.2(bb) of this Agreement, the terminated Ancillary Agreements shall be
terminated in their entirety and rendered null and void and of no force or
effect for any purpose whatsoever. Following such terminations, neither party
hereto, nor their parents, subsidiaries or Affiliates or any of their respective
employees, officers, directors or shareholders shall have any further
obligations under such terminated Ancillary Agreements, except that such
terminations shall be without prejudice to the rights either party may have
arising out of any breach of such terminated Ancillary Agreements.
2.2 ACTIONS OF SELLER AT CLOSING. At the Closing and unless otherwise
waived in writing by Buyer, Seller shall deliver to Buyer the following:
(a) a special warranty deed (the "Deed"), fully executed by Seller in
recordable form, conveying to Buyer good and marketable fee title to the Real
Property described in Schedule 1.1(b), subject only to the "Permitted
Exceptions," as hereinafter defined;
(b) a General Bill of Sale and Assignment (the "Bill of Sale"), fully
executed by Seller, conveying to Buyer good and marketable title to all tangible
assets which are a part of the Purchased Assets and valid title to all
transferable intangible assets which are a part of the Purchased Assets, free
and clear of all liabilities, claims, liens, security interests and restrictions
(other than the Assumed Liabilities);
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(c) an Assignment of Contracts (the "Assignment of Contracts"), fully
executed by Seller, conveying to Buyer Seller's interest in the Contracts;
(d) the Data Processing Services Agreement (the "Data Processing
Services Agreement") as described and provided for in Section 10.1(a) hereof,
fully executed by Seller;
(e) the Senior Center Lease (the "Senior Center Lease") as described
and provided for in Section 10.1(b) hereof, fully executed by TMMC;
(f) the Service Center Lease (the "Service Center Lease") as
described and provided for in Section 10.1(c) hereof, fully executed by Seller
or FHP Sub;
(g) the Laboratory Services Agreement (the "Laboratory Services
Agreement") as described and provided for in Section 10.1(d) hereof, fully
executed by Talbert;
(h) the Radiology Agreement (the "Radiology Agreement") as described
and provided for in Section 10.1(e) hereof, fully executed by Talbert;
(i) the Residency Program Agreement (the "Residency Program
Agreement") as described and provided for in Section 10.1(f) hereof, fully
executed by either TMMC or FHP Sub;
(j) the Provider Agreement (the "Provider Agreement") as described
and provided for in Section 10.1(g) hereof, fully executed by FHP Sub;
(k) the Management Agreement (the "Management Agreement"), if
mutually determined to be necessary, provided for in Section 10.1(h) hereof,
fully executed by Seller and/or FHP Sub;
(l) the Escrow Agreement (the "Escrow Agreement"), if mutually
determined to be necessary, provided for in Section 10.1(i) hereof, fully
executed by Seller;
(m) the Letter Agreement (the "Letter Agreement") between Buyer and
TMMC, as described and provided for in Section 10.1(j) hereof, fully executed by
TMMC;
(n) the Rehabilitation Agreement (the "Rehab Agreement") as described
and provided for in Section 10.1(k) hereof, fully executed by Talbert;
(o) an Owners Policy of Title Insurance covering the Real Property as
described and provided pursuant to Section 7.7 hereof together with the Survey
of the Real Property described and provided pursuant to Section 7.7 hereof;
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(p) copies of resolutions duly adopted by the board of directors of
Seller authorizing and approving its performance of the transactions
contemplated hereby and the execution and delivery of this Agreement and the
documents described herein, certified as true and in full force as of Closing,
by the appropriate officers of Seller;
(q) certificates of incumbency for the respective officers of Seller
executing this Agreement or any other instrument, agreement or certificate to be
delivered by Seller;
(r) certificates of the President or a Vice-President of Seller and
FHP Sub, respectively, certifying that each covenant and agreement of Seller and
FHP Sub, respectively, to be performed prior to or as of the Closing pursuant to
this Agreement has been performed in all material respects;
(s) certificates of the President or a Vice-President of Seller and
FHP Sub, respectively, certifying that each of the representations and
warranties of Seller and FHP Sub, respectively, set forth herein is true and
correct in all material respects as of the Closing Date;
(t) certificates of existence and good standing of Seller from the
state in which it is incorporated, dated the most recent practical date prior to
Closing; and
(u) such other instruments and documents as are reasonably necessary
to satisfy the conditions precedent to Buyer's obligations hereunder.
2.3 ACTIONS OF BUYER AT CLOSING. At the Closing and unless otherwise
waived in writing by Seller, Buyer shall deliver to Seller the following:
(a) the Purchase Price;
(b) an Assumption Agreement, fully executed by Buyer, pursuant to
which Buyer shall assume the future payment and performance of the Contracts
and Assumed Liabilities as herein provided;
(c) the Data Processing Services Agreement, fully executed by Buyer;
(d) the Senior Center Lease, fully executed by Buyer;
(e) the Service Center Lease, fully executed by Buyer;
(f) the Laboratory Services Agreement, fully executed by Buyer;
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(g) the Radiology Agreement, fully executed by Buyer;
(h) the Residency Program Agreement, fully executed by Buyer;
(i) the Provider Agreement, fully executed by Buyer;
(j) the Management Agreement, fully executed by Buyer;
(k) the Escrow Agreement, fully executed by Buyer;
(l) the Letter Agreement, fully executed by Buyer;
(m) the Rehab Agreement, fully executed by Buyer;
(n) copies of resolutions duly adopted by the board of directors of
Buyer, authorizing and approving Buyer's performance of the transactions
contemplated hereby and the execution and delivery of this Agreement and the
documents described herein, certified as true and in full force as of Closing by
an appropriate officer of Buyer;
(o) certificates of incumbency for the respective officers of Buyer
executing this Agreement or any other instrument, agreement or certificate to be
delivered by Buyer;
(p) certificate of the President or a Vice-President of Buyer
certifying that each covenant and agreement of Buyer to be performed prior to or
as of the Closing pursuant to this Agreement has been performed in all material
respects;
(q) certificate of the President or a Vice-President of Buyer
certifying that each of the representations and warranties of Buyer set forth
herein is true and correct in all material respects as of the Closing Date;
(r) certificates of existence and good standing of Buyer from the
state of its organization or incorporation, each dated the most recent practical
date prior to Closing;
(s) such other instruments and documents as are reasonably necessary
to satisfy the conditions precedent to Seller's obligations hereunder.
2.4 ADDITIONAL ACTS. From time to time after Closing, Seller shall
execute and deliver such other instruments of conveyance and transfer, and take
such other actions as Buyer reasonably may request, to more effectively convey
and transfer full right, title and interest to, vest in, and place Buyer in
legal and actual possession of, any and all of the Purchased Assets; provided,
however, that no such instrument or action shall expand in any way the scope of
liability of Seller as set forth herein. In the case of Contracts and rights
which cannot be transferred effectively without the consents of third parties,
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upon the request of Buyer, Seller shall use its reasonable best efforts (but
without liability to Buyer in the event Seller is ultimately unable to obtain
such consents despite such reasonable best efforts) to obtain such consents
promptly. Seller shall also furnish Buyer with such information and documents
in its possession or under its control, or which Seller can execute or cause to
be executed, as will enable Buyer to prosecute any and all petitions,
applications, claims and demands relating to or constituting a part of the
Purchased Assets. Additionally, Seller and Buyer shall cooperate with and use
their respective best efforts at the sole cost and expense of the requesting
party, to have their respective former and present directors, officers, general
partners and employees cooperate with each other party on and after Closing in
furnishing information, evidence, testimony and other assistance in connection
with any action, proceeding, arrangement or dispute of any nature with respect
to matters pertaining to all periods prior to Closing in respect of the
Purchased Assets.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
As of the date hereof and as of the Closing Date, Seller represents and
warrants to Buyer the following:
3.1 CORPORATE CAPACITY. Seller and FHP Sub are corporations, duly
organized and validly existing in good standing under the laws of their
respective states of incorporation and both have the requisite power and
authority to enter into this Agreement, perform their obligations hereunder and
to conduct their business as now being conducted.
3.2 CORPORATE POWERS; CONSENTS; ABSENCE OF CONFLICTS WITH OTHER
AGREEMENTS, ETC. The execution, delivery and performance of this Agreement by
Seller and all other agreements referenced herein or ancillary hereto to which
Seller is a party and the consummation of the transactions contemplated herein
by Seller:
(a) are within Seller's corporate powers, are not in contravention of
law or of the terms of Seller's Articles of Incorporation, Bylaws or any
amendments thereto and have been duly authorized by all appropriate corporate
action;
(b) to the best of Seller's knowledge after reasonable inquiry (as
this phrase is defined in Section 3.18 (Reasonable Inquiry)), except as set
forth in Schedule 3.2(b), or otherwise expressly herein provided, do not require
any approval or consent of, or filing with, any governmental or regulatory
agency or authority bearing on the validity of this Agreement which is required
by law or the regulations of any such agency or authority;
(c) will neither conflict with nor result in any breach or
contravention of, nor permit the acceleration of the maturity of the Assumed
Liabilities, or the creation of any lien, charge or encumbrance affecting any
of the Purchased Assets;
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(d) will not violate any statute, law, rule or regulation of any
governmental or regulatory authority to which Seller or the Purchased Assets may
be subject; and
(e) will not violate any judgment of any court or governmental or
regulatory authority to which Seller or the Purchased Assets may be subject.
3.3 BINDING AGREEMENT. This Agreement and all agreements to which Seller
will become a party hereunder are and will constitute the valid and legally
binding obligations of Seller, and are and will be enforceable against Seller in
accordance with the respective terms hereof or thereof, except as enforceability
against Seller may be restricted, limited or delayed by applicable bankruptcy or
other laws affecting creditors' rights generally and except as enforceability
may be subject to general principles of equity.
3.4 FINANCIAL STATEMENTS. Seller has delivered to Buyer copies of all
available financial statements (the "Financial Statements") of the Hospital and
Home Health Agency for the two (2) fiscal years of Seller ended June 30, 1995,
and for the two fiscal quarters ended September 30, and December 31, 1995 (the
"Balance Sheet Date"). For each of the monthly periods thereafter, up to and
including the monthly period immediately prior to the execution date of this
Agreement, Seller will promptly deliver, as prepared, monthly Financial
Statements. Such Financial Statements have been and will be prepared in a
consistent manner throughout the periods indicated, and consistent with
financial statements previously provided to Buyer by Seller. The Financial
Statements do and will present fairly the financial condition of the Hospital
and Home Health Agency and the results of their related operations for the
periods indicated thereon. Since the Balance Sheet Date, there have occurred no
material adverse changes in the financial condition or business of the
Facilities as reflected in such financial statements. In this connection, Buyer
understands and acknowledges that Seller's business is subject to fluctuations
in enrollment from time to time, and that such fluctuations may have an effect
on Seller's Financial Statements. In addition, Seller has delivered to Buyer
copies of Seller's annual financial statements for the two (2) fiscal years of
Seller ended June 30, 1995, and unaudited quarterly statements of Seller filed
with the California Department of Corporations for the two fiscal quarters ended
September 30, and December 31, 1995. Such financial statements have been
prepared in accordance with generally accepted accounting principles.
3.5 SELLER'S LIABILITIES. To the best of Seller's knowledge after
reasonable inquiry, except as disclosed in the Schedules provided for herein,
Seller has no known or material liabilities relating to the Purchased Assets.
3.6 LICENSES. The Hospital is duly licensed by the Utah Department of
Health as a 125-bed general, acute care hospital. The units and ancillary
departments located at the Hospital which
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are required to be specifically licensed are duly licensed by the appropriate
state agencies. To the best of Seller's knowledge after reasonable inquiry,
Seller has delivered to Buyer an accurate list, and complete copies (Schedule
3.6) of all material licenses and permits and of all other franchises, owned or
held by Seller relating to the ownership, development or operation of the
Hospital and the Purchased Assets, all of which are now and as of Closing shall
be in good standing. Schedule 3.6 also contains a true and correct copy of all
the Hospital's state licensing reports and any and all citations and statements
and list of deficiencies in Seller's possession. To the best of Seller's
knowledge after reasonable inquiry, there are no, and at Closing there will be
no, provisions in, or agreements relating to any such licenses and permits which
would preclude or limit the Buyer from operating the Hospital and using all the
beds of the Hospital as they are currently classified. To the best of Seller's
knowledge after reasonable inquiry, there are no fire code violations in the
Facilities. Seller has delivered to Buyer the most recent fire marshall survey
and list of deficiencies, if any. Except as provided in Schedule 3.6, Seller
has cured all deficiencies noted therein.
3.7 MEDICARE PARTICIPATION/ACCREDITATION. The Hospital is qualified for
participation in the Medicare and Medicaid programs, has a current and valid
provider contract with the Medicare and Medicaid programs, and is in compliance
in all material respects with the conditions of participation in such programs.
To the best of Seller's knowledge after reasonable inquiry, there is no
proceeding or investigation pending, or threatened, involving or affecting the
Hospital's continued participation in such programs. The Hospital has been
awarded a three-year accreditation by the Joint Commission on Accreditation of
Healthcare Organizations (the "JCAHO") . Attached as Schedule 3.7 hereto are
true and complete copies of all of the Hospital's JCAHO survey reports and all
of the Hospital's statements of deficiencies and plans of correction ever issued
or prepared.
3.8 REGULATORY COMPLIANCE. Except as set forth on Schedule 3.8 hereto,
Seller is in compliance in all material respects with all applicable statutes,
rules, regulations and requirements of all regulatory, federal, state and local
commissions, boards, bureaus and agencies having jurisdiction over the Hospital
and the operations of the Hospital, Child Care Center and Home Health Agency and
Seller has timely filed all reports, data and other information required to be
filed with such commissions, boards, bureaus and agencies where a failure to
file timely would have a material adverse effect on the Purchased Assets.
3.9 AGREEMENTS. Seller has delivered to Buyer an accurate list of all
material contracts (other than contracts with current providers of home health
services), leases and agreements related to the Purchased Assets or the
operation thereof, to which Seller or FHP Sub is a party or BY which Seller or
FHP Sub or any of the Purchased Assets are bound (including,
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without limitation, provider based physician agreements, agreements with health
maintenance organizations, preferred provider organizations or other alternative
delivery systems, joint venture or partnership agreements, employment
agreements, contracts, tenant leases, equipment leases, equipment maintenance
agreements, agreements with municipalities and labor organizations, loan
agreements, bonds, mortgages, liens or other security agreements). To the best
of Seller's knowledge after reasonable inquiry, Seller has delivered true,
correct and complete copies of all such agreements to Buyer.
3.10 THE CONTRACTS. Seller warrants and represents that:
(a) The Contracts constitute the valid and legally binding
obligations of Seller or FHP Sub and are enforceable against Seller or FHP Sub
in accordance with their terms (it being understood and agreed that this
representation and warranty is made only for the benefit of Buyer, its
successors and permitted assigns, and that nothing herein shall be deemed or
construed to constitute an admission in favor of any third party or any party to
any of the Contracts, other than an Affiliate as defined in Section 9.5), except
as enforceability against Seller may be restricted, limited or delayed by
applicable bankruptcy or other laws affecting creditors' rights generally and
except as enforceability may be subject to general principles of equity;
(b) Each Contract constitutes the entire agreement by and between the
respective parties thereto with regard to the subject matter thereof;
(c) All obligations required to be performed under the terms of the
Contracts have been performed in all material respects, no act or omission has
occurred or failed to occur which, with the giving of notice, the lapse of time
or both would constitute a default under the Contracts and each of such
Contracts (except for any which may have expired) is now and will be upon and
immediately after the Closing in full force and effect without default on the
part of the parties thereto;
(d) Subject to Section 12.3, except as expressly set forth on
Schedule 1.1(d)-6 none of the Contracts requires consent to the assignment to
and assumption by Buyer; and Seller, with Buyer's full cooperation and
assistance, will use Seller's reasonable best efforts to obtain any required
consents prior to Closing, but without liability of Seller to Buyer in the event
Seller is ultimately unable to obtain such consents despite such reasonable best
efforts; and
(e) The assignment of the Contracts to and assumption of such
Contracts by Buyer will not result in any penalty, premium or variation of the
rights, remedies, benefits or obligations of any party thereunder.
3.11 EQUIPMENT. Seller has delivered to Buyer a schedule as of the Balance
Sheet Date (Schedule 3.11) which to the best of Seller's knowledge, takes into
consideration all the equipment
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associated with, or constituting any part of the Purchased Assets. Since the
Balance Sheet Date, Seller has not sold or otherwise disposed of any item of
equipment having a value in excess of $5,000.00 associated with or constituting
any part of the Purchased Assets. Inventory and Supplies are carried at cost on
a first in, first out basis and are properly stated in the Financial Statements
of Seller.
3.12 REAL PROPERTY. There exist no unrecorded restrictions, agreements,
claims or other encumbrances not covered by Title Insurance which cause title to
the Real Property to be unmarketable other than Permitted Encumbrances or which
materially interfere with any use by Buyer, of the Purchased Assets in a manner
consistent with the current use thereof by Seller. The Real Property will be
conveyed to Buyer subject only to current taxes not yet due and payable, and
Permitted Encumbrances and other matters waived by Buyer.
(a) If any lien, other than a Permitted Encumbrance (as that term is
defined in Section 7.7(a) hereof), is asserted against the Real Property between
the date of this Agreement and the Closing, Seller shall obtain the release of
each such lien prior to Closing or provide a full indemnity to or for the
benefit of Buyer with respect thereto;
(b) Other than as may be set forth on Schedule 3.12(b) hereto, to the
best of Seller's knowledge after reasonable inquiry, there are no material
violations of any applicable ordinance or other law, order, regulation or
requirement, or any covenant, condition, restriction or easement affecting the
Real Property or the use or occupancy thereof which has not been fully complied
with or remedied nor any pending condemnation, lien, assessment or the like,
relating to any part of the Real Property or the operation thereof;
(c) To the best of Seller's knowledge, after reasonable inquiry, the
Real Property and its operation are in compliance in all material respects or
are exempt from compliance with all applicable zoning ordinances (excepting only
instances of non-compliance which will not materially adversely affect the
business of Hospital), and the consummation of the transactions contemplated
herein will not result in a violation of any applicable zoning ordinance or the
termination of any applicable zoning variance now existing;
(d) Except as disclosed on Schedule 3.12(d), (i) to the best of
Seller's knowledge, after reasonable inquiry, all of the Real Property is in
compliance in all material respects with the applicable provisions of Title III
of the Americans with Disabilities Act (the "ADA"), and (ii) there is no pending
or noticed, or to the best of Seller's knowledge, threatened litigation,
administrative action or complaint (whether from state, federal or local
government or from any other person, group or entity) relating to compliance of
any of the Real Property with the ADA.
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(e) To the best of Seller's knowledge, no part of the Real Property
contains, is located within or abuts any flood plain, navigable water or other
body of water, tideland, wetland, marshland, or any area which has been
designated by the Federal Emergency Management Agency, the Army Corps of
Engineers or any other governmental agency as being subject to special flood
hazards or any other area which is subject to special state, federal or
municipal regulation, control or protection.
(f) There are no tenants or other persons or entities occupying any
space in the Real Property, except as disclosed on Schedule 3.12(f).
(g) To the best of Seller's knowledge, after reasonable inquiry, all
of the Real Property is separately assessed for real estate tax purposes and is
not combined with any other land or real estate which is not a part of the Real
Property for real estate tax assessment purposes.
(h) To the best of Seller's knowledge, after reasonable inquiry,
there is no existing, proposed or contemplated plan to modify or realign any
street or highway or any existing, proposed or contemplated eminent domain
proceeding that would result in the taking of all or any part of the Real
Property or that would adversely affect the current or any planned use of any
part of the Real Property.
3.13 EMPLOYEE RELATIONS. There is no pending or, to the best of Seller's
knowledge, threatened employee strike, work stoppage or labor dispute involving
Employees. No collective bargaining agreement exists or is currently being
negotiated by Seller, no demand has been made for recognition by a labor
organization by or with respect to any Employees, to the best of Seller's
knowledge, after reasonable inquiry, no union organizing activities by or with
respect to any Employees are taking place, and none of the Employees is
represented by any labor union or organization. There is no unfair practice
claim against Seller before the National Labor Relations Board, or any strike,
dispute, slowdown, or stoppage pending or threatened against or involving the
Hospital and none has occurred. To the best of Seller's knowledge, after
reasonable inquiry, Seller is in compliance in all material respects, with all
federal and state laws respecting employment and employment practices, terms and
conditions of employment, and wages and hours. To the best of Seller's
knowledge, after reasonable inquiry, Seller is not engaged in any unfair labor
practices. There are no pending or, to the best of Seller's knowledge,
threatened EEOC claims, wage and hour claims, unemployment compensation claims,
workers' compensation claims or the like.
3.14 LITIGATION OR PROCEEDINGS. Seller has delivered to Buyer an accurate
list and summary description (Schedule 3.14) of all litigation, arbitration,
administrative or other adversary proceedings with respect to the Facilities and
the Purchased Assets to which Seller is a party. To the best of Seller's
knowledge after reasonable inquiry, Seller is not in default in
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any material respect under any law or regulation pertaining to the operation of
the Hospital, or under any order of any court or federal, state, municipal or
other governmental or regulatory department, commission, board, bureau, agency
or instrumentality wherever located. Except to the extent set forth on Schedule
3.14, there are no claims, actions, suits, proceedings or investigations
pending, or to the best of Seller's knowledge, threatened against or affecting
Seller with respect to the Facilities or the Purchased Assets, at law or in
equity, or before or by any federal, state, municipal or other regulatory or
governmental department, commission, board, bureau, agency or instrumentality
wherever located.
3.15 MEDICAL STAFF MATTERS. Seller has provided to Buyer true, correct,
and complete copies of the bylaws and rules and regulations of the medical staff
of the Hospital. With regard to the medical staff of the Hospital and except as
set forth on Schedule 3.15 hereto, there are no pending or, to the best of
Seller's knowledge, threatened disputes with applicants, staff members or health
professional affiliates and all appeal periods in respect of any medical staff
member or applicant against whom an adverse action has been recommended or taken
have expired.
3.16 ENVIRONMENTAL LAWS. Except as disclosed on Schedule 3.16:
(a) To the best of Seller's knowledge after reasonable inquiry,
Seller has not received any written communication from appropriate governmental
authority, citizens group, employee or otherwise, that alleges that the Real
Property is not in full compliance with the Environmental Laws and Seller has
not received any written communication from appropriate governmental authority,
citizen's group, employee or otherwise, that alleges to the contrary. There is
no Environmental Claim (as defined below) pending or noticed or, to the best of
Seller's knowledge after reasonable inquiry, threatened against Seller regarding
the Real Property.
(b) To the best of Seller's knowledge, after reasonable inquiry,
there have been no actions, activities, circumstances, conditions, events or
incidents occurring during the period of Seller's ownership of the Real
Property, including, without limitation, the generation, handling,
transportation, treatment, storage, release, emission, discharge, presence,
disposal or arranging for disposal of any Hazardous Substance, that could form
the basis of any Environmental Claim against Seller under any Environmental Law
(as defined below) in effect at any time at or prior to the Closing.
(c) Without in any way limiting the generality of the foregoing, to
the best of Seller's knowledge after reasonable inquiry (i) all underground
storage tanks, and the capacity and contents of such tanks, located on the Real
Property are identified in Schedule 3.16, (ii) except as identified in Schedule
3.16, there is no asbestos contained in or forming part of the Buildings in
violation of applicable law or regulations,
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and (iii) no Polychlorinated biphenyls (PCBs) are used or stored at any of the
Real Property.
(d) No lien of any type presently attaches to the Real Property
pursuant to Environmental Laws, except as disclosed in Schedule 3.16.
(e) The inclusion of any item disclosed in Schedule 3.16, does not
constitute an admission by Seller that any matter disclosed in such schedule
constitutes a violation of any Environmental Law.
(f) The following terms shall have the following meanings:
(i) "Environmental Claim" means any claim, action, cause of
action, investigation or written notice by any person or entity alleging
potential liability (including, without limitation, 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 the presence, or release into the environment, of
any Hazardous Substances at any location, whether or not owned or operated by
Seller in violation of an Environmental Law or any violation, or alleged
violation, of any Environmental Law.
(ii) "Environmental Laws" means the federal, state (including
specifically, but not by way of limitation, the State of Utah), and local
environmental, health or safety laws, regulations, ordinances, rules and polices
and common law in effect on the date hereof and the Closing Date relating to the
generation, use, refinement, handling, treatment, removal, storage, production,
manufacture, transportation, disposal, arranging for disposal, emissions,
discharges, releases or threatened releases of Hazardous Substances, or
otherwise relating to protection of human health, worker safety or the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata), as the same may be amended or
modified to the date hereof and the Closing Date;
(iii) "Hazardous Substances" means any toxic or hazardous waste,
pollutants or substances, explosives, radioactive materials, or Medical Waste
(as defined below), including, without limitation, asbestos, PCBs, petroleum
products and byproducts, substances defined or listed as "hazardous substance,"
"toxic substance," "toxic pollutant," or similarly identified substance or
mixture, in or pursuant to any Environmental Law.
(iv) "Medical Waste" means any substance, pollutant, material, or
contaminant listed or regulated under the Medical Waste Tracking Act of 1988, 42
U.S.C. Section 6992, ET SEQ., 49 C.F.R. Section 173, 186.
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3.17 FULL DISCLOSURE. This Agreement and the Schedules hereto and all
other documents and information furnished to Buyer and Buyer's representatives
by Seller pursuant hereto do not and will not, to the best of Seller's knowledge
after reasonable inquiry, include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements made and to be
made not misleading.
3.18 REASONABLE INQUIRY. Whenever in this Agreement matters are stated "to
the best of Seller's knowledge after reasonable inquiry," such knowledge
includes the following: (i) knowledge acquired from review of all available
files and documents of Seller and FHP Sub pertaining to the Hospital and Home
Health Agency; and (ii) knowledge acquired from inquiries of officers, managers
and general counsel of Seller and FHP Sub pertaining to the Hospital and Home
Health Agency. Accordingly, such matters include those matters of which Seller
or FHP Sub have actual knowledge, those which are apparent from review of the
foregoing files, and those of which Seller or FHP Sub is made aware by the
foregoing officers, managers and general counsel.
3.19 TITLE. As of the Closing Date, other than Excluded Assets, Seller
shall own and hold good and marketable title to all tangible personal property
assets, and valid title to all intangible personal property assets associated
with or employed in the operation of the Facilities or located on the Real
Property, all of which shall be a part of the Purchased Assets, and, except as
provided in Section 3.12 hereof, other than Excluded Assets, at Closing Seller
will convey for the benefit of Buyer good and marketable title to all tangible
and intangible personal property assets, constituting or associated with the
Purchased Assets or any part thereof, subject to no mortgage, lien, pledge,
security interest, conditional sales agreement, right of first refusal, option,
restriction, liability, encumbrance or charge other than Permitted Encumbrances.
3.20 QUALITY AND CONDITION OF PURCHASED ASSETS. Except as listed on
Schedule 3.20, the buildings standing on the Real Property and all material
parts thereof and appurtenances thereto, including, without limitation, the
plumbing, electrical, mechanical, heating, ventilation and air conditioning
systems ("Building Equipment and Fixtures") are operating consistent with their
intended purpose and have been maintained in accordance with commercially
reasonable standards. The machinery and equipment owned or leased by Seller and
listed on Schedule 3.11 will be operating consistent with their intended purpose
on the Closing Date, except as set forth in Schedule 3.20. All items listed on
Schedule 3.20 shall be repaired at the expense of the party owning the related
facility on or prior to the Closing.
All liabilities of Seller with respect to warranties in this Section 3.20
shall terminate fifteen (15) days after the Closing Date, except as to those
claims asserted prior thereto, and no claim shall be asserted unless such claim
exceeds $25,000 per item.
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3.21 INSURANCE. Seller will deliver to Buyer prior to Closing an accurate
schedule (Schedule 3.21) disclosing the insurance policies covering the
ownership and operations of the Purchased Assets, which Schedule reflects the
policies' numbers, terms, identity of insurers, amounts and coverage. All of
such policies are now and will be until Closing in full force and effect with no
premium arrearages. Certificates from the insurers issuing all such policies
and any endorsements thereto which Certificates shall evidence that such
policies are in full force and effect have been or will be delivered to Buyer
prior to Closing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
As of the date hereof, Buyer represents and warrants to Seller the
following:
4.1 CORPORATE CAPACITY. Buyer is a corporation, duly organized and
validly existing in good standing under the laws of the State of California.
4.2 CORPORATE POWERS; CONSENTS; ABSENCE OF CONFLICTS WITH OTHER
AGREEMENTS, ETC. The execution, delivery and performance of this Agreement by
Buyer and all other agreements referenced in or ancillary hereto to which Buyer
is a party and the consummation of the transactions contemplated herein by
Buyer:
(a) are within Buyer's corporate powers and are not in contravention
of the terms of Buyer's Articles of Incorporation or Bylaws and have been
approved by all requisite corporate action;
(b) to the best of Buyer's knowledge after reasonable inquiry, except
as set forth in Schedule 4.2(b), or otherwise expressly herein provided, do not
require any approval or consent of, or filing with, any governmental or
regulatory agency or authority bearing on the validity of this Agreement which
is required by law or the regulations of any such agency or authority;
(c) will neither conflict with nor result in any material breach or
contravention of, or the creation of any lien under, any indenture, agreement,
lease, instrument or understanding to which Buyer is a party or by which Buyer
is bound;
(d) will not violate any statute, law, rule or regulation of any
governmental or regulatory authority to which Buyer may be subject; and
(e) will not violate any judgment of any court or governmental or
regulatory authority to which Buyer may be subject.
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4.3 BINDING EFFECT. This Agreement and all other agreements to which
Buyer will become a party hereunder are and will constitute the valid and
legally binding obligations of Buyer and are and will be enforceable against
Buyer in accordance with the respective terms hereof and thereof, except as
enforceability against Buyer may be restricted, limited or delayed by applicable
bankruptcy or other laws affecting creditors' rights generally and except as
enforceability may be subject to general principles of equity.
4.4 FULL DISCLOSURE. This Agreement and all other documents and
information furnished to Seller and Seller's representatives by Buyer pursuant
hereto do not and will not include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements made and to be
made not misleading.
ARTICLE V
COVENANTS OF SELLER
5.1 INFORMATION. Between the date of this Agreement and the Closing Date
(but without impairing the provisions of Section 10.2(c)), Seller shall afford
to the officers and authorized representatives and agents of Buyer full and
complete access to and the right to inspect the plant, properties, books and
records of Seller relating to the Purchased Assets, and, subject to the prior
written approval of Seller, such approval not to be unreasonably withheld, will
furnish Buyer with such additional previously existing financial and operating
data and other information as to the business and properties of Seller relating
to the Purchased Assets as Buyer may from time to time reasonably request
without regard to where such information may be located. Buyer's right of
access and inspection shall be made in such a manner as not to materially
interfere with the operation of the Purchased Assets and as not to interfere
with the delivery of patient care. Buyer shall indemnify, defend and hold
Seller harmless from and against any and all injury, loss or damage to persons
or property (including, without limitation, the Real Property), and from any and
all losses, costs, liabilities or expenses (including but not limited to
attorneys' fees) which may be caused by or result from Buyer's activities on the
Real Property.
5.2 OPERATIONS. From the date hereof until the Closing Date, Seller will
in respect of the Hospital, Child Care Center, Home Health Agency, Utilities
Building, and Buildings use Seller's reasonable best efforts to:
(a) carry on Seller's business in substantially the same manner as
Seller has heretofore and not make any material change in personnel (except as
permitted hereunder), operations finance, accounting policies, or real or
personal property with respect thereto;
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(b) maintain the Purchased Assets and all parts thereof in as good
working order and condition as at present, ordinary wear and tear excepted;
(c) perform all of Seller's obligations under agreements relating to
or affecting the Purchased Assets;
(d) keep in full force and effect present insurance policies or other
comparable insurance up to the date of Closing;
(e) retain Seller's Employees(except as permitted hereunder) and
maintain Seller's relationships with physicians (including Hospital based
physicians and specialists with whom Seller or FHP Sub has contracted),
suppliers, customers and others having business relations with Seller and take
such actions as are reasonably necessary to cause the smooth, efficient and
successful transition of such business operations and employee and other
relations to Buyer as of Closing; and
(f) permit and allow reasonable access by Buyer to make offers of
post-Closing employment to any of Seller's Employees, which Employees shall be
allowed to accept such offers without penalty, competing offer or interference,
and to establish relationships with physicians and others having business
relations with Seller with respect to the Hospital.
5.3 NEGATIVE COVENANTS. From the date hereof to the Closing Date, Seller
in respect of the Facilities will not, without the prior written consent of
Buyer:
(a) amend or terminate any of the Contracts, enter into any contract
or commitment with a term exceeding ninety (90) days, or incur, or agree to
incur, any liability with a value in excess of Twenty-Five Thousand Dollars
($25,000);
(b) make offers of employment to any Employees for employment with
Seller or any Affiliate of Seller for the period of six (6) months subsequent to
Closing, other than those Employees who do not accept offers of post-Closing
employment from Buyer or are terminated by Buyer;
(c) increase compensation payable or to become payable or make a
bonus payment (except where such payment is, in Seller's opinion, required to
induce Employees to remain in Seller's employ until the Closing) to or otherwise
enter into one or more bonus agreements with any Employee, except in the
ordinary course of business in accordance with existing personnel policies;
(d) create, assume or permit to exist any new mortgage, pledge or
other lien or encumbrance upon any of the Purchased Assets, whether now owned or
hereafter acquired;
(e) sell, assign or otherwise transfer or dispose of any property,
plant or equipment (other than Supplies), with a value in excess of Ten Thousand
Dollars ($10,000); or
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(f) take any action outside the ordinary course of business.
5.4 GOVERNMENTAL APPROVALS. Between the date of this Agreement and the
Closing Date, Seller shall reasonably assist and cooperate (without any cost or
expense to Seller for outside services) with Buyer and Buyer's representatives
and counsel in obtaining all governmental and regulatory consents, approvals and
licenses which Buyer reasonably deems necessary or appropriate as set forth on
Schedule 5.4 and in the preparation of any document or other material which may
be required by any governmental or regulatory agency as a predicate to or result
of the transactions contemplated herein. Seller agrees that, in the event Buyer
is unable to obtain any required license or certification prior to the Closing
Date or assurance of the transfer or issuance upon Closing of such license or
certification (except the acute care facility license and Medicare provider
number), Seller will retain such license or certification intact after the
Closing Date and Buyer may operate under such license or certificate of Seller
until Buyer obtains such license or certificate (to the extent permissible by
law or regulation); provided that all other conditions precedent of Seller and
Buyer have been satisfied or waived at the time of Closing.
5.5 FTC NOTIFICATION. On or before the fifteenth (15th) day after the
execution and delivery of this Agreement, Seller shall, if and to the extent
required by law, file the Notification Report Form with the Federal Trade
Commission ("FTC") and the United States Department of Justice ("Justice
Department") under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR Act") , and all regulations promulgated thereunder, concerning the
transactions contemplated hereby, and comply promptly with any requests by the
FTC or Justice Department for additional information concerning such
transactions, and otherwise use commercially reasonable efforts, so that the
waiting period specified in the HSR Act (the "Waiting Period") will expire as
soon as reasonably possible after the execution and delivery of this Agreement.
Seller agrees to furnish to Buyer such information concerning Seller as Buyer
needs to perform its obligations under Section 6.1 (FTC Notification) of this
Agreement. If, for any reason, including the extension of the Waiting Period by
issuance by the FTC or the Justice Department of a second request for
information, the Waiting Period has not expired by July 31, 1996, or if the
transaction provided for herein cannot be closed because of the actions of the
FTC and the Justice Department by such date, Seller shall have the right to
terminate this Agreement pursuant to Section 10.2(g).
5.6 CLOSING CONDITIONS. Between the date of this Agreement and the
Closing Date, Seller will use Seller's reasonable best efforts to cause the
conditions specified in Articles VII and VIII hereof over which Seller has
control to be satisfied as soon as reasonably practicable, but in all events
before the Closing Date.
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ARTICLE VI
COVENANTS OF BUYER
6.1 FTC NOTIFICATION. On or before the fifteenth (15th) day after the
execution and delivery of this Agreement, Buyer shall, if and to the extent
required by law, file the Notification Report Form and all reports or other
documents required or requested by the FTC or the Justice Department under the
HSR Act, and all regulations promulgated thereunder, concerning the transactions
contemplated hereby, and shall comply promptly with any requests by the FTC or
Justice Department for additional information concerning such transactions, and
otherwise use commercially reasonable efforts, so that the Waiting Period
provided for in Section 5.5 of this Agreement will expire as soon as reasonably
possible after the execution and delivery of this Agreement. Buyer agrees to
furnish to Seller such information concerning Buyer as Seller needs to perform
its obligations under Section 5.5 of this Agreement.
6.2 REGULATORY APPROVALS. Between the date of this Agreement and the
Closing Date, Buyer (a) will use its best efforts to obtain, as promptly as
practicable, all approvals, authorizations and clearances of governmental and
regulatory authorities required of it to consummate the transactions as set
forth in Schedule 5.4, (b) will provide such other information and
communications to governmental and regulatory authorities as such authorities
may reasonably request, and (c) will cooperate with Seller in obtaining, as soon
as practicable, all approvals, authorizations and clearances of governmental and
regulatory authorities required of Seller to consummate the transactions
contemplated hereby.
6.3 BOOKS AND RECORDS. Until the later to occur of (a) the final
adjudication of any dispute or investigation involving liabilities, federal,
state or local taxes or under the Medicare program arising out of the business,
operations or affairs of Seller before the Closing Date, or (b) the running of
applicable statutes of limitations, Buyer will maintain in the ordinary course
of business all books and records of Seller constituting a part of the Purchased
Assets which are delivered to Buyer at Closing and which relate to the pre-
Closing business, operations and affairs of Seller to the extent reasonably
necessary in connection with any tax or Medicare liability or other matter
reasonably relating to Seller for any period ending at or before the Closing
Date.
6.4 CREDENTIALING. Buyer agrees that, at all times after the Closing
Date, Buyer will cause each of the hospitals provided for in the Provider
Agreement to refrain from discriminating against any physicians employed by or
under contract with Talbert, as defined in Section 10.1(b), in obtaining
hospital privileges at such hospitals, provided they meet such hospital's
medical staff criteria applicable to similarly qualified physicians seeking
similar privileges.
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6.5 COLUMBIA TRANSACTIONS. Buyer will use its best efforts to consummate
its pending acquisitions of the Pioneer Valley and Davis Hospitals and to
complete any review process of the FTC or the Justice Department in connection
with said acquisitions.
6.6 CLOSING CONDITIONS. Between the date of this Agreement and the
Closing Date, Buyer will use its best efforts to cause the conditions specified
in Articles VII and VIII hereof over which Buyer has control to be satisfied as
soon as reasonably practicable, but in all events before the Closing Date.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligations of Buyer hereunder are, at the option of Buyer, subject to
the satisfaction, on or prior to the Closing Date, of the following conditions
unless waived in writing by Buyer:
7.1 REPRESENTATIONS/WARRANTIES. The representations and warranties of
Seller contained in this Agreement shall be true in all material respects when
made and on and as of the Closing Date as though such representations and
warranties had been made on and as of such Closing Date; and each and all of the
terms, covenants and conditions of this Agreement to be complied with or
performed by Seller on or before the Closing Date pursuant to the terms hereof
shall have been duly complied with and performed.
7.2 PRE-CLOSING CONFIRMATIONS AND APPROVALS. Except with regard to review
of the Schedules, subject to Section 12.1, Buyer has completed its due diligence
review of the Purchased Assets to Buyer's reasonable satisfaction, and prior to
the Closing Date shall have obtained documentation or other evidence reasonably
satisfactory to Buyer that Buyer has:
(a) received approval, or obtained reasonable assurances of approval,
from all governmental and regulatory agencies whose approval is required and
deemed by Buyer to be essential to the completion of the transactions herein
contemplated (said approvals being those identified and set forth on Schedule
5.4); provided Buyer has filed and thereafter diligently pursued or prosecuted
all required notices or applications therefor within five (5) business days
after the signing of this Agreement.
(b) received confirmation from all applicable licensing or certifying
agencies that upon Closing all licenses required by law to operate the Hospital
as currently operated will be transferred to, or reissued in the name of Buyer,
those licenses being identified on Schedule 5.4; provided Buyer has filed and
thereafter diligently pursued or prosecuted all required notices or applications
within five (5) business days after the signing of this Agreement; and
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(c) obtained reasonable assurances that Medicare certification of the
Hospital for its operation by Buyer will be effective as of Closing and that
Buyer may participate in and receive reimbursement from such program effective
as of Closing.
(d) obtained from an environmental engineering firm acceptable to
Buyer a Phase I Environmental Site Assessment and a report regarding the
existence of asbestos to Buyer with respect to the Purchased Assets, including
the Real Property, and the scope of findings and conclusions of such report
shall have been reasonably satisfactory to Buyer, provided Buyer has
commissioned such assessment promptly after the execution of this Agreement and,
thereafter provided a copy of such assessment to Seller and advised Seller of
the acceptability or nonacceptability thereof by April 28, 1996. If Buyer fails
to give to Seller such advice within such period, such assessment shall be
deemed accepted. All costs and expenses of obtaining this report shall be borne
by Buyer.
(e) received confirmation of approval for the transaction by the
Federal Trade Commission and the Justice Department.
(f) executed the agreements provided for in Section 2.2(d) through
2.2(m) and Sections 2.3(c) through 2.3(l).
(g) approved all Schedules contemplated and required under this
Agreement together with any and all replacements thereto.
7.3 ACTION/PROCEEDING. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the transactions herein contemplated.
7.4 ADVERSE CHANGE. Seller shall not have suffered any material change,
loss or damage to the Purchased Assets, whether or not covered by insurance.
7.5 EXTRAORDINARY LIABILITIES/OBLIGATIONS. Seller shall not have incurred
any liability or obligation outside the ordinary course of business since the
date hereof which materially affects the Purchased Assets. Seller shall not (a)
be in receivership or dissolution, (b) have made any assignment for the benefit
of creditors, (c) have admitted in writing its inability to pay its debts as
they mature, (d) have been adjudicated a bankrupt or (e) have filed a petition
in voluntary bankruptcy, a petition or answer seeking reorganization, or an
arrangement with creditors under the federal bankruptcy law or any other similar
law or statute of the United States or any state, nor shall any such petition
have been filed against Seller.
7.6 VESTING/RECORDATION. Seller shall have furnished to Buyer in form
reasonably acceptable to Buyer and approved by Buyer's counsel, deeds, bills of
sale, assignments or other
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instruments of transfer and (except in minor instances) consents and waivers by
others, necessary or appropriate to transfer to and effectively vest in Buyer
all of Seller's right, title and interest in and to the Purchased Assets, in
proper statutory form for recording if such recording is necessary or
appropriate.
7.7 TITLE POLICY AND SURVEY.
(a) TITLE COMMITMENT. Within fifteen (15) days after the execution
and delivery of this Agreement, Seller, at its sole cost and expense, shall
cause to be furnished to Buyer, in form satisfactory to Buyer, a current title
commitment (the "Title Commitment") issued by Associated Title Company (the
"Title Agent") on behalf of First American Title Insurance Company (the "Title
Company"), together with legible copies of all exceptions to title referenced
therein. The Title Commitment shall set forth the state of title to the Real
Property, together with all exceptions or conditions to such title, including,
without limitation, all easements, restrictions, rights-of-way, covenants,
reservations, and all other encumbrances affecting the Real Property which would
appear in an owner's title policy, if issued. The Title Commitment shall
contain the express commitment of the Title Company to issue an owners' title
policy (collectively, the "Title Policy") to Buyer in an amount equal to the
portion of the Purchase Price which is allocated to the Real Property. The
Title Policy shall insure good and marketable title to the Real Property, in
Buyer, subject only to Permitted Encumbrances (as hereinafter defined) and such
other exceptions as Buyer shall approve in writing. Such policies shall provide
full coverage against mechanics' or materialmen's liens arising out of any work,
labor, materials or services furnished or claimed to have been furnished to the
Real Property or any part thereof prior to the Closing, and shall contain such
endorsements as Buyer may reasonably require, including a "GAP" endorsement, but
only if the Title Company is able to provide such endorsements. The term
"Permitted Encumbrances" shall mean the following: liens for current ad valorem
taxes and assessments not yet due and payable; all existing utility easements of
record; laws regulating the use or enjoyment of the Real Property; liens
securing obligations which are Assumed Liabilities (but only to the extent
thereof); and any other matters approved by Buyer in writing.
The Title Commitment and the standard coverage portion of the Title
Policy will be furnished to Buyer at Seller's sole cost and expense, and Buyer
shall pay all costs in excess of the cost of the issuance of a standard coverage
policy of title insurance.
(b) SURVEY. No later than five (5) days after the execution and
delivery of this Agreement, Seller shall, at its sole cost and expense, cause a
copy of one or more surveys of the Real Property (whether one or more, the
"Survey") to be furnished to Buyer. The Survey shall, at a minimum, be
currently dated (which may include a current re-certification of a previously
prepared survey plat); show the location on the Real Property of
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all improvements, fences, evidences of abandoned fences, lakes, ponds, creeks,
streams, rivers, easements, roads, and right-of-way; identify all easements and
rights-of-way by reference to the recording information applicable to the
documents creating such easements or rights-of-way; show any encroachments onto
the Real Property from any adjacent property, any encroachments from the Real
Property onto adjacent property, and any encroachments into any easement or
restricted area within the Real Property; locate all existing improvements
(such as buildings, power lines, fences, and the like); locate all dedicated
public streets or other roadways providing access to the Real Property,
including all curb cuts and all alleys; locate all set-back lines and similar
restrictions covering the Real Property or any part thereof and any violations
of such restrictions; and show thereon a legal description of the boundaries of
the Real Property by metes and bounds or other appropriate legal description.
The Survey shall otherwise be in accordance with minimum technical standards for
surveys of comparable property as set forth in all applicable laws, regulations,
or statements of professional surveying standards, including ALTA/ASCM
standards. The Survey shall contain the surveyor's certification to Seller,
Buyer, the Title Agent and the Title Company that the Survey was made on the
ground; there are no visible or recorded easements, discrepancies, conflicts,
encroachments, or overlapping of improvements except as shown on the Survey; the
Survey correctly shows all visible or recorded easements or rights of way across
the Real Property or any other easements or rights of way of which the surveyor
has been advised, including, without limitation, those matters affecting title
reflected in the Title Commitment; the Survey correctly shows the location of
all buildings, structures, and other improvements situated on the Real Property;
the Survey conforms to all applicable minimum guidelines for surveys of
comparable property as set forth in applicable laws, regulations, or
professional standards, including ALTA/ASCM standards; all streets abutting the
Real Property and all means of ingress to and egress from the Real Property have
been completed, dedicated, and accepted for public maintenance by the city, town
or other appropriate political subdivision in which the Real Property is
located; except as shown thereon, the Real Property is not located within the
100-year flood plain or other flood hazard area; the Survey is a true, correct,
and accurate representation of the Real Property; and such other matters as may
be required by the Title Company to allow it to issue the Title Policy.
If, on or before April 17, 1996, Seller does not receive written notice
from Buyer setting forth Buyer's objections to the Title Commitment or the
Survey, or Buyer's further requirements in relation to such Title Commitment or
Survey, the Title Commitment and the Survey shall be deemed approved and this
condition shall be satisfied. If, on or before April 17, 1996, Seller receives
written notice from Buyer setting forth any objection to the Title Commitment or
the Survey, or Buyer's further requirements in relation to such Title Commitment
or Survey, Seller shall have five (5) days within which to notify Buyer that
Seller will cure such objection and satisfy such
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requirements, in which event Seller shall cure such objection and satisfy such
requirements on or before the Closing Date, or that Seller is unable or
unwilling to cure such objection or satisfy such requirements. If Seller
notifies Buyer that Seller is unable or unwilling to cure such objection or
satisfy such requirements, Buyer shall have five (5) days after the receipt of
such notice to, by written notice given to Seller, either terminate this
Agreement or waive such objection or requirement. If Buyer fails to give to
Seller such notice within such period, such objection or requirement shall be
deemed to be waived.
7.8 PROPERTY TAXES. Seller shall have paid all property taxes and
assessments on the Purchased Assets for all calendar years prior to Closing.
Any taxes for the calendar year in which Closing occurs shall be prorated to the
Closing Date. If the actual amount of the property taxes are unknown on the
date of Closing, Buyer and Seller shall prorate property taxes based on the
prior years tax amounts. When the actual tax amounts are determined for the
calendar year in which the Closing occurs, Buyer and Seller agree to adjust and
re-prorate such actual tax amounts to the Closing Date.
7.9 [RESERVED].
7.10 RECENT AGREEMENTS AND COMMITMENTS. Seller shall have delivered to
Buyer an accurate list and true and complete copies (Schedule 7.10), as of the
Closing Date, of all material contracts (that is, involving obligations of at
least Ten Thousand Dollars ($10,000)) relating to the Purchased Assets entered
into by Seller since the date hereof, which agreements Buyer may assume at its
option.
7.11 WAGES AND SALARIES.
(a) Seller shall have paid or made arrangements satisfactory to Buyer
for the payment (which may be satisfied to the extent of their assumption by
Buyer pursuant to Section 1.3) of all Accrued Benefits of Seller's Employees as
of Closing, and of all wages earned by Seller's Employees prior to the Closing
Date. In addition, Seller shall have made arrangements according to the
provisions of Seller's pension and retirement plans and in accordance with ERISA
for the payment of all amounts distributable to Seller's employees in respect of
pension and retirement plans.
(b) Seller shall timely provide to all of its Employees as of Closing
wage information with respect to all periods ending on or before the Closing
Date.
7.12 EXECUTION OF ANCILLARY AGREEMENTS. Seller shall have executed and
delivered to Buyer the Data Processing Services Agreement, the Senior Center
Lease, the Service Center Lease, the Residency Program Agreement, the Provider
Agreement, the Radiology Agreement, the Laboratory Services Agreement, the
Letter Agreement, the Rehab Agreement, the Management Agreement and the Escrow
Agreement (the "Ancillary Agreements").
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7.13 TALBERT PROVIDER AGREEMENT. FHP Sub shall have executed a provider
agreement with Talbert, it being agreed that such agreement may be in the form
of a binding letter of intent between the parties.
7.14 OTHER MATTERS. Seller shall have delivered the instruments,
agreements and certificates, and taken the action contemplated by Section 2.2.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
The obligations of Seller hereunder are, at the option of Seller, subject
to the satisfaction, on or prior to the Closing Date, of the following
conditions unless waived in writing by Seller:
8.1 REPRESENTATIONS/WARRANTIES. The representations and warranties of
Buyer contained in this Agreement shall be true in all material respects when
made and as of the Closing Date as though such representations and warranties
had been made on and as of such Closing Date; and each and all of the terms,
covenants and conditions of this Agreement to be complied with or performed by
Buyer on or before the Closing Date pursuant to the terms hereof shall have been
duly complied with and performed.
8.2 GOVERNMENTAL APPROVALS. Buyer shall have received the approvals set
forth on Schedule 5.4 from all governmental and regulatory agencies whose
approval is required to complete the transactions herein contemplated.
8.3 ACTION/PROCEEDING. No action, administrative or other proceeding
before a court or any other governmental or regulatory agency or body shall have
been instituted or threatened to restrain or prohibit the transactions herein
contemplated, and no governmental or regulatory agency or body shall have taken
any other action or made any request of Seller or Buyer as a result of which
Seller reasonably and in good faith deems it inadvisable to proceed with the
transactions hereunder.
8.4 EXECUTION OF ANCILLARY AGREEMENTS. Buyer shall have executed and
delivered to Seller the Ancillary Agreements, which agreements shall have been
executed by Buyer.
8.5 [RESERVED]
8.6 OTHER MATTERS. Buyer shall have delivered the instruments, agreements
and certificates, and taken the action contemplated by Section 2.3.
ARTICLE IX
EMPLOYEES
9.1 HIRING OF EMPLOYEES. As of the Closing Date, FHP Sub shall terminate
all of the Employees (as defined in Section 1.3), and Buyer shall employ such
Employees on at least
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the same terms and conditions currently prevailing for such Employees
immediately before such employment, provided that Buyer will offer such
Employees the retirement savings plan (401(k)) Buyer currently offers to
employees of Buyer, and provided, that Buyer, at Buyer's sole discretion, may
immediately terminate up to one hundred twenty (120) Employees whose positions
and departments are identified on Schedule 1.3. Buyer shall have access to
interview the Employees (which access will not include access to their health
records) prior to the Closing Date to ascertain such individuals experience and
qualifications. It is understood and agreed by Buyer that the seniority
(defined to mean years of service with FHP Sub or an Affiliate of Seller, as
defined in Section 9.5 hereof, as of the Closing Date, as adjusted in accordance
with FHP Sub's policies and reflected in FHP Sub's personnel records) of all
Employees who are employed by Buyer after the Closing shall, for all employment
related purposes, be recognized by Buyer, all without requiring any such
Employee to satisfy any "waiting period" requirements which may be imposed under
any of Buyer's employee benefit plans or programs. Buyer agrees to offer to the
Employees the FHP Sub health benefits plan currently provided to the Employees.
By mutual agreement, if the parties are unable to offer FHP Sub's current health
benefit plan to the Employees, Buyer may purchase other health coverage. In
that event, Buyer will waive any "preexisting condition" limitation applicable
to Employees to the extent allowable under such other coverage. FHP Sub shall
provide COBRA group health benefits continuation coverage, in compliance with
its obligations under COBRA, to all Employees who do not accept employment with
Buyer. Seller shall set forth on Schedule 9.1 the names, circumstances, dates
of layoff/leave of absence, and projected dates of return, of all Employees who
may be on extended leave of absence for any reason, including layoff, leave of
absence, Workers' Compensation, health, disability, military, family/medical,
etc., and any statutory reinstatement rights such Employee may have.
9.2 TERMINATION OF EMPLOYEES/EMPLOYEE SEVERANCE PAYMENTS. Buyer agrees
that, for a period of not less than 90 days following the Closing Date, Buyer
will indemnify and hold Seller or FHP Sub harmless from and against any
liability, claim, loss, damage, cost or expense (including, without limitation,
attorneys' fees and costs) incurred by Seller or FHP Sub under the Workers,
Adjustment Retraining and Notification Act with respect of each Employee
terminated by Buyer during such 90-day period. Seller or FHP Sub agree to
indemnify and hold Buyer harmless from and against any liability, claim, loss,
damage, cost or expense (including, without limitation, attorneys' fees and
costs) incurred by Buyer under the Workers' Adjustment Retraining and
Notification Act with respect of each Employee terminated by FHP Sub during the
90 days prior to the Closing Date. In addition to the foregoing, in connection
with Employees whose employment is terminated by Buyer during the ninety (90)
days following the Closing, Seller agrees to reimburse Buyer in the amount of
fifty percent (50%) of any severance pay which Buyer pays to such Employees;
provided that Seller's obligation to reimburse such amounts shall be fully
discharged if and when
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the aggregate amount reimbursed by Seller equals Sixty Thousand Dollars
($60,000). Seller shall reimburse such amounts to Buyer within thirty (30) days
after receipt of Buyer's invoice therefor, accompanied by evidence of such
payments. Nothing herein shall be deemed to create or to grant to such
Employees any third party beneficiary rights or claims or causes of action of
any kind or nature. For purposes of this paragraph, a termination means an
"employment loss" as that term is defined in Section 2(a)(6) of the Worker
Adjustment and Retraining notification Act (Title 29, United States Code,
Section 2101(a)(6)).
9.3 NONSOLICITATION. Seller shall not, for a period of six (6) months
after the Closing Date, directly (or indirectly on behalf of Seller at its
direction) solicit for employment by Seller or any Affiliate (as defined in
Section 9.5) of Seller any Employee who has accepted employment with Buyer and
who has not been terminated by Buyer; provided that Seller shall not be
prohibited pursuant to this Section 9.3 from hiring any Employee who
independently initiates contact with Seller concerning potential employment.
Buyer shall likewise refrain from soliciting for employment by Buyer or any
Affiliate of Buyer, any of Seller's employees (other than the Employees) without
Seller's express prior written consent for a period of six (6) months after the
Closing; PROVIDED, HOWEVER, that Buyer shall not be prohibited under this
Section 9.3 from hiring any such employee of Seller who independently initiates
contact with Buyer concerning potential employment.
9.4 LIQUIDATED DAMAGES. In the event Seller employs an Employee in
violation of the provisions of Section 9.3, unless otherwise agreed by the
parties, Seller shall pay Buyer, as liquidated damages, and not as a penalty, a
sum equal to six (6) months' salary of the Employee so employed by Seller.
Similarly, in the event Buyer employs any employee of Seller in violation of
Section 9.3, Buyer shall pay Seller, as liquidated damages, and not as a
penalty, a sum equal to six (6) months' salary of the employee so employed by
Buyer. Seller and Buyer shall also be entitled to injunctive relief to enforce
the provisions of Section 9.3.
9.5 AFFILIATES. An "Affiliate" of Seller or Buyer shall mean (a) any
person or entity which, directly or indirectly, controls, is controlled by or is
under common control with Seller or Buyer, as the case may be, and (b) any
entity in which, directly or indirectly, Seller or Buyer, as the case may be, or
any person or entity described in clause (a) of this paragraph, controls, is
controlled by or is under common control with Seller or Buyer, as the case may
be.
ARTICLE X
ADDITIONAL AGREEMENTS
10.1 ANCILLARY AGREEMENTS. In connection with the transaction contemplated
by this Agreement, Buyer and Seller shall enter into (or, as applicable, shall
cause to be entered into) the following ancillary agreements:
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(a) the Data Processing Services Agreement between Buyer and FHP Sub,
providing for Buyer's use, following the Closing, of the patient and accounting
business system services currently used in connection with the operation of the
Hospital and containing such terms and conditions as are mutually acceptable to
the parties;
(b) the Senior Center Lease providing for Buyer to lease to Talbert
Medical Management Corporation ("TMMC"), a Delaware corporation affiliated with
Seller, approximately 73,956 square feet of the space in the Senior Center, for
use by Talbert Medical Group ("Talbert"), a professional corporation affiliated
with TMMC, containing such terms and conditions that are mutually agreeable to
Buyer and Seller;
(c) the Service Center Lease providing for Buyer to lease to Seller
or FHP Sub at no cost approximately 10,000 square feet of the space in the
Service Center containing such terms and conditions that are mutually agreeable
to Buyer and Seller or FHP Sub;
(d) the Laboratory Services Agreement between Buyer and Talbert
providing for Buyer's provision of laboratory services on terms and conditions
mutually agreed upon by Buyer and such party;
(e) the Radiology Agreement between Buyer and Talbert providing for
Buyer's provision to such party of radiology services on terms and conditions
mutually agreed upon by Buyer and such party;
(f) the Residency Program Agreement between Buyer and TMMC or FHP Sub
and containing mutually acceptable terms and conditions;
(g) the Provider Agreement between Buyer and FHP Sub providing for
Buyer's provision of hospital services to FHP Sub's members in portions of the
State of Utah on terms and conditions which are mutually acceptable to Buyer and
FHP Sub;
(h) the Management Agreement between Buyer and Seller and FHP Sub for
Buyer to manage Hospital on terms and conditions mutually agreeable to the
parties;
(i) the Escrow Agreement, between Buyer and Seller on terms and
conditions mutually agreeable to the parties;
(j) the Letter Agreement between Buyer and TMMC on terms and
conditions mutually agreeable to the parties;
(k) the Rehab Agreement between Buyer and Talbert on terms and
conditions mutually agreeable to the parties;
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(l) During the term of the Provider Agreement, Buyer shall provide
FHP Sub with the same or similar space in the Hospital (with any relocation to
be at Buyer's expense) at no charge to allow FHP Sub to operate the telephone
triage system;
(m) In the event Buyer acquires a controlling interest in a physician
group or entity, Buyer agrees to give TMMC the first opportunity to negotiate an
agreement to manage such physician group or entity on terms mutually agreeable
to the parties and the physician group or entity, unless such physician group or
entity objects to such management by TMMC. This paragraph shall not by any
means or manner invalidate or lessen the requirements of Paragraph 10.22 of the
Provider Agreement (Limitation on Exclusivity) and any competitive activities
proposed by Buyer or its Hospitals must comply with such Paragraph 10.22.
(n) Subject to Buyer's normal credentialing procedures, Buyer will,
prior to the effective date of the Provider Agreement, execute an agreement with
hospital-based physicians to provide services at the Hospital for a period of
not less than one (1) year from the effective date of the Provider Agreement, at
a rate of compensation not in excess of their compensation from Seller for
Seller's fiscal year ended June 30, 1995.
10.2 TERMINATION OF AGREEMENT. Notwithstanding anything herein to the
contrary, this Agreement may be terminated at any time:
(a) on or prior to the Closing Date by mutual consent of Buyer and
Seller;
(b) by Buyer if on the Closing Date, any of the conditions specified
in Article VII of this Agreement have not been timely satisfied and shall not
have been waived by Buyer, provided Buyer has given Seller not less than five
(5) business days written notice of any such condition not satisfied by Seller
and Seller has failed to satisfy this condition within this five (5) day time
period, it being agreed that a failure to provide the foregoing notice with
respect to any condition shall render such condition satisfied or waived;
(c) by Buyer by written notice actually received by Seller on or
before April 15, 1996 (without impairing Buyer's rights under Section 12.1), if
in Buyer's sole discretion Buyer determines that it should not consummate the
transactions contemplated by this Agreement because of any information received
in the course of its "due diligence" review of the Purchased Assets, and the
books and records of Seller; provided that, if such notice is not received by
Seller by that date, Buyer's due diligence review shall be deemed to have been
acceptable to Buyer;
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(d) by Seller if on the Closing Date, any of the conditions specified
in Article VIII of this Agreement have not been satisfied and shall not have
been waived by Seller, provided Seller has given Buyer not less than five (5)
business days written notice of any such condition not satisfied by Buyer and
Buyer has failed to satisfy this condition within this five (5) day time period,
it being agreed that a failure to provide the foregoing notice with respect to
any condition shall render such condition satisfied or waived; or
(e) by Seller, notwithstanding any contrary provision of this
Agreement, at its sole discretion and for any reason, at any time after July 31,
1996, giving not less than three (3) days prior written notice to Buyer, if the
transaction contemplated and described in this Agreement has not closed on or
before such date, and if Buyer does not confirm in writing to Seller that the
conditions precedent set forth in Article VII of this Agreement have been
satisfied or waived by Buyer and close within such three (3) day period;
provided that Seller shall have confirmed in writing to Buyer that the
conditions precedent set forth in Article VIII have been satisfied or waived by
Seller and that Seller is not then in default under this Agreement, this
Agreement shall terminate;
(f) by Buyer, notwithstanding any contrary provision of this
Agreement, at its sole discretion and for any reason, at any time after July 31,
1996, giving not less than three (3) days prior written notice to Seller, if the
transaction contemplated and described in this Agreement has not closed on or
before such date, and if Seller does not confirm in writing to Buyer that the
conditions precedent set forth in Article VIII of this Agreement have been
satisfied or waived by Seller and close within such three (3) day period;
provided that Buyer shall have confirmed in writing to Seller that the
conditions precedent set forth in Article VII have been satisfied or waived by
Buyer and that Buyer is not then in default under this Agreement, this Agreement
shall terminate;
(g) by Seller if the Waiting period has not expired for any reason,
including a second request for information by the FTC or the Justice Department,
or the transaction provided for herein cannot be closed because of the actions
of the FTC and the Justice Department by July 31, 1996;
(h) by Seller if Buyer has not, by July 31, 1996, obtained, or
obtained reasonable assurances of approvals from the governmental and regulatory
agencies, said approvals or assurances being those identified and set forth on
Schedule 5.4;
(i) by Buyer or Seller in the event the other party shall have
committed a material breach of the terms hereof, and such breach shall not have
been remedied or cured to the reasonable satisfaction of the non-breaching party
within fifteen (15) days after the non-breaching party shall have given the
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breaching party written notice of such breach, provided, however that no party
may terminate pursuant to this Section 10.2(i) if such party is in material
breach of the terms hereof at the time it elects to terminate this Agreement.
(bb) Except for the obligations of the parties under Article XI,
Sections 2.1(b), 12.5, 12.9, 12.10 and 12.11 (which shall survive the
termination of this Agreement), upon the due termination of this Agreement,
this Agreement shall become null and void, and neither party hereto, nor any of
its employees, officers, directors or shareholders shall have liability
hereunder; provided, however, that in no event shall a party hereto be released
from liability for damages under this Agreement or otherwise for such party's
fraudulent activity, wilful misconduct or material breach of this Agreement.
10.3 POST-CLOSING ACCESS TO INFORMATION. Seller and Buyer acknowledge that
subsequent to Closing each party may need access to information or documents in
the control or possession of the other party for the purposes of concluding the
transactions herein contemplated, audits, compliance with governmental
requirements and regulations, and the prosecution or defense of third party
claims. Accordingly, Seller and Buyer agree that for a period of five (5) years
after Closing each will make reasonably available to the other's agents,
independent auditors and/or governmental agencies upon written request and at
the expense of the requesting party such documents and information as may be
available relating to the Purchased Assets for periods prior and subsequent to
Closing to the extent necessary to facilitate concluding the transactions herein
contemplated, audits, compliance with governmental requirements and regulations
and the prosecution or defense of claims except for confidential peer review
information (but only to the extent the delivery of such information would
result in the loss of any right of confidentiality or privilege). In addition,
Seller shall have periodic access during normal business hours on two (2) days'
notice to Buyer to the Facilities' computer systems for the purpose of tracking
and/or collecting accounts receivable relating to periods prior to the Closing.
10.4 PRESERVATION AND ACCESS TO RECORDS AFTER THE CLOSING. After the
Closing, Buyer shall, in the ordinary course of business and as required by law,
keep and preserve all records of the Facilities existing as of the Closing and
which constitute a part of the Purchased Assets delivered to Buyer at Closing.
Buyer acknowledges that as a result of entering into this Agreement and
operating the Hospital and Home Health Agency it will gain access to patient and
other information which is subject to rules and regulations concerning
confidentiality. Buyer agrees to abide by any such rules and regulations
relating to the confidential information it acquires. Buyer agrees to maintain
the records delivered to Buyer at Closing at the Hospital and Home Health Agency
after Closing in accordance with applicable law (including, if applicable,
Section 1861(v)(i)(l) of the Social Security Act (42 U.S.C. Section
1395(v)(1)(l)), and requirements of relevant insurance carriers, all in a manner
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consistent with the maintenance of patient records generated at the Hospital and
Home Health Agency after Closing. Upon reasonable notice, during normal
business hours, at the sole cost and expense of Seller, Buyer will afford to the
representatives of Seller, including its counsel and accountants, full and
complete access to, and copies of, the records transferred to Buyer at the
Closing (including, without limitation, access to patient records in respect of
patients treated by FHP Sub at the Hospital and Home Health Agency). Upon
reasonable notice, during normal business hours and at the sole cost and expense
of Seller, Buyer shall also make its officers and employees available to Seller
at reasonable times and places after the Closing. Any access to the Hospital
and Home Health Agency, their records or Buyer's personnel granted to Seller in
this Agreement shall be upon the condition that any such access not unreasonably
interfere with the business operations of Buyer.
10.5 COOPERATION ON TAX MATTERS. Following the Closing, the parties shall
cooperate fully with each other and shall make available to the other, as
reasonably requested and at the expense of the requesting party, and to any
taxing authority, all information, records or documents relating to tax
liabilities or potential tax liabilities of Seller for all periods on or prior
to the Closing and any information which may be relevant to determining the
amount payable under this Agreement, and shall preserve all such information,
records and documents (to the extent a part of the Purchased Assets delivered to
Buyer at Closing) at least until the expiration of any applicable statute of
limitations or extensions thereof.
10.6 TIME OF ESSENCE. Time is of the essence in the performance of this
Agreement.
10.7 SELLER'S TERMINATING COST REPORTS. Seller will prepare and timely
file all cost reports relating to Seller for periods ending on or prior to the
Closing Date or required as a result of the consummation of the transactions
described herein, including, without limitation, those relating to the Medicare
and Medicaid Programs (the "Seller Cost Reports"). Seller shall retain all
rights to the Agency Receivables (which shall mean all net amounts due or to
become due to Seller under the Medicare and Medicaid Programs in respect of
periods prior to and including Closing) and to the Seller Cost Reports including
any payables resulting from such reports or reserves relating to such reports.
Such rights shall include, without limitation, the right to appeal any Medicare
or Medicaid determinations relating to the Agency Receivables and the Seller
Cost Reports. Seller shall retain the originals of the Seller Cost Reports,
correspondence, work papers and other documents relating to the Seller Cost
Reports and the Agency Receivables. Seller will furnish copies of such
documents to Buyer upon request and allow Buyer reasonable access to such
documents.
Buyer, upon reasonable notice, during normal business hours and at the sole
cost and expense of Seller, will cooperate with Seller in regard to the
preparation, filing,
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handling, and appeals of the Seller Cost Reports. Buyer will, upon reasonable
notice, during normal business hours and at the sole cost and expense of Seller,
provide reasonable access by Seller to all records of the Hospital and Home
Health Agency and will allow Seller to copy any documents relating to the Seller
Cost Reports and appeals thereof.
10.8 SELLER'S COVENANT NOT TO COMPETE. (a) As of the Closing Date, in the
Utah counties of Salt Lake, Davis and Weber, Seller and FHP Sub will not own (in
whole or part), operate or manage any hospital, diagnostic center or ambulatory
surgery center or any entity that provides dialysis services during the term of
the Provider Agreement unless Seller and FHP Sub and Buyer mutually agree that
Seller or FHP Sub may do so. Likewise, Buyer will not engage in competitive
activities, as that term is defined in and subject to the provisions that permit
competitive activities by Buyer as set forth in the Provider Agreement Section
10.22 LIMITATION ON EXCLUSIVITY, for the term of the Provider Agreement. If
Seller or FHP Sub decide to establish a new IPA health plan in Salt Lake County
or Davis County that will use a Buyer owned or operated hospital as provided for
in Paragraph 6.1 MEMBERS, of the Provider Agreement, Seller or FHP Sub shall pay
Buyer at the rate set forth in the Provider Agreement. If Buyer does not own or
operate the hospital designated by Seller or FHP Sub in that designated area,
Buyer and Seller or FHP Sub agree to jointly negotiate with the designated
hospital to obtain a subcontract which will be in the name of, and managed by,
Buyer. Seller will pay Buyer for the provision of that hospital's services to
its members at the rate jointly negotiated by the Buyer and Seller or FHP Sub,
with the subcontracted hospital provided, however, should the negotiated rate be
higher or lower than the rate set forth in the Provider Agreement, Seller or FHP
Sub and Buyer agree to equally share the amount of the difference between the
negotiated rate and the Provider Agreement rate. Notwithstanding the above,
should Seller or FHP Sub and Buyer mutually agree that Buyer's presence or
involvement does, or will, hinder the parties getting the best rate, and Seller
or FHP Sub believes it can negotiate a better rate with the hospital, than the
potential rate to be jointly or actually obtained, Seller or FHP Sub shall be
given the opportunity to do so and should Seller or FHP Sub obtain a rate better
than the potential or actual jointly negotiated rate, Buyer agrees Seller or FHP
Sub may contract directly with the Seller or FHP Sub designated hospital, for
the new IPA plan services, and Buyer will have no involvement or responsibility
in regard to this contract and will not be paid for the members receiving
services provided by the facility. In the counties outside Salt Lake, Davis and
Weber Counties, should Seller or FHP Sub determine a need to acquire or build a
hospital, diagnostic center or ambulatory surgery center, Seller or FHP Sub will
give Buyer notice of such desire and Buyer shall have the first right of refusal
to acquire, build or enter into a joint venture with Seller or FHP Sub to
acquire or build a hospital, diagnostic center or ambulatory surgery center for
use by Seller or FHP Sub on terms mutually agreed to by both parties. Buyer
must respond in writing to Seller's or FHP Sub written notice advising Seller
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or FHP Sub of its willingness or declination to acquire, build or enter into a
joint venture with Seller or FHP Sub to acquire or build a hospital, diagnostic
center or ambulatory service center for use by Seller or FHP Sub within one
hundred twenty (120) days after receipt of Seller's or FHP Sub notice. Should
Buyer be willing to acquire, build or enter into a joint venture with Seller or
FHP Sub to acquire or build a hospital, diagnostic center or ambulatory surgery
center, Buyer's response must contain a comprehensive plan detailing how Buyer
will accomplish this and contain a realistic time frame for completion that will
meet Seller's or FHP Sub reasonable needs for such a facility. Should Buyer
decline to acquire, build or enter into a joint venture with Seller or FHP Sub
to acquire or build the requested facility, Seller or FHP Sub shall be free to
do so. If Buyer aquires a hospital (i) with which Buyer has an existing
subcontract to provide services to FHP Sub Members or (ii) with which FHP Sub
has a direct contract for hospital services, Seller or FHP Sub will pay Buyer at
the rate set forth in the Provider Agreement for services provided to FHP Sub
Members at such hospital after the date Buyer takes legal ownership thereof.
Buyer agrees that if Buyer obtains a better rate than the rate mutually
negotiated by Buyer and Seller or FHP Sub, from any other entity providing
substantially similar services as those being provided by the subcontracted
hospital, Buyer will give Seller or FHP Sub that better rate effective as of the
date Buyer first obtained the better rate. Notwithstanding any other provision
in this Agreement, in the event Buyer and FHP Sub do not mutually agree as to
the terms and conditions of the Provider Agreement, this Section 10.8 shall be
null and void and of no force or effect for any purpose whatsoever.
(b) Buyer agrees not to provide or allow the provision of the
physician services of obstetrics, gynecology, pediatrics, family practice or
internal medicine in the Senior Center space retained by Buyer or in space
leased by Buyer in the TMMC Redwood Center. Buyer will give TMMC the first
right to lease space in the Service Center and Hospital and any other space on
the Campus, including Buyer's space in the Senior Center that it may desire to
lease, or any new buildings built on the Campus, should Buyer convert any such
space contained therein into medical offices, for so long as TMMC, Talbert or
their successors continue to occupy the Senior Center. Upon receipt of Buyer's
written notice advising TMMC of its intent to lease medical office space in the
Hospital and/or Service Center, any other space on the Campus, including in the
Senior Center or any new buildings built on the Campus, TMMC shall have one
hundred twenty (120) days to respond by either advising Buyer that it does not
want some or all of the medical office space or that it will lease some or all
of the space on terms and conditions mutually agreed to by the parties.
10.9 TRANSITION PATIENTS. The parties agree that for purposes of
determining the value of services rendered and medicine, drugs, and supplies
provided on or before the Closing Date (the "Transition Services") with respect
to patients admitted to Hospital on or before the Closing Date but who are
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not discharged until after the Closing Date (such patients being referred to
herein as the "Transition Patients") the following procedures shall apply:
10.9.1 MEDICARE, MEDICAID, CHAMPUS AND OTHER DRG TRANSITION
PATIENTS. As soon as practicable after the Closing Date, Seller shall deliver
to Buyer a statement itemizing the Transition Service provided by Seller on or
through the Closing Date to diagnostic related group ("DRG") Transition Patients
("DRG Transition Patient"). The value of such patient services that is
reflected in the calculation of these services shall be an amount equal to the
DRG and outlier payments (excluding capital cost payments) received by Buyer on
behalf of a DRG Transition Patient multiplied by a fraction, the numerator of
which shall be the total charges for the Transition Services provided to such
DRG Transition Patient by Seller, and the denominator of which shall be the sum
of the total charges for the Transition Services provided to such DRG Transition
Patient by Seller plus the total charges for the services provided by the Buyer
to such DRG Transition Patient after the Closing Date minus any deposits or co-
payments made by such DRG Transition Patient to Seller and any retroactive
denials or adjustments attributable to Transition Services provided by the
Seller to DRG Transition Patient by Seller plus the total charges for the
services provided by the Buyer to such DRG Transition Patient after the Closing
Date minus any deposits or co-payments made by such DRG Transition Patient to
Seller and any retroactive denials or adjustments attributable to Transition
Services provided by the Seller to DRG Transition Patients. Buyer shall forward
to Seller payment for such services in addition to copies of DRG Transition
Patient remittances and other supporting documentation as reasonably required by
Buyer, within thirty (30) days of receipt of payment for those services.
10.9.2 COST BASED AND OTHER PATIENTS. As of the close of business
on the Closing Date, Seller shall prepare and provide to Buyer cut-off billings
for all Transition Patients whose medical care is paid for, in whole or in part,
by a cost based program and for all other Transition Patients not covered by
Section 10.9.1. The Buyer in all possible cases shall bill Transition Patients
separately for charges for Transition Services provided before and after the
Closing. Buyer shall forward to Seller payments for such services within thirty
(30) days of receipt and shall forward copies of Transition Patient remittances
and other supporting documentation as reasonably required by Seller.
10.10 NO-SHOP CLAUSE. From and after the date of the execution and
delivery of this Agreement until the earlier of June 30, 1996 or termination of
this Agreement, Seller shall not, without the prior written consent of Buyer:
(i) offer for sale the Purchased Assets (or any material portion thereof), (ii)
solicit offers to buy all or any material portion of the Purchased Assets (iii)
hold discussions with any party (other than Buyer) looking toward such an offer
or solicitation, or (iv) enter into any agreement with any party (other than
Buyer) with
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respect to the sale or other disposition of the Purchased Assets (or any
material portion thereof).
ARTICLE XI
INDEMNIFICATION
11.1 INDEMNIFICATION BY SELLER. Seller shall defend and indemnify Buyer
and hold Buyer harmless from and against-any and all losses, liabilities,
damages, costs (including, without limitation, court costs and costs of appeal)
and expenses (including, without limitation, reasonable attorneys' fees) that
Buyer incurs as a result of, or with respect to (a) any misrepresentation or
breach of warranty by Seller under this Agreement; (b) any breach by Seller, or
any failure by Seller to perform, any covenant or agreement under this
Agreement; (c) the operation of the Facilities prior to the Closing Date; and
(d) any and all debts, obligations or liabilities of Seller that are retained
under Section 1.4 and those that are not specifically assumed by Buyer pursuant
to the terms of this Agreement as Assumed Liabilities under Section 1.3 hereof.
11.2 INDEMNIFICATION BY BUYER. Buyer shall defend and indemnify Seller and
hold Seller wholly harmless from and against any and all losses, liabilities,
damages, costs (including, without limitation, court costs and costs of appeal)
and expenses (including, without limitation, reasonable attorneys' fees) that
Seller incurs as a result of, or with respect to (a) any misrepresentation or
breach of warranty by Buyer under this Agreement; (b) any breach by Buyer, or
any failure by Buyer to perform, any covenant or agreement under this Agreement;
(c) the operation of the Facilities on or after the Closing Date; and (d) any
and all debts, obligations or liabilities of Seller that are assumed by Buyer
pursuant to the terms of this Agreement as Assumed Liabilities under Section 1.3
hereof.
11.3 NOTICE AND CONTROL OF LITIGATION. If any claim or liability is
asserted in writing against a party entitled to indemnification under this
Article XI (the "Indemnified Party") which would give rise to a claim under this
Article XI, the Indemnified Party shall notify the person giving the indemnity
("Indemnifying Party") in writing of the same within ten (10) days of receipt of
such written assertion of a claim or liability. The Indemnifying Party shall
have the right to defend a claim and control the defense, settlement and
prosecution of any litigation. If the Indemnifying Party, within ten (10) days
after notice of such claim, fails to defend such claim, the Indemnified Party
will (upon further notice to the Indemnifying Party) have the right to undertake
the defense, compromise or settlement of such claim on behalf of and for the
account and risk of the Indemnifying Party. Anything in this Section 11.3
notwithstanding, the Indemnifying Party shall not, without the written consent
of the Indemnified Party, settle or compromise any claim or consent to the entry
of any judgment which does not include as an unconditional term thereof the
delivery by the claimant to the Indemnified Party of a release from all
liability in respect to such claim. All parties agree to cooperate fully
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as necessary in the defense of such matters. Should the Indemnified Party fail
to notify the Indemnifying Party in the time required above, this indemnity
shall be limited with respect to the subject matter of the required notice in
the event (but only to the extent) that the Indemnified Party's failure to
notify in the time required above materially adversely affects the Indemnifying
Party's ability to defend such matter.
11.4 DIRECTED PAYMENTS. Each party to this Agreement covenants to remit to
the other, with reasonable promptness, and in all events within fifteen (15)
calendar days after receipt thereof, any payments received by it which are in
respect of activities carried on during the other party's ownership of the
Purchased Assets. In addition, and without limitation, in the event of a
determination by any governmental or third-party payor that payments to one
party with respect to services rendered while such party owned the Purchased
Assets resulted in an overpayment or other determination that funds previously
paid by any program or plan must be repaid to such program or plan, the party
who received such overpayment shall be responsible for repayment of said monies
(or defense of such actions). Each party to this Agreement shall have the right
upon reasonable notice and at reasonable times to inspect the books and records
pertaining to such cash receipts of the other party in order to confirm the
accuracy of payments to be made and required to be made under this Section 11.4.
Seller shall be responsible for, or entitled to, as the case may be, any sum due
to or due from the Medicare and/or Medicaid Programs in connection with any
recognition of gain or loss on the sale of depreciable assets. Seller shall use
its reasonable best efforts to prevent the Medicare and Medicaid Programs from
withholding or offsetting from their post-Closing payments to Buyer, any sums
due to the Medicare and Medicaid Programs from Seller for any reason. In the
event of any such withhold or offset, Seller shall, within five (5) business
days of written notice from Buyer, pay to the Buyer the amount of any such
withhold or offset.
ARTICLE XII
GENERAL
12.1 SCHEDULES. Each certificate, written disclosure required herein and
the Schedules hereto shall be considered a part hereof as if set forth herein in
full. By April 11, 1996 each party will submit to the other party final and
complete copies of the schedules ("Schedules") contemplated by this Agreement.
Within five (5) business days after receipt of such Schedules, each party will
provide to the other party comments to the Schedules. If within five (5)
business days after receipt of such comments, either party in its sole
discretion, determines that it should not consummate the transactions
contemplated by this Agreement because of any of these comments, then such party
may terminate this Agreement upon written notice to the other party. The
parties agree to negotiate in good faith for a period of up to two (2) business
days to resolve any issues cited in connection with the proposed termination.
If the parties are unable to resolve such issue, this Agreement shall terminate
upon
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the expiration of such two (2) day period unless the parties agree otherwise.
12.2 NO IMPASSE/ARBITRATION.
(a) Notwithstanding any contrary provision of this Agreement, Buyer
and Seller hereby agree that neither party shall have the right to terminate
this Agreement in the event they are unable to agree upon any term or provision
to be included in the Ancillary Agreements provided for in Section 10.1 of this
Agreement, it being agreed that any such matter which cannot be resolved by
negotiation between Buyer and Seller shall be submitted for final resolution by
binding arbitration pursuant to Section 12.2(b) of this Agreement, with the
arbitrators in each case being neutral and independent persons who have had not
less than five (5) years of experience in the subject matter area(s) involved.
(b) All matters arising under Section 12.2(a) hereof which cannot be
resolved by negotiation between Buyer and Seller shall be finally resolved by
binding arbitration to take place at a mutually agreeable location (or if none
is selected within thirty (30) days after initiation of the arbitration by
either party, then Irvine, California) pursuant to the then current Commercial
Dispite rules and regulations of the American Arbitration Association ("AAA").
Any party requesting arbitration shall make a demand on the other party by
registered or certified mail. Such arbitration shall be before a panel of three
(3) arbitrators, one of whom shall be selected by each of the parties within
fifteen (15) days after service of the demand, with the third arbitrator to be
selected by the two (2) arbitrators chosen by the parties. If the arbitrators
selected by the parties cannot agree on a third arbitrator within three (3) days
after their selection, the AAA shall be requested to select the third
arbitrator, and thereafter, the arbitration shall take place as noticed by the
arbitrators, regardless of whether one of the parties fails or refuses to
participate.
(c) Buyer and Seller hereby agree that the pendency or existence of
arbitration proceedings pursuant to Section 12.2(b) hereof shall not be grounds
for termination of this Agreement and shall not delay or prevent the Closing
hereunder or under any Escrow Agreement between Buyer and Seller.
12.3 CONSENTED ASSIGNMENT. Anything contained herein to the contrary
notwithstanding, this Agreement shall not constitute an agreement to assign any
claim, right, contract, license, lease, commitment, sales order or purchase
order if an attempted assignment thereof without the consent of another party
thereto would constitute a breach thereof or in any material way affect the
rights of Seller thereunder, unless such consent is obtained.
12.4 CONSENTS, APPROVALS AND DISCRETION. Except as herein expressly
provided to the contrary, whenever this Agreement requires any consent or
approval to be given by either party or either party must or may exercise
discretion, the parties agree
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that such consent or approval shall not be unreasonably withheld, conditioned or
delayed and such discretion shall be reasonably exercised.
12.5 LEGAL FEES AND COSTS. In the event either party initiates any action,
arbitration, or other proceeding, and thereby incurs legal expenses, to enforce
or interpret any disputed provision of this Agreement, the prevailing party will
be entitled to recover such legal expenses, including, without limitation,
attorneys' fees, costs and necessary disbursements, in addition to any other
relief to which such party shall be entitled.
12.6 CHOICE OF LAW. The parties agree that this Agreement shall be
governed by and construed in accordance with the laws of the State of Utah.
12.7 BENEFIT/ASSIGNMENT. Subject to provisions herein to the contrary,
this Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective legal representatives, successors and assigns;
provided, however, that no party may assign this Agreement without the prior
written consent of the other party, which consent shall not be unreasonably
withheld. Notwithstanding the above, Buyer may assign this Agreement to a
wholly owned subsidiary corporation of Buyer. No such assignment shall relieve
the assigning party from any liability or obligation under this Agreement.
12.8 ACCOUNTING DATE. The transactions contemplated hereby shall be
effective for accounting purposes as of 12:01 a.m. (Pacific time) on the
calendar day immediately following the Closing Date, unless otherwise agreed in
writing by Seller and Buyer.
12.9 NO BROKERAGE. Seller and Buyer represent to each other that no broker
or finder has in any way been contracted in connection with the transactions
contemplated hereby. Seller and Buyer each agree to indemnify the other from
and against all loss, cost, damage or expense arising out of claims for fees or
commissions of brokers or finders employed or alleged to have been employed by
such indemnifying party.
12.10 COST OF TRANSACTION. Whether or not the transactions contemplated
hereby shall be consummated and except as otherwise provided herein, the parties
agree as follows: (a) Seller will pay the fees, expenses, and disbursements of
Seller and its agents, representatives, accountants, and counsel incurred in
connection with the subject matter hereof and any amendment hereto; and (b)
Buyer shall pay the fees, expenses and disbursements of Buyer and its agents,
representatives, accountants and counsel incurred in connection with the subject
matter hereof and any amendments hereto. All escrow and recording fees shall be
customarily allocated between Seller and Buyer. All transfer fees or taxes
shall be paid in accordance with local custom.
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12.11 CONFIDENTIALITY.
(a) Buyer will, and will use its best efforts to cause its
Affiliates, employees, representatives and agents to, hold in strict confidence,
unless compelled to disclose by judicial or administrative process, all Seller
Confidential Information (as hereinafter defined); and Buyer will not disclose,
and will use its best effort to cause its Affiliates, employees, representatives
and agents not to disclose, Seller Confidential Information to any person,
except as otherwise may be reasonably necessary to carry out the transactions
contemplated by this Agreement. If this Agreement is terminated, then upon
Seller's written request, Buyer will promptly return or cause to be returned to
Seller all documents and all copies thereof furnished by Seller, its Affiliates,
employees, representatives and agents and held by Buyer, its Affiliates,
representatives or agents containing such Seller Confidential Information. For
the purposes hereof, "Seller Confidential Information" shall mean all
information contained in the Interim Balance Sheet and the Final Balance Sheet
and all other information of any kind concerning Seller, its Affiliates or their
officers, directors, employees, patients, suppliers or customers or their
business plans, prospects or results, obtained directly or indirectly from
Seller or its Affiliates, whether in connection with the transactions
contemplated by this Agreement or otherwise, including the information in
Section 10.3 above, except information (i) ascertainable or obtained from public
or published information, (ii) received from a third party not known by Buyer to
be under an obligation to Seller or its Affiliates to keep such information
confidential, (iii) which is or becomes known to the public (other than through
a breach of this Agreement), or (iv) which was in the possession of Buyer or an
affiliate of Buyer prior to disclosure thereof to Buyer in connection herewith.
(b) Seller will, and will use its best efforts to cause its
Affiliates, employees, representatives and agents to, hold in strict confidence,
unless compelled to disclose by judicial or administrative process, all Buyer
Confidential Information (as hereinafter defined); and Seller will not disclose,
and will use its best efforts to cause its Affiliates, employees,
representatives and agents not to disclose, Buyer Confidential Information to
any person, except as otherwise may be reasonably necessary to carry out the
transactions contemplated by this Agreement. If this Agreement is terminated,
then upon Buyer's written request, Seller will promptly return or cause to be
returned to Buyer all documents and all copies thereof furnished by Buyer, its
Affiliates, employees, representatives and agents and held by Seller, its
Affiliates, representatives or agents containing such Buyer Confidential
Information. For the purposes hereof, "Buyer Confidential Information" shall
mean all information of any kind concerning Buyer, its Affiliates or their
officers, directors, employees, patients, suppliers or customers or their
business plans, prospects or results, obtained directly or indirectly from Buyer
or its Affiliates, whether in connection with the transactions
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contemplated by this Agreement or otherwise, including the information in
Section 10.3 above, except information (i) ascertainable or obtained from public
or published information, (ii) received from a third party not known by Seller
to be under an obligation to Buyer or its Affiliates to keep such information
confidential, (iii) which is or becomes known to the public (other than through
a breach of this Agreement), or (iv) which was in the possession of Seller or an
affiliate of Seller prior to disclosure thereof to Seller in connection
herewith.
(c) Each of the parties hereto recognizes that any breach of Section
12.11(a) and (b) would result in irreparable harm to the non-breaching party and
their Affiliates and that therefore either Seller or Buyer shall be entitled to
an injunction to prohibit any such breach or anticipated breach, without the
necessity of posting a bond, cash or otherwise, in addition to all of their
other legal and equitable remedies. Nothing in this Section 12.11, however,
shall prohibit the use of such Seller Confidential Information or Buyer
Confidential Information for such governmental filings as are required by law or
governmental regulations.
12.12 WAIVER OF BREACH. The waiver by either party of any breach or
violation of any provision of this Agreement shall not operate as, or be
construed to constitute, a waiver of any subsequent breach of the same or other
provision hereof.
12.13 NOTICE. Any notice, demand or communication required, permitted, or
desired to be given hereunder shall be deemed effectively given when personally
delivered, when received by overnight courier, or on receipt after being
deposited in the United States mail, with postage prepaid thereon, certified or
registered mail, return receipt requested, addressed as follows:
If to Seller: FHP, Inc.
9900 Talbert Avenue
Fountain Valley, California 92708
Attention: President and Chief Executive Officer
With a copy to: FHP International Corporation
9900 Talbert Avenue
Fountain Valley, California 92708
Attention: General Counsel
If to Buyer: Paracelsus Healthcare Corporation
155 N. Lake Avenue, Suite 1100
Pasadena, CA 91101
Attention: President and Chief Executive Officer
With a copy to: Paracelsus Healthcare Corporation
155 N. Lake Avenue, Suite 1100
Pasadena, CA 91101
Attention: General Counsel
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or to such other address, and to the attention of such other person or officer
as any party may designate.
12.14 SEVERABILITY. In the event any provision of this Agreement is held to
be invalid, illegal or unenforceable for any reason and in any respect, such
invalidity, illegality, or unenforceability shall in no event affect, prejudice
or disturb the validity of the remainder of this Agreement, which shall be and
remain in full force and effect, enforceable in accordance with its terms.
12.15 INTERPRETATION. In this Agreement, unless the context otherwise
requires:
(a) references to this Agreement are references to this Agreement and
to the Exhibits and Schedules provided for herein;
(b) references to Articles and Sections are references to articles
and sections of this Agreement;
(c) references to any party to this Agreement shall include
references to its respective successors and permitted assigns;
(d) references to a judgment shall include references to any order,
writ, injunction, decree, determination or award of any court arbitration panel,
administrative tribunal or other tribunal; and
(e) references to a person shall include references to any individual
company, body corporate, association, partnership, firm, joint venture, trust or
governmental agency.
12.16 INTEREST. Unless otherwise provided herein to the contrary, any
payment required to be made by any party pursuant to this Agreement, if not paid
before seven (7) days after the date such payment is required to be made (the
"Interest Commencement Date"), shall include interest from the Interest
Commencement Date to the date such payment is made, computed at the lesser of an
annual rate equal to the prime interest rate published in the Wall Street
Journal on the Interest Commencement Date, plus two percent (2%) and the highest
rate permitted by law. All requests for payment pursuant to this Section 12.16
shall be accompanied by a certificate of an officer of the party entitled to
receive such payment setting forth the amount of the payment due pursuant to
this Agreement (without regard to any amounts payable through operation of this
Section 12.16), the applicable Interest Commencement Date, and the applicable
interest rate.
12.17 GENDER, NUMBER AND INFERENCES. Whenever the context of this
Agreement requires, the gender of all words herein shall include the masculine,
feminine and neuter, and the number of all words herein shall include the
singular and plural. Inasmuch as this Agreement is the result of negotiations
between
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sophisticated parties of equal bargaining power represented by counsel, no
inference in favor of, or against, either party shall be drawn from the fact
that any portion of this Agreement has been drafted by or on behalf of such
party.
12.18 DIVISIONS AND HEADINGS. The divisions of this Agreement into
articles, sections and subsections and the use of captions and headings in
connection therewith are solely for convenience and shall have no legal effect
in construing the provisions of this Agreement.
12.19 ENTIRE AGREEMENT/AMENDMENT. This Agreement and the other documents,
agreements, schedules and exhibits provided for herein supersede all previous
contracts, agreements, letters and letters of intent and constitutes the entire
agreement of whatsoever kind or nature existing between or among the parties
representing the within subject matter and no party shall be entitled to
benefits other than those specified herein. As between or among the parties, no
oral statement or prior written material not specifically incorporated herein
shall be of any force or effect. The parties specifically acknowledge that in
entering into and executing this Agreement, the parties rely solely upon the
representations and agreements contained in this Agreement and no others. All
prior representations or agreements, whether written or verbal, not expressly
incorporated herein are superseded unless and until made in writing and signed
by all parties hereto. The representations and warranties set forth in this
Agreement shall survive the Closing and the execution and delivery of all other
agreements described, referenced or contemplated herein and shall not be merged
herewith or therewith. This Agreement may be executed in two or more
counterparts, each and all of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed in multiple originals by their authorized officers.
SELLER: FHP, INC.
By: /s/ Westcott W. Price III
-----------------------------------------
Westcott W. Price III
Title: President and Chief Executive Officer
-------------------------------------
Date: April 11, 1996
---------------------------------------
BUYER: PARACELSUS HEALTHCARE CORPORATION
By: /s/ R. J. Messenger
-----------------------------------------
R. J. Messenger
Title: President and Chief Executive Officer
--------------------------------------
Date: April 11, 1996
---------------------------------------
-51-
<PAGE>
EXHIBIT 10.33
FORM OF
RESTATED CHAMPION HEALTHCARE CORPORATION
FOUNDERS' STOCK OPTION PLAN
SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS.
The name of this plan is the Champion Healthcare Corporation Founders' Stock
Option Plan (the "Plan"). The Plan was adopted by the Board on December 31,
1990, and is hereby restated effective as of July 12, 1996 (the "Restatement").
The purpose of the Plan is to provide incentives to the founders of the Company
that are linked directly to increases in stockholder value and will therefore
inure to the benefit of all stockholders of the Company.
For purposes of the Plan, the following terms shall be defined as set forth
below:
(1) "BOARD" means the Board of Directors of the Company.
(2) "COMPANY" means Champion Healthcare Corporation, a Delaware corporation
(or any successor corporation).
(3) "STOCK" means the common stock, no par value, of the Company.
(4) "STOCK OPTION" means any option to purchase shares of Stock granted
pursuant to Section 5.
SECTION 2. STOCK OPTIONS.
Any Stock Option granted under the Plan shall be in such form as the Board
may from time to time approve. Recipients of Stock Options shall enter into a
stock option agreement with the Company, in such form as the Board shall
determine, which agreement shall set forth, among other things, the exercise
price of the option, the term of the option, and any other provisions consistent
with the terms of the Plan.
The Stock Options granted under the Plan shall be non-qualified Stock
Options. No Stock Option shall be transferable by the optionee, and all Stock
Options shall be exercisable, during the optionee's lifetime, only by the
optionee.
SECTION 3. METHOD OF EXERCISE
A Stock Option may be exercised in whole or in part only by delivery to the
Company of a written notice that the Stock Option is being exercised together
with the total purchase price in cash or by cashier's or certified check. Upon
receipt of payment for the Stock being purchased, the Company shall, as
expediently as possible, deliver to the optionee at the principal office of the
Company, or at such other place as shall be mutually acceptable, a certificate
or certificates for the Stock being purchased.
SECTION 4. STOCK SUBJECT TO PLAN.
The total number of shares of Stock reserved and available for issuance
under the Plan shall be 180,000, which reflects adjustments for any stock split
having occurred prior to the date of this Restatement.
In the event of any merger, reorganization, consolidation, recapitalization,
stock dividend or other change in corporate structure affecting the Stock, a
substitution or adjustment shall be made in (i) the aggregate number of shares
reserved for issuance under the Plan, and (ii) the kind, number and option price
of shares subject to outstanding Stock Options granted under the Plan.
SECTION 5. ELIGIBILITY.
Charles R. Miller and James G. VanDevender, the founders of the Company,
shall be the only persons eligible to receive a grant of Stock Options
hereunder.
SECTION 6. ADMINISTRATION.
The Plan shall be administered by the Board. The Board shall have the
authority:
<PAGE>
(a) to determine whether and to what extent Stock Options are to be
granted hereunder to the founders of the Company;
(b) to determine the number of shares of Stock to be covered by each
such award granted hereunder;
(c) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any Stock Options granted hereunder; and
(d) to determine the terms and conditions, not inconsistent with the
terms of the Plan, which shall govern all written instruments evidencing Stock
Options granted hereunder.
The Board shall have the authority, in its discretion, to adopt, alter and
repeal such administrative rules, guidelines and practices governing the Plan as
it shall from time to time deem advisable; to interpret the terms and provisions
of the Plan and any award issued under the Plan (and any agreements relating
thereto); and to otherwise supervise the administration of the Plan. All
decisions made by the Board pursuant to the provisions of the Plan shall be
final and binding on all persons, including the Company and any optionee.
SECTION 7. AMENDMENT AND TERMINATION.
The Board may amend, alter or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made that would impair the rights of a
Participant under any award theretofore granted without such Participant's
consent, or that without the approval of the stockholders (as described below)
would:
(1) except as provided in Section 4, increase the total number of shares of
Stock reserved for purposes of the Plan; or
(2) change the class of individuals eligible to participate in the Plan.
The Board may amend the terms of any award theretofore granted,
prospectively or retroactively, but, subject to Section 4 above, no such
amendment shall impair the rights of any holder without his or her consent.
SECTION 8. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive
compensation. With respect to any payments not yet made to an optionee by the
Company, nothing contained herein shall give any such optionee any rights that
are greater than those of a general creditor of the Company.
SECTION 9. GENERAL PROVISIONS.
(1) The Board may require each person purchasing shares pursuant to a Stock
Option to represent to and agree with the Company in writing that such person is
acquiring the shares without a view to distribution thereof. The certificates
for such shares may include any legend which the Board deems appropriate to
reflect any restrictions on transfer.
All certificates for shares of Stock delivered under the Plan shall be
subject to such stock-transfer orders and other restrictions as the Board may
deem advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Stock is
then listed, and any applicable federal or state securities law, and the Board
may cause a legend or legends to be placed on any such certificates to make
appropriate reference to such restrictions.
(2) Nothing contained in the Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to stockholder approval
if such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases. The adoption of the Plan shall
not confer upon any employee of the Company any right to continued employment
with the Company, nor shall it interfere in any way with the right of the
Company to terminate the employment or service of any of its employees at any
time.
(3) Each optionee shall, no later than the date as of which the value of an
award first becomes includible in his gross income for federal income tax
purposes, pay to the Company, or make arrangements satisfactory to the Board
regarding payment of, any federal, state, or local taxes of any kind
<PAGE>
required by law to be withheld with respect to the award. The obligations of the
Company under the Plan shall be conditional on the making of such payments or
arrangements, and the Company shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to the
optionee.
(4) No member of the Board, nor any officer or employee of the Company
acting on behalf of the Board, shall be personally liable for any action,
determination, or interpretation taken or made in good faith with respect to the
Plan, and all members of the Board and each and any officer or employee of the
Company acting on their behalf shall, to the extent permitted by law, be fully
indemnified and protected by the Company in respect of any such action,
determination or interpretation.
<PAGE>
EXHIBIT 10.34
FORM OF
LICENSE AGREEMENT
This LICENSE AGREEMENT ("the Agreement") is entered into as of the
day of , 1996 by and between DR. MANFRED GEORGE KRUKEMEYER
("Licensor") and PARACELSUS HEALTHCARE CORPORATION, a California corporation
("Licensee").
W I T N E S S E T H:
WHEREAS, Licensor is the owner of the tradename PARACELSUS (the "Tradename")
and the related trademark "PHC Paracelsus Healthcare Corporation" and design as
such trademark appears on Exhibit A hereto (the "Trademark") (together with the
Tradename, the "Licensed Marks").
WHEREAS, Licensor currently owns all of the outstanding shares of common
stock, no stated par value, of Licensee and has authorized Licensee to use the
Licensed Marks in connection with the provision of certain healthcare services
as described below.
WHEREAS, Licensee desires to confirm in writing its right to use the
Licensed Marks and Licensor, subject to certain terms and conditions, is willing
to continue to license to Licensee the right to use the Licensed Marks in
connection with healthcare services, including without limitation, the
management of hospitals, skilled nursing facilities, home health agencies and
medical office buildings, and all services incidental thereto (the "Licensed
Services") in the United States of America (the "Territory").
NOW, THEREFORE, in consideration of the premises and mutual agreements set
forth herein, and other good and valuable consideration, the sufficiency of
which is hereby acknowledged, the parties agree as follows:
1. GRANT OF LICENSE
1.1. Subject to the terms and provisions hereof, Licensor hereby grants to
Licensee:
(a) a perpetual, royalty-free, exclusive (even as against Licensor) and
transferable (in accordance with the provisions of Section 6 hereof) right
and license to use and register the Tradename in the Territory as all or
part of a corporate name or "d/b/a".
(b) a perpetual, royalty-free, exclusive (even as against Licensor) and
transferable (in accordance with the provisions of Section 6 hereof) right
and license to use the Trademark in connection with the Licensed Services in
the Territory.
2. QUALITY STANDARDS
2.1. The quality of the Licensed Services offered under the Licensed Marks
in the Territory by Licensee and all advertising and promotional material
bearing the Licensed Marks shall conform at a minimum to quality standards
heretofore established by Licensor and Licensee and existing as of the date of
this Agreement.
2.2. Upon Licensor's reasonable request from time to time but not more than
twice annually, Licensee shall permit Licensor to visit Licensee's offices, work
sites, or other places of business at reasonable times and upon at least 5 days
notice from Licensor, for inspection by Licensor of activities, files, documents
and other records relating to the Licensed Services for the purpose of
determining Licensee's compliance with the standards required by the terms of
this Agreement including without limitation with respect to the quality of the
services being offered under the Licensed Marks, in the Territory.
2.3. Licensee may use the Licensed Marks only in the form in which they are
currently being used or as otherwise approved in writing by Licensor, such
approval not to be unreasonably withheld or delayed.
2.4. In the event that the Licensee is not in material conformance with the
quality standards set forth above, Licensor shall so inform Licensee in writing
and Licensee shall undertake to conform
<PAGE>
with such standards. If, after a ninety (180) day period from Licensor's initial
notice of material non-conformance, the Licensee does not conform to the quality
standards set forth above, then Licensor may terminate this Agreement; PROVIDED,
HOWEVER, that if the quality problem is not capable of resolution within ninety
(180) days, and if, within such period, Licensee promptly commences and
diligently pursues remedial efforts to rectify the quality problem and provides
Licensor with a reasonable written plan of and schedule for prompt rectification
of the quality problem, then Licensor shall only have the right to terminate if
after an additional ninety (180) day period, such quality defects are not
remedied.
3. OWNERSHIP AND PROTECTION
3.1. Licensee acknowledges that Licensor owns the Licensed Marks in the
Territory and the goodwill associated therewith. All use of the Licensed Marks
by Licensee pursuant to this Agreement and any goodwill generated thereby, shall
inure to the benefit of Licensor and shall not vest in Licensee any title to or
right or presumptive right to continue such use.
3.2. Licensee shall not (a) challenge Licensor's title or rights in and to
the Licensed Marks in the Territory, or (b) contest the fact that Licensee's
rights under this Agreement are solely those of a licensee and shall cease upon
expiration or earlier termination of this Agreement. Licensee shall not file or
prosecute any trademark or service mark application or applications to register
the Licensed Marks in the Territory.
3.3. Licensor shall maintain all registrations and prosecute all
applications for the Licensed Marks in the Territory, and Licensee shall pay all
fees and Licensee and Licensor shall file all documents necessary to do so.
Licensee and Licensor each shall cooperate with each other and take such action
as reasonably requested by the other to maintain or prosecute such registrations
and applications, including executing documents and providing appropriate
specimens.
4. INFRINGEMENTS
4.1. In the event Licensee becomes aware of any infringement or
unauthorized use of any of the Licensed Marks, Licensee shall promptly notify
Licensor of such infringement or unauthorized use. Licensor shall have the sole
initial right to take, and to determine whether or not to take, any action(s) it
deems appropriate in its sole discretion with respect to any unauthorized use,
infringement, or dilution of the Licensed Marks and Licensee shall cooperate
with Licensor in connection with any such actions. If Licensor declines to take
or fails to reasonably prosecute or pursue action with respect to a particular
unauthorized use, infringement or dilution, then Licensee may undertake such
action at Licensee's own expense and in Licensee's own name. Licensor will
cooperate with Licensee in any such action, including joining in any action if
necessary to maintain standing. All recovery in the form of legal damages shall
belong to the party that brought or undertook the action after reimbursement to
the other party of its respective expenses incurred in cooperating in such claim
or legal action.
5. TERMINATION
5.1. Upon termination of this Agreement, Licensee shall, as soon as
reasonably practicable: (i) change its corporate name or d/b/a as soon as
practicable to delete therefrom all references to the Tradename and (ii) cease
all use of, and destroy and/or effectively remove, the Licensed Marks and all
references thereto from all remaining advertising, promotional, display and
other materials, and shall thereafter refrain from further use of the Licensed
Marks or any further reference to the Licensed Marks directly or indirectly.
5.2. Upon the termination of this Agreement, all rights granted to Licensee
hereunder together with any interest in and to the Licensed Marks which Licensee
or its sublicensees may purport to have acquired, shall forthwith, without
further act or instrument, be assigned to and revert to Licensor.
6. ASSIGNMENT AND SUBLICENSING
6.1. Licensee shall have the right to sublicense or assign any of the
rights granted hereunder, or any part thereof, to any subsidiary or affiliate of
Licensee.
6.2. Licensee shall not otherwise assign any of its rights or obligations
hereunder except in connection with the sale or transfer of all or substantially
all of the business related to the Licensed Marks. Licensor shall not assign any
of its rights or obligations hereunder, except (a) in the case of the
<PAGE>
death of Licensor, to Licensor's executors, administrators, testamentary
trustees, heirs, devisees, intestates and legatees ("Heirs") and (b) to any one
of Licensor's current or future spouse, parents, siblings or descendants of such
parents', siblings' or spouses (the "Family Members"); PROVIDED that such Heir
and Family Member, as the case may be, simultaneously agree to be bound as a
Licensor to all of the obligations of the Licensor under this Agreement;
PROVIDED further that any assignee of Licensor's rights or obligations hereunder
is also the assignee of the Licensed Marks.
7. MISCELLANEOUS
7.1. All notices, requests, consents, and other communications hereunder
shall be in writing and shall be deemed to have been properly given or sent (i)
on the date when such notice, request, consent, or communication is personally
delivered or (ii) five (5) days after the same was sent, if sent by certified or
registered mail or (iii) three (3) days after the same was sent, if sent by
overnight courier delivery or confirmed telecopier transmission, as follows:
(a) if to Licensee, to:
Paracelsus Healthcare Corporation
515 West Greens Road, Suite 800
Houston, Texas 77067
Attention: Robert C. Joyner
Senior Vice President and General Counsel
Telecopier No.: (713) 873-6686
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue, Suite 3400
Los Angeles, CA 90071
Attention: Thomas C. Janson, Jr.
Telecopier No.: (213) 687-5600
(b) if to Licensor, to:
Dr. Manfred George Krukemeyer
AM Natruper Holz 69
D-49076 Osnabruck
Federal Republic of Germany
Telecopier No.: (011) 49-541-966-4006
with a copy to:
R.J. Messenger
155 North Lake Avenue, Suite 1100
Pasadena, CA 91101
Telecopier No.: (818) 578-6380
and to:
Dr. Meyer zu Losebeck
Sozietat Dr. H. Mertens
Hasemauer 9
49074 Osnabruck, Germany
Telecopier No.: (011) 49-541-331-1616
Anyone entitled to notice hereunder may change the address to which notices or
other communications are to be sent to it by notice given in the manner
contemplated hereby.
7.2. Nothing herein contained shall be construed to place the parties in
the relationship of partners or joint venturers, and no party hereto shall have
any power to obligate or bind any other party hereto in any manner whatsoever,
except as otherwise provided for herein.
<PAGE>
7.3. None of the terms hereof can be waived or modified except by an
express agreement in writing signed by the party to be charged. The failure of
any party hereto to enforce, or the delay by any party in enforcing, any of its
rights hereunder shall not be deemed a continuing waiver or a modification
thereof and any party may, within the time provided by applicable law, commence
appropriate legal proceedings to enforce any and all of such rights. Any party
hereto may employ any of the remedies available to it with respect to any of its
rights hereunder without prejudice to the use by it in the future of any other
remedy with respect to any of such rights. No person, firm, or corporation,
other than the parties hereto shall be deemed to have acquired any rights by
reason of anything contained in this Agreement.
7.4. This Agreement shall be binding upon and inure to the benefit of the
successors and permitted assigns of the parties hereto. Any attempt by Licensor
or Licensee to transfer any of its rights or obligations under this Agreement,
whether by assignment, sublicense or otherwise, other than as explicitly
permitted pursuant to this Agreement, shall constitute an event of default, but
shall otherwise be null and void.
7.5. This Agreement shall be construed in accordance with and governed by
the laws of the State of Texas applicable to contracts made and to be wholly
performed therein without regard to its conflicts of law rules, and any
applicable laws of the United States. The parties hereby irrevocably submit to
the jurisdiction of the courts of the State of Texas and the Federal courts of
the United States of America located in the State of Texas solely in respect of
the interpretation and enforcement of the provisions of this Agreement, and in
respect of the transactions contemplated hereby, and hereby waive, and agree not
to assert, as a defense in any action, suite or proceeding for the
interpretation or enforcement hereof or of any such document, that it is not
subject thereto or that such action, suit or proceeding may not be brought or is
not maintainable in said courts or that the venue thereof may not be appropriate
or that this Agreement or any such document may not be enforced in or by such
courts, and the parties hereto irrevocably agree that all claims with respect to
such action or proceeding shall be heard and determined in such a Texas State or
Federal court. The parties hereby consent to and grant any such court
jurisdiction over the person of such parties and over the subject matter of such
dispute and agree that mailing of process or other papers in connection with any
such action or proceeding in the manner provided in Section 7.1, shall be valid
and sufficient service thereof.
7.6. The provisions hereof are severable, and if any provision shall be
held invalid or unenforceable in whole or in part in any jurisdiction, then such
invalidity or unenforceability shall affect only such provision, or part thereof
in such jurisdiction and shall not in any manner affect such provision in any
other jurisdiction, or any other provision in this Agreement in any
jurisdiction. To the extent legally permissible, an arrangement which reflects
the original intent of the parties shall be substituted for such invalid or
unenforceable provision.
7.7. The Section headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
7.8. This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof.
7.9. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused the same to be executed by a duly authorized officer as of the day and
year first above written.
PARACELSUS HEALTHCARE CORPORATION
("Licensee")
By ___________________________________
Name:
Title:
___________________________________
Dr. Manfred George Krukemeyer
("Licensor")
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
REGISTRATION
MARK NO. COUNTRY OWNER
- --------------------------- --------------- ---------------- ---------------------------------------
<S> <C> <C> <C>
PHC PARACELSUS HEALTHCARE
CORPORATION and Design 1,528,932 United States Dr. Manfred George Krukemeyer
</TABLE>
<PAGE>
EXHIBIT 10.36
FORM OF
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into as of , 1996, by and among PARACELSUS HEALTHCARE CORPORATION, a
California corporation (together with its permitted successors and assigns, the
"Company"), and Park Hospital GmbH, a German corporation (the "Paracelsus
Shareholder").
WHEREAS, in connection with that certain Amended and Restated Merger
Agreement dated as of May 29, 1996 (as further amended from time to time in
accordance with the terms thereof, the "Merger Agreement"), by and among the
Company, Champion Healthcare Corporation, a Delaware corporation, and PC Merger
Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company,
the Company has agreed to provide the Paracelsus Shareholder with the
registration rights set forth in this Agreement;
NOW, THEREFORE, the parties hereto, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, intending to be bound
hereby, agree as follows:
SECTION 1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings:
AFFILIATE: With respect to any specified person, any other person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" when used with respect to any specified person means the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "CONTROLLING" and "CONTROLLED" have meanings correlative to the
foregoing.
AGREEMENT: See the introductory clauses hereof.
BUSINESS DAY: Any day that is not a Saturday, a Sunday, a legal holiday or
a day on which banking institutions in the States of New York or Texas are not
required to be open.
COMPANY: See the introductory clauses hereof.
COMPANY COMMON STOCK: The common stock, no stated value per share, of the
Company or any other shares of capital stock of the Company into which such
stock shall be reclassified or changed. If the Company Common Stock has been so
reclassified or changed, or if the Company pays a dividend or makes a
distribution on the Company Common Stock in shares of capital stock, or
subdivides (or combines) its outstanding shares of the Company Common Stock into
a greater (or smaller) number of shares of the Company Common Stock, a share of
the Company Common Stock shall be deemed to be such number of shares of capital
stock and amount of other securities to which a holder of a share of the Company
Common Stock outstanding immediately prior to such reclassification, exchange,
dividend, distribution, subdivision or combination would be entitled.
COMPANY NOTICE: See Section 2(b) hereof.
DELAY PERIOD: See Section 2(c) hereof.
DEMAND NOTICE: See Section 2(a) hereof.
DEMAND REGISTRATION: See Section 2(b) hereof.
EFFECTIVENESS PERIOD: See Section 2(c) hereof.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended, and the
rules and regulations of the SEC promulgated thereunder.
INDEMNIFIED PARTY: See Section 8(c) hereof.
INDEMNIFYING PARTY: See Section 8(c) hereof.
<PAGE>
LOSSES: See Section 8(a) hereof.
MERGER AGREEMENT: See the introductory clauses hereof.
PARACELSUS SHAREHOLDER: See the introductory clauses hereof.
PERMITTED TRANSFEREE: Any person to which the Paracelsus Shareholder may
transfer its Shares under the terms of the Shareholder Agreement between the
Paracelsus Shareholder and the Company, dated , 1996.
PERSON: Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
PIGGYBACK REGISTRATION: See Section 3(b) hereof.
PROSPECTUS: The prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A or any term sheet meeting the requirements
of Rule 434), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable Shares
covered by such Registration Statement and all other amendments and supplements
to the prospectus, including post-effective amendments, and all material
incorporated by reference or deemed to be incorporated by reference in such
Prospectus.
REGISTRABLE SHARES: The Shares until (i) a registration statement covering
such Shares has been declared effective by the SEC and such Shares have been
disposed of pursuant to such effective registration statement, or (ii) such
Shares have been transferred other than pursuant to Rule "4(1 1/2)" (or any
similar private transfer exemption) under the Securities Act.
REGISTRATION STATEMENT: Any registration statement of the Company under the
Securities Act that covers any of the Registrable Shares pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such registration statement, including post-effective amendments,
all exhibits, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
RULE 144: Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or any similar rule or regulation hereafter adopted by the
SEC.
SEC: The Securities and Exchange Commission.
SECURITIES ACT: The Securities Act of 1933, as amended, and the rules and
regulations of the SEC promulgated thereunder.
SHAREHOLDERS: The Paracelsus Shareholder and any transferee who holds
Registrable Shares.
SHARES: All shares of Company Common Stock beneficially owned by the
Paracelsus Shareholder as of the date of this Agreement, and any shares of
Company Common Stock hereafter acquired by the Paracelsus Shareholder if at the
time of such acquisition the Paracelsus Shareholder beneficially owns any
Registrable Shares.
UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING: A registration or
offering in which securities of the Company are sold to an underwriter for
reoffering to the public.
SECTION 2. DEMAND REGISTRATION.
(a) The Shareholders shall have the right, by written notice (the "Demand
Notice") given by the Shareholders who hold at least a majority of the
Registrable Shares to the Company so long as this Agreement has not been
terminated in accordance with Section 9.1 hereof, to request that the Company
register under and in accordance with the provisions of the Securities Act all
or part of the Registrable Shares designated by such holders; PROVIDED, that at
the time of the Demand Notice the market value of the Registrable Shares to be
registered in accordance therewith exceeds in the aggregate $25 million,
PROVIDED, HOWEVER, that if the Shareholders in the aggregate own Registrable
Shares, the market value of which does not exceed $25 million, then the Demand
Notice shall apply to all of such Registrable Shares; and PROVIDED, FURTHER,
that no one Demand Notice may be given if a
<PAGE>
Demand Notice was given during the eighteen-month period ending immediately
prior to such Demand Notice and the Company filed a Registration Statement
relating to all the shares covered by such prior Demand Notice, which
registration statement becomes effective in accordance with the provisions
hereof, and the Company otherwise complied with its obligations under this
Agreement with respect to such prior Demand Notice. All Demand Notices shall
specify the amount of Registrable Shares to be registered and the intended
methods of disposition thereof. The Shareholders shall be entitled in the
aggregate to five Demand Registrations pursuant to this Section 2 unless a
Demand Registration did not become effective or was not maintained effective for
a period (whether or not continuous) of at least 180 days (subject to Section
2(e) hereof) or such shorter period at the end of which all Registrable Shares
covered by such Demand Registration have been sold pursuant thereto, in which
case the Shareholders will be entitled in the aggregate to one additional Demand
Registration pursuant hereto for each instance in which the condition set forth
above had not been satisfied.
(b) The Company shall file with, and shall use reasonable best efforts to
cause to be declared effective by, the SEC within 90 days of the date on which
the Company first receives the Demand Notice given by the Shareholders pursuant
to Section 2 hereof, a Registration Statement under the Securities Act relating
to the number of Registrable Shares specified in such Demand Notice (a "Demand
Registration"); PROVIDED, that the Company shall have the right for a reasonable
period of time not in excess of 90 days to delay the filing of such Registration
Statement if, in the Company's good faith exercise of its reasonable business
judgment (i) such registration and offering would adversely affect or interfere
with a pending BONA FIDE corporate transaction involving, or any BONA FIDE
financing by, the Company, (ii) the Company is in possession of material
information that it determines, if disclosed in a registration statement, would
have a material adverse effect on the business or operations of the Company and
would not otherwise be required under law to be publicly disclosed or (iii) the
Company is engaged in a program for the purchase of shares of Company Common
Stock, unless such repurchase program and the requested registration may proceed
concurrently pursuant to an exemption from Rule 10b-6 under the Exchange Act.
(c) The Company agrees to use reasonable best efforts to keep any
Registration Statement filed pursuant to this Section 2 continuously effective
and usable for the resale of Registrable Shares for a period of 180 days
(subject to Section 2(e) hereof) from the date on which the SEC declares such
Registration Statement effective or such shorter period which will terminate
when all the Registrable Shares covered by such Registration Statement have been
sold pursuant to such Registration Statement. The foregoing notwithstanding, the
Company shall have the right to suspend the use of the Registration Statement
for a reasonable length of time not exceeding with respect to any one Demand
Registration an aggregate of 90 days (a "Delay Period") if and only if in the
good faith exercise of the Company's reasonable business judgment (i) such use
would adversely affect or interfere with a pending BONA FIDE corporate
transaction involving, or any BONA FIDE financing by, the Company, (ii) the
Company is in possession of material information that it determines, if
disclosed in a registration statement, would have a material adverse effect on
the business or operations of the Company and would not otherwise be required
under law to be publicly disclosed or (iii) the Company is engaged in a program
for the purchase of any shares of Company Common Stock, unless such repurchase
program and the requested registration may proceed concurrently pursuant to an
exemption from Rule 10b-6 under the Exchange Act; PROVIDED, that the Company may
so suspend sales with respect to any one Demand Registration, twice, but no more
than twice, in any twelve-month period; and PROVIDED, FURTHER, that the
foregoing delay provisions of this sentence shall not apply for any period
longer than the shortest period for which similar provisions are imposed by any
other registration rights or similar agreement between the Company and another
party. The Company shall provide written notice to the Shareholders of the
beginning and end of each Delay Period and the Shareholders shall cease all
disposition efforts with respect to Registrable Shares held by them immediately
upon receipt of notice of the beginning of any Delay Period. The period for
which the Company is required to maintain the effectiveness of the Registration
Statement shall be extended by the aggregate number of days of all Delay
Periods. Such period, including the extension thereof required by the preceding
sentence, is hereafter referred to as the "Effectiveness Period."
(d) In the case of a proposed offering pursuant to a Demand Registration,
the Company may, in its sole discretion, include shares of Company Common Stock
in such Demand Registration (whether
<PAGE>
for the account of the Company or otherwise, including without limitation shares
of Company Common Stock held by security holders, if any, who have piggyback
registration rights with respect thereto) on the same terms and conditions as
the Registrable Shares. Notwithstanding the foregoing, if the Company or, in
case of any underwritten public offering, the managing underwriter or
underwriters participating in such offering conclude that the total amount of
shares of Company Common Stock requested to be included in such Demand
Registration exceeds the amount which can be sold without materially and
adversely delaying or affecting the success of the offering, then the amount of
securities to be offered for the account of all holders other than the Company
and the Shareholders shall be reduced (to zero if necessary) PRO RATA on the
basis of the number of shares of Company Common Stock requested to be registered
by each such holder. If, after such cut back, the Company or such underwriter
concludes that the total amount of securities to be included in such Demand
Registration still materially and adversely affects the success of such
offering, then the amount of securities to be offered for the account of the
Company shall be reduced (to zero if necessary).
(e) If any Demand Registration pursuant to this Section 2 is requested to be
a "shelf" registration pursuant to Rule 415 under the Securities Act, the
Company shall file a Registration Statement under Rule 415 under the Securities
Act and shall keep such Registration Statement filed in respect thereof
continuously effective for a period ending on the earlier of (i) two years from
the date on which the SEC declares such Registration Statement effective under
the Securities Act (subject to the extension pursuant to Section 4 hereof), and
(ii) the date on which all the Registrable Securities covered by such
Registration Statement have been sold pursuant to such Registration Statement.
Upon the occurrence of any event that would cause such Registration Statement
(i) to contain an untrue or alleged untrue statement of material fact, or any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (ii) not to be
effective and usable for resale of Registrable Securities during the period that
such Registration Statement is required to be effective and usable, the Company
shall promptly file an amendment to such Registration Statement, in the case of
clause (i), to correct any such misstatement or omission and, in the case of
either clause (i) or (ii), use all reasonable efforts to cause such amendment to
be declared effective and such Registration Statement to become usable as soon
as practical thereafter.
SECTION 3. PIGGYBACK REGISTRATION.
(a) RIGHT TO PIGGYBACK. If at any time the Company proposes to file a
registration statement under the Securities Act with respect to an offering of
Company Common Stock (other than a registration statement (i) on Form S-4 or S-8
or any successor forms thereto, or (ii) filed solely in connection with an
exchange offer or dividend reinvestment plan) whether or not for its own
account, then the Company shall give written notice of such proposed filing to
the Shareholders at least ten Business Days before the anticipated filing date.
Such notice shall offer the Shareholders the opportunity to register such amount
of Registrable Shares as they may request (a "Piggyback Registration"). Subject
to Section 3(b) hereof, the Company shall include in each such Piggyback
Registration all Registrable Shares with respect to which the Company has
received written requests for inclusion therein within ten Business Days after
notice has been received by the applicable holder. The Shareholders shall be
permitted to withdraw all or part of the Registrable Shares from a Piggyback
Registration by giving written notice to the Company at least one Business Day
prior to the later of the expected or actual effective date of such Piggyback
Registration.
(b) PRIORITY ON PIGGYBACK REGISTRATIONS. The Company shall permit the
Shareholders to include all such Registrable Shares on the same terms and
conditions as any similar securities, if any, of the Company included therein.
Notwithstanding the foregoing, if the Company or an underwriter participating in
such offering concludes that the total amount of securities requested to be
included in such Piggyback Registration exceeds the amount which can be sold
without materially and adversely delaying or affecting the success of the
offering, then the amount of securities to be offered for the account of the
Shareholders shall be reduced in the following manner:
(i) if such Piggyback Registration is a primary registration on behalf
of the Company, the amount of securities to be offered for the account of
the Shareholders and other holders of securities who have piggyback
registration rights with respect thereto shall be reduced (to zero if
<PAGE>
necessary) PRO RATA on the basis of the number of capital stock equivalents
requested to be registered by each such holder of securities with piggyback
registration rights participating in such offering; and
(ii) if such Piggyback Registration is an underwritten secondary
registration on behalf of holders of securities of the Company other than
the Shareholders, the Company shall include in such registration: (x) first,
up to the full number of common stock equivalents of such persons exercising
"demand" registration rights, and (y) second, the number of securities to be
offered for the account of the Shareholders and other holders of securities
who have piggyback registration rights with respect thereto in excess of the
amount of securities such persons exercising "demand" registration rights
propose to sell (allocated PRO RATA among the Shareholders and other holders
of such securities on the basis of the number of common stock equivalents
requested to be registered by such holders).
SECTION 4. HOLD-BACK AGREEMENTS.
(a) The Shareholders agree, if requested by the Company or the managing
underwriter in connection with a public offering of equity securities of the
Company (whether for the account of the Company or otherwise), not to effect
any public sale or distribution of any shares of Company Common Stock,
including a sale pursuant to Rule 144 (except as part of such underwritten
registration), during a period equivalent to that requested by the Company
or such underwriter, provided that such period shall not exceed 90 days.
(b) The Company agrees, if requested by the holders of a majority of the
Registrable Shares being sold or the managing underwriter, if any, in
connection with a registration of such Registrable Shares, not to effect any
public sale or distribution of any equity securities of the Company (except
as part of such registration or pursuant to a BONA FIDE employee option,
bonus or other benefit plan), during a period equivalent to that requested
by the Shareholders or such underwriter, if any, PROVIDED that such period
shall not exceed (i) 180 days with respect to the first public offering
hereunder by holders of Registrable Shares after the date hereof and (ii) 90
days with respect to each such registration thereafter.
SECTION 5. REGISTRATION PROCEDURES.
In connection with the registration obligations of the Company and in
accordance with Sections 2 and 3 hereof, the Company will use its best efforts
to effect such registrations to permit the sale of such Registrable Shares in
accordance with the intended method or methods of disposition thereof, and
pursuant thereto the Company shall:
(a) Prepare and file with the SEC a Registration Statement or
Registration Statements on such form which shall be available for the sale
of the Registrable Shares by the holders thereof in accordance with the
intended method or methods of distribution thereof, and use reasonable best
efforts to cause such Registration Statement to become effective as soon as
practicable after such filing and to remain effective as provided herein;
PROVIDED, HOWEVER, that before filing a Registration Statement or Prospectus
or any amendments or supplements thereto (including documents that would be
incorporated or deemed to be incorporated therein by reference), the Company
shall, upon the written request of participating Shareholders, furnish or
otherwise make available to such holders of the Registrable Shares covered
by such Registration Statement, their counsel and the managing underwriters,
if any, copies of all such documents proposed to be filed, which documents
will be subject to the review of such holders, their counsel and such
underwriters, if any, PROVIDED, HOWEVER, that the Company shall not be
required to deliver to such holders a copy of any such document that has not
been materially changed from a copy of such document that was previously
delivered to such holders. The Company shall not file any such Registration
Statement or Prospectus or any amendments or supplements thereto (including
such documents that, upon filing, would be incorporated or deemed to be
incorporated by reference therein) to which the holders of a majority of the
Registrable Shares covered by such Registration Statement, their counsel or
the managing underwriters, if any, shall reasonably object in writing on a
timely basis unless, in the opinion of the Company, such filing is necessary
to comply with applicable law.
<PAGE>
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) to each Registration Statement as may be
necessary to keep such Registration Statement continuously effective during
the period provided herein with respect to the disposition of all securities
covered by such Registration Statement; and cause the related Prospectus to
be supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 (or any similar provision then
in force) under the Securities Act.
(c) Notify the Shareholders registering shares as part of such
Registration Statement, their counsel and the managing underwriters, if any,
promptly and (if requested by any such person) confirm such notice in
writing, (i) when a Prospectus or any Prospectus supplement or post-
effective amendment has been filed, and, with respect to a Registration
Statement or any post-effective amendment, when the same has become
effective, (ii) of any request by the SEC for amendments or supplements to a
Registration Statement or related Prospectus or for additional information
regarding the Shareholders registering shares as part of such Registration
Statement, (iii) of the issuance by the SEC of any stop order suspending the
effectiveness of a Registration Statement or the initiation of any
proceedings for that purpose, (iv) if at any time the representations and
warranties of the Company contained in any agreement (including any
underwriting agreement) contemplated by Section 5(j) below cease to be true
and correct, (v) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from
qualification of any of the Registrable Shares for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose, and
(vi) of the happening of any event that requires the making of any changes
in such Registration Statement, Prospectus or documents incorporated or
deemed to be incorporated therein by reference so that in the case of the
Registration Statement it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and that
in the case of the Prospectus it will not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
(d) Use reasonable best efforts to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement, or the lifting of
any suspension of the qualification or exemption from qualification of any
of the Registrable Shares for sale in any jurisdiction.
(e) If requested by a Shareholder, furnish to counsel for the
Shareholders and each managing underwriter, if any, without charge, one
conformed copy of each Registration Statement as declared effective by the
SEC and of each post-effective amendment thereto, in each case including
financial statements and schedules and all exhibits and reports incorporated
or deemed to be incorporated therein by reference; and deliver, without
charge, such number of copies of the preliminary prospectus, each amended
preliminary prospectus, each final Prospectus and each post-effective
amendment or supplement thereto, as the Shareholder may reasonably request
in order to facilitate the disposition of the Registrable Shares covered by
each Registration Statement in conformity with the requirements of the
Securities Act.
(f) Prior to any public offering of Registrable Shares, use reasonable
best efforts to register or qualify such Registrable Shares for offer and
sale under the securities or Blue Sky laws of such jurisdictions in the
United States as the holders of a majority of the Registrable Shares to
which such public offering relates shall reasonably request in writing; and
do any and all other reasonable acts or things necessary or advisable to
enable the Shareholders to consummate the disposition in such jurisdictions
of such Registrable Shares covered by the Registration Statement, PROVIDED,
HOWEVER, that the Company shall in no event be required to qualify generally
to do business as a foreign corporation or as a dealer in any jurisdiction
where it is not at the time so qualified or to execute or file a consent to
general service of process in any such jurisdiction where it has not
theretofore done so or to take any action that would subject it to service
of process or taxation in any such jurisdiction where it is not then
subject.
(g) Except during any Delay Period, upon the occurrence of any event
contemplated by Sections 5(c)(ii) or 5(c)(vi) above, prepare a supplement or
post-effective amendment to each Registration Statement or related
Prospectus or any document incorporated or deemed to be
<PAGE>
incorporated therein by reference, or file any other required document so
that, as thereafter delivered to the purchasers of the Registrable Shares
being sold thereunder, such Prospectus will not contain an untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(h) Use its best efforts to cause all Registrable Shares covered by such
Registration Statement to be listed on each securities exchange or quoted on
each automated interdealer quotation system, if any, on which the shares of
Company Common Stock are then listed or quoted.
(i) On or before the effective date of the Registration Statement,
provide the transfer agent of the Company for the Registrable Shares with
printed certificates for the Registrable Shares, which are in a form
eligible for deposit with The Depositary Trust Company.
(j) If requested by the holders of a majority of the Registrable Shares
being sold, enter into one or more customary "firm commitment" or "best
efforts" underwriting agreements, engagement letters, agency agreements or
similar agreements, as appropriate, and in such connection, whether or not
any such agreement is entered into and whether or not the registration is an
underwritten registration, the Company shall (i) make such representations
and warranties to the holders of such Registrable Shares and the
underwriters, if any, with respect to the business of the Company and its
subsidiaries, and the Registration Statement, Prospectus and documents, if
any, incorporated or deemed to be incorporated by reference therein, in each
case, in form, substance and scope as are customarily made by issuers to
underwriters in underwritten offerings, and if true, confirm the same if and
when requested, (ii) use its reasonable efforts to obtain opinions of
counsel to the Company and updates thereof (which counsel and opinions (in
form, scope and substance) shall be reasonably satisfactory to the managing
underwriters, if any, and counsel to such holders of the Registrable Shares
being sold), addressed to each such selling holder of Registrable Shares and
each of the underwriters, if any, covering the matters customarily covered
in opinions requested in underwritten offerings and such other matters as
may be reasonably requested by such counsel and underwriters, (iii) use its
reasonable efforts to obtain "cold comfort" letters and updates thereof from
the independent certified public accountants of the Company (and, if
necessary, any other independent certified public accountants of any
subsidiary of the Company or of any business acquired by the Company for
which financial statements and financial data are, or are required to be,
included in the Registration Statement), addressed to each such selling
holder of Registrable Shares (unless such accountants shall be prohibited
from so addressing such letters by applicable standards of the accounting
profession) and each of the underwriters, if any, such letters to be in
customary form and covering matters of the type customarily covered in "cold
comfort" letters in connection with underwritten offerings, and (iv) if an
underwriting agreement is entered into, the same shall contain
indemnification provisions and procedures substantially to the effect set
forth in Section 8 hereof with respect to all parties to be indemnified
pursuant to said Section. The above shall be done at each closing under such
underwriting or similar agreement, or as and to the extent required
thereunder.
(k) Comply with all applicable rules and regulations of the SEC and make
generally available to its securityholders earning statements satisfying the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder,
or any similar rule promulgated under the Securities Act, no later than
forty-five (45) days after the end of any twelve (12) month period (or
ninety (90) days after the end of any twelve (12) month period if such
period is a fiscal year) (i) commencing at the end of any fiscal quarter in
which Registrable Shares are sold to underwriters in a "firm commitment" or
"best efforts" underwritten offering and (ii) if not sold to underwriters in
such an offering, commencing on the first day of the first fiscal quarter of
the Company after the effective date of a Registration Statement, which
statements shall cover said twelve (12) month periods.
The Company may require each seller of Registrable Shares as to which any
registration is being effected to furnish to the Company such information
regarding such seller and the distribution of such Registrable Shares as the
Company may, from time to time, reasonably request in writing. If any such
information with respect to a seller or such distribution of Registrable Shares
is not furnished within a reasonable period of time after receipt of such
request, the Company may exclude such Shareholder's
<PAGE>
Registrable Shares from such Registration Statement. Each seller of Registrable
Shares agrees to notify the Company as promptly as practicable following its
discovery of any inaccuracy or change in information so furnished in writing by
such seller to the Company or of the occurrence of any event that causes any
prospectus relating to such registration to contain an untrue statement of a
material fact or omit to state any material fact regarding such seller or the
distribution of such Registrable Shares that is required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances under which they were made.
Each holder of Registrable Shares agrees that, upon receipt of any notice
from the Company of the happening of any event of the kind described in Section
5(c)(ii), 5(c)(iii), 5(c)(v) or 5(c)(vi) hereof, that such holder shall
forthwith discontinue disposition of such Registrable Shares covered by such
Registration Statement or Prospectus until receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 5(g) hereof, or until
such holder is advised in writing by the Company that the use of the applicable
Prospectus may be resumed, and has received copies of any amended or
supplemented Prospectus or any additional or supplemental filings which are
incorporated, or deemed to be incorporated, by reference in such Prospectus and,
if requested by the Company, such holder shall deliver to the Company (at the
expense of the Company) all copies then in its possession, other than permanent
file copies then in such holder's possession, of the Prospectus covering such
Registrable Shares at the time of receipt of such request.
Each holder of Registrable Shares further agrees not to utilize any material
other than the applicable current Prospectus in connection with the offering of
Registrable Shares pursuant to a Demand Registration or otherwise hereunder.
SECTION 6. REGISTRATION EXPENSES.
(a) Whether or not any Registration Statement becomes effective, the
Company shall pay all costs, fees and expenses incident to the Company's
performance of or compliance with this Agreement, including without limitation
(i) all registration and filing fees, (ii) fees and expenses of compliance with
securities or Blue Sky laws, (iii) printing expenses (including without
limitation expenses of printing certificates for Registrable Shares and of
printing prospectuses if the printing of prospectuses is requested by the
managing underwriter, if any, or by the holders of a majority of the Registrable
Shares included in any Registration Statement), (iv) messenger, telephone and
delivery expenses, (v) fees and disbursements of counsel for the Company and one
special counsel for the sellers of Registrable Shares (subject to the provisions
of Section 6(b) hereof), and (vi) fees and disbursements of all independent
certified public accountants of the Company (including without limitation
expenses of any "cold comfort" letters required in connection with this
Agreement) and all other persons retained by the Company in connection with the
Registration Statement. In addition, the Company shall pay its internal expenses
(including without limitation all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit and the fees and expenses incurred in connection with the listing of the
securities to be registered on any securities exchange on which similar
securities issued by the Company are then listed. Notwithstanding the foregoing,
each participating Shareholder shall pay all commissions, fees or discounts
payable to brokers, dealers or underwriters and all transfer taxes in connection
with the sale of its Registrable Shares.
(b) In connection with any Demand Registration or Piggyback Registration
(including any "shelf" registration in connection therewith) hereunder, the
Company shall reimburse the holders of the Registrable Shares being registered
in such registration for the reasonable fees and disbursements of not more than
one counsel (together with appropriate local counsel, if required) chosen by the
holders of a majority of all of such Registrable Shares being registered in such
registration.
SECTION 7. UNDERWRITTEN REGISTRATIONS.
(a) Subject to Section 7(b) hereof, the Shareholders shall have the right,
by written notice, to request that any Demand Registration be made pursuant to
an underwritten offering.
(b) If any of the Registrable Securities are to be sold in an underwritten
offering pursuant to a Demand Registration, the institution or institutions that
shall manage or lead the offering or placement shall be selected by the holders
of a majority of the Registrable Shares being sold; PROVIDED, that
<PAGE>
such institution or institutions shall be reasonably satisfactory to the
Company. In connection with any Piggyback Registration, no Shareholder shall be
entitled to participate unless and until it shall enter into an underwriting or
other agreement with such lead institutions for such offering in such form as
the Company and such lead institutions shall reasonably determine.
SECTION 8. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. The Company shall, without limitation
as to time, indemnify and hold harmless, to the full extent permitted by law,
each holder of Registrable Securities whose Registrable Securities are covered
by a Registration Statement or Prospectus, the officers, directors and agents
and employees of each of them, each Person who controls each such holder (within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) and the officers, directors, agents and employees of each such controlling
person, to the fullest extent lawful, from and against any and all losses,
claims, damages, liabilities, costs (including, without limitation, reasonable
costs of preparing, investigating or defending such claim and reasonable
attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising out
of or based upon any untrue or alleged untrue statement of a material fact
contained in such Registration Statement or Prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or based
upon any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as the same arise out of or are based upon information furnished in
writing to the Company by such holder expressly for use therein; PROVIDED,
HOWEVER, that the Company shall not be liable to any holder of Registrable
Securities to the extent that any such Losses arise out of or are based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in any preliminary prospectus if (i) such holder failed to send or deliver
a copy of the Prospectus with or prior to the delivery of written confirmation
of the sale by such holder of a Registrable Security to the person asserting the
claim from which such Losses arise and (ii) the Prospectus would have corrected
in all material respects such untrue statement or alleged untrue statement or
such omission or alleged omission; and PROVIDED FURTHER, that the Company shall
not be liable in any such case to the extent that any such Losses arise out of
or are based upon an untrue statement or alleged untrue statement or omission or
alleged omission in the Prospectus, if (x) such untrue statement or alleged
untrue statement, omission or alleged omission is corrected in all material
respects in an amendment or supplement to the Prospectus and (y) having
previously been furnished by or on behalf of the Company with copies of the
Prospectus as so amended or supplemented, such holder thereafter fails to
deliver such Prospectus as so amended or supplemented, prior to or concurrently
with the sale of a Registrable Security to the person asserting the claim from
which such Losses arise.
(b) INDEMNIFICATION BY HOLDER OF REGISTRABLE SECURITIES. In connection
with any Registration Statement in which a holder of Registrable Securities is
participating, such holder of Registrable Securities shall furnish to the
Company in writing such information as the Company reasonably requests for use
in connection with any Registration Statement or Prospectus and agrees to
indemnify, to the full extent permitted by law, the Company, its directors,
officers, agents and employees, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, agents or employees of such controlling persons,
from and against all Losses arising out of or based upon any untrue or alleged
untrue statement of a material fact contained in any Registration Statement or
Prospectus or any amendment or supplement thereto, or any preliminary
prospectus, or arising out of or based upon any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein not misleading, to the extent, but only to the extent, that
such untrue or alleged untrue statement or omission or alleged omission is
contained in any information so furnished in writing by such holder to the
Company expressly for use in such Registration Statement or Prospectus and that
such information was relied upon by the Company in preparation of such
Registration Statement or Prospectus or amendment, supplement or preliminary
prospectus.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any Person shall be
entitled to indemnity hereunder (an "indemnified party"), such indemnified party
shall give prompt written notice to the party from which such indemnity is
sought (the "indemnifying party") of any claim or of the commencement of any
proceeding with respect to which such indemnified party seeks indemnification or
<PAGE>
contribution pursuant hereto; PROVIDED, HOWEVER, that the delay or failure to so
notify the indemnifying party shall not relieve the indemnifying party from any
obligation or liability except to the extent that the indemnifying party has
been prejudiced materially by such delay or failure. The indemnifying party
shall have the right, exercisable by giving written notice to an indemnified
party promptly after the receipt of written notice from such indemnified party
of such claim or proceeding, to assume, at the indemnifying party's expense, the
defense of any such claim or proceeding, with counsel reasonably satisfactory to
such indemnified party; PROVIDED, HOWEVER, that an indemnified party shall have
the right to employ separate counsel in any such claim or proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such indemnified party unless: (l) the indemnifying
party agrees in writing to pay such fees and expenses, (2) the indemnifying
party fails promptly to assume the defense of such claim or proceeding or fails
to employ counsel reasonably satisfactory to such indemnified party, or (3) in
the judgment of counsel to such indemnified party a conflict of interest is
reasonably likely to exist between such indemnified party and any other of such
indemnified parties with respect to such proceeding (in which case the
indemnified party shall have the right to employ counsel and to assume the
defense of such claim or proceeding); PROVIDED, HOWEVER, that the indemnifying
party shall not, in connection with any one such claim or proceeding or separate
but substantially similar or related claims or proceedings in the same
jurisdiction, arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one firm of attorneys (together
with appropriate local counsel) at any time for all of the indemnified parties,
or for fees and expenses that are not reasonable. Whether or not such defense is
assumed by the indemnifying party, such indemnified party will not be subject to
any liability for any settlement made without its consent (but such consent will
not be unreasonably withheld). The indemnifying party shall not, without the
written consent of the indemnified party, consent to entry of any judgment or
enter into any settlement that does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such indemnified party of a release,
in form and substance reasonably satisfactory to the indemnified party, from all
liability in respect of such claim or litigation for which such indemnified
party would be entitled to indemnification hereunder.
(d) CONTRIBUTION. If the indemnification provided for in this Section 8 is
unavailable to an indemnified party in respect of any Losses (other than in
accordance with its terms) or is insufficient to hold such indemnified party
harmless, then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the indemnifying party, on the one
hand, and such indemnified party, on the other hand, in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such indemnifying
party, on the one hand, and indemnified party, on the other hand, shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact, has been taken by, or relates to
information supplied by, such indemnifying party or indemnified party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent any such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include any
legal or other fees or expenses incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by PRO RATA
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provision of this Section 8(d), an indemnifying party that
is a selling holder of Registrable Securities shall not be required to
contribute any amount in excess of the amount by which the total price at which
the Registrable Securities sold by such indemnifying party exceeds the amount of
any damages that such indemnifying party has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
<PAGE>
SECTION 9. MISCELLANEOUS.
9.1 TERMINATION. This Agreement and the obligations of the Company
hereunder shall terminate on the earliest of (i) the tenth anniversary of the
date hereof and (ii) the first date on which all Registrable Shares covered by
this Agreement shall have been sold.
9.2 NOTICES. All notices or communications hereunder shall be in writing
(including telecopy or similar writing), addressed as follows:
To the Company:
Paracelsus Healthcare Corporation
515 West Greens Road, Suite 800
Houston, Texas 77067
Attention: Robert C. Joyner,
Senior Vice President and General Counsel
Facsimile: (713) 873-6686
With a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue
Suite 3400
Los Angeles, California 90071
Attention: Thomas C. Janson, Jr.
Facsimile: (213) 687-5600
To the Paracelsus Shareholder:
Park Hospital GmbH
AM Natruper Holz 69
D-49076 Osnabruck
Federal Republic of Germany
Attention: Dr. Manfred George Krukemeyer
Telecopier No.: (011) 49-541-966-4006
With a copy to:
R.J. Messenger
155 North Lake Avenue, Suite 1100
Pasadena, California 91101
Facsimile: (818) 578-6380
and to:
Dr. Meyer zu Losebeck
Sozietat Dr. H. Mertens
Hasemauer 9
49074 Osnabruck, Germany
Facsimile: (011) 49-541-331-1616
Any such notice or communication shall be deemed given (i) when made, if
made by hand delivery, (ii) one business day after being deposited with a
next-day courier, postage prepaid, or (iii) three business days after being sent
certified or registered mail, return receipt requested, postage prepaid, in each
case addressed as above (or to such other address as such party may designate in
writing from time to time).
9.3 SEPARABILITY. If any provision of this Agreement shall be declared to
be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
<PAGE>
9.4 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, legal representatives,
successors and assigns; PROVIDED, HOWEVER, that neither this Agreement nor any
rights hereunder shall be assignable or otherwise subject to hypothecation by
the Paracelsus Shareholder, except that the foregoing limitation will not apply
to:
(a) any sale, transfer, assignment, pledge, hypothecation or other
disposition thereof (a "Transfer") made to the Company; and
(b) any Transfer to a Permitted Transferee; PROVIDED, that such
transferee agrees in writing to be bound by the terms of this Agreement as
if such person were the Paracelsus Shareholder.
9.5 ENTIRE AGREEMENT. This Agreement represents the entire agreement of
the parties and shall supersede any and all previous contracts, arrangements or
understandings between the parties hereto with respect to the subject matter
hereof. This Agreement may be amended at any time by mutual written agreement of
the parties hereto.
9.6 PUBLICITY. Each of the Shareholders and the Company agree that no
public release or announcement concerning the transactions contemplated hereby
shall be issued by either party without the prior consent of the other party,
except to the extent that the Shareholders or the Company is advised by counsel
that such release or announcement is necessary or advisable under applicable law
or the rules or regulations of any securities exchange, in which case the party
required to make the release or announcement shall to the extent practicable
provide the other party with an opportunity to review and comment on such
release or announcement in advance of its issuance.
9.7 EXPENSES. Whether or not the transactions contemplated hereby are
consummated, except as otherwise provided herein, 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.
9.8 INTERPRETATION. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.9 COUNTERPARTS. This Agreement may be executed in two 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 party.
9.10 GOVERNING LAW; VENUE. This Agreement shall be construed, interpreted,
and governed in accordance with the laws of the state of incorporation of
Paracelsus, without reference to rules relating to conflicts of law. The parties
hereby irrevocably submit to the jurisdiction of the courts of the state of
incorporation of Paracelsus and the Federal courts of the United States of
America located in the state of incorporation of Paracelsus solely in respect of
the interpretation and enforcement of the provisions of this Agreement, and in
respect of the transactions contemplated hereby, and hereby waive, and agree not
to assert, as a defense in any action, suit or proceeding for the interpretation
or enforcement hereof or of any such document, that it is not subject thereto or
that such action, suit or proceeding may not be brought or is not maintainable
in said courts or that the venue thereof may not be appropriate or that this
Agreement or any such document may not be enforced in or by such courts, and the
parties hereto irrevocably agree that all claims with respect to such action or
proceeding shall be heard and determined in a State or Federal court in the
state of incorporation of Paracelsus. The parties hereby consent to and grant
any such court jurisdiction over the person of such parties and over the subject
matter of such dispute and agree that mailing of process or other papers in
connection with any such action or proceeding in the manner provided in Section
9.2 hereof shall be valid and sufficient service thereof.
9.11 CALCULATION OF TIME PERIODS. Except as otherwise indicated, all
periods of time referred to herein shall include all Saturdays, Sundays and
holidays; PROVIDED, that if the date to perform the act or give any notice with
respect to this Agreement shall fall on a day other than a Business Day, such
act or notice may be timely performed or given if performed or given on the next
succeeding Business Day.
9.12 NO INCONSISTENT AGREEMENTS. The Company has not, as of the date
hereof, and shall not, on or after the date of this Agreement, enter into any
agreement with respect to its securities which is inconsistent with the rights
granted to the holders of Registrable Shares in this Agreement or otherwise
conflicts with the provisions hereof.
<PAGE>
9.13 PARTICIPATION BY SHAREHOLDERS. Each Shareholder hereby agrees that it
may not participate in any offering hereunder unless it (i) agrees to sell the
Registrable Shares to be included by it therein in the manner and upon the terms
and conditions provided in any underwriting or other agreement approved by the
persons entitled hereunder to determine the method of distribution thereof and
(ii) completes and executes such questionnaires, powers of attorney,
indemnities, underwriting agreements or other similar documents reasonably
required in accordance with the terms hereof or any agreement contemplated by
the foregoing clause (i).
9.14 COMPLIANCE WITH SHAREHOLDER AGREEMENT. Any sale of Registrable
Securities pursuant to the registration rights provided for herein by any
Shareholder bound by the terms of the Shareholder Agreement, dated ,
1996, between the Paracelsus Shareholder and the Company must comply with the
applicable provisions of such agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
PARACELSUS HEALTHCARE CORPORATION
By:
--------------------------------------
Name:
Title:
PARK HOSPITAL GmbH
By:
--------------------------------------
Name: Dr. Manfred George
Krukemeyer
Title:
<PAGE>
EXHIBIT 10.37
FORM OF
VOTING AGREEMENT
THIS VOTING AGREEMENT is made and entered into as of , 1996, by
and between Park Hospital GmbH, a German corporation (the "Paracelsus
Shareholder"), and each of the persons named on Exhibit A hereto (each a
"Shareholder" and, collectively, the "Shareholders").
WHEREAS, Paracelsus Healthcare Corporation, a California corporation
("Paracelsus"), PC Merger Sub, Inc., a Delaware corporation ("Merger Sub"), and
Champion Healthcare Corporation, a Delaware corporation ("Champion"), have
entered into an agreement with respect to a merger of Champion and Merger Sub
(the "Merger Agreement"); and
WHEREAS, pursuant to the Merger Agreement, the Paracelsus Shareholder and
Paracelsus will enter into a Shareholder Agreement (the "Shareholder Agreement")
at or prior to the closing of the transactions contemplated by the Merger
Agreement, and
WHEREAS, the Merger Agreement and the Shareholder Agreement were agreed to
in reliance upon the execution and delivery of this Agreement by the
Shareholders; and
WHEREAS, as a condition to the Merger Agreement, Paracelsus and the
Paracelsus Shareholder have requested that each Shareholder agree, and in order
to induce Paracelsus to enter into the Merger Agreement and the Paracelsus
Shareholder to enter into the Shareholder Agreement, each Shareholder has agreed
to take such actions in the respect to the shares of common stock, no stated par
value per share, of Paracelsus (the "Paracelsus Common Stock") beneficially
owned (as defined below) by him as of the date hereof or at any time hereafter
(the "Paracelsus Shares") as are provided herein, and the Paracelsus Shareholder
has agreed to vote the Paracelsus Shares beneficially owned by it as provided
herein;
NOW, THEREFORE, in consideration of the foregoing, and the representations,
warranties, covenants and agreements contained herein, and intending to be
legally bound, the parties hereto agree as follows:
1. VOTING AGREEMENTS. (a) Each Shareholder agrees to vote, or cause to be
voted, all Paracelsus Shares beneficially owned by him and his respective
affiliates and associates (as defined below) (i) with the Paracelsus Shareholder
to approve any approved Shareholder Proposal (as such term is defined in the
Shareholder Agreement) of the Paracelsus Shareholder and any related actions
contemplated by such Shareholder Proposal or that may be required in furtherance
thereof (including without limitation voting against any action, agreement or
transaction that may impede, interfere with, delay or otherwise adversely affect
any such approved Shareholder Proposal as determined by the Paracelsus
Shareholder) and (ii) as the Paracelsus Shareholder is required to vote under
the provisions of the Shareholder Agreement with respect to any Shareholder
Proposal and any Approved Acquisition Proposal (as such term is defined in the
Shareholder Agreement).
(b) If at the special meeting of Champion stockholders to be held on August
, 1996, the amendments to those certain stock option agreements between
Champion and each of the Shareholders (collectively referred to as the
"Founders' Stock Option Plan" in the Proxy Statement/Prospectus dated July 15,
1996 with respect to, among other things, Champion's special meeting of
stockholders) are not approved, the Paracelsus Shareholder and each of the
Shareholders shall (i) use their respective best efforts to cause such
amendments to be presented for approval at the next meeting of Paracelsus'
shareholders and, (ii) if so presented, vote, and use their reasonable best
efforts to cause the respective Affiliates (as such term is defined in the
Shareholder Agreement), to vote the Paracelsus Shares beneficially owned by them
for approval of such amendments.
2. AGREEMENT TO SELL SHARES. Each of the Shareholders hereby agrees to
sell, or cause to be sold (including by tender or otherwise), all Paracelsus
Shares beneficially owned by him and his respective affiliates and associates
(a) to the Paracelsus Shareholder in any approved Shareholder Proposal for which
such Shareholders are required to vote under Section 1(a)(i) above, upon the
terms and
<PAGE>
conditions contemplated by such Shareholder Proposal; and (b) to the acquiror
under any Approved Acquisition Proposal for which such Shareholders are required
to vote under Section 1(a)(ii) above, upon the terms and conditions contemplated
by such Approved Acquisition Proposal.
3. TERM OF AGREEMENT. This Agreement shall remain in effect for so long as
the provisions of Section 7 of the Shareholder Agreement with respect to
Shareholder Proposals and Approved Acquisition Proposals are in effect in
accordance with its terms with respect to the Paracelsus Shareholder under the
Shareholder Agreement.
4. REPRESENTATIONS AND WARRANTIES. Each Shareholder hereby represents and
warrants to the Paracelsus Shareholder as follows:
(a) AUTHORITY RELATIVE TO THIS AGREEMENT. Such Shareholder has all
necessary power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by such Shareholder and this
Agreement constitutes a valid and binding agreement of such Shareholder,
enforceable against such Shareholder in accordance with its terms.
(b) OWNERSHIP OF SHARES. Such Shareholder beneficially owns all of
shares of Paracelsus Common Stock indicated opposite such Shareholder's name
on Exhibit A hereto, which constitute all the shares of Paracelsus Common
Stock beneficially owned by such Shareholder or subject to options
beneficially owned by him as of the date hereof. Except pursuant to the
Right of First Refusal Agreement dated , 1996, by and among the
Paracelsus Shareholder, Dr. Manfred George Krukemeyer, Mr. R.J. Messenger,
Mr. Ronald R. Patterson and the Shareholders, there are no other
restrictions on the voting rights or rights of disposition pertaining to
such shares of Paracelsus Common Stock beneficially owned by such
Shareholder.
(c) NO CONFLICTS. Neither the execution and delivery of this Agreement
nor the consummation by such Shareholder of the transactions contemplated
hereby will conflict with or constitute a violation of or default under any
contract, commitment, agreement, arrangement or restriction of any kind to
which such Shareholder is a party or by which such Shareholder is bound.
5. REPRESENTATIONS AND WARRANTIES OF THE PARACELSUS SHAREHOLDER. The
Paracelsus Shareholder hereby represents and warrants to the Shareholders as
follows:
(a) AUTHORITY RELATIVE TO THIS AGREEMENT. The Paracelsus Shareholder
has all necessary power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. This Agreement has
been duly and validly executed and delivered by the Paracelsus Shareholder
and, assuming that this Agreement has been duly and validly authorized,
executed and delivered by each Shareholder, this Agreement constitutes a
valid and binding agreement of the Paracelsus Shareholder, enforceable
against the Paracelsus Shareholder in accordance with its terms.
6. NO INCONSISTENT AGREEMENTS. Each of the Shareholders hereby agrees,
without the prior written consent of the Paracelsus Shareholders, except
pursuant to the terms hereof, not to (i) grant any proxies, deposit any
Stockholder Shares into a voting trust or enter into a voting agreement with
respect to any Stockholders Shares that would prevent or disable the Shareholder
from performing his obligations under this Agreement or (ii) take any other
action that would make any representation or warranty of the Shareholder
contained herein untrue or incorrect or have the effect of preventing or
disabling the Shareholder from performing his obligations under this Agreement.
7. ENTIRE AGREEMENT AND VENUE. This Agreement (a) constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all other prior agreements and understandings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof; (b) shall not be assigned by operation of law or otherwise without the
prior written consent of the other parties hereto, except that the Paracelsus
Shareholder may assign, in its sole discretion, all or any of its rights,
interests and obligations hereunder to any director or indirect
2
<PAGE>
wholly owned subsidiary of Acquiror; (c) shall not be amended, altered or
modified in any manner whatsoever, except by a written instrument executed by
all of the parties hereto; and (d) shall be governed in all respects, including
validity, interpretation and effect, by the laws of the State of Texas (without
giving effect to the provisions thereof relating to conflicts of law). The
parties hereby irrevocably submit to the jurisdiction of the courts of the State
of Texas and the Federal courts of the United States of America located in the
State of Texas solely in respect of the interpretation and enforcement of the
provisions of this Agreement, and in respect of the transactions contemplated
hereby, and hereby waive, and agree not to assert, as a defense in any action,
suit or proceeding for the interpretation or enforcement hereof or of any such
document, that it is not subject thereto or that such action, suit or proceeding
may not be brought or is not maintainable in said courts or that the venue
thereof may not be appropriate or that this Agreement or any such document may
not be enforced in or by such courts, and the parties hereto irrevocably agree
that all claims with respect to such action or proceeding shall be heard and
determined in such a Texas State or Federal court. The parties hereby consent to
and grant any such court jurisdiction over the person of such parties and over
the subject matter of such dispute and agree that mailing of process or other
papers in connection with any such action or proceeding in the manner provided
in Section 12, shall be valid and sufficient service thereof.
8. REMEDIES.
(a) Specific Performance. The parties acknowledge that it would be
impossible to fix money damages for violations of the provisions of this
Agreement (other than the obligation of the Paracelsus Shareholder to vote its
Paracelsus Shares under Section 1(b)(ii) above, which is solely covered by
Section 8(b) below) and that such violations will cause irreparable injury for
which adequate remedy at law is not available and, therefore, this Agreement
must be enforced by specific performance or injunctive relief. The parties
hereto agree that any party may, in its sole discretion, apply to any court of
competent jurisdiction for specific performance or injunctive or such other
relief as such court may deem just and proper in order to enforce this Agreement
or prevent any violation hereof and, to the extent permitted by applicable law,
each party waives any objection or defense to the imposition of such relief.
Nothing herein shall be construed to prohibit any party from bringing any action
for damages in addition to an action for specific performance or an injunction
for a breach of this Agreement.
(b) Liquidated Damages. In the event that the Paracelsus Shareholder shall
fail to discharge its obligation to vote its Paracelsus Shares under Section
1(b)(ii) hereof, the Paracelsus Shareholder shall be liable to each Shareholder
who as of the date hereof beneficially owns options outstanding as of the date
hereof under the Founder's Stock Option Plan and actually exercises such options
in an amount equal to the difference between (i) the reasonable costs actually
incurred by any such holder in exercising any or all of such options and (ii)
the costs, if any, that would reasonably have been incurred by such holder with
respect to such exercise in the event the amendments referenced in Section 1(b)
hereof had been approved at the special meeting of Champion stockholders. The
shareholders sole remedy for the failure to discharge the obligation referenced
in this Section 8(b) will be the liquidated damages provided for in this Section
8(b).
9. PARTIES IN INTEREST. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto and their respective successors,
assigns, heirs, executors, administrators and other legal representatives;
PROVIDED, that this Agreement shall not be assigned without the prior written
consent of the other party hereto, except that the Paracelsus Shareholder may
assign, in its sole discretion, all or any of its rights, interests and
obligations hereunder to any direct or indirect wholly owned subsidiary of the
Paracelsus Shareholder. Nothing in this Agreement, express or implied, is
intended to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement.
10. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
3
<PAGE>
11. DEFINITIONS. Unless the context otherwise requires, the following
terms shall have the following respective meanings:
(a) "beneficial owner" has the meaning set forth in Rule 13d-3(a) and
(b) of the Rules and Regulations to the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and "beneficially owned" shall have a
correlative meaning; PROVIDED, HOWEVER, that for purposes of this Agreement
the Paracelsus Shares beneficially owned by a person shall mean the
Paracelsus Shares beneficially owned by such person as of the date hereof,
or beneficially owned by such person at any time hereafter (including
without limitation Paracelsus Shares that may be acquired pursuant to the
exercise of an option or other right regardless of when such option is
exercisable or by way of dividend, distribution, exchange, merger,
consolidation, recapitalization, reorganization, stock split, grant of proxy
or otherwise);
(b) "person" means a corporation, association, partnership, joint
venture, organization, business, individual, trust, estate or any other
entity or group (within the meaning of Section 13(d)(3) of the Exchange
Act); and
(c) the terms "affiliates" and "associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 under the Exchange Act.
12. NOTICES. Any notices or other communications required or permitted
hereunder shall be in writing and shall be deemed duly given upon (a)
transmitter's confirmation of a receipt of a facsimile transmission, (b)
confirmed delivery by a standard overnight carrier or (c) the expiration of
three business days after receipt by certified or registered mail, postage
prepaid, addressed at the following addresses (or at such other address as the
parties hereto shall specify by like notice):
(a) If to the Paracelsus Shareholder, to:
AM Natruper Holz 69
D-49076 Osnabruck
Federal Republic of Germany
Facsimile: (011) 49-541-966-4006
Attention:
with a copy to:
R.J. Messenger
155 North Lake Avenue, Suite 1100
Pasadena, CA 91101
Facsimile: (818) 578-6380
and to:
Dr. Meyer zu Losebeck
Sozietat Dr. H. Mertens
Hasemauer 9
49074 Osnabruck, Germany
Facsimile: (011) 49-541-331-1616
(b) If to any of the Shareholders, to their respective addresses noted on
Exhibit A hereto.
13. DESCRIPTIVE HEADINGS. The descriptive headings herein are inserted for
convenience of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
14. VALIDITY. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, each of which shall remain in full force and effect.
4
<PAGE>
15. FURTHER ASSURANCES. Each Shareholder will execute and deliver all such
further documents and instruments and take all such further actions as may be
necessary in order to consummate the transactions contemplated hereby.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
PARK HOSPITAL GmbH
By:
--------------------------------------
Name:
Title:
SHAREHOLDERS:
--------------------------------------
Name: Charles R. Miller
--------------------------------------
Name: James G. VanDevender
6
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
NAME OF SHAREHOLDER NUMBER OF
AND SECURITIES AS OF
ADDRESS FOR NOTICE CLASS OF SECURITIES THE DATE HEREOF
- --------------------------------------- ------------------------------------------- -----------------
<S> <C> <C>
Charles R. Miller Common Stock [ ] shares
515 West Greens Road Options to acquire Common Stock at $ per [ ]
Suite 800 share
Houston, TX 77067
-----------------
Total 1,075,026
James G. VanDevender Common Stock [ ] shares
515 West Greens Road Options to acquire Common Stock at $ per [ ]
Suite 800 share
Houston, TX 77067
-----------------
Total 630,000
</TABLE>
7
<PAGE>
EXHIBIT 10.38
FORM OF
SERVICES AGREEMENT
AGREEMENT (the "Agreement") made as of this day of , 1996 between
Paracelsus Healthcare Corporation, a California corporation (the "Company"), and
Dr. Manfred George Krukemeyer.
WHEREAS, the Company desires to benefit from the experience and ability of
Dr. Krukemeyer as a provider of management and strategic advisory services (the
"Services") to the Company following the closing of the proposed merger
transaction among the Company, Champion Healthcare Corporation, a Delaware
corporation ("Champion"), and PC Merger Sub, Inc., a Delaware corporation and a
wholly owned subsidiary of the Company, whereby Champion will become a wholly
owned subsidiary of the Company (the "Merger"); and
WHEREAS, Dr. Krukemeyer is willing to commit himself to provide the Services
to the Company on the terms and conditions provided herein.
NOW, THEREFORE, in consideration of the premises and the respective
covenants and agreements of the parties contained herein, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. RETENTION AS SERVICE-PROVIDER. Subject to the closing of the Merger,
the Company shall retain Dr. Krukemeyer and Dr. Krukemeyer shall serve the
Company as an independent service-provider on the terms and conditions set forth
herein.
2. SERVICE PERIOD. The period (the "Service Period") during which Dr.
Krukemeyer shall provide the Services to the Company shall commence on the date
of closing (the "Closing Date") of the Merger and shall end on the date that is
ten (10) years following the Closing Date, or, if earlier, on the date of Dr.
Krukemeyer's death or permanent disability; provided, however, that in the event
the Merger is abandoned or otherwise does not close, the Agreement will
thereupon terminate without further obligation by either party hereto. For
purposes of this Agreement, any determination of permanent disability shall be
made by a physician selected by the Company and reasonably acceptable to Dr.
Krukemeyer, whose approval shall not be unreasonably withheld; PROVIDED,
HOWEVER, that the selection of such physician (i) shall be made in consultation
with Dr. Krukemeyer and (ii) shall not (x) unreasonably require Dr. Krukemeyer
to travel in order to be examined, (y) result in an unreasonable infringement of
Dr. Krukemeyer's privacy, or (z) otherwise result in any unreasonable hardship
to Dr. Krukemeyer.
3. DUTIES. During the Service Period, Dr. Krukemeyer shall provide such
Services to the Company as may be reasonably requested by the Company and agreed
to by Dr. Krukemeyer.
4. PLACE OF PERFORMANCE. Dr. Krukemeyer may perform his duties hereunder
at such locations as are acceptable to Dr. Krukemeyer and the Company or by
telephone consultation, written communication and/or by fax or other suitable
means as appropriate. Dr. Krukemeyer shall be permitted flexibility to schedule
the provision of the Services.
5. COMPENSATION. As compensation for the Services to be rendered by Dr.
Krukemeyer, the Company shall pay Dr. Krukemeyer a fee, payable quarterly in
advance, at the rate of U.S. $1 million per year during the Service Period. Such
compensation payments shall continue to be made in full through the end of the
Service Period notwithstanding any condition of temporary disability or other
event which may render Dr. Krukemeyer temporarily unable to provide the Services
at any time or from time to time during the Service Period.
6. SUCCESSORS; BINDING AGREEMENT. The Company shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean the
Company as
<PAGE>
hereinbefore defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this
Paragraph 6 or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law.
7. NOTICE. Any notices or other communications required or permitted
hereunder shall be in writing and shall be deemed to have been duly given upon
(a) transmitter's confirmation of a receipt of a facsimile transmission, (b)
confirmed delivery by a standard overnight carrier or (c) the expiration of five
business days after the day when mailed by certified or registered mail, postage
prepaid, addressed as follows (or at such other address as the parties hereto
shall specify by like notice):
If to Dr. Krukemeyer:
Dr. Manfred George Krukemeyer
AM Natruper Holz 69
D-49076 Osnabruck
Federal Republic of Germany
Facsimile: (011)49-541-966-4006
with a copy to:
R.J. Messenger
155 North Lake Avenue, Suite 1100
Pasadena, CA 91101
Telecopier No.: (818) 578-6380
and to:
Dr. Meyer zu Losebeck
Sozietat Dr. H. Mertens
Hasemauer 9
49074 Osnabruck, Germany
Facsimile: (011) 49-541-331-1616
Attention:
If to the Company:
Paracelsus Healthcare Corporation
515 West Greens Road, Suite 800
Houston, TX 77067
Attention: Robert C. Joyner
Vice President and General Counsel
Facsimile: (713) 873-6686
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue
Suite 3400
Los Angeles, California 90071
Attention: Thomas C. Janson, Jr.
Facsimile: (213) 687-5600
8. WITHHOLDING. All amounts payable hereunder shall be subject to such
withholding taxes, if any, as may be required by law. Prior to making the
payments required hereunder, the Company will in good faith discuss with Dr.
Krukemeyer's advisors the appropriate withholding level.
9. MODIFICATION OF AGREEMENT; GOVERNING LAW; VENUE. No provisions of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in a writing signed by Dr. Krukemeyer and such officer
of the Company as may be specifically designated by the Board. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of any similar or dissimilar
provisions or conditions at the same or at any
<PAGE>
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of New York without regard to its conflicts of law
principles. The parties hereby irrevocably submit to the jurisdiction of the
courts of the State of New York and the Federal courts of the United States of
America located in the State of New York solely in respect of the interpretation
and enforcement of the provisions of this Agreement, and in respect of the
transactions contemplated hereby, and hereby waive, and agree not to assert, as
a defense in any action, suit or proceeding for the interpretation or
enforcement hereof or of any such document, that it is not subject thereto or
that such action, suit or proceeding may not be brought or is not maintainable
in said courts or that such action, suit or proceeding may not be brought or is
not maintainable in said courts or that the venue thereof may not be appropriate
or that this Agreement or any such document may not be enforced in or by such
courts, and the parties hereto irrevocably agree that all claims with respect to
such action or proceeding shall be heard and determined in such a New York State
or Federal court. The parties hereby consent to and grant any such court
jurisdiction over the person of such parties and over the subject matter of such
dispute and agree that mailing of process or other papers in connection with any
such action or proceeding in the manner provided in Section 7 shall be valid and
sufficient service thereof.
10. VALIDITY. The validity or enforceability of any provision or
provisions of this Agreement shall not be affected by the invalidity or
unenforceability of any other provision of this Agreement and such valid and
enforceable provisions shall remain in full force and effect.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same instrument.
12. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of
the parties hereto with respect to the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto; and any other prior
agreement of the parties hereto in respect of the subject matter contained
herein is hereby terminated and canceled.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first above written.
PARACELSUS HEALTHCARE CORPORATION
By: __________________________________
Name: R.J. Messenger
Title: Chief Executive Officer
______________________________________
Dr. Manfred George Krukemeyer
<PAGE>
EXHIBIT 10.39
FORM OF
INSURANCE AGREEMENT
AGREEMENT (the "Agreement") made as of this day of , 1996
between Paracelsus Healthcare Corporation, a California corporation (the
"Company"), and Dr. Manfred George Krukemeyer.
WHEREAS, the Company desires to provide certain life insurance and permanent
disability benefits to Dr. Krukemeyer.
NOW, THEREFORE, in consideration of the premises and the respective
covenants and agreements of the parties contained herein, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. TERM OF AGREEMENT. The term of this Agreement (the "Term") shall
commence on the date of closing (the "Closing Date") of the proposed merger
transaction among the Company, Champion Healthcare Corporation, a Delaware
corporation ("Champion"), and PC Merger Sub, Inc., a Delaware corporation and a
wholly owned subsidiary of the Company, whereby Champion will become a wholly
owned subsidiary of the Company (the "Merger"), and shall expire on the date
that is ten (10) years following the Closing Date; PROVIDED, that in the event
the Merger is abandoned or otherwise does not close, the Agreement shall
thereupon automatically terminate without further obligation by either party
hereto.
2. PERMANENT DISABILITY BENEFIT. In the event of Dr. Krukemeyer's
permanent disability prior to the expiration of the Term, the Company shall
provide for the payment to Dr. Krukemeyer of a permanent disability benefit,
payable quarterly in advance, commencing as of the date on which Dr. Krukemeyer
is determined to be so permanently disabled (the "Permanent Disability
Determina-tion Date") and continuing through the remainder of the Term, at the
rate of U.S. $1 million per year (each such payment, a "Disability Payment");
provided, however, that in the event of Dr. Krukemeyer's death on or after the
Permanent Disability Determination Date and prior to the expiration of the Term,
(i) the Disability Payments shall continue to be made through the remainder of
the Term to Dr. Krukemeyer's estate or as otherwise directed by him, or
alternatively, (ii) upon the written election of Dr. Krukemeyer's estate, the
Company shall provide for the payment to Dr. Krukemeyer's estate (or as
otherwise directed by Dr. Krukemeyer), in lieu of any further Disability
Payments, within thirty (30) business days following the date of such death, of
a lump-sum amount in cash equal to the present value, determined as of the date
of such death in accordance with a reasonable and prevailing rate of interest as
agreed to by the Company and Dr. Krukemeyer's estate, of any remaining
Disability Payments otherwise payable through the remainder of the Term;
PROVIDED, that in no event shall benefits be payable under both Section 2 and
Section 3 hereof. For purposes of this Agreement, any determination of permanent
disability shall be made by a physician selected by the Company and reasonably
acceptable to Dr. Krukemeyer, whose approval shall not be unreasonably withheld;
PROVIDED, HOWEVER, that the selection of such physician (i) shall be made in
consultation with Dr. Krukemeyer and (ii) shall not (x) unreasonably require Dr.
Krukemeyer to travel in order to be examined, (y) result in an unreasonable
infringement of Dr. Krukemeyer's privacy, or (z) otherwise result in any
unreasonable hardship to Dr. Krukemeyer.
3. DEATH BENEFIT. In the event of Dr. Krukemeyer's death during the Term
and prior to the occurrence of any Permanent Disability Determination Date, the
Company shall provide for the payment to Dr. Krukemeyer's estate (or as
otherwise directed by Dr. Krukemeyer), of a death benefit, payable quarterly in
advance, commencing as of the date of Dr. Krukemeyer's death and continuing
through the remainder of the Term at the rate of U.S. $1 million per year (the
"Death Benefit"); PROVIDED, HOWEVER, that upon the written election of Dr.
Krukemeyer's estate, the Company shall instead provide for the payment, within
thirty (30) business days following the date of such death, of a
<PAGE>
lump-sum amount in cash equal to the present value of the Death Benefit,
determined as of the date of such death in accordance with a reasonable and
prevailing rate of interest as agreed to by the Company and Dr. Krukemeyer's
estate.
4. INSURANCE. The Company shall have the right to discharge its
obligations under Sections 2 and 3 through the purchase of insurance. Dr.
Krukemeyer shall reasonably cooperate with the Company and any insurance carrier
with respect to medical examinations and any other commercially reasonable and
standard conditions to the issuance of such insurance; provided, however, that
the Company's obligations to provide the benefits described in Sections 2 and 3
shall remain in full force and effect regardless of (i) a determination for any
reason that Dr. Krukemeyer is uninsurable, (ii) any conditions imposed by any
potential insurer with respect to the issuance of such insurance, or (iii) any
other term or condition affecting the ability of the Company to acquire such
insurance, the cost thereof or otherwise.
5. SUCCESSORS; BINDING AGREEMENT. The Company shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business and/or assets
as aforesaid which executes and delivers the agreement provided for in this
Paragraph 5 or which otherwise becomes bound by the terms and provisions of this
Agreement by operation of law.
6. NOTICE. Any notices or other communications required or permitted
hereunder shall be in writing and shall be deemed to have been duly given upon
(a) transmitter's confirmation of a receipt of a facsimile transmission, (b)
confirmed delivery by a standard overnight carrier or (c) the expiration of five
business days after the day when mailed by certified or registered mail, postage
prepaid, addressed as follows (or at such other address as the parties hereto
shall specify by like notice):
If to Dr. Krukemeyer or any Beneficiary hereunder::
Dr. Manfred George Krukemeyer
AM Natruper Holz 69
D-49076 Osnabruck
Federal Republic of Germany
Facsimile: (011) 49-541-966-4006
with a copy to:
R.J. Messenger
155 North Lake Avenue, Suite 1100
Pasadena, CA 91101
Facsimile: (818) 578-6380
and to:
Dr. Meyer zu Losebeck
Sozietat Dr. H. Mertens
Hasemauer 9
49074 Osnabruck, Germany
Facsimile: (011) 49-541-331-1616
Attention:
2
<PAGE>
If to the Company:
Paracelsus Healthcare Corporation
515 West Greens Road, Suite 800
Houston, TX 77067
Attention: Robert C. Joyner
Vice President and General Counsel
Facsimile: (713) 873-6686
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue
Suite 3400
Los Angeles, California 90071
Attention: Thomas C. Janson, Jr.
Facsimile: (213) 687-5600
7. WITHHOLDING. All amounts payable hereunder shall be subject to such
withholding taxes, if any, as may be required by law. Prior to making any
payments required hereunder, the Company will in good faith discuss with Dr.
Krukemeyer's advisors (or, as applicable, with the advisors of the beneficiary
of any amounts payable hereunder (each, a "Beneficiary")) the appropriate
withholding level.
8. MODIFICATION OF AGREEMENT; GOVERNING LAW AND VENUE. No provisions of
this Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in a writing signed by Dr. Krukemeyer
(or, after his death, any Beneficiary (including but not limited to Dr.
Krukemeyer's estate)) and such officer of the Company as may be specifically
designated by the Board. No waiver by either party hereto (or, as applicable, by
any Beneficiary) at any time of any breach by the other party hereto or by such
Beneficiary of, or compliance with, any condition or provision of this Agreement
to be performed by such other party or Beneficiary shall be deemed a waiver of
any similar or dissimilar provisions or conditions at the same or at any prior
or subsequent time. No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of New York without regard to its conflicts of law
principles. The parties hereby irrevocably submit to the jurisdiction of the
courts of the State of New York and the Federal courts of the United States of
America located in the State of New York solely in respect of the interpretation
and enforcement of the provisions of this Agreement, and in respect of the
transactions contemplated hereby, and hereby waive, and agree not to assert, as
a defense in any action, suit or proceeding for the interpretation or
enforcement hereof or of any such document, that it is not subject thereto or
that such action, suit or proceeding may not be brought or is not maintainable
in said courts or that such action, suit or proceeding may not be brought or is
not maintainable in said courts or that the venue thereof may not be appropriate
or that this Agreement or any such document may not be enforced in or by such
courts, and the parties hereto irrevocably agree that all claims with respect to
such action or proceeding shall be heard and determined in such a New York State
or Federal court. The parties hereby consent to and grant any such court
jurisdiction over the person of such parties and over the subject matter of such
dispute and agree that mailing of process or other papers in connection with any
such action or proceeding in the manner provided in Section 6 shall be valid and
sufficient service thereof.
9. VALIDITY. The validity or enforceability of any provision or provisions
of this Agreement shall not be affected by the invalidity or unenforceability of
any other provision of this Agreement, and such valid and enforceable provisions
shall remain in full force and effect.
3
<PAGE>
10. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same instrument.
11. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of
the parties hereto with respect to the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto; and any other prior
agreement of the parties hereto in respect of the subject matter contained
herein is hereby terminated and canceled.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first above written.
PARACELSUS HEALTHCARE CORPORATION
By: __________________________________
Name:
Title:
______________________________________
Dr. Manfred George Krukemeyer
4
<PAGE>
EXHIBIT 10.40
FORM OF
NON-COMPETE AGREEMENT
THIS NON-COMPETE AGREEMENT (this "AGREEMENT") is entered into as of
, 1996, between Dr. Manfred George Krukemeyer (the "SHAREHOLDER")
and Paracelsus Healthcare Corp., a California corporation ("PARACELSUS").
WHEREAS, Paracelsus, Champion Healthcare Corporation, a Delaware corporation
("CHAMPION"), and PC Merger Sub, Inc., a Delaware corporation ("MERGER SUB"),
have entered into an Agreement and Plan of Merger dated as of April 12, 1996
(the "MERGER AGREEMENT"), providing for, among other things, the merger (the
"MERGER") of Merger Sub with and into Champion pursuant to the terms and
conditions of the Merger Agreement, and setting forth certain representations,
warranties, covenants and agreements of the parties thereto in connection with
the Merger; and
WHEREAS, upon consummation of the Merger, the Shareholder will continue to
Beneficially Own Voting Securities of Paracelsus constituting a majority of the
Total Voting Power of Paracelsus;
NOW, THEREFORE, for good and valuable consideration, the receipt,
sufficiency and adequacy of which is hereby acknowledged, the parties hereto
agree as follows:
1. CERTAIN DEFINITIONS. (a) For the purposes of this Agreement,
capitalized terms not otherwise defined herein shall have the meanings assigned
to them in the Shareholder Agreement (as defined in the Merger Agreement).
2. REPRESENTATIONS OF THE SHAREHOLDER. As of the date hereof, the
Shareholder represents and warrants to Paracelsus that:
(a) such Shareholder Beneficially Owns all of the outstanding shares of
common stock, no par value per share, of Paracelsus ("PARACELSUS COMMON
STOCK");
(b) such Shareholder does not Beneficially Own any shares of common
stock, par value $.01 per share, of Champion ("CHAMPION COMMON STOCK") or
any shares of Series C Preferred Stock or Series D Preferred Stock of
Champion (collectively, the "CHAMPION CAPITAL STOCK");
(c) this Agreement has been duly executed and delivered by the
Shareholder and, assuming due execution by Paracelsus, this Agreement is a
legal, valid and binding obligation, enforceable against the Shareholder in
accordance with its terms; and
(d) The execution, delivery and performance by the Shareholder of this
Agreement do not and will not contravene or conflict with any provision of
any law, regulation, judgment, injunction, order or decree binding upon the
Shareholder or any agreement, contract or other instrument to which the
Shareholder is a party, other than any such contraventions or conflicts that
would not prevent or materially delay the performance of the Shareholder's
obligations hereunder.
3. REPRESENTATIONS OF PARACELSUS. As of the date hereof, Paracelsus
represents and warrants to the Shareholder that the execution, delivery and
performance of this Agreement by it has been duly and validly authorized by all
necessary corporate action on its part and, assuming due execution by the
Shareholder, that this Agreement is a legal, valid and binding obligation,
enforceable against Paracelsus in accordance with its terms.
4. NON-COMPETE.
(a) NON-COMPETITION. In consideration of the benefits of this
Agreement, the Shareholder Agreement and the Merger Agreement to the
Shareholder and in order to induce Paracelsus to enter into this Agreement,
the Shareholder Agreement and the Merger Agreement and Champion to enter
into the Merger Agreement, the Shareholder hereby covenants and agrees that
during the period from the date of the Shareholder Agreement to the date of
termination of each and every provision of the Shareholder Agreement with
respect to the Shareholder and each and every Affiliate or Associate of the
Shareholder or the relinquishment of all rights relating to the
<PAGE>
nomination of, and resignation of, all director nominees of the Shareholder
and the Shareholder's Affiliates and Associates (the "TERM") neither the
Shareholder nor any Affiliates of the Shareholder shall, without the prior
written consent of Paracelsus, directly or indirectly, compete with
Paracelsus or any of its Subsidiaries in the business (which specifically
does not include any ancillary hospital service businesses related to such
business, including, without limitation, dietary, maintenance, security and
other related service businesses) of owning, leasing or managing hospitals
and ambulatory care centers (the "BUSINESS") in the Restricted Area (as
defined below) or have any interest, directly or indirectly, in any entity
engaged in the Business in the Restricted Area. Nothing in this Section
shall prohibit the Shareholder from (i) owning, directly or indirectly,
control of a Person (the "SUBJECT COMPANY") if the Subject Company is not
primarily engaged, directly or indirectly, in the Business in the Restricted
Area and, within twelve months after such acquisition, the Shareholder
causes the Subject Company to divest any business or assets of the Subject
Company that engage in the Business in the Restricted Area or (ii) owning,
directly or indirectly, not more than 5% of any class of voting securities
of a publicly traded Person that is engaged, directly or indirectly, in the
Business in the Restricted Area. The Shareholder specifically agrees that
this covenant is an integral part of the inducement of Champion and
Paracelsus to consummate the transactions contemplated by the Merger
Agreement and that it shall be specifically enforceable by Paracelsus'
successors and permitted assigns.
(b) RESTRICTED AREA. The covenants contained in Section 4(a) shall be
construed as a series of separate covenants, one for each county or state of
the United States of America (together, the "RESTRICTED AREA").
(c) BLUE PENCILLING. If any provision contained in this Section shall
for any reason be held invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision hereof, but this Section shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein. Each of
the Shareholder and Paracelsus agrees that in the event that either the
length of time or geographical area set forth in this Section is deemed too
restrictive by any court of competent jurisdiction, the covenants and
agreements in this Section shall be enforceable for such time and within
such geographical area as such court may deem reasonable under the
circumstances.
(d) NON-SOLICITATION. The Shareholder hereby covenants and agrees that
following the Closing Date neither it nor any of its Affiliates shall,
without the prior written consent of Paracelsus, directly or indirectly,
solicit for employment any current key employee or officer of Paracelsus or
any of its Subsidiaries; PROVIDED, that the foregoing restriction shall not
apply to employees no longer employed by Paracelsus or its Subsidiaries or
to employees who respond to general solicitations of employment not
specifically directed toward such key employees or officers of Paracelsus or
its Subsidiaries.
5. ADDITIONAL AGREEMENTS. Neither the termination of this Agreement nor
the Transfer by the Shareholder of Beneficial Ownership of any Voting Securities
of Paracelsus shall relieve the Shareholder of any liabilities or obligations to
Paracelsus that arose or accrued under the terms of this Agreement prior to the
date of such termination or Transfer.
6. SPECIFIC PERFORMANCE. Each party hereto acknowledges that it will be
impossible to measure in money the damage to the other party if a party hereto
fails to comply with any of the obligations imposed by this Agreement, that
every such obligation is material and that, in the event of any such failure,
the other party will not have an adequate remedy at law or damages. Accordingly,
each party hereto agrees that injunctive relief or other equitable remedy, in
addition to remedies at law or damages, is the appropriate remedy for any such
failure and will not oppose the granting of such relief on the basis that the
other party has an adequate remedy at law. Each party hereto agrees that it
shall not seek, and agrees to waive any requirement for, the securing or posting
of a bond in connection with any other party's seeking or obtaining such
equitable relief.
7. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and assigns
and shall not be assignable (by operation of law or otherwise) without the
written consent of all other parties hereto; PROVIDED, that in the event of a
merger where Paracelsus is not the surviving corporation, (x) this Agreement
shall be
<PAGE>
assigned to and shall inure to the benefit of and be binding upon such surviving
corporation and (y) any reference herein to Paracelsus shall be deemed to be a
reference to such surviving corporation; PROVIDED, FURTHER, that in the event of
a merger where Paracelsus is the surviving corporation, this Agreement shall
continue in full force and effect.
8. ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement supersedes all
prior agreements, written or oral, among the parties hereto with respect to the
subject matter hereof and contains the entire agreement among the parties with
respect to the subject matter hereof. This Agreement may not be amended,
supplemented or modified, and no provisions hereof may be modified or waived, or
any consents granted hereunder, except, with respect to Paracelsus, by an
instrument in writing signed by Paracelsus and approved by the unanimous vote of
all of the Independent Directors and, with respect to the Shareholder, by the
Shareholder. No waiver of any provisions hereof by any party shall be deemed a
waiver of any other provisions hereof by any such party, nor shall any such
waiver be deemed a continuing waiver of any provision hereof by such party.
9. MISCELLANEOUS.
(a) GOVERNING LAW AND VENUE. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH AND SUBJECT TO THE LAWS OF THE STATE OF TEXAS, WITHOUT
REFERENCE TO CONFLICTS OF LAWS PRINCIPLES. The parties hereby irrevocably
submit to the jurisdiction of the courts of the State of Texas and the
Federal courts of the United States of America located in the State of Texas
solely in respect of the interpretation and enforcement of the provisions of
this Agreement, and in respect of the transactions contemplated hereby, and
hereby waive, and agree not to assert, as a defense in any action, suit or
proceeding for the interpretation or enforcement hereof or of any such
document, that it is not subject thereto or that such action, suit or
proceeding may not be brought or is not maintainable in said courts or that
the venue thereof may not be appropriate or that this Agreement or any such
document may not be enforced in or by such courts, and the parties hereto
irrevocably agree that all claims with respect to such action or proceeding
shall be heard and determined in such a Texas State or Federal court. The
parties hereby consent to and grant any such court jurisdiction over the
person of such parties and over the subject matter of such dispute and agree
that mailing of process or other papers in connection with any such action
or proceeding in the manner provided in Section 9(b), shall be valid and
sufficient service thereof.
(b) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed given (i)
on the first business day following the date received, if delivered
personally or by telecopy (with telephonic confirmation of receipt by the
addressee), (ii) on the business day following timely deposit with an
overnight courier service, if sent by overnight courier specifying next day
delivery and (iii) on the first business day that is at least five days
following deposit in the mails, if sent by first class mail, to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice):
If to the Shareholder, to:
Dr. Manfred George Krukemeyer
AM Natruper Holz 69
D-49076
Federal Republic of Germany
Facsimile: (011) 49-541-966-4006
<PAGE>
with copies to:
R.J. Messenger
155 North Lake Avenue, Suite 1100
Pasadena, California 91101
Facsimile: (818) 578-6387
and to:
Dr. Meyer zu Losebeck
Sozietat Dr. H. Mertens
Hasemauer 9
49074 Osnabruck, Germany
Facsimile: (011) 49-541-331-1616
If to Paracelsus, to:
Paracelsus Healthcare Corporation
515 West Greens Road
Suite 800
Houston, Texas 77067
Facsimile: (713) 873-6680
Attention: Robert C. Joyner
Vice President and
General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue
Suite 3400
Los Angeles, California 90071
Attention: Thomas C. Janson, Jr.
Facsimile: (213) 687-5600
(c) SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any Person or any
circumstance, is invalid or unenforceable, (i) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may
be valid and enforceable, the intent and purpose of such invalid or
unenforceable provision and (ii) the remainder of this Agreement and the
application of such provision to other Persons or circumstances shall not be
affected by such invalidity or unenforceability, nor shall such invalidity
or unenforceability affect the validity or enforceability of such provision,
or the application thereof, in any other jurisdiction.
(d) COUNTERPARTS. For the convenience of the parties hereto, this
Agreement may be executed in any number of counterparts, each of which shall
be deemed to be an original and all of which shall together constitute the
same agreement.
(e) TERMINATION. This Agreement shall terminate automatically without
any action by any party upon termination of each and every provision of the
Shareholder Agreement with respect to the Shareholder and each and every
Affiliate and Associate of the Shareholder or the relinquishment of all
rights relating to the nomination of, and resignation of, all director
nominees of the Shareholder and the Shareholder's Affiliates and Associates.
(f) HEADINGS. All Section headings and the recitals herein are for
convenience of reference only and are not part of this Agreement, and no
construction or reference shall be derived therefrom.
<PAGE>
(g) OTHER AGREEMENTS. The parties hereto agree that there is not and
has not been any other agreement, arrangement or understanding between the
parties hereto with respect to the matters set forth herein.
(h) THIRD PARTY BENEFICIARIES. NOTHING IN THIS AGREEMENT, EXPRESS OR
IMPLIED, IS INTENDED TO CONFER UPON ANY THIRD PARTY (INCLUDING ANY HOLDER OF
VOTING SECURITIES OF PARACELSUS) ANY RIGHTS OR REMEDIES OF ANY NATURE
WHATSOEVER UNDER OR BY REASON OF THIS AGREEMENT; PROVIDED, THAT THE
FOREGOING SHALL NOT IN ANY WAY RESTRICT OR LIMIT ANY HOLDER OF VOTING
SECURITIES OF PARACELSUS FROM BRINGING A SHAREHOLDER DERIVATIVE ACTION TO
SEEK OR COMPEL THE DIRECTORS OF PARACELSUS TO CAUSE PARACELSUS TO ENFORCE
ANY OBLIGATIONS OF THE SHAREHOLDER HEREUNDER OR TO EXERCISE ANY RIGHTS OR
REMEDIES OF PARACELSUS HEREUNDER.
(i) NO WAIVER OF OPPORTUNITIES. Nothing in this Agreement shall waive
or shall be construed to waive the right of Paracelsus or any of its
Subsidiaries to pursue a claim against any Person for loss of, or a failure
to present or provide to Paracelsus or any Subsidiary of Paracelsus, any
present or future corporate opportunities; PROVIDED, that the parties intend
that the foregoing provision shall not (A) affect in any manner the
contractual obligations under this Agreement or be deemed to impose any
additional obligations on any party except such obligations that may arise
by operation of law or (B) expand or limit the interpretation of any
provisions hereof including, without limitation, Section 4(a) and 4(d).
<PAGE>
IN WITNESS WHEREOF, Paracelsus and the Shareholder have executed and
delivered this Agreement, or a counterpart hereof, as of the date first written
above.
PARACELSUS HEALTHCARE CORPORATION
By: __________________________________
Name:
Title:
--------------------------------------
Dr. Manfred George Krukemeyer
<PAGE>
EXHIBIT 10.41
FORM OF
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT (this "AGREEMENT") is entered into as of
, 1996, between Park Hospital GmbH, a German corporation (the
"SHAREHOLDER"), and Paracelsus Healthcare Corp., a California corporation
("PARACELSUS").
WHEREAS, Paracelsus, Champion Healthcare Corporation, a Delaware corporation
("CHAMPION"), and PC Merger Sub, Inc., a Delaware corporation ("MERGER SUB"),
have entered into an Agreement and Plan of Merger, dated as of April 12, 1996
(the "MERGER AGREEMENT"), providing for, among other things, the merger (the
"MERGER") of Merger Sub with and into Champion pursuant to the terms and
conditions of the Merger Agreement, and setting forth certain representations,
warranties, covenants and agreements of the parties thereto in connection with
the Merger; and
WHEREAS, upon consummation of the Merger, the Shareholder will continue to
Beneficially Own Voting Securities of Paracelsus constituting a majority of the
Total Voting Power of Paracelsus;
NOW, THEREFORE, for good and valuable consideration, the receipt,
sufficiency and adequacy of which is hereby acknowledged, the parties hereto
agree as follows:
1. CERTAIN DEFINITIONS. (a) For the purposes of this Agreement, the
following terms shall have the following meanings:
"Affiliate" and "Associate" when used with reference to any Person shall
have the meanings assigned to such terms in Rule 12(b)-2 of the Exchange Act as
in effect on the date hereof; PROVIDED, that Paracelsus and its Subsidiaries and
existing directors and executive officers of Champion and Paracelsus who become
and remain directors and executive officers of Paracelsus shall not, solely as a
result of holding such office, be deemed Affiliates or Associates of any
Investor for purposes of this Agreement.
"Acquisition Proposal" shall mean any BONA FIDE offer or proposal for (i) a
merger or other business combination (other than a Surviving Company Merger)
involving Paracelsus, (ii) the acquisition of any Voting Securities representing
more than 50% of the Total Voting Power of Paracelsus after giving effect to
such Acquisition Proposal or (iii) the acquisition of all or substantially all
of the assets of Paracelsus.
"Approved Acquisition Proposal" shall mean an Acquisition Proposal that is
approved and recommended (and, immediately prior to consummation of such
Acquisition Proposal, that continues to be recommended) by a vote of 75% of the
entire Board and by a majority of the Independent Directors.
A Person shall be deemed the "Beneficial Owner" and to have "Beneficial
Ownership" of, and to "Beneficially Own," any Voting Securities as to which such
Person or any of such Person's Affiliates or Associates is or may be deemed to
be the beneficial owner pursuant to Rule 13d-3 or 13d-5 under the Exchange Act,
as such rules are in effect on the date of this Agreement, as well as any Voting
Securities as to which such Person or any of such Person's Affiliates or
Associates has the right to become Beneficial Owner (whether such right is
exercisable immediately or only after the passage of time or the occurrence of
conditions) pursuant to any agreement, arrangement or understanding (other than
customary agreements with and between underwriters and selling group members
with respect to a BONA FIDE public offering of securities), or upon the exercise
of conversion rights, exchange rights, rights (other than the rights under the
Rights Plan), warrants or options, or otherwise; PROVIDED, HOWEVER, that the
Shareholder shall not be deemed to be the "Beneficial Owner" and to have
"Beneficial Ownership" of, and to "Beneficially Own," any voting securities of
Paracelsus by virtue of the Right of First Refusal Agreement dated the date
hereof between the Shareholder and certain persons until such moment in time as
the Shareholder or any Affiliate or Associate of the Shareholder acquires any
such Voting Securities in a closing pursuant thereto; PROVIDED, FURTHER, that a
Person shall not be deemed the "Beneficial Owner", or to have "Beneficial
Ownership" of, or to "Beneficially Own", any Voting Security (i) solely because
such Voting Security has been tendered pursuant to a tender or exchange offer
made by such Person or any of such Person's Affiliates or Associates until such
<PAGE>
tendered Voting Security is accepted for payment or exchange or (ii) solely
because such Person or any of such Person's Affiliates or Associates has or
shares the power to vote or direct the voting of such Voting Security pursuant
to a revocable proxy or consent given in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable rules and
regulations under the Exchange Act, except if such power (or the arrangements
relating thereto) is then reportable under Item 6 of Schedule 13D under the
Exchange Act (or any similar provision of a comparable or successor report). For
purposes of this Agreement, in determining the percentage of the outstanding
Voting Securities with respect to which a Person is the Beneficial Owner, all
shares as to which such Person is deemed the Beneficial Owner shall be deemed
outstanding.
"Board" shall mean the Board of Directors of Paracelsus.
"Closing Date" shall mean the date upon which the Closing (as defined in the
Merger Agreement) shall occur.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Group" shall have the meaning assigned to such term in Rule 13(d)-3 of the
Exchange Act as in effect on the date hereof.
"Independent Directors" shall mean those directors of the Board who are not
Shareholder Directors, Transferee Directors or officers of Paracelsus or any of
its Subsidiaries; PROVIDED that, only for the purpose of determining an
individuals qualification to vote on a particular matter, each such individual
also must not have (and must not be an Affiliate of any Person who has) any
material financial interest with respect to the particular matter under
consideration.
"Investor" shall mean the Shareholder and any Permitted Transferee.
"Minority Shareholders" shall mean Beneficial Owners of Voting Securities
who are not an Investor, Affiliates or Associates of an Investor or any member
of a Group of which an Investor, or Affiliates or Associates of the Investor,
are members with respect to Shares (in each case for each Investor and
Affiliates and Associates of such Investor only for so long as this Agreement is
in effect with respect to the respective Investor).
"Minority Shares" shall mean the Shares Beneficially Owned by Minority
Shareholders.
"Permitted Transferee" shall mean a permitted transferee under Section 5(a),
the proviso of Section 5(c), Section 5(f), Section 5(g), Section 5(h) or Section
5(i).
"Person" shall mean an individual, corporation, partnership, limited
liability company, association, trust or other entity or organization, including
a governmental or political subdivision or an agency or instrumentality thereof.
"Qualified Parties" shall mean any (i) trust described in Section 664 of the
Code (or any substantially similar entity under non-U.S. tax laws) of which the
Investor or Family Members of the Investor are income beneficiaries and (ii) any
charitable organization described in Section 501(c)(3) of the Code (or any
substantially similar entity under non-U.S. tax laws), in both cases that is or
simultaneously agrees to be bound as an Investor under this Agreement.
"Rights Plan" shall have the meaning assigned thereto in the Merger
Agreement.
"Shareholder" shall, in addition to the meaning ascribed thereto in the
first paragraph hereof, mean any Investor that immediately prior to becoming an
Investor hereunder is (i) a Wholly-Owned Subsidiary of the Shareholder or (ii)
Beneficially Owns 100% of the Total Voting Power of the Shareholder; PROVIDED
that Dr. Manfred George Krukemeyer (x) continues to Beneficially Own 100% of the
Total Voting Power of such Investor and (y) guarantees to Paracelsus the
performance of all obligations of such Investor under this Agreement.
"Shares" shall mean the shares of common stock, no par value per share, of
Paracelsus, to be issued in the Merger.
<PAGE>
"Subsidiary" shall mean, with respect to any Person, any entity at least 50%
of the Voting Securities of which are owned directly or indirectly by such
Person.
"Surviving Company Merger" shall mean any merger or other business
combination or reorganization (i) where the transaction has been approved by a
unanimous vote of the entire Board or (ii) where the holders of Voting
Securities of Paracelsus prior to such transaction will beneficially own (solely
for the purpose of this definition, as determined pursuant to Rule 13d-3 or Rule
13d-5 of the Exchange Act) in the aggregate at least 60% of the surviving
corporation's Total Voting Power immediately giving effect to such transaction.
"Transfer" shall mean any direct or indirect sale, transfer, assignment,
pledge, hypothecation, mortgage, or other disposition, including those by
operation or succession of law, merger or otherwise, or any encumbrance (other
than encumbrances arising by operation of law).
"Total Voting Power" shall mean the non-diluted aggregate number of votes
that may be cast by the holders of outstanding Voting Securities.
"Voting Securities" shall mean all securities entitled to vote in the
ordinary course in the election of directors or of Persons serving in a similar
governing capacity, including the voting rights attached to such securities and
rights or options to acquire such securities.
"Wholly-Owned Subsidiary" shall mean, with respect to any Person, a
Subsidiary all of the Voting Securities of which are owned, directly or
indirectly, by such Person.
(b) For the purposes of this Agreement, the following terms shall have
the meanings assigned to them in the corresponding Sections of this
Agreement:
"Acceptance Notice" Section 7(b)
"Amended Proposal Notice" Section 7(a)
"Champion Capital Stock" Section 2(b)
"Champion Common Stock" Section 2(b)
"Eligible Person" Section 9(a)
"Fair Proposal" Section 6
"Fair Value" Section 6(b)
"Family Members" Section 5(h)
"Heirs" Section 5(h)
"Initiation Date" Section 6(a)
"Investor Appraiser" Section 6(a)
"Higher Appraised Amount" Section 6(c)
"Lower Appraised Amount" Section 6(c)
"Mutually Appraised Amount" Section 6(c)
"Mutually Designated Appraiser" Section 6(c)
"Offer Price" Section 7(a)
"Paracelsus Appraiser" Section 6(a)
"Paracelsus Common Stock" Section 2(a)
"Price" Section 6(c)
"Proposal Notice" Section 7(a)
"Shareholder Directors" Section 9(a)
"Shareholder Proposal" Section 7(a)
"Transferee Directors" Section 9(g)
<PAGE>
2. REPRESENTATIONS OF THE SHAREHOLDER. As of the date hereof, the
Shareholder represents and warrants to Paracelsus that:
(a) such Shareholder Beneficially Owns all of the outstanding shares of
common stock, no par value per share, of Paracelsus ("PARACELSUS COMMON
STOCK");
(b) such Shareholder does not Beneficially Own any shares of common
stock, par value $.01 per share, of Champion ("CHAMPION COMMON STOCK") or
any shares of Series C Preferred Stock or Series D Preferred Stock of
Champion (collectively, the "CHAMPION CAPITAL STOCK");
(c) this Agreement has been duly executed and delivered by the
Shareholder and, assuming due execution by Paracelsus, this Agreement is a
legal, valid and binding obligation, enforceable against the Shareholder in
accordance with its terms; and
(d) The execution, delivery and performance by the Shareholder of this
Agreement do not and will not contravene or conflict with any provision of
any law, regulation, judgment, injunction, order or decree binding upon the
Shareholder or any agreement, contract or other instrument to which the
Shareholder is a party, other than any such contraventions or conflicts that
would not prevent or materially delay the performance of the Shareholder's
obligations hereunder.
3. REPRESENTATIONS OF PARACELSUS. As of the date hereof, Paracelsus
represents and warrants to the Shareholder that the execution, delivery and
performance of this Agreement by it has been duly and validly authorized by all
necessary corporate action on its part and, assuming due execution by the
Shareholder, that this Agreement is a legal, valid and binding obligation,
enforceable against Paracelsus in accordance with its terms.
4. STANDSTILL PROVISIONS. An Investor shall not, and shall not suffer or
permit any Affiliates or Associates of such Investor to, whether acting alone or
in concert with others:
(a) make, or in any way participate in, directly or indirectly, any
"solicitation" of "proxies" (as such terms are used in Regulation 14A
promulgated under the Exchange Act) to vote or consent with respect to any
Voting Securities of Paracelsus in any way that is inconsistent with the
provisions of this Agreement;
(b) unless Paracelsus shall be in material breach of Section 9, become a
"participant" in any "election contest" (as such terms are defined or used
in Rule 14a-11 under the Exchange Act) in opposition to a Board slate of
Paracelsus nominated by the Board;
(c) initiate or propose the approval of one or more shareholder
proposals with respect to Paracelsus as described in Rule 14a-8 under the
Exchange Act, or induce or attempt to induce any other Person to initiate
any shareholder proposal with respect to Paracelsus;
(d) except in accordance with Section 9 or solely in connection with the
termination of an executive employment contract, seek election to or seek to
place a representative on the Board or seek the removal of any member of the
Board;
(e) in any way that is inconsistent with the terms of this Agreement,
(i) solicit, seek to effect, negotiate with or provide non-public
information to any other Person with respect to, (ii) make any statement or
proposal, whether written or oral, to the Board or any director or officer
of Paracelsus with respect to or (iii) otherwise make any public
announcement or proposal whatsoever with respect to, any form of business
combination transaction (with any Person) involving Paracelsus or the
acquisition of a substantial portion of the equity securities or assets of
Paracelsus or any Subsidiary of Paracelsus, including a merger,
consolidation, tender offer, exchange offer or liquidation of Paracelsus's
assets, or any restructuring, recapitalization or similar transaction with
respect to Paracelsus or any material Subsidiary of Paracelsus; PROVIDED,
HOWEVER, that the foregoing shall not (x) apply to any discussion between or
among the Investor and Paracelsus or any of their respective Affiliates,
Associates, officers, employees agents or representatives or (y) in the case
of clause (ii) above, be interpreted to limit the ability of the Investor,
or any Shareholder Director or Transferee Director to make any such
statement or proposal or to
<PAGE>
discuss any such proposal with any officer or director of or advisor to
Paracelsus or advisor to the Board unless, in either case, it would
reasonably be expected to require Paracelsus to make a public announcement
regarding such discussion, statement or proposal;
(f) form, join or participate in or encourage the formation of a Group
with respect to any Voting Securities of Paracelsus, other than a Group
consisting solely of the Investors, Paracelsus and Affiliates and Associates
of the Investors and Paracelsus; PROVIDED, that, except in connection with a
Fair Proposal in accordance with Section 6, no Investor nor Affiliates or
Associates of such investor shall in any case form, join or participate in
or encourage the formation of any Group of which the members, together with
all of such members' respective Affiliates and Associates, will, together
with the Investor and the Affiliates and Associates of the Investor,
Beneficially Own 66 2/3% or more of the Total Voting Power of Paracelsus;
(g) except in compliance with Section 5, deposit any Voting Securities
of Paracelsus into a voting trust or subject any such Voting Securities to
any arrangement or agreement with respect to the voting thereof, other than
any such trust, arrangement or agreement (i) the only parties to, or
beneficiaries of, which are the Investor, Qualified Parties, Paracelsus or
Affiliates and Associates of the Investor or Paracelsus and (ii) the terms
of which do not require or expressly permit any party thereto to act in a
manner inconsistent with this Agreement; PROVIDED that all of the Voting
Securities deposited into any such trust or subjected to any arrangement or
agreement, the parties to or beneficiaries of which include Qualified
Parties, shall be deemed to be Beneficially Owned by the respective Investor
for all purposes of this Agreement; or
(h) publicly disclose any intention, plan or arrangement inconsistent
with the terms of this Agreement, or make any such disclosure privately if
it would reasonably be expected to require Paracelsus to make a public
announcement regarding such intention, plan or arrangement.
5. VOTING SECURITY TRANSFERS. An Investor shall not, and shall not suffer
or permit any Affiliates or Associates of such Investor to, Transfer, in any
single transaction or group of related transactions, any Voting Securities,
except for a Transfer that complies with any of the following subsections:
(a) to any Person who owns 100% of the Total Voting Power of the
Investor and to any Wholly-Owned Subsidiary of the Investor or any such
Person; PROVIDED, that (i) such transferee becomes a party to this Agreement
as an Investor and (ii) in the case of a Transfer to a Wholly-Owned
Subsidiary, the Person who is not a Wholly-Owned Subsidiary of any Person
and who Beneficially Owns 100% of the Total Voting Power of the Wholly-Owned
Subsidiary of the Transferring Investor guarantees to Paracelsus the
performance of all obligations of such transferee under this Agreement;
(b) to any Person such that, after such Transfer, such Person, together
with the Affiliates and Associates of such Person, will not Beneficially
Own, after giving effect to such Transfer, Voting Securities of Paracelsus
constituting 25% or more of the Total Voting Power of Paracelsus; PROVIDED
that, so long as this Agreement is in effect with respect to such Investor,
except in connection with a Fair Proposal in accordance with Section 6 or a
Shareholder Proposal in accordance with Section 7, such Investor, or any
Affiliates or Associates of the Investor, shall not in any case, form, join
or participate in or encourage the formation of a Group with such Person, or
any Affiliates or Associates of such Person, of which the members, together
with all of such members' respective Affiliates and Associates, will,
together with such Investor and all Affiliates and Associates of such
Investor, Beneficially Own 25% or more of the Total Voting Power of
Paracelsus;
(c) in a BONA FIDE pledge of such Voting Securities to a financial
institution to secure borrowings as permitted by applicable laws, rules and
regulations; PROVIDED, that, if such pledge results in a pledge of more than
25% of the Total Voting Power of Paracelsus to such financial institution,
such financial institution agrees to be bound by the obligations of the
Investor under this Agreement (but shall not have any of the rights of an
Investor under this Agreement until such pledgee acquires such Voting
Securities upon foreclosure pursuant to the terms of the pledge
<PAGE>
agreement, in which case such pledgee may transfer such Voting Securities in
accordance with this Section as if such pledgee were an Investor hereunder
and cause a transferee to have all rights and obligations of a Permitted
Transferee hereunder);
(d) to underwriters in connection with an underwritten public offering
of such Voting Securities on a firm commitment basis registered under the
Securities Act of 1933, as amended, pursuant to which the sale of such
Voting Securities will be in a manner to effect a broad distribution;
(e) to Paracelsus or a Wholly-Owned Subsidiary of Paracelsus;
(f) to a Person so long as either immediately after or simultaneously
with the acquisition of such Voting Securities, such Person or an Affiliate
of such Person makes an Acquisition Proposal to acquire all outstanding
Shares at the same price and on equivalent terms offered to the Investor and
the Investor's Affiliates and Associates that is made in compliance with the
Exchange Act and the rules and regulations thereunder; PROVIDED, that (i)
other than with respect to the Shares to be Transferred by the Investor or
the Investor's Affiliates or Associates, such Person may not purchase any
Shares in the Acquisition Proposal and the Acquisition Proposal may not
otherwise be consummated unless it is approved and recommended (and,
immediately prior to consummation of the Acquisition Proposal, continues to
be recommended) by a majority of the Independent Directors, (ii) if the
Acquisition Proposal is a tender or exchange offer that is approved and
recommended (and, immediately prior to consummation of the Acquisition
Proposal, continues to be recommended) by a majority of the Independent
Directors, the terms of such tender shall provide that such Person shall,
and such Person shall be required to, accept for payment and purchase all
Shares validly tendered and not withdrawn upon expiration of the offer if a
majority of the Minority Shares are validly tendered and not withdrawn upon
expiration of the offer and (iii) such Person shall agree to be bound as an
Investor by all obligations of the Investor under this Agreement and shall
remain so obligated notwithstanding the termination of this Agreement with
respect to any other Investor in accordance with Section 16(e). In addition
to the foregoing, for a period of one year from the Closing Date, other than
with respect to the Shares to be Transferred by the Investor or the
Investor's Affiliates or Associates, (A) if the Acquisition Proposal is not
a tender or exchange offer, the Acquisition Proposal may not be consummated
unless it is approved by holders of a majority of the Minority Shares at a
meeting duly called therefor, in addition to any vote required by law, or
(B) if the Acquisition Proposal is a tender or exchange offer, such Person
may not accept for payment or purchase any Shares in connection with the
offer unless a majority of the Minority Shares have been tendered and not
withdrawn upon expiration of the offer;
(g) to any Qualified Parties; PROVIDED, that (i) at the time of such
Transfer, the Investor or the Family Members of the Investor constitute a
sufficient number of the directors or trustees, as the case may be, of such
Qualified Parties to permit approval of matters by such Qualified Parties
without the approval of any other director or trustee of such Qualified
Parties;
(h) in the case of a Transfer by an Investor who is a natural Person, a
Transfer (A) in the case of the death of such Investor, to such Investor's
executors, administrators, testamentary trustees, heirs, devisees,
intestates and legatees ("HEIRS") and (B) to such Investor's current or
future spouse, parents, siblings or descendants of such parents', siblings'
or spouses (the "FAMILY MEMBERS"); PROVIDED that such Heirs and Family
Members, as the case may be, simultaneously agree to be bound as an Investor
to all of the obligations of the Investor under this Agreement; or
(i) to any Person in connection with an Approved Acquisition Proposal or
Surviving Company Merger.
6. PROHIBITED ACQUISITIONS AND CIRCUMSTANCES PERMITTING ACQUISITIONS. An
Investor shall not, and shall not suffer or permit any Affiliates or Associates
of the Investor to, acquire, or agree or offer to purchase or otherwise acquire,
in a transaction or group of related transactions, any Voting Securities of
Paracelsus such that the Investor, together with the Affiliates and Associates
of the Investor, after giving effect to such transaction or transactions, will
Beneficially Own 66 2/3% or more of the Total Voting Power of Paracelsus, except
pursuant to a Fair Proposal (as hereinafter defined). For
<PAGE>
the purposes of this Agreement, a "FAIR PROPOSAL" shall mean (i) an Acquisition
Proposal by such Investor (or such Investor's Affiliates or Associates) that is
approved by the unanimous vote of the Independent Directors or (ii) a
transaction to acquire all of the outstanding Shares that complies with all of
the following provisions of this Section:
(a) APPRAISERS. The Investor shall make a written request expressing
the Investor's desire to acquire Beneficial Ownership of Voting Securities
to the Board. Promptly after the Board's receipt of such written request,
the Independent Directors will designate an investment banking firm (the
date of such designation, the "INITIATION DATE") of recognized national
standing that does not Beneficially Own (excluding securities held on behalf
of third parties) a material amount of the securities of Paracelsus (the
"PARACELSUS APPRAISER") and the Investor will designate an investment
banking firm of recognized national standing that does not Beneficially Own
(excluding securities held on behalf of third parties) a material amount of
the securities of Paracelsus (the "INVESTOR APPRAISER"), in each case to
determine the fair value (determined in accordance with the procedures
described below) per Share.
(b) DEFINITION OF FAIR VALUE. The Investor acknowledges that the
consideration that would constitute fair value per Share is the price per
Share (including control premium) that an unrelated third party would pay if
it were to acquire all outstanding Shares (including the Shares held by the
Investor and Affiliates and Associates of the Investor) in an arm's-length
transaction, assuming that Paracelsus was being sold in a manner reasonably
designed to solicit all possible participants and permit all interested
parties an opportunity to participate and to achieve the best value
reasonably available to the Shareholders at that time, taking into account
all then existing circumstances. Each of the investment banking firms
referred to in this Section will be instructed to determine fair value per
Share in this manner.
(c) DETERMINATION OF PRICE. Within 30 days after the Initiation Date,
the Paracelsus Appraiser and the Investor Appraiser will each determine its
initial view as to the fair value per Share and consult with one another
with respect thereto. By the 45th day after the Initiation Date, the
Paracelsus Appraiser and the Investor Appraiser will each have determined
its final view as to the fair value per Share. At that point, if the
difference between the Higher Appraised Amount (as defined below) and the
Lower Appraised Amount (as defined below) is not greater than 10% of the
Higher Appraised Amount, the price per Share (the "PRICE") will be the
average of those two views. Otherwise, the Paracelsus Appraiser and the
Investor Appraiser will agree upon and jointly designate a third investment
banking firm of recognized national standing that does not Beneficially Own
(excluding securities held on behalf of third parties) a material amount of
the securities of Paracelsus (the "MUTUALLY DESIGNATED APPRAISER") to
determine such fair value. The Mutually Designated Appraiser will, no later
than the 60th day after the Initiation Date, determine such fair value (the
"MUTUALLY APPRAISED AMOUNT"), and the Price will be (x) the Mutually
Appraised Amount, if such amount falls within the range of values that is
greater than one-third and less than two-thirds of the way between the Lower
Appraised Amount and the Higher Appraised Amount, or (y) the average of the
Mutually Appraised Amount and the other Appraised Amount (Lower or Higher)
that is closest to the Mutually Appraised Amount, if the Mutually Appraised
Amount does not fall within that range; PROVIDED, that if the Price so
determined is less than the Lower Appraised Amount or more than the Higher
Appraised Amount, the Price shall be the Lower Appraised Amount or the
Higher Appraised Amount, as the case may be. During such 60 day period,
Paracelsus will not, subject to fiduciary duties and applicable law, enter
into or recommend to its shareholders any other Acquisition Proposal.
As used herein, "LOWER APPRAISED AMOUNT" means the lower of the
respective final views of the Paracelsus Appraiser and the Investor
Appraiser as to fair value per Share and "HIGHER APPRAISED AMOUNT" means the
higher of such respective final views.
(d) FAIR PROPOSAL.
(i) Once the Price is determined as provided above, the Investor will
have 15 days to notify the Board whether he desires to proceed with a
Fair Proposal at the Price.
<PAGE>
(ii) If the Investor decides not to proceed with a Fair Proposal, (x)
he shall promptly notify the Board in writing of such fact (it being
understood that the failure to notify the Board within 15 days shall
constitute notification to the Board that the Investor and the Affiliates
and Associates of the Investor do not desire to proceed with a Fair
Proposal) and (y) the Investor and the Affiliates and Associates of the
Investor shall not make a written request for an Acquisition Proposal to
the Board under this Section for a period of six months from the date the
Investor notifies (or is deemed to notify) the Board of his intent not to
proceed with a Fair Proposal, PROVIDED that the Investor and the
Investor's Affiliates and Associates shall not at any time be restricted
from making a written request for an Acquisition Proposal to the Board
under this Section at a price that is equal to or in excess of the last
determined Price or from exercising their rights under Section 7.
(iii) If the Investor decides to proceed with a Fair Proposal, the
Investor may pay or cause to be paid the Price in cash or non-cash
consideration or any combination of cash and non-cash consideration that
the Investor Appraiser and the Paracelsus Appraiser mutually agree within
15 days will have an aggregate market value, on a fully distributed
basis, of not less than the Price; PROVIDED, that in the event such
appraisers shall fail to reach such agreement, they shall within five
business days designate the Mutually Agreed Appraiser to make such
determination within ten days after such designation, whose determination
shall be final.
(e) MEETING OF SHAREHOLDERS; TENDER OFFER. If the Investor determines
to proceed with a Fair Proposal as set forth above, the Investor and
Paracelsus agree that each will enter into an agreement with the other
therefor (containing customary terms and conditions applicable in a
situation in which the acquiror has an ownership position comparable to the
Investor's ownership interest in Paracelsus) and, if the Fair Proposal is
not to be consummated pursuant to a tender or exchange offer for all of the
outstanding Shares, will cause a meeting of shareholders of Paracelsus to be
held as soon as practicable to consider and vote thereon; PROVIDED, that,
for a period of one year following the Closing Date, no Fair Proposal may be
consummated unless (i) if the Fair Proposal is not a tender or exchange
offer, it is approved by the affirmative vote of the holders of a majority
of the Minority Shares at a meeting duly called therefor, in addition to any
vote required by law, or (ii) if the Fair Proposal is a tender or exchange
offer, a majority of the Minority Shares have been validly tendered and not
withdrawn and are accepted for payment as of the expiration date (as may be
extended) of the offer. In the event that the Fair Proposal is not approved
or insufficient Shares are tendered to consummate the Fair Proposal in
accordance with the terms hereof within 180 days from the Initiation Date
(which period may be extended by a vote of 75% of the entire Board and a
majority of the Independent Directors of the Board), the Investor shall
terminate the Fair Proposal and shall not make a written request for an
Acquisition Proposal to the Board under this Section for a period of one
year from the Initiation Date; PROVIDED that the Investor and the Investor's
Affiliates and Associates shall not at any time be restricted from
exercising their rights under Section 7. Paracelsus agrees, subject to
fiduciary duties and in accordance with applicable law, to promptly call and
to take all other action necessary to hold the shareholder meeting referred
to above.
(f) JUDGMENT OF INDEPENDENT DIRECTORS. Notwithstanding anything to the
contrary in the foregoing Sections 6(a)-(e), in the event that the
Independent Directors unanimously determine, in the good faith exercise of
their fiduciary duties, based upon the facts and the circumstances existing
at the time of such determination, that is in the best interests of
Paracelsus and the holders of the Shares that the Independent Directors
approve and recommend, in accordance with the terms hereof, an Acquisition
Proposal at a lower price than the Price, then such unanimously approved
Acquisition Proposal shall be a Fair Proposal and the price at which the
Investor may consummate the Acquisition Proposal hereunder shall be the
price so determined by the Independent Directors.
7. RIGHT OF FIRST OFFER.
(a) NOTIFICATION. After the Effective Time (as defined in the Merger
Agreement), Paracelsus will not enter into or recommend any Approved
Acquisition Proposal without first
<PAGE>
notifying the Shareholder in writing (a "PROPOSAL NOTICE") of such Approved
Acquisition Proposal and providing the Shareholder (including for purposes
of this Section 7, Affiliates of such Shareholder) the opportunity (as
hereinafter provided) to consummate an Acquisition Proposal on terms
substantially equivalent to and, if the Approved Acquisition Proposal is a
cash offer, at a cash price or, if the Approved Acquisition Proposal
includes non-cash consideration, at a price (in either case, the "OFFER
PRICE") equal to the sum of the amount of any cash plus the fair market
value of any other consideration offered in such prospective Approved
Acquisition Proposal, as the same may be amended or modified from time to
time (a "SHAREHOLDER PROPOSAL"). The Proposal Notice shall set forth the
identity of the proposed purchaser and the material terms of the proposed
Approved Acquisition Proposal. In the event that the proposed Approved
Acquisition Proposal is amended or modified, Paracelsus shall promptly
notify the Shareholder in writing (an "AMENDED PROPOSAL NOTICE"); PROVIDED
that, if the Shareholder does not provide an Acceptance Notice (as defined
below) after receipt of a Proposal Notice or any required Amended Proposal
Notice, no Amended Proposal Notice will be required unless the terms of such
amendments or modifications are less favorable in any material respects to
Paracelsus than those contained in the Proposal Notice or any prior Amended
Proposal Notices. Any required Amended Proposal Notice shall set forth the
identity of the proposed purchaser and the material terms of the amended or
modified proposed Approved Acquisition Proposal.
(b) RESPONSE. Within 6 business days after receipt of the Proposal
Notice or any required Amended Proposal Notice, the Shareholder shall notify
(an "ACCEPTANCE NOTICE") the Board in writing of his good faith intention to
enter into negotiations regarding a Shareholder Proposal pursuant to
subsection (c) below. The failure to notify the Board in such period shall
constitute notice of the Shareholder's intention not to pursue a Shareholder
Proposal. If the Shareholder fails to deliver an Acceptance Notice after the
Proposal Notice or, if applicable, the Amended Proposal Notice, (i) the
Independent Directors and the Board shall have the right to approve and
recommend the Approved Acquisition Proposal to the shareholders of
Paracelsus and (ii) Paracelsus shall have the right to enter into such
agreements and take such actions in furtherance of consummating, and to
consummate, the Approved Acquisition Proposal at the Offer Price at any time
within one year from the date the Approved Acquisition Proposal was first
made to Paracelsus.
(c) NEGOTIATION. For a period of 15 days from the date of the last
Acceptance Notice, the Shareholder shall have the non-exclusive right to
negotiate the Shareholder Proposal in good faith with the Independent
Directors of the Board and their representatives. If at the end of that 15
day period, a majority of the Independent Directors shall in the good faith
exercise of their fiduciary duties determine that the competing Approved
Acquisition Proposal is superior to the Shareholder Proposal or if the
Shareholder Proposal is accepted and is then terminated in accordance with
its terms, (i) the Independent Directors and the Board shall have the right
to approve and recommend such competing Approved Acquisition Proposal to the
shareholders of Paracelsus and (ii) Paracelsus shall have the right to enter
into such agreements and take such actions in furtherance of consummating,
and to consummate, such competing Approved Acquisition Proposal at the Offer
Price at any time within one year from the date the Acquisition Proposal was
first made to Paracelsus.
(d) NON-CASH VALUATION. If the consideration offered by the
prospective purchaser or transferee or, if permitted, offered by the
Shareholder, includes non-cash consideration, Paracelsus and the Shareholder
shall in good faith seek to agree upon the value of such non-cash
consideration. If Paracelsus and the Shareholder fail to agree on such value
within 15 days following receipt by the Shareholder of the Proposal Notice,
then the Independent Directors and the Shareholder shall appoint a
nationally recognized investment banking firm mutually acceptable to the
Independent Directors and the Shareholder which shall resolve the issues in
dispute; PROVIDED, that if the Independent Directors and the Shareholder
cannot agree on an investment banking firm then each shall appoint a
nationally recognized investment banking firm which together shall within
five business days mutually agree on another nationally recognized
investment banking firm to which the items in dispute shall be referred and
which shall make a final and binding determination within ten days. The
value of any securities shall be the fair market
<PAGE>
value of such securities and the value of any property other than securities
shall be the fair market value of such property. If a determination under
this paragraph (d) is required, any deadline for acceptance provided for in
this Section shall be postponed until the third business day after the date
of such determination. The Shareholder and Paracelsus shall share equally in
payment of all expenses of such investment banking firms. All determinations
made pursuant to this paragraph (c) shall be final and binding on the
Paracelsus and the Shareholder.
(e) LIMITATION. It is agreed and understood that the provisions of
this Section shall inure to the benefit of only Paracelsus and the
Shareholder and NOT to the benefit of any Investor other than the
Shareholder.
8. AGREEMENT TO SELL VOTING SECURITIES. Subject to the rights of the
Shareholder to propose, negotiate and consummate a Shareholder Proposal in
accordance with Section 7, the Shareholder agrees that the Shareholder will, and
will cause any Affiliates or Associates of the Shareholder to, sell in, tender
into and vote in favor of, as the case may be, any Approved Acquisition Proposal
and any Shareholder Proposal approved by the Independent Directors in accordance
with Section 7 all Voting Securities of Paracelsus Beneficially Owned by the
Shareholder or any Affiliate or Associate of the Shareholder. It is agreed and
understood that the provisions of this Section shall not be binding upon any
Investor other than the Shareholder so long as, if the Shareholder continues to
be subject to this Agreement, such Investor is not an Affiliate or Associate of
the Shareholder.
9. BOARD REPRESENTATION.
(a) THE BOARD; SHAREHOLDER DIRECTORS. The Board as of the Effective
Time shall number nine directors and may be increased by the Board pursuant
to the terms of this clause (a) and the by-laws of Paracelsus. The Board
shall be divided into three classes, with the number of directors divided as
equally as possible among those classes. The Shareholder may request that
Paracelsus include, and Paracelsus shall include, as nominees for the Board
slate recommended by the Board, up to four persons designated by the
Shareholder who are Eligible Persons (the "SHAREHOLDER DIRECTORS"), one of
whom shall be a Class I director with an original term expiring in 1997, one
of whom shall be a Class II director with an original term expiring in 1998
and two of whom shall be Class III directors with original terms expiring in
1999. If the Shareholder, together with the Affiliates and Associates of the
Shareholder, shall cease to Beneficially Own (i) 35% of the Total Voting
Power of Paracelsus, each Investor agrees to vote, and to use its best
efforts to cause its respective Shareholder Directors and Transferee
Directors (as defined below) to vote, immediately to increase the size of
the Board to 10 directors, (ii) 32.5% of the Total Voting Power of
Paracelsus, each Investor agrees to vote, and to use its best efforts to
cause its respective Shareholder Directors and Transferee Directors to vote,
immediately to increase the size of the Board to 11 directors and (iii) 30%
of the Total Voting Power of Paracelsus, each Investor agrees to vote, and
to use its best efforts to cause its respective Shareholder Directors and
Transferee Directors to vote, immediately to increase the size of the Board
to 12 directors; PROVIDED that each Investor hereby agrees that any
vacancies created by any such enlargement of the Board shall be in Class
III, Class II and Class I, respectively, and the nominees to such vacancies
shall be Independent Directors.
For the purposes hereof, an "ELIGIBLE PERSON" shall mean (x) the
Shareholder and (y) any other person (A) other than a person whose election
to the Board, in the written opinion of counsel for Paracelsus, is
reasonably likely to violate or be in conflict with, or result in any
material limitation on the ownership or operation of any business or assets
of Paracelsus or its Subsidiaries under, any statute, law, ordinance,
regulation, rule, judgment, decree or order of any court or governmental or
regulatory authority and (B) who has agreed in writing with Paracelsus,
subject to his or her fiduciary duties, to comply with the provisions of
this Section.
(b) COMMITTEES; QUORUM. Each committee of the Board shall contain such
numbers of Shareholder Directors or Transferee Directors so that the number
of Shareholder Directors and Transferee Directors, when taken together, on
each such committee shall be as nearly as possible proportional to the total
number of Shareholder Directors and Transferee Directors on the Board;
PROVIDED that the forgoing shall not apply to the audit committee (which
shall be comprised solely of Independent Directors) or the compensation
committee (which shall be comprised of one
<PAGE>
Independent Director and one director who is not an employee of Paracelsus
or its Subsidiaries and, for so long as the Shareholder is entitled to
nominate Shareholder Directors pursuant to this Agreement, one Shareholder
Director). The quorum required for the transaction of business by the Board
shall include at least one Shareholder Director or one Transferee Director
and one director who is an Independent Director, or their designees,
attending in person or, if necessary, via teleconference call.
(c) RESIGNATION. Upon the Shareholder ceasing to Beneficially Own,
together with all Affiliates and Associates of the Shareholder at least 10%
of the Total Voting Power of Paracelsus, Paracelsus may request that all or
any of the Shareholder Directors then on the Board resign as directors of
Paracelsus, and upon such request by Paracelsus, the Shareholder shall use
his best efforts to cause such Shareholder Directors, except Dr. Manfred
George Krukemeyer, who shall resign at the next annual shareholder meeting
for election to his class, to resign immediately and relinquish all rights
and privileges as a member of the Board. Upon the Shareholder ceasing to
Beneficially Own, together with all Affiliates and Associates of the
Shareholder, at least 25% of the Total Voting Power of Paracelsus,
Paracelsus may request that all or any of the Shareholder Directors then on
the Board resign as directors of Paracelsus at the next annual shareholder
meeting for election to their respective class, and upon such request by
Paracelsus, the Shareholder shall use his best efforts to cause such
Shareholder Directors to resign at such respective times and thereupon
relinquish all rights and privileges as a member of the Board. Upon
termination of this Agreement with respect to any Permitted Transferee,
Paracelsus may request that all of the Transferee Directors then on the
Board resign as directors of Paracelsus, and upon such request by
Paracelsus, the Permitted Transferee shall use best efforts to cause such
Transferee Directors to resign immediately and relinquish all rights and
privileges as a member of the Board.
(d) NON-INDEPENDENT AND NON-SHAREHOLDER DIRECTORS. Two members of the
Board may be directors who are not Independent Directors, Shareholder
Directors or Transferee Directors.
(e) INDEPENDENT DIRECTORS. Immediately following the Effective Time,
three members of the Board will be Independent Directors as set forth in the
Merger Agreement, and each of such Independent Directors shall be elected to
one of the three classes of the Board. Vacancies among the Independent
Directors occurring prior to the expiration of their respective terms of
office or created for Independent Directors as a result of increasing the
size of the Board as provided in clause (a) of this Section shall be filled
by a vote of 75% of the entire remaining Board. Independent Directors to be
nominated for election at each annual meeting of Paracelsus will be
nominated by a vote of 75% of the entire Board or, in the event that the
Board cannot so agree, by the unanimous agreement of the Independent
Directors then in office.
(f) EFFORTS TO NOMINATE AND ELECT DIRECTORS. Paracelsus shall nominate
and shall use its best efforts to take and cause to be taken all necessary
action (corporate and other) to elect to the Board the individuals required
to be nominated for election as directors in accordance with the terms
hereof. The Investor shall nominate and shall use its best efforts, and
shall use best efforts to cause the Shareholder Directors and Transferee
Directors, as the case may be, and the Affiliates and Associates of the
Investor to use their respective reasonable efforts, to take and cause to be
taken all necessary action (corporate and other), which efforts shall
include the voting of all Voting Securities Beneficially Owned by the
Investor and the Affiliates and Associates of the Investor and voting,
subject to his or her fiduciary duties, as a Shareholder Director or
Transferee Director, to nominate and elect to the Board the individuals
nominated by the Board in accordance with any nomination provisions hereof
then in effect and the terms of any employment contracts between Paracelsus
and its executive officers so long as such employment agreements remain in
effect.
(g) TRANSFEREE DIRECTORS. If the Investor consummates a Transfer to a
Permitted Transferee who shall become an Investor hereunder, such Investor
shall have the right, upon written notice to Paracelsus, to enter into such
agreements and understandings with such Permitted Transferee so that such
Investor relinquishes the right to nominate Shareholder Directors or
Transferee Directors, as the case may be, and such Permitted Transferee
shall be entitled to nominate, in place of the relinquished Shareholder
Directors or Transferee Directors, as the case
<PAGE>
may be, such number of persons for whom the Investor has in such written
notice relinquished the right to nominate who are Eligible Persons (such
persons from time to time being the "TRANSFEREE DIRECTORS"); PROVIDED, that
(i) the number of Shareholder Directors or Transferee Directors, as the case
may be, entitled to be nominated by such Investor under this Agreement shall
be reduced by the number of directors relinquished in favor of the Permitted
Transferee and (ii) in no event will all or any one or any combination of
the Investors, together with their respective Affiliates and Associates, at
any time have more than four representatives on the Board, whether pursuant
to the terms hereof, any right of director appointment as set forth in any
employment agreement between any such representative and Paracelsus or
otherwise.
10. ADDITIONAL AGREEMENTS.
(a) NO AMENDMENT OR WAIVER. The Investor shall not, and shall cause
Affiliates and Associates of such Investor not to, publicly request
Paracelsus or any of its agents or representatives, directly or indirectly,
to amend or waive any provision of this Agreement.
(b) RIGHTS PLAN. The Shareholder acknowledges that the Rights Plan
shall be adopted by Paracelsus.
(c) NO RELIEF OF LIABILITIES. No Transfer by the Investor of
Beneficial Ownership of any Voting Securities of Paracelsus shall relieve
the Investor of any liabilities or obligations to Paracelsus that arose or
accrued prior to the date of such Transfer.
(d) SECURITIES SUBJECT TO AGREEMENT; INEFFECTIVE TRANSFERS. All Voting
Securities of Paracelsus that are Beneficially Owned by the Investor and the
Affiliates and Associates of such Investor shall be subject to this
Agreement. No Transfer or acquisition of any Voting Securities of Paracelsus
in violation of any provision of this Agreement shall be effective to pass
any title to, or create any interest in favor of, any Person, but the
Investor, in attempting to effect or in permitting or suffering such
Transfer or acquisition (otherwise than inadvertently and in good faith,
without any knowledge thereof), shall be deemed to have committed a material
breach hereof.
(e) FURTHER ASSURANCES. Paracelsus and each Investor shall execute and
deliver such additional instruments and other documents and shall take such
further actions as may be necessary or appropriate to effectuate, carry out
and comply with all of the terms of this Agreement and the transactions
contemplated hereby.
(f) INVESTOR VOTING ON OTHER MATTERS. Unless such action is
recommended by the Board, the Investor shall not, and shall cause the
Affiliates and Associates of the Investor not to, vote any Voting Securities
of Paracelsus to amend or repeal the Restated Articles of Incorporation of
Paracelsus or the By-laws of Paracelsus or to call or request any special
meeting of Paracelsus' shareholders. The Investor shall cause all Voting
Securities of Paracelsus owned by the Shareholder and all Affiliates and
Associates of such Investor to be represented, in person or by proxy, at all
meetings of holders of Voting Securities of which the Investor has actual
notice, so that such Voting Securities may be counted for the purpose of
determining the presence of a quorum at such meetings.
11. LEGENDS. (a) The Investor agrees that all certificates representing
the Voting Securities subject to this Agreement shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
SHAREHOLDER AGREEMENT DATED , 1996 (A COPY OF WHICH IS ON FILE
WITH THE SECRETARY OF THE COMPANY) WHICH PROVIDES, AMONG OTHER THINGS,
FOR CERTAIN RESTRICTIONS ON TRANSFER THEREOF. THE SECURITIES REPRESENTED
BY THIS CERTIFICATE MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT IN
COMPLIANCE WITH SAID AGREEMENT. ANY SALE OR OTHER TRANSFER NOT IN
COMPLIANCE WITH SAID AGREEMENT SHALL BE VOID."
(b) Upon termination with respect to the Investor of this Agreement in
accordance with its terms and upon request by such Investor, Paracelsus
shall issue new certificates with the foregoing legend removed.
<PAGE>
12. SPECIFIC PERFORMANCE. Each party hereto acknowledges that it will be
impossible to measure in money the damage to the other party if a party hereto
fails to comply with any of the obligations imposed by this Agreement, that
every such obligation is material and that, in the event of any such failure,
the other party will not have an adequate remedy at law or damages. Accordingly,
each party hereto agrees that injunctive relief or other equitable remedy, in
addition to remedies at law or damages, is the appropriate remedy for any such
failure and will not oppose the granting of such relief on the basis that the
other party has an adequate remedy at law. Each party hereto agrees that it
shall not seek, and agrees to waive any requirement for, the securing or posting
of a bond in connection with any other party's seeking or obtaining such
equitable relief.
13. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and assigns
and shall not be assignable (by operation of law or otherwise) without the
written consent of all other parties hereto; PROVIDED, that in the event of a
Surviving Company Merger where Paracelsus is not the surviving corporation, (x)
this Agreement shall be assigned to and shall inure to the benefit of and be
binding upon such surviving corporation and (y) any reference herein to
Paracelsus shall be deemed to be a reference to such surviving corporation;
PROVIDED, FURTHER, that the rights and obligations under this Agreement
(excluding Section 7) may be assigned by an Investor to a Permitted Transferee
in accordance with the terms of the Transfer to such Permitted Transferee, which
assignment shall not terminate any portion of this Agreement with respect to
such assignor except in accordance with Section 15(e).
14. ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement shall supersede
all prior agreements, written or oral, among the parties hereto with respect to
the subject matter hereof and contains the entire agreement among the parties
with respect to the subject matter hereof. This Agreement may not be amended,
supplemented or modified, and no provisions hereof may be modified or waived,
except by an instrument in writing signed by Paracelsus and approved by the
unanimous vote of the Independent Directors and, with respect to each Investor,
by such Investor. No waiver of any provisions hereof by any party shall be
deemed a waiver of any other provisions hereof by any such party, nor shall any
such waiver be deemed a continuing waiver of any provision hereof by such party.
15. MISCELLANEOUS.
(a) GOVERNING LAW AND VENUE. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH AND SUBJECT TO THE LAWS OF THE STATE OF INCORPORATION OF
PARACELSUS, WITHOUT REFERENCE TO CONFLICTS OF LAWS PRINCIPLES. The parties
hereby irrevocably submit to the jurisdiction of the courts of the state of
incorporation of Paracelsus and the Federal courts of the United States of
America located in the state of incorporation of Paracelsus solely in
respect of the interpretation and enforcement of the provisions of this
Agreement, and in respect of the transactions contemplated hereby, and
hereby waive, and agree not to assert, as a defense in any action, suit or
proceeding for the interpretation or enforcement hereof or of any such
document, that it is not subject thereto or that such action, suit or
proceeding may not be brought or is not maintainable in said courts or that
the venue thereof may not be appropriate or that this Agreement or any such
document may not be enforced in or by such courts, and the parties hereto
irrevocably agree that all claims with respect to such action or proceeding
shall be heard and determined in such a State or Federal court. The parties
hereby consent to and grant any such court jurisdiction over the person of
such parties and over the subject matter of such dispute and agree that
mailing of process or other papers in connection with any such action or
proceeding in the manner provided in Section 15(b), shall be valid and
sufficient service thereof.
(b) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed given (i)
on the first business day following the date received, if delivered
personally or by telecopy (with telephonic confirmation of receipt by the
addressee), (ii) on the business day following timely deposit with an
overnight courier service, if
<PAGE>
sent by overnight courier specifying next day delivery and (iii) on the
first business day that is at least five days following deposit in the
mails, if sent by first class mail, to the parties at the following
addresses (or at such other address for a party as shall be specified by
like notice):
If to the Shareholder, to:
Dr. Manfred George Krukemeyer
AM Natruper Holz 69
D-49076 Osnabruck
Federal Republic of Germany
Facsimile: (011)49-541-966-4006 with copies to:
R.J. Messenger
155 North Lake Avenue, Suite 1100
Pasadena, California 91101
Facsimile: (818) 578-6387
and to:
Dr. Meyer zu Losebeck
Sozietat Dr. H. Mertens
Hasemauer 9
49074 Osnabruck, Germany
Facsimile: (011) 49-541-331-1616
If to Paracelsus, to:
Paracelsus Healthcare Corporation
515 West Greens Road
Suite 800
Houston, Texas 77067
Facsimile: (713) 873-6686
Attention: Robert C. Joyner
Vice President
and General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue
Suite 3400
Los Angeles, California 90071
Attention: Thomas C. Janson, Jr.
Facsimile: (213) 687-5600
(c) SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any Person or any
circumstance, is invalid or unenforceable, (i) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may
be valid and enforceable, the intent and purpose of such invalid or
unenforceable provision and (ii) the remainder of this Agreement and the
application of such provision to other Persons or circumstances shall not be
affected by such invalidity or unenforceability, nor shall such invalidity
or unenforceability affect the validity or enforceability of such provision,
or the application thereof, in any other jurisdiction.
(d) COUNTERPARTS. For the convenience of the parties hereto, this
Agreement may be executed in any number of counterparts, each of which shall
be deemed to be an original and all of which shall together constitute the
same agreement.
<PAGE>
(e) TERMINATION. With respect to a particular Investor (but not with
respect to any other Person who may at such time be bound by the terms
hereof), this Agreement shall terminate automatically without any action by
any party upon the earliest to occur of (i) the Investor, together with all
Affiliates and Associates of such Investor, ceasing to Beneficially Own at
least 25% of the Total Voting Power of Paracelsus (but Sections 9 (c), (d)
and (f) shall not, with respect to the Shareholder, terminate until the
Shareholder, together with all Affiliates and Associates of the Shareholder,
ceases to Beneficially Own at least 10% of the Total Voting Power of
Paracelsus) and (ii) the Investor, together with all Affiliates and
Associates of such Investor, Beneficially Owning at least 90% of the Total
Voting Power of Paracelsus; PROVIDED that in the event of a termination
pursuant to clause (ii) of this subsection, the Investor shall remain
obligated to and shall promptly acquire all of the remaining Voting
Securities of Paracelsus (other than any such Voting Securities properly
exercising any appraisal or dissenters rights) at a price equal to or in
excess of any price paid by the Investor or Affiliates or Associates of such
Investor for such Voting Securities in the 90-day period preceding such
acquisition; PROVIDED, FURTHER, that in the event of a termination pursuant
to clause (i) of this subsection, the Investor shall remain subject to the
obligations of Sections 9(c), 9(d) and 9(f).
(f) HEADINGS. All Section headings and the recitals herein are for
convenience of reference only and are not part of this Agreement, and no
construction or reference shall be derived therefrom.
(g) OTHER AGREEMENTS. The parties hereto agree that there is not and
has not been any other agreement, arrangement or understanding between the
parties hereto with respect to the matters set forth herein.
(h) THIRD PARTY BENEFICIARIES. NOTHING IN THIS AGREEMENT, EXPRESS OR
IMPLIED, IS INTENDED TO CONFER UPON ANY THIRD PARTY (INCLUDING ANY HOLDER OF
VOTING SECURITIES OF PARACELSUS) ANY RIGHTS OR REMEDIES OF ANY NATURE
WHATSOEVER UNDER OR BY REASON OF THIS AGREEMENT; PROVIDED, THAT THE
FOREGOING SHALL NOT IN ANY WAY RESTRICT OR LIMIT ANY HOLDER OF VOTING
SECURITIES OF PARACELSUS FROM BRINGING A SHAREHOLDER DERIVATIVE ACTION TO
SEEK OR COMPEL THE DIRECTORS OF PARACELSUS TO CAUSE PARACELSUS TO ENFORCE
ANY OBLIGATIONS OF AN INVESTOR HEREUNDER OR TO EXERCISE ANY RIGHTS OR
REMEDIES OF PARACELSUS HEREUNDER.
<PAGE>
IN WITNESS WHEREOF, Paracelsus and each Investor have executed and delivered
this Agreement, or a counterpart hereof, as of the date first written above or,
where applicable, across from the Investor's signature on such counterpart.
PARACELSUS HEALTHCARE CORPORATION
By:___________________________________
Name:
Title:
PARK HOSPITAL GMBH
By:___________________________________
Name:
Title:
As Guarantor of the obligations
of the Shareholder:
________________________________________
Dr. Manfred George Krukemeyer
<PAGE>
EXHIBIT 10.42
FORM OF
DIVIDEND AND NOTE AGREEMENT
THIS DIVIDEND AND NOTE AGREEMENT (this "AGREEMENT") is entered into as of
, 1996, between Park Hospital GmbH, a German corporation (the
"SHAREHOLDER") and Paracelsus Healthcare Corp., a California corporation
("PARACELSUS").
WHEREAS, On , Paracelsus declared a dividend of $21,113,387,
plus $3,574.26 for each day from and including July 31, 1996 to the date the
dividend is paid to holders of record of Paracelsus Common Stock (as defined
below) as of such date;
NOW, THEREFORE, for good and valuable consideration, the receipt,
sufficiency and adequacy of which is hereby acknowledged, the parties hereto
agree as follows:
1. CERTAIN DEFINITIONS. (a) For the purposes of this Agreement,
capitalized terms not otherwise defined herein shall have the meanings assigned
to them in the Shareholder Agreement between Park Hospital GmbH and Paracelsus
entered into as of , 1996.
2. REPRESENTATIONS OF THE SHAREHOLDER. As of the date hereof, the
Shareholder represents and warrants to Paracelsus that:
(a) such Shareholder Beneficially Owns all of the outstanding shares of
common stock, no par value per share, of Paracelsus ("PARACELSUS COMMON
STOCK");
(b) this Agreement has been duly executed and delivered by the
Shareholder and, assuming due execution by Paracelsus, this Agreement is a
legal, valid and binding obligation, enforceable against the Shareholder in
accordance with its terms; and
(c) The execution, delivery and performance by the Shareholder of this
Agreement do not and will not contravene or conflict with any provision of
any law, regulation, judgment, injunction, order or decree binding upon the
Shareholder or any agreement, contract or other instrument to which the
Shareholder is a party, other than any such contraventions or conflicts that
would not prevent or materially delay the performance of the Shareholder's
obligations hereunder.
3. REPRESENTATIONS OF PARACELSUS. As of the date hereof, Paracelsus
represents and warrants to the Shareholder that the execution, delivery and
performance of this Agreement by it has been duly and validly authorized by all
necessary corporate action on its part and, assuming due execution by the
Shareholder, that this Agreement is a legal, valid and binding obligation,
enforceable against Paracelsus in accordance with its terms.
4. AGREEMENTS.
(a) NO RELIEF OF LIABILITIES. Neither the termination of this
Agreement nor the Transfer by the Shareholder of Beneficial Ownership of any
Voting Securities of Paracelsus shall relieve the Shareholder of any
liabilities or obligations to Paracelsus that arose or accrued prior to the
date of such termination or Transfer.
(b) FURTHER ASSURANCES. Paracelsus and the Shareholder shall execute
and deliver such additional instruments and other documents and shall take
such further actions as may be necessary or appropriate to effectuate, carry
out and comply with all of the terms of this Agreement and the transactions
contemplated hereby.
(c) SHAREHOLDER ACTION. The Shareholder agrees that he shall promptly
after the execution hereof and receipt of the dividend referred to in the
whereas clause invest $7,185,467 in Paracelsus in return for the Shareholder
Subordinated Note. For the purposes hereof, the "SHAREHOLDER SUBORDINATED
NOTE" shall mean the subordinated note of Paracelsus issued to the
Shareholder containing substantially the terms described in Annex A hereto.
In addition, the Shareholder agrees to cause all of the voting securities of
Paracelsus that are Beneficially Owned
<PAGE>
by the Shareholder and his Affiliates and Associates to be released from any
pledge or encumbrance (other than those arising under or permitted by the
Shareholder Agreement) promptly after the receipt of such dividend.
5. SPECIFIC PERFORMANCE. Each party hereto acknowledges that it will be
impossible to measure in money the damage to the other party if a party hereto
fails to comply with any of the obligations imposed by this Agreement, that
every such obligation is material and that, in the event of any such failure,
the other party will not have an adequate remedy at law or damages. Accordingly,
each party hereto agrees that injunctive relief or other equitable remedy, in
addition to remedies at law or damages, is the appropriate remedy for any such
failure and will not oppose the granting of such relief on the basis that the
other party has an adequate remedy at law. Each party hereto agrees that it
shall not seek, and agrees to waive any requirement for, the securing or posting
of a bond in connection with any other party's seeking or obtaining such
equitable relief.
6. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and assigns
and shall not be assignable (by operation of law or otherwise) without the
written consent of all other parties hereto; PROVIDED, that in the event of a
merger where Paracelsus is not the surviving corporation, (x) this Agreement
shall be assigned to and shall inure to the benefit of and be binding upon such
surviving corporation and (y) any reference herein to Paracelsus shall be deemed
to be a reference to such surviving corporation; PROVIDED, FURTHER, that in the
event of a merger where Paracelsus is the surviving corporation, this Agreement
shall continue in full force and effect.
7. ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement (including any
exhibits hereto) and the Shareholder Agreement supersede all prior agreements,
written or oral, among the parties hereto with respect to the subject matter
hereof and contains the entire agreement among the parties with respect to the
subject matter hereof. This Agreement may not be amended, supplemented or
modified, and no provisions hereof may be modified or waived, except by an
instrument in writing signed by Paracelsus and approved by the unanimous vote of
the Independent Directors and, with respect to the Shareholder, by the
Shareholder. No waiver of any provisions hereof by any party shall be deemed a
waiver of any other provisions hereof by any such party, nor shall any such
waiver be deemed a continuing waiver of any provision hereof by such party.
8. MISCELLANEOUS.
(a) GOVERNING LAW AND VENUE. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH AND SUBJECT TO THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REFERENCE TO CONFLICTS OF LAWS PRINCIPLES. The parties hereby irrevocably
submit to the jurisdiction of the courts of the State of New York and the
Federal courts of the United States of America located in the State of New
York solely in respect of the interpretation and enforcement of the
provisions of this Agreement, and in respect of the transactions
contemplated hereby, and hereby waive, and agree not to assert, as a defense
in any action, suit or proceeding for the interpretation or enforcement
hereof or of any such document, that it is not subject thereto or that such
action, suit or proceeding may not be brought or is not maintainable in said
courts or that the venue thereof may not be appropriate or that this
Agreement or any such document may not be enforced in or by such courts, and
the parties hereto irrevocably agree that all claims with respect to such
action or proceeding shall be heard and determined in such a New York State
or Federal court. The parties hereby consent to and grant any such court
jurisdiction over the person of such parties and over the subject matter of
such dispute and agree that mailing of process or other papers in connection
with any such action or proceeding in the manner provided in Section 9(b),
shall be valid and sufficient service thereof.
(b) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed given (i)
on the first business day following the date received, if delivered
personally or by telecopy (with telephonic confirmation of receipt by the
addressee), (ii) on the business day following timely deposit with an
overnight courier service, if
<PAGE>
sent by overnight courier specifying next day delivery and (iii) on the
first business day that is at least five days following deposit in the
mails, if sent by first class mail, to the parties at the following
addresses (or at such other address for a party as shall be specified by
like notice):
If to the Shareholder, to:
Dr. Manfred George Krukemeyer
AM Natruper Holz 69
D-49076 Osnabruck
Federal Republic of Germany
Facsimile: (011) 49-541-966-4006
with copies to:
R.J. Messenger
155 North Lake Avenue, Suite 1100
Pasadena, California 91101
Facsimile: (818) 578-6387
and to:
Dr. Meyer zu Losebeck
Sozietat Dr. H. Mertens
Hasemauer 9
49074 Osnabruck, Germany
Facsimile: (011) 49-54-331-1616
If to Paracelsus, to:
Paracelsus Healthcare Corporation
515 West Greens Road
Suite 800
Houston, Texas 77067
Facsimile: (713) 873-6686
Attention: Robert C. Joyner
Vice President
and General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue
Suite 3400
Los Angeles, California 90071
Attention: Thomas C. Janson, Jr.
Facsimile: (213) 687-5600
(c) SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any Person or any
circumstance, is invalid or unenforceable, (i) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may
be valid and enforceable, the intent and purpose of such invalid or
unenforceable provision and (ii) the remainder of this Agreement and the
application of such provision to other Persons or circumstances shall not be
affected by such invalidity or unenforceability, nor shall such invalidity
or unenforceability affect the validity or enforceability of such provision,
or the application thereof, in any other jurisdiction.
(d) COUNTERPARTS. For the convenience of the parties hereto, this
Agreement may be executed in any number of counterparts, each of which shall
be deemed to be an original and all of which shall together constitute the
same agreement.
<PAGE>
(e) TERMINATION. This Agreement shall terminate automatically without
any action by any party upon the satisfaction by the Shareholder of all
obligations under Section 4.
(f) HEADINGS. All Section headings and the recitals herein are for
convenience of reference only and are not part of this Agreement, and no
construction or reference shall be derived therefrom.
(g) OTHER AGREEMENTS. The parties hereto agree that there is not and
has not been any other agreement, arrangement or understanding between the
parties hereto with respect to the matters set forth herein.
(h) THIRD PARTY BENEFICIARIES. NOTHING IN THIS AGREEMENT, EXPRESS OR
IMPLIED, IS INTENDED TO CONFER UPON ANY THIRD PARTY (INCLUDING ANY HOLDER OF
VOTING SECURITIES OF PARACELSUS) ANY RIGHTS OR REMEDIES OF ANY NATURE
WHATSOEVER UNDER OR BY REASON OF THIS AGREEMENT; PROVIDED, THAT THE
FOREGOING SHALL NOT IN ANY WAY RESTRICT OR LIMIT ANY HOLDER OF VOTING
SECURITIES OF PARACELSUS FROM BRINGING A SHAREHOLDER DERIVATIVE ACTION TO
SEEK OR COMPEL THE DIRECTORS OF PARACELSUS TO CAUSE PARACELSUS TO ENFORCE
ANY OBLIGATIONS OF THE SHAREHOLDER HEREUNDER OR TO EXERCISE ANY RIGHTS OR
REMEDIES OF PARACELSUS HEREUNDER.
IN WITNESS WHEREOF, Paracelsus and the Shareholder have executed and
delivered this Agreement, or a counterpart hereof, as of the date first written
above.
PARACELSUS HEALTHCARE CORPORATION
By:___________________________________
Name:
Title:
PARK HOSPITAL GmbH
By:___________________________________
Name:
Title:
<PAGE>
ANNEX A
SHAREHOLDER SUBORDINATED NOTE
<TABLE>
<S> <C>
Principal Amount: $7,185,467
Maturity: 10 years from the Issue Date
Interest Rate: 6.51% per annum
Optional Redemption: None
Payments: Payments annually on each anniversary of the Issue Date of
$1,000,000, consisting of principal and accrued interest
Ranking: Subordinated in right of payment to (i) all Senior
Indebtedness, to be defined in the same manner as "Senior
Indebtedness" under the existing Paracelsus indenture, plus
the existing Senior Subordinated Indebtedness and all
indebtedness ranking PARI PASSU with such indebtedness
(and/or refinancing indebtedness) and (ii) any other
indebtedness for borrowed money with an initial principal
amount in excess of $50 million which is designated as
"Senior Indebtedness" by Paracelsus
Events of Default: Same as existing senior subordinated indebtedness
</TABLE>
<PAGE>
EXHIBIT 10.43
FORM OF
PARACELSUS HEALTHCARE CORPORATION
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of July 17, 1996, between Paracelsus Healthcare
Corporation, a California corporation (the "Company"), and Charles R. Miller
(the "Executive").
In consideration of the premises and the respective covenants and agreements
of the parties herein contained, and intending to be legally bound hereby, the
parties agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive and the
Executive hereby agrees to serve the Company, on the terms and conditions set
forth herein. In addition, the Executive and the Company hereby agree that
subject to and effective as of the closing of the proposed merger transaction
among the Company, Champion Healthcare Corporation, a Delaware corporation
("Champion") and PC Merger Sub, Inc. a Delaware corporation and a wholly-owned
subsidiary of the Company ("PC Merger Sub"), whereby Champion will become a
wholly owned subsidiary of the Company (the "Merger), this Agreement shall
supersede that certain employment agreement (the "Prior Agreement") between
Champion and the Executive, dated as of August 4, 1995.
2. TERM OF EMPLOYMENT; DUTIES. From the period commencing on the date
hereof and ending immediately prior to the Effective Time (as defined in the
Agreement and Plan of Merger by and among the Company, Champion and PC Merger
Sub dated as of April 12, 1996, as amended and restated May 29, 1996, and as
such agreement may be amended from time to time (the "Merger Agreement")), the
employment of the Executive shall be governed by the terms and conditions set
forth in the Prior Agreement. The term of this Agreement (the "Term"), and
Executive's employment with the Company hereunder, shall commence at the
Effective Time and, unless earlier terminated in accordance with the terms
hereof, shall continue until the fifth anniversary of the Effective Time (such
initial term of the Agreement referred to as the "Initial Term"); PROVIDED,
HOWEVER, that the Term shall automatically be renewed for an additional period
of five years (each such period, a "Renewal Period") at the end of the Initial
Term and at the end of each Renewal Period, if any, unless either the Company or
the Executive provides at least one year's notice to the other of its intention
not to renew the Term; and PROVIDED, FURTHER, that if the Merger Agreement is
terminated in accordance with its terms prior to the Effective Time or if the
Merger is abandoned or otherwise does not close, (x) this Agreement shall
automatically terminate without further obligation by either party hereto, (y)
the terms and conditions set forth in this Agreement shall not apply and (z) the
employment of the Executive shall continue to be governed by the terms and
conditions set forth in the Prior Agreement.
During the Term, the Executive shall be employed as the President and Chief
Operating Officer of the Company serving at the will of the Board of Directors
of the Company (the "Board") with, subject to the express terms and conditions
hereof, the traditional duties, responsibilities and authority of such offices
in companies similar in size to the Company. The Executive agrees that he shall
perform his duties hereunder faithfully and to the best of his abilities and in
furtherance of the business of the Company and its subsidiaries and shall devote
substantially all of his business time, energy and attention to the business of
the Company and its subsidiaries. The Executive shall agree to serve and the
Company shall use its best efforts to nominate and cause the Executive to be
elected as a member of the Board. In addition, for so long as the Executive
shall serve as a member of the Board, he shall agree to serve as and the Company
shall use its best efforts to nominate and cause the Executive to be elected as
a member of the Executive Committee of the Board ("Executive Committee").
The Executive agrees to use his authorities as President and as a member of
the Board and of the Executive Committee to manage and cause others to manage
the Company in accordance with the management guidelines set forth on Exhibit A
hereto; PROVIDED, HOWEVER, that nothing in this Section shall require the
Executive to violate or breach his duties under the law of the state of
incorporation of the Company or any other applicable laws. The Company agrees to
use its best efforts to manage and cause others to manage the Company in
accordance with the management guidelines set forth in Exhibit A hereto.
<PAGE>
3. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY. During the Term, the Company shall pay to the
Executive an annual base salary (the "Base Salary") at an initial rate of
$500,000 per year, payable in accordance with the Company's normal payroll
practices or as the Company and Executive may otherwise agree. The Base
Salary shall be reviewed by the Company annually and shall be subject to
discretionary increase by the Company from time to time, but shall not be
decreased from the rate in effect at any time and from time to time during
the Term.
(b) ANNUAL PERFORMANCE BONUS. Executive shall be entitled to
participate in the Paracelsus Healthcare Corporation Executive Officer
Performance Bonus Plan or any similar or successor annual bonus plan of the
Company (the "Performance Bonus Plan") and to receive an annual performance
bonus upon the achievement of one or more annual performance goals (the
"Performance Goals") in accordance with the terms of the Performance Bonus
Plan; PROVIDED that Executive's annual target bonus under the Performance
Bonus Plan (the "Annual Target Bonus") shall not be less than 85% of the
Base Salary in effect at the time the Performance Goals for such plan year
are established.
(c) LONG-TERM INCENTIVE. The Executive shall be eligible to
participate in any long-term incentive compensation and/or stock option
plans maintained from time to time by the Company. In addition, pursuant to
prior action of the Stock Option Committee of the Board, Executive has
previously been granted (i) an option (the "Value Option") to purchase
336,000 shares of Company common stock, no stated par value (the "Common
Stock"), at an exercise price of $.01 per share with a term of 10 years from
the date of grant and (ii) an option (the "Market Option") to purchase an
additional 1,000,000 shares of Common Stock at an exercise price equal to
the fair market value (as defined in the Paracelsus Healthcare Corporation
1996 Stock Incentive Plan (the "1996 Stock Incentive Plan")) of the Common
Stock on the date of the Effective Time with a term of 10 years from the
date of grant. The Value Option will be fully vested on grant and will
become fully exercisable at the Effective Time, and the Market Option will
generally vest and become exercisable in equal annual installments of 25% on
each of the first four anniversaries of the Effective Time; PROVIDED, that
neither the Value Option nor the Market Option will become exercisable in
whole or in part in the event the Merger Agreement is terminated in
accordance with its terms prior to the Effective Time or if the Merger is
abandoned or otherwise does not close; and PROVIDED, FURTHER, that the Value
Option and the Market Option shall each be subject to the terms of the 1996
Stock Incentive Plan and the stock option agreements to be entered into in
connection with the grant of such options.
(d) BENEFITS, PERQUISITES AND EXPENSES. During the Term, the Executive
shall be eligible to participate in employee benefit and fringe benefit
plans and programs generally available to the executive officers of the
Company and such additional benefits as the Board may from time to time
provide. In addition, Executive shall be entitled to receive the personal
benefits described in Exhibit B hereto. Reimbursement for business expenses,
including travel and entertainment, shall be limited to reasonable and
necessary expenses incurred by Executive in connection with performance of
duties on behalf of the Company subject to: (i) timely submission of a
properly executed Company expense report form accompanied by appropriate
supporting documentation, and (ii) compliance with Company policies and
procedures governing business expense reimbursement and reporting based upon
principles and guidelines established from time to time by the Audit
Committee of the Board, including periodic audits by the Internal Audit
Department of the Company and/or the Audit Committee.
(e) RETIREMENT BENEFITS. Effective as of the Effective Time of the
Merger, the Executive shall be entitled to participate in the Paracelsus
Healthcare Corporation Supplemental Executive Retirement Plan or any similar
or successor plan (the "SERP") and in any tax-qualified and any other
supplemental pension plans generally available to the executive officers of
the Company; provided, that employment with Champion and its subsidiaries
shall be taken into account for
2
<PAGE>
purposes of eligibility, vesting and benefit accrual under the SERP, but not
for purposes of determining whether a "Post-Participation Change in
Control", as defined in the SERP, has occurred.
(f) SIGN-ON BONUS. In connection with the commencement of Executive's
employment with the Company, as soon as practicable after the Effective
Time, the Company shall provide Executive a lump sum cash payment in the
amount of $1,200,000.
4. TERMINATION OF EXECUTIVE. Prior to the expiration of the Term and
subject to the payment of any amounts required under Section 5, the Executive's
employment with the Company may be terminated (a) by the Company with or without
Cause (as defined below), PROVIDED that no less than 80% of the then members of
the Board (excluding, for the purposes of such calculation, the Executive) and
no less than 2/3 of the Independent Directors (as defined in the Shareholder
Agreement of the Company to be entered into in connection with the Merger (the
"Shareholder Agreement")) have approved such termination, (b) by the Executive
for or without Good Reason (as defined herein), (c) by reason of the Executive's
death or Disability (as defined herein) or (d) by the mutual written consent of
the parties hereto. For purposes of this Agreement:
(i) "Cause" means (A) acts of embezzlement, theft and fraud established
by a preponderance of the evidence; (B) actions which have had or will
likely have a material adverse financial effect on the Company as a whole
for an extended period of time, where appropriate evidence exists that such
actions are directly attributable to the (I) gross management negligence or
repeated ineptitude of the Executive and/or (II) deliberate refusal of the
Executive to follow the instructions or directions of the Board; (C)
conviction of or a plea of guilty or NOLO CONTENDERE to a felony; (D)
violation of the noncompete or confidentiality provisions of this Agreement,
PROVIDED that no such violation will be deemed to have occurred if, within
30 days following receipt by Executive of a notice from the Board
identifying the violation, the Executive (I) cures the violation and (II)
establishes that the violation was unintentional and not reasonably likely
to result in harm to the Company, in each case to the reasonable
satisfaction of the Board; (E) material incapacitation or repeated absence
from work due to reckless and self abusive behavior or conduct, such as
alcoholism and drug abuse, which renders Executive incapable of performing
his duties; PROVIDED, that physical or mental disability due to injury or
disease shall not be grounds for termination for Cause; (F) material
repeated incompetence in performing the duties of the Executive's office,
PROVIDED that such incompetence is: (I) supported by written documentation
of such incompetence, (II) occurs after the Executive has been previously
counseled by the Board both orally and in writing with respect to specific
examples of such incompetence and has been provided the opportunity to
respond in kind, and (III) determined to be incurable and to be of such a
nature as to have had or which would have been reasonably likely at the time
of such commission to have a material, adverse effect on the Company as a
whole; or (G) a material violation by the Executive of the provisions set
forth in Exhibit A hereto; PROVIDED, that the Company provides the Executive
with notice of such violation within 30 days of its discovery of such
violation and the Executive fails to cure such breach to the reasonable
satisfaction of the Board within 10 days of receipt of such notice.
For purposes of this Agreement, the Board shall have 60 days to
terminate the Executive for Cause following the date on which the Board
discovers the existence of a specific set of facts that, in the aggregate,
then constitute Cause, after which period no Cause with respect to such
specific set of facts shall be deemed to exist; PROVIDED, that the
repetition or reoccurrence of the same or a similar set of facts shall
constitute a separate ground for termination for Cause;
(ii) "Disability" means the Executive's absence from the full-time
performance of his duties with the Company for one hundred eighty (180) days
or more within any period of 12 consecutive months as a result of the
Executive's incapacity due to mental or physical illness; PROVIDED, that
during any period prior to the termination of Executive's employment by
reason of Disability in
3
<PAGE>
which Executive is absent from the full-time performance of his duties with
the Company due to Disability, the Company shall continue to pay Executive
his Base Salary at the rate in effect at the commencement of such period of
Disability;
(iii) "Good Reason" means, without the Executive's express written
consent, the occurrence of any of the following events:
(A) a reduction by the Company in the Executive's Base Salary, or
Annual Target Bonus in effect from time to time; (B) a material reduction
in the aggregate level of participation in and/or compensation and
benefit opportunities under all other compensation and employee benefit
plans in which Executive is entitled to participate from time to time;
PROVIDED, HOWEVER, that changes affecting the participation in or
benefits under such plans (other than the Performance Bonus Plan, the
SERP and the benefits described in Exhibit B) with respect to similarly
situated executives of the Company shall not constitute Good Reason
hereunder; (C) a reduction in the Executive's titles, duties or authority
with the Company or a material adverse change in reporting relationship;
(D) the relocation of the principal executive offices of the Company to a
location that increases the Executive's one-way commute thereto by more
than 25 miles; (E) the Executive no longer reports to Mr. Messenger or,
in the event that Mr. Messenger ceases to be the Chief Executive Officer
of the Company ("CEO"), the failure of the Board to appoint the Executive
as CEO; (F) the notification by the Company of its intention not to renew
this Agreement pursuant to Section 2; (G) the failure of the Executive to
be nominated for election and elected to serve as a member of the Board
or, for so long as he is a member of the Board, to be appointed to the
Executive Committee; (H) the termination of the Executive's employment by
the Executive for any reason within 12 months following a Change of
Control (as defined herein); or (I) failure of the Company, Dr. Manfred
Krukemeyer or Mr. Messenger to comply with any of the provisions set
forth in Exhibit A hereto without regard to whether such terms are
enforceable which is not cured by the Company, Dr. Krukemeyer or Mr.
Messenger, as applicable, within 30 days of its or his receipt of a
notice specifying the manner in which the Company, Dr. Krukemeyer and/or
Mr. Messenger is failing or has failed to comply with the applicable
provisions set forth in Exhibit A hereto;
(iv) "Change of Control" means the occurrence of any one of the
following events:
(A) any "person" (as such term is defined in Section 3(a)(9) of the
Securities Exchange Act of 1934 (the "Exchange Act") and as used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act) becomes an Acquiring
Person (as such term is defined in the Company's Shareholder Protection
Rights Agreement to be adopted at the Effective Time) or any person that
is not bound by the Shareholder Agreement becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 25% or more of the
undiluted total voting power of the Company's then outstanding securities
eligible to vote for the election of members of the Board (the "Company
Voting Securities"); PROVIDED, HOWEVER, that no event described in the
immediately preceding clause shall be deemed to constitute a Change in
Control by virtue of any of the following: (I) an acquisition of Company
Voting Securities by the Company and/or one or more direct or indirect
majority-owned subsidiaries of the Company; (II) an acquisition of
Company Voting Securities by any employee benefit plan sponsored or
maintained by the Company or any corporation controlled by the Company;
(III) an acquisition by any underwriter temporarily holding securities
pursuant to an offering of such securities; or (IV) any acquisition by
the Executive or any "group" (as such term is defined in Rule 3d-5 under
the Exchange Act) of persons including the Executive; or
(B) individuals who, at the beginning of any period of twenty-four
(24) consecutive months, constitute the Board (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof; PROVIDED,
HOWEVER, that any person becoming a director subsequent
4
<PAGE>
to the beginning of such twenty-four (24) month period, whose election,
or nomination for election, by the Company's shareholders was approved by
either (i) the Board consistent with the terms of the Shareholder
Agreement during the period in which the Shareholder Agreement remains in
effect or (ii) a vote of at least 75% of the directors comprising the
Incumbent Board (either by a specific vote or by approval of the proxy
statement of the Company in which such person is named as a nominee for
director, without objection to such nomination), shall be, for purposes
of this paragraph (B), considered as though such person were a member of
the Incumbent Board; PROVIDED, FURTHER, that no individual initially
elected or nominated as a director of the Company as a result of an
actual or threatened election contest with respect to directors or any
other actual or threatened solici-tation of proxies or consents by or on
behalf of any person other than the Board shall be deemed to be a member
of the Incumbent Board; or
(C) there is consummated a merger or consolidation of the Company or
a subsidiary thereof with or into any other corporation other than a
merger or consolidation which would result in the holders of the voting
securities of the Company outstanding immediately prior thereto holding
securities which, in combination with the ownership of any trustee or
other fiduciary holding securities under an employee benefit plan of the
Company, represent immediately after such merger or consolidation at
least 60% of the combined voting power of the then outstanding voting
securities of either the Company or the other entity which survives such
merger or consolidation or any parent of such other entity; or
(D) the stockholders of the Company approve (i) a plan of complete
liquidation or dissolution of the Company or (ii) an agreement for the
sale or disposition by the Company of all or substantially all the
Company's assets.
5. PAYMENTS UPON TERMINATION OF EXECUTIVE.
(a) If the employment of the Executive shall be terminated other than by
reason of death or Disability (i) by the Company (other than for Cause) or
(ii) by the Executive for Good Reason, then the Company shall pay or provide
to the Executive (or the Executive's beneficiary or estate):
(1) within thirty (30) days following the date of such termination of
employment ("Termination Date"), a lump-sum cash amount equal to the sum
of (i) the Executive's unpaid Base Salary through the Termination Date;
(ii) any accrued but unpaid annual bonus under the Performance Bonus Plan
in respect of the annual bonus period preceding the bonus period in which
the Termination Date occurs; (iii) any unpaid reimbursable business
expenses properly incurred through the Termination Date; and (iv) a bonus
payment equal to the Executive's Annual Target Bonus in the year of
termination, multiplied by a fraction the numerator of which is the
number of months in the bonus year of termination in which the Executive
has worked at least one day and the denominator of which is 12;
(2) within thirty (30) days following the Termination Date, a
lump-sum cash amount equal to the greater of (A) the Executive's then
Base Salary payable over the remainder of the Term plus a bonus equal to
the Executive's Annual Target Bonus in the year of termination multiplied
by a fraction the numerator of which is the number of complete months
remaining in the Term and the denominator of which is 12, or (B) 3.0
times the sum of: (i) the Executive's annual rate of Base Salary as of
the Termination Date plus (ii) the Annual Target Bonus for the year in
which the Termination Date occurs (in each such case, Executive's Base
Salary and Target Bonus being determined without taking into account any
reductions thereto constituting Good Reason); PROVIDED, HOWEVER, that the
Executive shall not be entitled to any severance benefits from the
Company or under any Company severance plan, policy or arrangement other
than as specified in this Agreement;
(3) for a period terminating on the earlier of (A) the commencement
of the provision of substantially equivalent benefits by a new employer,
or (B) the later of (I) the last day of the
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Term, or (II) thirty-six (36) months following the Termination Date, the
Company shall continue to keep in full force and effect (or otherwise
provide) all policies of medical, accident, disability and life insurance
with respect to the Executive and his dependents with substantially the
same level of coverage, upon substantially the same terms and otherwise
substantially to the same extent as such policies shall have been in
effect immediately prior to the Termination Date, and, as applicable, the
Company and the Executive shall share the costs of the continuation of
such insurance coverage in the same proportion as such costs were shared
immediately prior to the date of termination; and
(4) for purposes of determining "final average compensation" (or
making any similar calculation) and years of service (for purposes of
eligibility, vesting and benefit accrual) under any tax-qualified or
supplemental defined benefit retirement plan (including without
limitation the SERP), Executive shall be deemed to have remained employed
by the Company hereunder through the end of the Term and to have received
his then current Base Salary and Annual Target Bonus through the end of
the Term; PROVIDED, that to the extent such benefits cannot be accrued
under and paid from any tax-qualified pension plan, such benefits shall
be accrued under and paid from the SERP or other supplemental plan;
(5) all options to purchase Common Stock held by the Executive shall
immediately become fully vested and exercisable and shall remain
exercisable until the earlier of (A) the date that is 24 months following
the Termination Date and (B) the expiration of the stated term of such
options; provided, that the Value Option shall remain exercisable until
the expiration of its stated term;
(b) If the employment of the Executive shall be terminated (i) by reason
of the Executive's death or Disability, (ii) by the Company for Cause, (iii)
by the Executive without Good Reason, or (iv) by the mutual written consent
of the parties hereto (each a "Nonqualifying Termination"), then the Company
shall pay to the Executive (or the Executive's beneficiary or estate) within
thirty (30) days following the Termination Date a lump sum cash amount equal
to the sum of the Executive's unpaid Base Salary through the Termination
Date plus any bonus payments which have been earned or become payable, to
the extent not theretofore paid, plus any unpaid reimbursable business
expenses properly incurred through the Termination Date. In addition,
Executive (or the Executive's beneficiary or estate) shall have no less than
ninety (90) days following the termination of his employment pursuant to a
Nonqualifying Termination to exercise any outstanding options to the extent
vested and exercisable as of the Termination Date; PROVIDED, that the Value
Option shall remain exercisable until the expiration of its stated term.
6. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Notwithstanding anything in this Agreement to the contrary, in the
event that any payment or distribution by the Company, by any affiliate of
the Company or by any person whose actions result in a Change in Control of
the Company (to the extent the Company approves of the arrange-ments
pursuant to which the payment by such person is made to the Executive) to or
for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
Section 6) (a "Payment") would be subject to the excise tax imposed by
Section 4999 of the Code, or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are herein-after collectively referred to
as the "Excise Tax"), then the Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that, after
payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes) including, without limitation, any
income and employment taxes and Excise Tax, imposed upon the Gross-Up
Payment but before deduction for any federal, state or local income or other
tax upon the Payments, the Executive will retain a net amount equal to the
sum of (i) the Payments and (ii) an amount equal to the product of any
deductions (or portion thereof) disallowed because
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of the inclusion of the Gross-Up Payment in the Executive's adjusted gross
income for federal income tax purposes and the highest applicable marginal
rate of federal income taxation for the calendar year in which the Gross-Up
Payment is to be made. For purposes of deter-mining the amount of the
Gross-Up Payment, the Executive shall be deemed to (1) pay applicable
federal income taxes at the highest applicable marginal rates of federal
income taxation (including surcharges) for the calendar year in which the
Gross-Up Payment is to be made, (2) pay applicable state and local income
taxes at the highest applicable marginal rate of taxation (including
surcharges) for the calendar year in which the Gross-Up Payment is to be
made, net of the maximum reduction in federal income taxes which could be
obtained from deduction of such state and local taxes and (3) have otherwise
allowable deductions for federal income tax purposes at least equal to those
disallowed because of the inclusion of the Gross-Up Payment in the
Executive's adjusted gross income.
(b) Subject to the provisions of Section 6(a), all determinations
required to be made under this Section 6, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made
by the public accounting firm that is retained by the Company as of the date
immediately prior to the Change in Control (the "Accounting Firm") which
shall provide detailed supporting calculations both to the Company and the
Executive within fifteen (15) business days of the receipt of notice from
the Company or the Executive that there has been a Payment, or such earlier
time as is requested by the Company (collectively, the "Determination"). In
the event that the Accounting Firm is serving as accountant or auditor for
the individual, entity or group effecting the Change in Control, the
Executive may appoint another nationally recognized public accounting firm
reasonably acceptable to the Company to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All reasonable fees and expenses of the Accounting Firm
shall be borne solely by the Company and, subject to applicable law and
obligations to the Company's stockholders, the Company shall enter into any
agreement reasonably requested by the Accounting Firm that is generally
recognized as standard in connection with the performance of the services
hereunder. The Gross-Up Payment under this Section 6 with respect to any
Payment shall be made no later than thirty (30) days following the date of
such Payment. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall furnish the Executive with a written
opinion to such effect, and to the effect that failure to report the Excise
Tax, if any, on the Executive's applicable federal income tax return should
not result in the imposition of a negligence or similar penalty. The
Determination by the Accounting Firm shall be binding upon the Company and
the Executive. As a result of uncertainty in the application of Section 4999
of the Code at the time of the Determination, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment") or Gross-Up Payments are made by the Company which should
not have been made ("Overpayment"), consistent with the calculations
required to be made hereunder. In the event that the Executive thereafter is
required to make payment of any additional Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any
such Underpayment (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code) shall be promptly paid by the Company to or for
the benefit of the Executive. In the event the amount of the Gross-Up
Payment exceeds the amount necessary to reimburse the Executive for his
Excise Tax, the Accounting Firm shall determine the amount of the
Overpayment that has been made and any such Overpayment (together with
interest at the rate provided in Section 1274(b)(2) of the Code) shall be
promptly paid by the Executive to or for the benefit of the Company. The
Executive shall cooperate, to the extent his reasonable expenses in
connection therewith are reimbursed by the Company, with any reasonable
requests by the Company in connection with any contests or disputes with the
Internal Revenue Service in connection with the Excise Tax.
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7. WITHHOLDING TAXES. The Company shall have the right to withhold from
any and all payments due to the Executive (or his beneficiary or estate)
hereunder all taxes which, by applicable federal, state, local or other law, the
Company is required to withhold therefrom.
8. SUCCESSORS; BINDING AGREEMENT.
(a) This Agreement is personal in nature and none of the parties hereto
shall, without the consent of the other, assign, or transfer this Agreement
or any rights or obligations hereunder; provided, that in the event of the
merger, consolidation, transfer or sale of substantially all of the assets
of the Company with or to any other individual or entity, this Agreement
shall, subject to the provisions hereof, be binding upon and inure to the
benefit of such successor and such successor shall discharge and perform all
the promises, covenants, duties and obligations of the Company hereunder,
and all references herein to the "Company" shall refer to such successor.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
the Executive shall die while any amounts remain payable to the Executive
hereunder, all such amounts, unless otherwise provided herein, shall be paid
in accordance with the terms of this Agreement to such person or persons
appointed in writing by the Executive to receive such amounts or, if no
person is so appointed, to the Executive's estate.
9. RESOLUTION OF DISPUTES; LEGAL FEES; NO MITIGATION.
(a) Except as provided in Sections 10 and 11, all disputes hereunder
shall be settled by final, binding arbitration, conducted before a panel of
three (3) arbitrators in Texas, in accordance with the rules of the American
Arbitration Association then in effect. Judgment on the arbitration award
may be entered in any court having jurisdiction. The Company shall bear the
expenses of such arbitration.
(b) If any contest or dispute shall arise under this Agreement involving
termination of the Executive's employment with the Company or involving the
failure or refusal of the Company to perform fully in accordance with the
terms hereof, the Company shall advance and reimburse the Executive, on a
current basis, all legal fees and expenses, if any, incurred by the
Executive in connection with such contest or dispute; PROVIDED, that the
Executive agrees to return any advanced or reimbursed expenses to the extent
the arbitrators (or the Court, in the case of a dispute described in Section
10 or 11) determine that the Company has prevailed as to the material issues
raised in determination of the dispute.
(c) The Company's obligation to make any payments provided for in this
Agreement to the Executive and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against
the Executive or others. In no event shall the Executive be obligated to
seek other employment or take other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this
Agreement, and such amounts shall not be reduced whether or not the
Executive obtains other employment.
10. NONCOMPETITION.
(a) DISCLOSURE. The Executive has disclosed to the Board, in writing,
all healthcare related interests, investments, or business activities,
whether as proprietor, stockholder, partner, co-venturer, director, officer,
employee, independent contractor, agent, consultant, or in any other
capacity or manner whatsoever. The Executive shall promptly notify the
Board, in writing, of any changes in or additions to such interests,
activities or investments permitted in accordance with the terms of this
Agreement, within 15 days of such change or addition.
(b) PROHIBITED ACTIVITY. Without the written consent of a majority of
the Independent Directors, the Executive may not engage in any of the
following actions during the period that is (A) prior to the Executive's
termination of employment with the Company, (B) within two years following
the termination of his employment with the Company during the Initial Term
if such
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termination is by the Company for Cause or by the Executive (other than for
Good Reason) and (c) within one year following his termination of employment
during the Term but after the Initial Term if such termination is by the
Company for Cause or by the Executive (other than for Good Reason):
(i) own, either directly or indirectly, any interest in any business
that competes with the "Primary Business" in which the Company or any
subsidiary or affiliate is engaged, within a radius of 30 miles from any
site, facility, or location which is owned, managed or operated by or
affiliated with the Company or any of its subsidiaries and affiliates,
including physician practices of any kind. For purposes of this
Agreement, "Primary Business" shall mean the delivery of integrated
healthcare services in markets where the Company or its subsidiaries own
hospitals and/or skilled nursing facilities ("SNFs"), with the hospital
serving as the hub of the local delivery system in conjunction with its
physician medical staff. In addition to inpatient acute care, psychiatric
care, and skilled nursing care, these services can include (A) individual
physician practices and/or physician based organizations such as primary
care and specialty clinics, physician-hospital organizations ("PHOs") or
medical service organizations ("MSOs"), or physician medical groups and
(B) ambulatory programs such as home health care, ambulatory surgery,
psychiatric services, occupational and sports medicine centers,
psychiatric after-care and day care programs, and other diagnostic,
rehabilitative and treatment services. Some of these services, sites and
facilities may be located in satellite areas for the purpose of extending
the hub hospital's geographic service area and to serve as access points
and/or referral sources for either the local delivery system or the hub
hospital's geographic service area and to serve as access points and/or
referral sources for either the local delivery system or the hub
hospital. The Board may modify, from time to time, the definition of
Primary Business to include any additional business or service activity
in which the Company may engage during the Term or to exclude any
business or service in which the Company ceases to engage. The definition
of "Primary Business" may also be modified to include any business or
service into which, as of the Termination Date, the Company definitively
intends to expand regardless of whether such expansion actually occurs
after the Executive's termination. For purposes of the preceding
sentence, the date on which a modification of the definition of "Primary
Business" shall be effective shall be the date on which the Executive is
provided written notice of such modification (the "Notice Date");
PROVIDED, HOWEVER, that no such modification as to which notice is
provided on or after the Termination Date shall be effective against the
Executive; and provided, further, that no such modification shall be
effective with respect to any interests, investments or business
activities engaged in by Executive prior to the Notice Date of such
modification and properly disclosed prior to such Notice Date pursuant to
Section 10(a).
(ii) participate or serve, either directly or indirectly, whether as
a proprietor, stockholder, partner, co-venturer, director, officer,
employee, independent contractor, agent, consultant, or in any other
capacity or manner whatsoever in any business or service activity that
competes with the Primary Business;
(iii) directly or indirectly, solicit or recruit any individual
employed by the Company, its subsidiaries or affiliates for the purpose
of being employed by him or by any competitor of the Company on whose
behalf he is acting as an agent, representative or employee, or convey
any confidential information or trade secrets regarding other employees
of the Company, its subsidiaries or affiliates to any other person; or
(iv) directly or indirectly, influence or attempt to influence
customers of the Company or any of its subsidiaries or affiliates to
direct their business to any competitor of the Company;
PROVIDED, HOWEVER, that neither (i) the "beneficial ownership" by
Executive, either individually or as a member of a "group," as such terms
are used in Rule 13d under the Exchange Act, as a passive investment, of
not more than five percent (5%) of the voting stock of any publicly
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held corporation, nor (ii) the beneficial ownership by Executive of any
interest described in the first sentence of Section 10(a) and properly
and timely disclosed in accordance with the terms therewith, shall alone
constitute a violation of this Agreement.
In the event that the Executive engages in the conduct proscribed by this
Section 10, the Executive agrees to repay any lump-sum severance amount
received pursuant to Section 5 of this Agreement, and all outstanding
stock options held by the Executive shall expire as of the date of
Executive's commencement of such proscribed conduct. It is further
expressly agreed that the Company will or would suffer irreparable injury
if Executive were to compete with the Company or any subsidiary or
affiliate in violation of this Agreement and that the Company would by
reason of such competition be entitled to preliminary or permanent
injunctive relief in a court of appropriate jurisdiction, and Executive
further consents and stipulates to the entry of such preliminary or
permanent injunctive relief in such a court prohibiting Executive from
competing with the Company or any subsidiary or affiliate of the Company
in violation of this Agreement upon an appropriate finding by such court
that Executive has violated this Section 10.
(c) UNENFORCEABLE PROVISIONS. It is the desire and the intent of the
parties that the provisions of this Section 10 shall be enforceable to the
fullest extent permissible under applicable law and public policy.
Accordingly, if this Section 10 or any portion thereof shall be adjudicated
to be invalid or unenforceable whether because of the duration and scope of
the covenants set forth herein or otherwise, the length and scope of the
restrictions set forth in this Section 10 shall be reduced to the extent
necessary so that this covenant may be enforced to the fullest extent
possible under applicable law.
11. CONFIDENTIAL INFORMATION. Executive acknowledges that in his
employment hereunder, and during prior periods of employment with the Company
and/or its subsidiaries, he has occupied and will continue to occupy a position
of trust and confidence. Executive shall not, except as may be required to
perform his duties hereunder or as required by applicable law, until expiration
of the applicable period described in Section 10(b) or until such information
shall have become public other than by Executive's unauthorized disclosure,
disclose to others or use, whether directly or indirectly, any Confidential
Information regarding the Company, its subsidiaries and affiliates.
"Confidential Information" shall mean information about the Company, its
subsidiaries and affiliates, and their respective clients and customers that is
not publicly disclosed by the Company or otherwise generally available to a
member of the public seeking to obtain such information and that was learned by
Executive in the course of his employment by the Company, its subsidiaries and
affiliates, including (without limitation) any proprietary knowledge, trade
secrets, data, formulae, information and client and customer lists and all
papers, resumes, and records (including computer records) of the documents
containing such Confidential Information. Executive acknowledges that such
Confidential Information is specialized, unique in nature and of great value to
the Company, its subsidiaries and affiliates, and that such information gives
the Company, its subsidiaries and affiliates a competitive advantage. The
Executive agrees to deliver or return to the Company, at the Company's request
at any time or upon termination or expiration of his employment or as soon
thereafter as possible, all documents, computer tapes and disks, records, lists,
data, drawings, prints, notes and written information (and all copies thereof)
furnished by the Company, it subsidiaries or affiliates or prepared by the
Executive during the term of his employment by the Company, its subsidiaries and
affiliates.
In the event that the Executive engages in any conduct proscribed by this
Section 11, the Executive agrees to repay any lump-sum severance amount received
pursuant to Section 5 of this Agreement, and all outstanding stock options held
by the Executive shall expire as of the date of Executive's commencement of such
proscribed conduct. It is further expressly agreed that the Company will or
would suffer irreparable injury if Executive were to disclose or threaten to
disclose Confidential Information regarding the Company or any subsidiary or
affiliate in violation of this Agreement or otherwise fail to comply with the
provisions of this Section 11, and that the Company would, by reason of such
disclosure or threatened disclosure or other failure to comply, be entitled to
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preliminary or permanent injunctive relief in a court of appropriate
jurisdiction, and Executive further consents and stipulates to the entry of such
preliminary or permanent injunctive relief in such a court prohibiting Executive
from disclosing Confidential Information in violation of this Agreement or
otherwise requiring Executive to comply with the provisions of this Section 11
upon an appropriate finding by such court that Executive has violated this
Section 11.
12. NOTICE. For the purposes of this Agreement, any notices, demands and
all other communications required or permitted hereunder shall be in writing and
shall be deemed to have been duly given upon (a) transmitter's confirmation of a
receipt of facsimile transmission, (b) confirmed delivery by a standard
overnight carrier or (c) the expiration of five business days after the day when
mailed by certified or registered mail, postage prepaid, addressed as follows
(or at such other address as the parties hereto shall specify to like notice):
<TABLE>
<S> <C>
If to Executive: Charles R. Miller
c/o Paracelsus Healthcare Corporation
515 West Greens Road
Suite 800
Houston, Texas 77067
Telecopy No. (713) 878-6686
With a copy to: Wayne Whitaker
Michener, Larimore, Swindle,
Whitaker, Flowers, Sawyer,
Reynolds & Chalk, L.L.P.
3500 City Center Tower II
301 Commerce Street
Fort Worth, Texas 76102-4135
Telecopy No: (817) 335-6935
If to the Company: Paracelsus Healthcare Corporation
515 West Greens Road
Suite 800
Houston, Texas 77067
Telecopy No. (713) 878-6686
Attention: Robert C. Joyner
Senior Vice President
and General Counsel
with a copy to: Thomas C. Janson, Jr.
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue
Los Angeles, California 90071
Telecopy No: (213) 687-5600
</TABLE>
13. AMENDMENT, WAIVER. No provisions of this Agreement may be waived,
modified or discharged unless such waiver, modification or discharge is agreed
to in a written document signed by the Executive and such officer of the
Company, as may be specifically designated by the Board. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement.
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14. ENTIRE AGREEMENT. This Agreement and Exhibits A and B hereto set forth
the entire agreement of the parties hereto in respect of the subject matter
contained herein and supersede all prior agreements, promises, covenants,
arrangements, communications, representations or warranties, whether oral or
written, by any officer, employee or representative of any party hereto.
15. GOVERNING LAW; VENUE; VALIDITY. The interpretation, construction and
performance of this Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of Texas without regard to the
principle of conflicts of laws and, at the election of the Executive, the venue
of any dispute arising under this Agreement shall be Texas. The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which other
provisions shall remain in full force and effect.
16. HEADINGS. Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
17. SEVERABILITY. In the event that a court of competent jurisdiction
determines that any portion of this Agreement is in violation of any statute or
public policy, only the portions of this Agreement that violate such statute or
public policy shall be stricken. All portions of this Agreement that do not
violate any statute or public policy shall continue in full force and effect.
Further, any court order striking any portion of this Agreement shall modify the
stricken terms as narrowly as possible to give as much effect as possible to the
intentions of the parties under this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first written above.
PARACELSUS HEALTHCARE CORPORATION
By:
-----------------------------------
Name:
Title:
-----------------------------------
CHARLES R. MILLER
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EXHIBIT A
MANAGEMENT RIGHTS TERMS
In so much as the Board of Directors and Dr. Manfred Krukemeyer recognize
the value to recruiting and retaining the services of a highly qualified
executive team and that such objective is in the best interests of the Company
and all its stockholders, and further that Messrs. Messenger, Miller,
VanDevender and Patterson are instrumental to insuring the success of the merger
between Paracelsus and Champion, and that a clear delineation of duties,
authority and responsibility is essential to the foregoing, the Board of
Directors, Dr. Krukemeyer, and Messrs. Messenger and Miller ("The Parties")
agree that the concepts set forth herein will be incorporated in the various
merger transaction documents, including employment contracts:
BOARD OF DIRECTORS AUTHORITY AND RESPONSIBILITY -- Ron Messenger and Charles
Miller shall have the authority to discharge their duties and responsibilities
as outlined herein for managing the affairs of the corporation except for those
items delineated below which is understood normally requires Board approval. The
Board, in its discretion, may delegate any such authority and approval powers as
it deems appropriate with respect to the items delineated below to duly
constituted committees of the Board excepting those powers and authority which
require the action of the Board acting as a whole.
1. Acquisitions & Divestitures of any kind;
2. Capital expenditures exceeding $5 million per project ($10 million for
construction and/or renovation projects and acquisition of real estate)
and $50 million in aggregate, including but not limited to equipment
purchases, capitalized leases and acquisition of physician practices,
clinic, surgery center, or other healthcare entities;
3. Major financings and any offerings of equity or debt;
4. Issuance of stock;
5. Appointment of corporate officers;
6. Stock option plans or stock grants;
7. Approval of annual operating and capital budget;
8. Employment Agreements for Executive Management;
9. Changes or amendments to corporate charter of incorporation or by-laws;
10. Material change in Company business strategy;
11. Liquidation or sale of Company or any subsidiary or merger or other
business combination with another company;
12. Compensation and benefit levels and incentive plans for executive
officers;
13. Termination of the: (i) CEO, (ii) President and COO, and (iii) CFO.
The Board shall designate an Executive Committee of the Board which shall be
delegated such authority as decided by the Board of Directors for conducting the
business of the Company. Members of the Executive Committee shall be: (i) Mr.
Messenger, as Chairman, (ii) Mr. Miller, and (iii) Mr. VanDevender. The
Executive Committee shall be delegated the authority to act on behalf of the
Board on any business issues not otherwise requiring action by the Board as a
whole except:
1. Major financings and any offerings of equity or debt;
2. Issuance of stock or approval of stock option plans;
3. Employment Agreements for (i) CEO, (ii) President & COO, and (iii) CFO;
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4. Compensation, benefits and incentive plans, including allocation of
stock options for (i) CEO, (ii) President & COO, and (iii) CFO;
5. Termination of (i) CEO, (ii) President & COO, and (iii) CFO;
6. Material change in Company business strategy;
7. Changes or amendments to the corporate charter of incorporation or
by-laws;
8. Liquidation or sale of Company or subsidiary or merger or other business
combination with another company;
9. Any hospital acquisition transaction involving more than a $30 million
expenditure of capital, excluding working capital and/or assumption of
debt;
10. Divestiture of any hospital;
11. Approval of annual operating and capital budget;
12. Capital expenditures exceeding $5 million per project ($10 million for
construction and/or renovation projects and acquisition of real estate)
and $50 million in aggregate, including but not limited to equipment
purchases, capitalized leases and acquisition of physician practices,
clinic, surgery center, or other healthcare entities.
MR. MESSENGER'S AUTHORITY AND RESPONSIBILITY -- The parties agree that Mr.
Messenger shall be Chairman of the Executive Committee of the Board of Directors
and serve as Chief Executive Officer of the new company. Except where otherwise
noted, decisions with respect to the following shall be reserved exclusively to
Mr. Messenger at his sole discretion:
1. Serving as liaison with Board of Directors;
2. Relocation of corporate offices;
3. Capital expenditures, as defined above, which exceed $3 million and up
to $5,000,000;
4. Employment and compensation status of direct reports to Mr. Messenger
(as defined throughout this agreement, references to Messenger "direct
reports" shall exclude Mr. Miller);
5. Approval of senior lender participants and agent bank;
6. Approval of investment bankers, upon concurrence by Mr. Miller;
7. Chairmanship of the Audit Committee of the Board of Directors;
8. Chairmanship of the Executive Committee of the Board of Directors.
Any and all proposals to be presented to the Board, or any of its
Committees, or the Executive Committee are subject to the review of and
approval, disapproval or modification by Mr. Messenger.
Mr. Messenger, in his sole discretion and to the extent practicable, may
elect to exempt himself, and his direct reports from any changes in corporate
policies and procedures which: (i) were not agreed to at the time of the merger,
or (ii) reduce or materially affect the agreed upon status or benefits of Mr.
Messenger or his direct reports.
Mr. Messenger shall develop and be solely responsible for administering and
controlling an overhead budget for the Office of the CEO which shall include
himself and his direct reports with such budget subject to the approval by the
Board of Directors, provided however that such budget does not otherwise breach
or circumvent Mr. Miller's authority and responsibility as set forth herein.
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Any other duties, authority and responsibilities not delineated above, or
which are not otherwise reserved specifically to the Board or Mr. Miller, shall
be reserved to Mr. Messenger so long as such duties, authority and
responsibilities do not otherwise unreasonably abridge Mr. Miller's rights to
manage the day-to-day affairs of the new company as delineated below.
MR. MILLER'S AUTHORITY AND RESPONSIBILITY -- The parties have agreed that it
is in the best interests of the Company and its stockholders to retain Mr.
Miller's services following the merger and that he shall be elected President
and Chief Operating Officer of the new company and along with Mr. VanDevender be
appointed to the Executive Committee of the Board. The parties also agree that
Mr. Miller shall be delegated full authority and responsibility for managing the
day-to-day affairs of the corporation, subject to the powers and authority
reserved exclusively to the Board of Directors and Mr. Messenger as delineated
above and the mutual areas of responsibility to be shared by Messrs. Messenger
and Miller delineated below. Therefore, the parties agree that Mr. Charles R.
Miller in his sole discretion shall have such authority and responsibility as is
reasonably required to manage and oversee the day-to-day affairs of the
corporation, including but not limited to the following:
1. HOSPITAL, SUBSIDIARY AND BUSINESS UNITS -- Complete responsibility for
management and decisions associated with the operations of the Company's
hospitals, business units, subsidiaries and markets, including but not
limited to: (i) determination of staffing levels, (ii) control of
expenses, (iii) recruitment, selection and employment of key management,
(iv) management and financial reporting and systems, including data
processing systems, (v) medical staff issues, including credentialing and
modifications to and enforcement of medical staff by-laws, rules and
regulations, (vi) quality of care and service, (vii) decisions regarding
programs and services to be offered or discontinued, (viii) use or
discontinuance of vendors, contractors and consultants, (ix) any and all
contracts and the approval, discontinuance or modification thereof,
including physician contracts, (x) accounting, budgeting, reimbursement,
financial and cash management policies, procedures and systems, (xi)
market strategy development and implementation, (xii) composition of
local boards, (xiii) policies, by-laws, rules & regulations, (xiv)
promotional and marketing activities, and (xv) capital expenditures up to
but not exceeding $3 million;
2. CONTRACTS AND LEASES -- Approval or disapproval of any and all contracts
and leases within Mr. Miller's authority level;
3. CORPORATE OVERHEAD BUDGET & EXPENSES -- Complete authority for
development, control, administration and management of the Company's
corporate overhead budget, after approved by Board, and control of all
corporate expenses, excluding the CEO's direct reports and corporate
overhead budget;
4. CORPORATE MATTERS -- Management and supervision of the Company's
corporate activities and operations (excluding Mr. Messenger's direct
reports and corporate overhead budget), responsibility for all decisions
pertaining thereto, including but not limited to, (i) establishing or
changing of job titles, duties and responsibilities, (ii) recruiting,
hiring, firing, promoting, demoting, transferring, and relocating
employees, (iii) determining compensation levels, incentive plans, and
benefit programs, (iv) establishment, revision or discontinuance of
Company policies and procedures, (v) legal affairs and related matters,
including risk management and insurance, (vi) budgeting, data processing,
tax, fiscal, accounting, reimbursement, cash management and corporate
finance, including policies, procedures and systems, (vii) management and
financial reporting policies, procedures and systems, (viii) construction
and renovation projects, (ix) managed care contracting, (x) acquisition
and development activities, (xi) physician recruiting and associated
physician activities such as practice management, (xii) development and
execution of Company business plan and strategies, (xiii) press releases,
public relations, and media relations, (xiv) preparation of the Company's
annual operating and capital budget, and (xv) investor and banking
relations (except as noted below under "Mutual Responsibility").
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The parties agree that any duties, responsibilities, functions, or authority
not specifically delineated in this section but which would otherwise reasonably
be considered integral to managing the day-to-day affairs of the Company and its
operations, including its business units, subsidiaries and affiliates, both now
and in the future, will be reserved to Mr. Miller as part of this Management
Rights Agreement.
MUTUAL RESPONSIBILITY -- Messrs. Messenger and Miller agree to jointly
develop plans and strategies for promoting the Company to the financial
community, including but not limited to: (i) preparation of the annual report,
(ii) analyst meetings, (iii) road shows, (iv) presentations at conferences, (v)
bank meetings and presentations, (vi) mergers, acquisitions, and divestitures,
and (vii) media interviews.
Further, Messrs. Messenger and Miller will be considered "ex-officio"
members of any and all boards of the new company's subsidiary operations and may
elect to attend any meetings of such boards at their sole discretion.
COVENANT NOT TO BREACH AGREEMENT -- The Board of Directors, Dr. Krukemeyer
and Mr. Messenger agree not to initiate any actions or decisions which in any
way would breach Mr. Miller's duties, authority and responsibility as specified
herein, except where the Board's authority or approval is otherwise required.
The Board and Dr. Krukemeyer further agree not to initiate any actions or
decisions which in any way breach Mr. Messenger's duties, authority and
responsibility as specified herein, except where the Board's authority or
approval is otherwise required.
The parties agree that any breach of the above duties, authority and
responsibility of Messrs. Miller and Messenger shall constructively constitute
Termination Without Cause as specified in Messrs. Messenger's and Miller's
Employment Agreements, unless such breach is waived in writing by Messrs.
Messenger and Miller.
These "Management Rights Terms" shall be incorporated into the Employment
Contracts of Messrs. Messenger and Miller and/or such other documents as is
appropriate and shall be in full force and effect through each contract renewal
term of Messrs. Messenger and Miller until Mr. Miller shall become CEO of the
Company.
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EXHIBIT B
During the Term of the Agreement, the Company shall provide Executive with
the following life insurance and disability coverages:
(1) The Company shall maintain for Executive's benefit life insurance
coverage with a face amount equal to three (3) times the amount of
Executive's Base Salary as in effect from time to time; PROVIDED, HOWEVER,
that if the Company shall be unable to obtain the full amount of such life
insurance coverage at a reasonable cost, the Company may alternatively
provide Executive with a lump-sum death benefit, payable within ninety (90)
days following the date of Executive's death, in such amount as will, when
added to any life insurance coverage actually obtained by the Company,
provide Executive's beneficiary(ies) with a net amount, after payment of any
Federal and state income taxes, equal to the net, after-tax amount such
beneficiary(ies) would have received had the Company obtained the full
amount of life insurance coverage provided for above. Executive shall have
the right to name and to change from time to time the beneficiary(ies) under
such life insurance coverage (and death benefits, if any). Such life
insurance coverage (and death benefit, if any) shall be in addition to any
death benefits which may be payable under any accidental death and
dismemberment plan, any separate business travel accident coverage, or any
pension plan in which the Executive may participate, and such coverage shall
also be in addition to any life insurance which Executive himself purchases.
(2) LONG-TERM DISABILITY -- Executive shall be provided a long-term
disability benefit that is no less beneficial to the Executive than that
currently provided to officers of the Company; provided, however, that as to
the Executive, such benefit shall not have a dollar limit on the annual or
monthly benefit payable to the Executive.
During the Term of the Agreement, the Company shall also provide Executive
with the following additional fringe benefits:
(1) VACATIONS AND HOLIDAYS -- Executive shall be entitled to such paid
vacation time as may be reasonably taken at Executive's discretion so long
as such vacation time does not interfere with the efficient discharge of the
Executive's duties and responsibilities. Executive shall be entitled to all
holidays as delineated annually in the Company's official holiday schedule.
(2) TAX RETURN PREPARATION ASSISTANCE; FINANCIAL ADVICE -- will provide
the Executive with the assistance of the Company's regular auditors for the
preparation of Executive's United States Federal and State tax returns
without charge to Executive. In addition, the Company shall reimburse
Executive for the costs incurred by Executive for financial planning
services in an amount not to exceed $5,000 annually.
(3) ANNUAL PHYSICAL EXAMINATION -- The Company shall reimburse
Executive 100% of all costs incurred by Executive in obtaining an annual
comprehensive physical examination to be conducted by a physician; clinic,
or medical group of the Executive's choice and which is located within
reasonable proximity to Executive's place of Employment.
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EXHIBIT 10.44
FORM OF PARACELSUS HEALTHCARE CORPORATION
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of July 17, 1996, between Paracelsus Healthcare
Corporation, a California corporation (the "Company"), and R. J. Messenger (the
"Executive").
In consideration of the premises and the respective covenants and agreements
of the parties herein contained, and intending to be legally bound hereby, the
parties agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive and the
Executive hereby agrees to serve the Company, on the terms and conditions set
forth herein. In addition, the Executive and the Company hereby agree that
subject to and effective as of the closing of the proposed merger transaction
among the Company, Champion Healthcare Corporation, a Delaware corporation
("Champion"), and PC Merger Sub, Inc., a Delaware corporation and a wholly owned
subsidiary of the Company ("PC Merger Sub"), whereby Champion will become a
wholly owned subsidiary of the Company (the "Merger"), this Agreement shall
supersede that certain employment agreement (the "Prior Agreement") between the
Company and the Executive, dated as of November 20, 1983, as amended from time
to time, and the Prior Agreement shall thereupon automatically terminate without
further obligation by either Executive or the Company.
2. TERM OF EMPLOYMENT; DUTIES. From the period commencing on the date
hereof and ending immediately prior to the Effective Time (as defined in the
Agreement and Plan of Merger by and among the Company, Champion and PC Merger
Sub dated as of April 12, 1996, as amended May 29, 1996, and as such agreement
may be amended from time to time (the "Merger Agreement")), the employment of
the Executive shall be governed by the terms and conditions set forth in the
Prior Agreement. The term of this Agreement (the "Term"), and Executive's
employment with the Company hereunder, shall commence at the Effective Time and,
unless earlier terminated in accordance with the terms hereof, shall continue
until the fifth anniversary of the Effective Time (such initial term of the
Agreement referred to as the "Initial Term"); PROVIDED, HOWEVER, that the Term
shall automatically be renewed for an additional period of five years (each such
period, a "Renewal Period") at the end of the Initial Term and at the end of
each Renewal Period, if any, unless either the Company or the Executive provides
at least one year's notice to the other of its intention not to renew the Term;
and PROVIDED, FURTHER, that if the Merger Agreement is terminated in accordance
with its terms prior to the Effective Time or if the Merger is abandoned or
otherwise does not close, (x) this Agreement shall automatically terminate
without further obligation by either party hereto, (y) the terms and conditions
set forth in this Agreement shall not apply and (z) the employment of the
Executive shall continue to be governed by the terms and conditions set forth in
the Prior Agreement.
During the Term, the Executive shall be employed as the Chief Executive
Officer of the Company serving at the will of the Board of Directors of the
Company (the "Board") with, subject to the express terms and conditions hereof,
the traditional duties, responsibilities and authority of such office in
companies similar in size to the Company. The Executive agrees that he shall
perform his duties hereunder faithfully and to the best of his abilities and in
furtherance of the business of the Company and its subsidiaries and shall devote
substantially all of his business time, energy and attention to the business of
the Company and its subsidiaries; PROVIDED, HOWEVER, that subject to the
provisions of Section 10, Executive may devote a portion of his time while an
employee of the Company to international commitments and other personal,
philanthropic and business affairs and interests (including but not limited to
businesses providing security, catering, cleaning and related services on an
international basis to commercial establishments), to the extent such activities
do not materially interfere with the performance of his duties and obligations
to the Company; and PROVIDED, FURTHER, that Executive may also attend various
industry board and other meetings of professional societies of which he is a
member, consistent with his past practice while an employee of the Company. In
addition, (i) for so long as Executive is a Shareholder Director (as defined in
the Shareholder Agreement of the
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Company to be entered into in connection with the Merger (the "Shareholder
Agreement")), Executive shall serve as the Vice Chairman of the Board, and (ii)
for so long as Executive shall serve as a member of the Board, he shall serve as
Chairman of the Executive Committee of the Board (the "Executive Committee").
The Executive agrees to use his authorities as Chief Executive Officer, as
Vice Chairman of the Board and as a member of the Executive Committee to manage
and cause others to manage the Company in accordance with the management
guidelines set forth on Exhibit A hereto; PROVIDED, HOWEVER, that nothing in
this Section shall require the Executive to violate or breach his duties under
the law of the state of incorporation of the Company or any other applicable
laws. The Company agrees to use its best efforts to manage and cause others to
manage the Company in accordance with the management guidelines set forth in
Exhibit A hereto.
3. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY. During the Term, the Company shall pay to the
Executive an annual base salary (the "Base Salary") at an initial rate of
$750,000 per year, payable in accordance with the Company's normal payroll
practices or as the Company and Executive may otherwise agree. The Base
Salary shall be reviewed by the Company annually and shall be subject to
discretionary increase by the Company from time to time, but shall not be
decreased from the rate in effect at any time and from time to time during
the Term.
(b) ANNUAL PERFORMANCE BONUS. Executive shall be entitled to
participate in the Paracelsus Healthcare Corporation Executive Officer
Performance Bonus Plan or any similar or successor annual bonus plan of the
Company (the "Performance Bonus Plan") and to receive an annual performance
bonus upon the achievement of one or more annual performance goals (the
"Performance Goals") in accordance with the terms of the Performance Bonus
Plan; PROVIDED, that Executive's annual target bonus under the Performance
Bonus Plan (the "Annual Target Bonus") shall not be less than 100% of the
Base Salary in effect at the time the Performance Goals for such plan year
are established.
(c) LONG-TERM INCENTIVE. The Executive shall be eligible to
participate in any long-term incentive compensation and/or stock option
plans maintained from time to time by the Company. In addition, pursuant to
prior action of the Stock Option Committee of the Board, Executive has
previously been granted (i) options (the "Value Options") to purchase an
aggregate of 1,000,000 shares of Company common stock, no stated par value
(the "Common Stock"), at an exercise price of $.01 per share with a term of
10 years from the date of grant and (ii) an option (the "Market Option") to
purchase an additional 1,000,000 shares of Common Stock at an exercise price
equal to the fair market value (as defined in the Paracelsus Healthcare
Corporation 1996 Stock Incentive Plan (the "1996 Stock Incentive Plan")) of
the Common Stock on the date of the Effective Time with a term of 10 years
from the date of grant. The Value Options will be fully vested on grant and
will become fully exercisable at the Effective Time, and the Market Option
will generally vest and become exercisable in equal annual installments of
25% on each of the first four anniversaries of the Effective Time; PROVIDED,
that neither the Value Options nor the Market Option will become exercisable
in whole or in part in the event the Merger Agreement is terminated in
accordance with its terms prior to the Effective Time or if the Merger is
abandoned or otherwise does not close; and PROVIDED, FURTHER, that the Value
Options and the Market Option shall each be subject to the terms of the 1996
Stock Incentive Plan and the stock option agreements to be entered into in
connection with the grant of such options.
(d) BENEFITS, PERQUISITES AND EXPENSES. During the Term, the Executive
shall be eligible to participate in employee benefit and fringe benefit
plans and programs generally available to the executive officers of the
Company and such additional benefits as the Board may from time to time
provide. In addition, Executive shall be entitled to receive the personal
benefits described in Exhibit B hereto. Executive shall be entitled to
reimbursement for business expenses, including travel and entertainment;
PROVIDED, that such reimbursement shall be limited to reasonable and
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necessary expenses incurred by Executive in connection with the performance
of duties on behalf of the Company subject to: (i) timely submission of a
properly executed Company expense report form accompanied by appropriate
supporting documentation, and (ii) compliance with Company policies and
procedures governing business expense reimbursement and reporting based upon
principles and guidelines established by the Audit Committee of the Board,
including periodic audits by the Internal Audit Department of the Company
and/or the Audit Committee of the Board; and PROVIDED, FURTHER, that the
Company shall reimburse Executive for reasonable expenses incurred by
Executive's spouse when traveling with Executive on Company business.
(e) RETIREMENT BENEFITS. The Executive shall be entitled to
participate in the Paracelsus Healthcare Corporation Supplemental Executive
Retirement Plan or any similar or successor plan (the "SERP") and in any
tax-qualified and any other supplemental pension plans generally available
to the executive officers of the Company. The Company shall not take any
action, whether by amendment of the SERP or otherwise, to adversely affect
Executive's accrued benefits and other rights under the SERP as of the
Effective Time.
4. TERMINATION OF EXECUTIVE. Prior to the expiration of the Term and
subject to the payment of any amounts required under Section 5, the Executive's
employment with the Company may be terminated (a) by the Company for Cause (as
defined herein) or without Cause, PROVIDED that no less than 80% of the then
members of the Board (excluding, for the purposes of such calculation, the
Executive) and no less than 2/3 of the Independent Directors (as defined in the
Shareholder Agreement) have approved such termination, (b) by the Executive for
or without Good Reason (as defined herein), (c) by reason of the Executive's
death or Disability (as defined herein) or (d) by the mutual written consent of
the parties hereto. For purposes of this Agreement:
(i) "Cause" means (A) acts of embezzlement, theft and fraud established
by a preponderance of the evidence; (B) actions which have had or will
likely have a material adverse financial effect on the Company as a whole
for an extended period of time, where appropriate evidence exists that such
actions are directly attributable to the (I) gross management negligence or
repeated ineptitude of the Executive and/or (II) deliberate refusal of the
Executive to follow the instructions or directions of the Board; (C)
conviction of or a plea of guilty or NOLO CONTENDERE to a felony; (D)
violation of the noncompete or confidentiality provisions of this Agreement,
PROVIDED, that no such violation will be deemed to have occurred if, within
30 days following receipt by Executive of a notice from the Board
identifying the violation, the Executive (I) cures the violation and (II)
establishes that the violation was unintentional and not reasonably likely
to result in harm to the Company, in each case to the reasonable
satisfaction of the Board; (E) material incapacitation or repeated absence
from work due to reckless and self-abusive behavior or conduct, such as
alcoholism and drug abuse, which renders Executive incapable of performing
his duties; PROVIDED, that physical or mental disability due to injury or
disease shall not be grounds for termination for Cause; (F) material
repeated incompetence in performing the duties of the Executive's office,
PROVIDED, that such incompetence is: (I) supported by written documentation
of such incompetence, (II) occurs after the Executive has been previously
counseled by the Board both orally and in writing with respect to specific
examples of such incompetence and has been provided the opportunity to
respond in kind, and (III) determined to be incurable and to be of such a
nature as to have had or which would have been reasonably likely at the time
of such commission to have a material adverse effect on the Company as a
whole; or (G) a material violation by the Executive of the provisions set
forth in Exhibit A hereto; PROVIDED, that the Company provides the Executive
with notice of such violation within 30 days of its discovery of such
violation and the Executive fails to cure such breach to the reasonable
satisfaction of the Board within 10 days of receipt of such notice.
For purposes of this Agreement, the Board shall have 60 days to
terminate the Executive for Cause following the date on which the Board
discovers the existence of a specific set of facts that,
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in the aggregate, then constitute Cause, after which period no Cause with
respect to such specific set of facts shall be deemed to exist; PROVIDED,
that the repetition or reoccurrence of the same or a similar set of facts
shall constitute a separate ground for termination for Cause.
(ii) "Disability" means the Executive's absence from the full-time
performance of his duties with the Company for one hundred eighty (180) days
or more within any period of 12 consecutive months as a result of the
Executive's incapacity due to mental or physical illness; PROVIDED, that
during any period prior to the termination of Executive's employment by
reason of Disability in which Executive is absent from the full-time
performance of his duties with the Company due to Disability, the Company
shall continue to pay Executive his Base Salary at the rate in effect at the
commencement of such period of Disability;
(iii) "Good Reason" means, without the Executive's express written
consent, the occurrence of any of the following events:
(A) a reduction by the Company in the Executive's Base Salary or
Annual Target Bonus in effect from time to time; (B) a material reduction
in the aggregate level of participation in and/or compensation and
benefit opportunities under all other compensation and employee benefit
plans in which Executive is entitled to participate from time to time;
PROVIDED, HOWEVER, that changes affecting the participation in or
benefits under such plans (other than the Performance Bonus Plan, the
SERP and the benefits described in Exhibit B) with respect to similarly
situated executives of the Company shall not constitute Good Reason
hereunder; (C) a reduction in the Executive's titles, duties or authority
with the Company or a material adverse change in Executive's reporting
relationships; (D) notification by the Company of its intention not to
renew this Agreement pursuant to the provisions of Section 2; (E) the
failure of the Executive to be nominated for election to and elected to
serve as a member of the Board or, for so long as he is a Shareholder
Director, to appointed as Vice Chairman of the Board, or for so long as
he is a member of the Board, to be appointed as Chairman of the Executive
Committee; (F) the termination of the Executive's employment by the
Executive for any reason within 12 months following a Change in Control
(as defined herein); or (G) failure of the Company, Dr. Manfred G.
Krukemeyer or Mr. Charles R. Miller to comply with any of the applicable
provisions set forth in Exhibit A hereto, without regard to whether such
terms are enforceable, which is not cured by the Company, Dr. Krukemeyer
or Mr. Miller, as applicable, within 30 days of its or his receipt of a
notice specifying the manner in which the Company, Dr. Krukemeyer and/or
Mr. Miller is failing or has failed to comply with the applicable
provisions set forth in Exhibit A hereto.
(iv) "Change in Control" means the occurrence of any one of the
following events:
(A) any "person" (as such term is defined in Section 3(a)(9) of the
Securities Exchange Act of 1934 (the "Exchange Act") and as used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act) becomes an Acquiring
Person (as such term is defined in the Company's Shareholder Protection
Rights Agreement to be adopted at the Effective Time) or any person that
is not bound by the Shareholder Agreement becomes the beneficial owner
(as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 25% or more of the
undiluted total voting power of the Company's then outstanding securities
eligible to vote for the election of members of the Board (the "Company
Voting Securities"); PROVIDED, HOWEVER, that no event described in the
immediately preceding clause shall be deemed to constitute a Change in
Control by virtue of any of the following: (I) an acquisition of Company
Voting Securities by the Company and/or one or more direct or indirect
majority-owned subsidiaries of the Company; (II) an acquisition of
Company Voting Securities by any employee benefit plan sponsored or
maintained by the Company or any corporation controlled by the Company;
(III) an acquisition by any underwriter temporarily
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holding securities pursuant to an offering of such securities; or (IV)
any acquisition by the Executive or any "group" (as such term is defined
in Rule 3d-5 under the Exchange Act) of persons including the Executive;
or
(B) individuals who, at the beginning of any period of twenty-four
(24) consecutive months, constitute the Board (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof; PROVIDED,
HOWEVER, that any person becoming a director subsequent to the beginning
of such twenty-four (24) month period, whose election, or nomination for
election, by the Company's shareholders was approved by either (i) the
Board consistent with the terms of the Shareholder Agreement, during the
period the Shareholder Agreement is in effect, or (ii) a vote of at least
75% of the directors comprising the Incumbent Board (either by a specific
vote or by approval of the proxy statement of the Company in which such
person is named as a nominee for director, without objection to such
nomination) shall be, for purposes of this paragraph (B), considered as
though such person were a member of the Incumbent Board; PROVIDED,
FURTHER, that no individual initially elected or nominated as a director
of the Company as a result of an actual or threatened election contest
with respect to directors or any other actual or threatened solicitation
of proxies or consents by or on behalf of any person other than the Board
shall be deemed to be a member of the Incumbent Board; or
(C) there is consummated a merger or consolidation of the Company or
a subsidiary thereof with or into any other corporation other than a
merger or consolidation which would result in the holders of the voting
securities of the Company outstanding immediately prior thereto holding
securities which, in combination with the ownership of any trustee or
other fiduciary holding securities under an employee benefit plan of the
Company, represent immediately after such merger or consolidation at
least 60% of the combined voting power of the then outstanding voting
securities of either the Company or the other entity which survives such
merger or consolidation or any parent of such other entity; or
(D) the stockholders of the Company approve (i) a plan of complete
liquidation or dissolution of the Company or (ii) an agreement for the
sale or disposition by the Company of all or substantially all the
Company's assets.
5. PAYMENTS UPON TERMINATION OF EXECUTIVE.
(a) If the employment of the Executive shall be terminated other than by
reason of death or Disability (i) by the Company (other than for Cause) or
(ii) by the Executive for Good Reason, then the Company shall pay or provide
to the Executive (or the Executive's beneficiary or estate):
(1) within thirty (30) days following the date of such termination of
employment ("Termination Date"), a lump-sum cash amount equal to the sum
of (i) the Executive's unpaid Base Salary through the Termination Date;
(ii) any accrued but unpaid annual bonus under the Performance Bonus Plan
in respect of the annual bonus period preceding the bonus period in which
the Termination Date occurs; (iii) any unpaid reimbursable business
expenses properly incurred through the Termination Date; and (iv) a bonus
payment equal to the Executive's Annual Target Bonus in the year of
termination, multiplied by a fraction the numerator of which is the
number of months in the bonus year of termination in which the Executive
has worked at least one day and the denominator of which is 12;
(2) within thirty (30) days following the Termination Date, a
lump-sum cash amount equal to the greater of (A) the Executive's then
Base Salary payable over the remainder of the Term plus a bonus equal to
the Executive's Annual Target Bonus in the year of termination multiplied
by a fraction the numerator of which is the number of complete months
remaining in the Term and the denominator of which is 12, or (B) 3.0
times the sum of: (i) the Executive's annual rate of Base Salary as of
the Termination Date plus (ii) the Annual Target Bonus for the year in
which the Termination Date occurs (in each such case, Executive's Base
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Salary and Annual Target Bonus being determined without taking into
account any reductions thereto constituting Good Reason); PROVIDED,
HOWEVER, that the Executive shall not be entitled to any severance
benefits from the Company or under any Company severance plan, policy or
arrangement other than as specified in this Agreement;
(3) for a period terminating on the earlier of (A) the commencement
of the provision of substantially equivalent benefits by a new employer
or (B) the later of (I) the last day of the Term, or (II) thirty-six (36)
months following the Termination Date, the Company shall continue to keep
in full force and effect (or otherwise provide) all policies of medical,
accident, disability and life insurance with respect to the Executive and
his dependents with substantially the same level of coverage, upon
substantially the same terms and otherwise substantially to the same
extent as such policies shall have been in effect immediately prior to
the Termination Date, and, as applicable, the Company and the Executive
shall share the costs of the continuation of such insurance coverage in
the same proportion as such costs were shared immediately prior to the
date of termination;
(4) for purposes of determining final average compensation (or making
any similar calculation) and years of service (for purposes of
eligibility, vesting and benefit accrual) under any tax-qualified or
supplemental defined benefit retirement plan (including without
limitation the SERP), Executive shall be deemed to have remained employed
by the Company hereunder until the end of the Term and to have received
his then current Base Salary and Annual Target Bonus through the end of
the Term; PROVIDED, that to the extent such benefits cannot be accrued
under and paid from any tax-qualified pension plan, such benefits shall
be accrued under and paid from the SERP or other supplemental plan.
(5) all options to purchase Common Stock held by the Executive shall
immediately become fully vested and exercisable and shall remain
exercisable until the earlier of (A) the date that is 24 months following
the Termination Date and (B) the expiration of the stated term of such
options; PROVIDED, that the Value Options shall remain exercisable until
expiration of their stated term; and
(b) If the employment of the Executive shall be terminated (i) by reason
of the Executive's death or Disability, (ii) by the Company for Cause, (iii)
by the Executive without Good Reason, or (iv) by the mutual written consent
of the parties hereto (each a "Nonqualifying Termination"), then the Company
shall pay to the Executive (or the Executive's beneficiary or estate) within
thirty (30) days following the Termination Date a lump-sum cash amount equal
to the sum of the Executive's unpaid Base Salary through the Termination
Date plus any bonus payments which have been earned or become payable, to
the extent not theretofore paid, plus any unpaid reimbursable business
expenses properly incurred through the Termination Date. In addition,
Executive (or the Executive's beneficiary or estate) shall have no less than
ninety days following the termination of his employment pursuant to a
Nonqualifying Termination to exercise any outstanding options to the extent
vested and exercisable as of the Termination Date; PROVIDED, that the Value
Options shall remain exercisable until the expiration of their stated term.
6. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Notwithstanding anything in this Agreement to the contrary, in the
event that any payment or distribution by the Company, by any affiliate of
the Company or by any person whose actions result in a Change in Control of
the Company (to the extent the Company approves of the arrangements pursuant
to which the payment by such person is made to the Executive) to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
Section 6) (a "Payment") would be subject to the excise tax imposed by
Section 4999 of the Code, or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as
the "Excise Tax"), then the Executive shall be entitled to
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<PAGE>
receive an additional payment (a "Gross-Up Payment") in an amount such that,
after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes) including, without limitation,
any income and employment taxes and Excise Tax, imposed upon the Gross-Up
Payment but before deduction for any federal, state or local income or other
tax upon the Payments, the Executive will retain a net amount equal to the
sum of (i) the Payments and (ii) an amount equal to the product of any
deductions (or portions thereof) disallowed because of the inclusion of the
Gross-Up Payment in the Executive's adjusted gross income for federal income
tax purposes and the highest applicable marginal rate of federal income
taxation for the calendar year in which the Gross-Up Payment is to be made.
For purposes of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to (1) pay applicable federal income taxes at the
highest applicable marginal rates of federal income taxation (including
surcharges) for the calendar year in which the Gross-Up Payment is to be
made, (2) pay applicable state and local income taxes at the highest
applicable marginal rate of taxation (including surcharges) for the calendar
year in which the Gross-Up Payment is to be made, net of the maximum
reduction in federal income taxes which could be obtained from deduction of
such state and local taxes and (3) have otherwise allowable deductions for
federal income tax purposes at least equal to those disallowed because of
the inclusion of the Gross-Up Payment in the Executive's adjusted gross
income.
(b) Subject to the provisions of Section 6(a), all determinations
required to be made under this Section 6, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made
by the public accounting firm that is retained by the Company as of the date
immediately prior to the Change in Control (the "Accounting Firm") which
shall provide detailed supporting calculations both to the Company and the
Executive within fifteen (15) business days of the receipt of notice from
the Company or the Executive that there has been a Payment, or such earlier
time as is requested by the Company (collectively, the "Determination"). In
the event that the Accounting Firm is serving as accountant or auditor for
the individual, entity or group effecting the Change in Control, the
Executive may appoint another nationally recognized public accounting firm
reasonably acceptable to the Company to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All reasonable fees and expenses of the Accounting Firm
shall be borne solely by the Company and, subject to applicable law and
obligations to the Company's stockholders, the Company shall enter into any
agreement reasonably requested by the Accounting Firm that is generally
recognized as standard in connection with the performance of the services
hereunder. The Gross-Up Payment under this Section 6 with respect to any
Payment shall be made no later than thirty (30) days following the date of
such Payment. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall furnish the Executive with a written
opinion to such effect, and to the effect that failure to report the Excise
Tax, if any, on the Executive's applicable federal income tax return should
not result in the imposition of a negligence or similar penalty. The
Determination by the Accounting Firm shall be binding upon the Company and
the Executive. As a result of uncertainty in the application of Section 4999
of the Code at the time of the Determination, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment") or Gross-Up Payments are made by the Company which should
not have been made ("Overpayment"), consistent with the calculations
required to be made hereunder. In the event that the Executive thereafter is
required to make payment of any additional Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any
such Underpayment (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code) shall be promptly paid by the Company to or for
the benefit of the Executive. In the event the amount of the Gross-Up
Payment exceeds the amount necessary to reimburse the Executive for his
Excise Tax, the Accounting Firm shall determine the amount of the
Overpayment that has been made and any such Overpayment (together with
interest at the rate provided in Section 1274(b)(2) of the Code) shall be
promptly paid by the Executive to or for
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the benefit of the Company. The Executive shall cooperate, to the extent his
reasonable expenses in connection therewith are reimbursed by the Company,
with any reasonable requests by the Company in connection with any contests
or disputes with the Internal Revenue Service in connection with the Excise
Tax.
7. WITHHOLDING TAXES. The Company shall have the right to withhold from
any and all payments due to the Executive (or his beneficiary or estate)
hereunder all taxes which, by applicable federal, state, local or other law, the
Company is required to withhold therefrom.
8. SUCCESSORS; BINDING AGREEMENT.
(a) This Agreement is personal in nature and none of the parties hereto
shall, without the consent of the other, assign, or transfer this Agreement
or any rights or obligations hereunder; PROVIDED, that in the event of the
merger, consolidation, transfer or sale of substantially all of the assets
of the Company with or to any other individual or entity, this Agreement
shall, subject to the provisions hereof, be binding upon and inure to the
benefit of such successor and such successor shall discharge and perform all
the promises, covenants, duties and obligations of the Company hereunder,
and all references herein to the "Company" shall refer to such successor.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
the Executive shall die while any amounts remain payable to the Executive
hereunder, all such amounts, unless otherwise provided herein, shall be paid
in accordance with the terms of this Agreement to such person or persons
appointed in writing by the Executive to receive such amounts or, if no
person is so appointed, to the Executive's estate.
9. RESOLUTION OF DISPUTES; LEGAL FEES; NO MITIGATION.
(a) Except as provided in Sections 10 and 11, all disputes hereunder
shall be settled by final, binding arbitration, conducted before a panel of
three (3) arbitrators in California in accordance with the rules of the
American Arbitration Association then in effect. Judgment on the arbitration
award may be entered in any court having jurisdiction. The Company shall
bear the expenses of such arbitration.
(b) If any contest or dispute shall arise under this Agreement involving
termination of the Executive's employment with the Company or involving the
failure or refusal of the Company to perform fully in accordance with the
terms hereof, the Company shall advance and reimburse the Executive, on a
current basis, all legal fees and expenses, if any, incurred by the
Executive in connection with such contest or dispute; PROVIDED, that the
Executive agrees to return any advanced or reimbursed expenses to the extent
the arbitrators (or the court, in the case of a dispute described in Section
10 or 11) determine that the Company has prevailed as to the material issues
raised in determination of the dispute.
(c) The Company's obligation to make any payments provided for in this
Agreement to the Executive and otherwise to perform its obligations
hereunder shall not be affected by any setoff, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against
the Executive or others. In no event shall the Executive be obligated to
seek other employment or take other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this
Agreement, and such amounts shall not be reduced whether or not the
Executive obtains other employment.
10. NONCOMPETITION.
(a) DISCLOSURE. The Executive has disclosed to the Board, in writing,
all healthcare-related interests, investments, or business activities,
whether as proprietor, stockholder, partner, co-venturer, director, officer,
employee, independent contractor, agent, consultant, or in any other
capacity or manner whatsoever. The Executive shall notify the Board, in
writing, of any changes in or additions to such interests, activities or
investments permitted in accordance with the terms of this Agreement, within
15 days of such change or addition.
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(b) PROHIBITED ACTIVITY. Without the written consent of a majority of
the Independent Directors, the Executive may not engage in any of the
following actions during the period that is (A) prior to the Executive's
termination of employment with the Company, (B) within two years following
the termination of his employment with the Company during the Initial Term
if such termination is by the Company for Cause or by the Executive other
than for Good Reason and (C) within one year following his termination of
employment during the Term but after the Initial Term if such termination is
by the Company for Cause or by the Executive other than Good Reason.
(i) own, either directly or indirectly, any interest in any business
that competes with the "Primary Business" in which the Company or any
subsidiary or affiliate is engaged, within a radius of 30 miles from any
site, facility, or location which is owned, managed or operated by or
affiliated with the Company or any of its subsidiaries and affiliates,
including physician practices of any kind. For purposes of this
Agreement, "Primary Business" shall mean the delivery of integrated
healthcare services in markets where the Company or its subsidiaries own
hospitals and/or skilled nursing facilities ("SNFs") with the hospital
serving as the hub of the local delivery system in conjunction with its
physician medical staff. In addition to inpatient acute care, psychiatric
care, and skilled nursing care, these services can include (A) individual
physician practices and/or physician-based organizations such as primary
care and specialty clinics, physician-hospital organizations ("PMOs") or
medical service organizations ("MSOs"), or physician medical groups and
(B) ambulatory programs such as home health care, ambulatory surgery,
psychiatric services, occupational and sports medicine centers,
psychiatric after-care and day care programs, and other diagnostic,
rehabilitative and treatment services. Some of these services, sites and
facilities may be located in satellite areas for the purpose of extending
the hub hospital's geographic service area and to serve as access points
and/or referral sources for either the local delivery system or the hub
hospital's geographic service area and to serve as access points and/or
referral sources for either the local delivery system or the hub
hospital. The Board may modify, from time to time, the definition of
Primary Business to include any additional business or service activity
in which the Company may engage during the Term or to exclude any
business or service in which the Company ceases to engage. The definition
of "Primary Business" may also be modified to include any business or
service into which, as of the Termination Date, the Company definitively
intends to expand, regardless of whether such expansion actually occurs
after the Executive's termination. For purposes of the preceding
sentence, the date on which a modification of the definition of "Primary
Business" shall be effective shall be the date on which the Executive is
provided written notice of such modification (the "Notice Date");
PROVIDED, HOWEVER, that no such modification as to which notice is
provided on or after the Termination Date shall be effective against the
Executive; and PROVIDED, FURTHER, that no such modification shall be
effective with respect to any interests, investments or business
activities engaged in by Executive prior to the Notice Date of such
modification and properly disclosed prior to such Notice Date pursuant to
Section 10(a);
(ii) participate or serve, either directly or indirectly, whether as
a proprietor, stockholder, partner, co-venturer, director, officer,
employee, independent contractor, agent, consultant, or in any other
capacity or manner whatsoever in any business or service activity that
competes with the Primary Business;
(iii) directly or indirectly, solicit or recruit any individual
employed by the Company, its subsidiaries or affiliates for the purpose
of being employed by him or by any competitor of the Company on whose
behalf he is acting as an agent, representative or employee, or convey
any confidential information or trade secrets regarding other employees
of the Company, its subsidiaries or affiliates to any other person; or
(iv) directly or indirectly, influence or attempt to influence
customers of the Company or any of its subsidiaries or affiliates to
direct their business to any competitor of the Company;
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PROVIDED, HOWEVER, that neither (i) the "beneficial ownership" by
Executive, either individually or as a member of a "group," as such terms
are used in Rule 13d under the Exchange Act, as a passive investment, of
not more than five percent (5%) of the voting stock of any publicly held
corporation, nor (ii) the beneficial ownership by Executive of any
interest described in the first sentence of Section 10(a) and properly
and timely disclosed in accordance with the terms therewith, shall alone
constitute a violation of this Agreement.
In the event that the Executive engages in the conduct proscribed by this
Section 10, the Executive agrees to repay any lump-sum severance amount
received pursuant to Section 5 of this Agreement, and all outstanding
stock options held by the Executive shall expire as of the date of the
Executive's commencement of such proscribed conduct. It is further
expressly agreed that the Company will or would suffer irreparable injury
if Executive were to compete with the Company or any subsidiary or
affiliate in violation of this Agreement and that the Company would by
reason of such competition be entitled to preliminary or injunctive
relief in a court of appropriate jurisdiction, and Executive further
consents and stipulates to the entry of such preliminary or injunctive
relief in such a court prohibiting Executive from competing with the
Company or any subsidiary or affiliate of the Company in violation of
this Agreement upon an appropriate finding by such court that Executive
has violated this Section 10.
(c) UNENFORCEABLE PROVISIONS. It is the desire and the intent of the
parties that the provisions of this Section 10 shall be enforceable to the
fullest extent permissible under applicable law and public policy.
Accordingly, if this Section 10 or any portion thereof shall be adjudicated
to be invalid or unenforceable whether because of the duration and scope of
the covenants set forth herein or otherwise, the length and scope of the
restrictions set forth in this Section 10 shall be reduced to the extent
necessary so that this covenant may be enforced to the fullest extent
possible under applicable law.
11. CONFIDENTIAL INFORMATION. The Executive acknowledges that in his
employment hereunder, and during prior periods of employment with the Company
and/or its subsidiaries, he has occupied and will continue to occupy a position
of trust and confidence. The Executive shall not, except as may be required to
perform his duties hereunder or as required by applicable law, until the
expiration of the applicable periods described in Section 10(b) or until such
information shall have become public other than by the Executive's unauthorized
disclosure, disclose to others or use, whether directly or indirectly, any
Confidential Information regarding the Company, its subsidiaries and affiliates.
"Confidential Information" shall mean information about the Company, its
subsidiaries and affiliates, and their respective clients and customers that is
not publicly disclosed by the Company or otherwise generally available to
members of the public seeking such information and that was learned by the
Executive in the course of his employment by the Company, its subsidiaries and
affiliates, including (without limitation) any proprietary knowledge, trade
secrets, data, formulae, information and client and customer lists and all
papers, resumes, and records (including computer records) of the documents
containing such Confidential Information. The Executive acknowledges that such
Confidential Information is specialized, unique in nature and of great value to
the Company, its subsidiaries and affiliates, and that such information gives
the Company, its subsidiaries and affiliates a competitive advantage. The
Executive agrees to deliver or return to the Company, at the Company's request
at any time or upon termination or expiration of his employment or as soon
thereafter as possible, all documents, computer tapes and disks, records, lists,
data, drawings, prints, notes and written information (and all copies thereof)
furnished by the Company, its subsidiaries or affiliates or prepared by the
Executive during the term of his employment by the Company, its subsidiaries and
affiliates.
In the event that the Executive engages in any conduct proscribed by this
Section 11, the Executive agrees to repay any lump-sum severance amount received
pursuant to Section 5 of this Agreement, and all outstanding stock options held
by the Executive shall expire as of the date of the Executive's commencement of
such proscribed conduct. It is further expressly agreed that the Company will or
would suffer irreparable injury if Executive were to disclose or threaten to
disclose
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Confidential Information regarding the Company or any subsidiary or affiliate in
violation of this Agreement or otherwise fail to comply with the provisions of
this Section 11, and that the Company would, by reason of such disclosure or
threatened disclosure or other failure to comply, be entitled to preliminary or
permanent injunctive relief in a court of appropriate jurisdiction, and
Executive further consents and stipulates to the entry of such preliminary or
permanent injunctive relief in such a court prohibiting Executive from
disclosing Confidential Information in violation of this Agreement or otherwise
requiring Executive to comply with the provisions of this Section 11 upon an
appropriate finding by such court that Executive has violated this Section 11.
12. NOTICE. For the purposes of this Agreement, any notices, demands and
all other communications required or permitted hereunder shall be in writing and
shall be deemed to have been duly given upon (a) transmitter's confirmation of a
receipt of a facsimile transmission, (b) confirmed delivery by a standard
overnight carrier or (c) the expiration of five business days after the day when
mailed by certified or registered mail, postage prepaid, addressed as follows
(or at such other address as the parties hereto shall specify by like notice):
<TABLE>
<S> <C>
If to Executive: R.J. Messenger
---------------------------------
---------------------------------
---------------------------------
If to Company: Paracelsus Healthcare Corporation
515 West Greens Road
Suite 800
Houston, Texas 77067
Telecopy No. (713) 878-6686
Attention: Robert C. Joyner, Senior Vice President
and General Counsel
with a copy to: Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue, Suite 3400
Los Angeles, California 990071
Telecopy No. (213) 687-5600
Attention: Thomas C. Janson
</TABLE>
13. AMENDMENT, WAIVER. No provisions of this Agreement may be waived,
modified or discharged unless such waiver, modification or discharge is agreed
to in a written document signed by the Executive and such officer of the
Company, as may be specifically designated by the Board. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement.
14. ENTIRE AGREEMENT. This Agreement and Exhibits A and B hereto set forth
the entire agreement of the parties hereto in respect of the subject matter
contained herein and supersede all prior agreements, promises, covenants,
arrangements, communications, representations or warranties, whether oral or
written, by any officer, employee or representative of any party hereto.
15. GOVERNING LAW; VENUE; VALIDITY. The interpretation, construction and
performance of this Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of California without regard to
the principle of conflicts of laws and, at the election of the Executive, the
venue of any dispute arising under this Agreement shall be California. The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement,
which other provisions shall remain in full force and effect.
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16. HEADINGS. Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
17. SEVERABILITY. In the event that a court of competent jurisdiction
determines that any portion of this Agreement is in violation of any statute or
public policy, only the portions of this Agreement that violate such statute or
public policy shall be stricken. All portions of this Agreement that do not
violate any statute or public policy shall continue in full force and effect.
Further, any court order striking any portion of this Agreement shall modify the
stricken terms as narrowly as possible to give as much effect as possible to the
intentions of the parties under this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first written above.
PARACELSUS HEALTHCARE CORPORATION
By:
-----------------------------------
Name:
Title:
-----------------------------------
R. J. MESSENGER
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EXHIBIT A
MANAGEMENT RIGHTS TERMS
In so much as the Board of Directors and Dr. Manfred Krukemeyer
recognize the value to recruiting and retaining the services of a highly
qualified executive team and that such objective is in the best interests of the
Company and all its stockholders, and further that Messrs. Messenger, Miller,
VanDevender and Patterson are instrumental to insuring the success of the merger
between Paracelsus and Champion, and that a clear delineation of duties,
authority and responsibility is essential to the foregoing, the Board of
Directors, Dr. Krukemeyer, and Messrs. Messenger and Miller ("The Parties")
agree that the concepts set forth herein will be incorporated in the various
merger transaction documents, including employment contracts:
BOARD OF DIRECTORS AUTHORITY AND RESPONSIBILITY - Ron Messenger and
Charles Miller shall have the authority to discharge their duties and
responsibilities as outlined herein for managing the affairs of the corporation
except for those items delineated below which is understood normally requires
Board approval. The Board, in its discretion, may delegate any such authority
and approval powers as it deems appropriate with respect to the items delineated
below to duly constituted committees of the Board excepting those powers and
authority which require the action of the Board acting as a whole.
1. Acquisitions & Divestitures of any kind;
2. Capital expenditures exceeding $5 million per project ($10 million for
construction and/or renovation projects and acquisition of real
estate) and $50 million in aggregate, including but not limited to
equipment purchases, capitalized leases and acquisition of physician
practices, clinic, surgery center, or other healthcare entities;
3. Major financings and any offerings of equity or debt;
4. Issuance of stock;
5. Appointment of corporate officers;
6. Stock option plans or stock grants;
<PAGE>
7. Approval of annual operating and capital budget;
8. Employment Agreements for Executive Management;
9. Changes or amendments to corporate charter of incorporation or
by-laws;
10. Material change in Company business strategy;
11. Liquidation or sale of Company or any subsidiary or merger or other
business combination with another company;
12. Compensation and benefit levels and incentive plans for executive
officers;
13. Termination of the: (i) CEO, (ii) President and COO, and (iii) CFO.
The Board shall designate an Executive Committee of the Board which
shall be delegated such authority as decided by the Board of Directors for
conducting the business of the Company. Members of the Executive Committee
shall be: (i) Mr. Messenger, as Chairman, (ii) Mr. Miller, and (iii) Mr.
VanDevender. The Executive Committee shall be delegated the authority to act on
behalf of the Board on any business issues not otherwise requiring action by the
Board as a whole except:
1. Major financings and any offerings of equity or debt;
2. Issuance of stock or approval of stock option plans;
3. Employment Agreements for (i) CEO, (ii) President & COO, and (iii)
CFO;
4. Compensation, benefits and incentive plans, including allocation of
stock options for (i) CEO, (ii) President & COO, and (iii) CFO;
5. Termination of (i) CEO, (ii) President & COO, and (iii) CFO;
6. Material change in Company business strategy;
7. Changes or amendments to the corporate charter of incorporation or
by-laws;
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8. Liquidation or sale of Company or subsidiary or merger or other
business combination with another company;
9. Any hospital acquisition transaction involving more than a $30 million
expenditure of capital, excluding working capital and/or assumption of
debt;
10. Divestiture of any hospital;
11. Approval of annual operating and capital budget;
12. Capital expenditures exceeding $5 million per project ($10 million for
construction and/or renovation projects and acquisition of real
estate) and $50 million in aggregate, including but not limited to
equipment purchases, capitalized leases and acquisition of physician
practices, clinic, surgery center, or other healthcare entities.
MR. MESSENGER'S AUTHORITY AND RESPONSIBILITY - The parties agree that
Mr. Messenger shall be Chairman of the Executive Committee of the Board of
Directors and serve as Chief Executive Officer of the new company. Except where
otherwise noted, decisions with respect to the following shall be reserved
exclusively to Mr. Messenger at his sole discretion:
1. Serving as liaison with Board of Directors;
2. Relocation of corporate offices;
3. Capital expenditures, as defined above, which exceed $3 million and up
to $5,000,000;
4. Employment and compensation status of direct reports to Mr. Messenger
(as defined throughout this agreement, references to Messenger "direct
reports" shall exclude Mr. Miller);
5. Approval of senior lender participants and agent bank;
6. Approval of investment bankers, upon concurrence by Mr. Miller;
7. Chairmanship of the Audit Committee of the Board of Directors;
8. Chairmanship of the Executive Committee of the Board of Directors.
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Any and all proposals to be presented to the Board, or any of its
Committees, or the Executive Committee are subject to the review of and
approval, disapproval or modification by Mr. Messenger.
Mr. Messenger, in his sole discretion and to the extent practicable,
may elect to exempt himself, and his direct reports from any changes in
corporate policies and procedures which: (i) were not agreed to at the time of
the merger, or (ii) reduce or materially affect the agreed upon status or
benefits of Mr. Messenger or his direct reports.
Mr. Messenger shall develop and be solely responsible for
administering and controlling an overhead budget for the Office of the CEO which
shall include himself and his direct reports with such budget subject to the
approval by the Board of Directors, provided however that such budget does not
otherwise breach or circumvent Mr. Miller's authority and responsibility as set
forth herein.
Any other duties, authority and responsibilities not delineated above,
or which are not otherwise reserved specifically to the Board or Mr. Miller,
shall be reserved to Mr. Messenger so long as such duties, authority and
responsibilities do not otherwise unreasonably abridge Mr. Miller's rights to
manage the day-to-day affairs of the new company as delineated below.
MR. MILLER'S AUTHORITY AND RESPONSIBILITY - The parties have agreed
that it is in the best interests of the Company and its stockholders to retain
Mr. Miller's services following the merger and that he shall be elected
President and Chief Operating Officer of the new company and along with Mr.
VanDevender be appointed to the Executive Committee of the Board. The parties
also agree that Mr. Miller shall be delegated full authority and responsibility
for managing the day-to-day affairs of the corporation, subject to the powers
and authority reserved exclusively to the Board of Directors and Mr. Messenger
as delineated above and the mutual areas of responsibility to be shared by
Messrs. Messenger and Miller delineated below. Therefore, the parties agree
that Mr. Charles R. Miller in his sole discretion shall have such authority and
responsibility as is reasonably required to manage and oversee the day-to-day
affairs of the corporation, including but not limited to the following:
1. HOSPITAL, SUBSIDIARY AND BUSINESS UNITS - Complete responsibility for
management and decisions associated with the operations of the
Company's hospitals, business units, subsidiaries and markets,
including but not limited to: (i) determination of staffing levels,
(ii) control of expenses, (iii) recruitment, selection and employment
of key management, (iv) management and financial reporting and
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<PAGE>
systems, including data processing systems, (v) medical staff issues,
including credentialing and modifications to and enforcement of
medical staff by-laws, rules and regulations, (vi) quality of care and
service, (vii) decisions regarding programs and services to be offered
or discontinued, (viii) use or discontinuance of vendors, contractors
and consultants, (ix) any and all contracts and the approval,
discontinuance or modification thereof, including physician contracts,
(x) accounting, budgeting, reimbursement, financial and cash
management policies, procedures and systems, (xi) market strategy
development and implementation, (xii) composition of local boards,
(xiii) policies, by-laws, rules & regulations, (xiv) promotional and
marketing activities, and (xv) capital expenditures up to but not
exceeding $3 million;
2. CONTRACTS AND LEASES - Approval or disapproval of any and all
contracts and leases within Mr. Miller's authority level;
3. CORPORATE OVERHEAD BUDGET & EXPENSES - Complete authority for
development, control, administration and management of the Company's
corporate overhead budget, after approved by Board, and control of all
corporate expenses, excluding the CEO's direct reports and corporate
overhead budget;
4. CORPORATE MATTERS - Management and supervision of the Company's
corporate activities and operations (excluding Mr. Messenger's direct
reports and corporate overhead budget), responsibility for all
decisions pertaining thereto, including but not limited to, (i)
establishing or changing of job titles, duties and responsibilities,
(ii) recruiting, hiring, firing, promoting, demoting, transferring,
and relocating employees, (iii) determining compensation levels,
incentive plans, and benefit programs, (iv) establishment, revision or
discontinuance of Company policies and procedures, (v) legal affairs
and related matters, including risk management and insurance, (vi)
budgeting, data processing, tax, fiscal, accounting, reimbursement,
cash management and corporate finance, including policies, procedures
and systems, (vii) management and financial reporting policies,
procedures and systems, (viii) construction and renovation projects,
(ix) managed care contracting, (x) acquisition and development
activities, (xi) physician recruiting and associated physician
activities such as practice management, (xii) development and
execution of Company business plan and strategies, (xiii) press
releases, public relations, and media relations, (xiv) preparation of
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<PAGE>
the Company's annual operating and capital budget, and (xv) investor
and banking relations (except as noted below under "Mutual
Responsibility").
The parties agree that any duties, responsibilities, functions, or
authority not specifically delineated in this section but which would otherwise
reasonably be considered integral to managing the day-to-day affairs of the
Company and its operations, including its business units, subsidiaries and
affiliates, both now and in the future, will be reserved to Mr. Miller as part
of this Management Rights Agreement.
MUTUAL RESPONSIBILITY - Messrs. Messenger and Miller agree to jointly
develop plans and strategies for promoting the Company to the financial
community, including but not limited to: (i) preparation of the annual report,
(ii) analyst meetings, (iii) road shows, (iv) presentations at conferences, (v)
bank meetings and presentations, (vi) mergers, acquisitions, and divestitures,
and (vii) media interviews.
Further, Messrs. Messenger and Miller will be considered "ex-officio"
members of any and all boards of the new company's subsidiary operations and may
elect to attend any meetings of such boards at their sole discretion.
COVENANT NOT TO BREACH AGREEMENT - The Board of Directors, Dr.
Krukemeyer and Mr. Messenger agree not to initiate any actions or decisions
which in any way would breach Mr. Miller's duties, authority and responsibility
as specified herein, except where the Board's authority or approval is otherwise
required. The Board and Dr. Krukemeyer further agree not to initiate any
actions or decisions which in any way breach Mr. Messenger's duties, authority
and responsibility as specified herein, except where the Board's authority or
approval is otherwise required.
The parties agree that any breach of the above duties, authority and
responsibility of Messrs. Miller and Messenger shall constructively constitute
Termination Without Cause as specified in Messrs. Messenger's and Miller's
Employment Agreements, unless such breach is waived in writing by Messrs.
Messenger and Miller.
These "Management Rights Terms" shall be incorporated into the
Employment Contracts of Messrs. Messenger and Miller and/or such other documents
as is appropriate and shall be in full force and effect through each contract
renewal term of Messrs. Messenger and Miller until Mr. Miller shall become CEO
of the Company.
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EXHIBIT B
During the Term of the Agreement, the Company shall provide Executive with
the following group health, group life insurance and disability coverages:
(1) HEALTH BENEFITS -- Executive, his wife, minor children and any other
eligible dependents (as defined in the health plan maintained by the
Company) are to be reimbursed for 100% of the hospital and medical expenses
presently covered by the Company's health plan which Executive and such
dependents may incur;
(2) DENTAL BENEFITS -- Executive, his wife, minor children and any other
eligible dependents (as defined in any dental plan which may be
maintained by the Company, or in the absence of a dental plan, as defined in
the health plan maintained by the Company) are to be reimbursed for 100% of
the dental expenses presently covered by the Company's dental plan which he
and such dependents may incur;
(3) LIFE INSURANCE -- Executive, subject to health eligibility, is to be
covered by life insurance equal to four times the amount of his salary as
in effect from time to time, provided, however, that if the Company may not
reasonably obtain life insurance coverage equal to four times such salary,
the Company will provide a lump-sum death benefit in the amount necessary
when added to any life insurance provided by the Company to provide
Executive's beneficiary(ies) with the amount he (they) would have received
after payment of income tax, had the Company been able to obtain such full
life insurance coverage, payable within ninety (90) days following the date
of Executive's death. Executive shall have the right to name and to change
the beneficiary(ies) under such life insurance coverage.
The above described life insurance coverage will be in addition to any death
benefits which may be payable under any accidental death and dismemberment
plan, any separate business travel accident coverage, and any pension plan
which the Company maintains, and such coverage shall also be in addition to
any life insurance which Executive himself purchases;
(4) LONG-TERM DISABILITY -- In the event Executive becomes disabled (as
defined in the long-term disability plan presently maintained by the
Company), Executive is to receive disability benefits in an amount equal to
60% of his then salary. Any amount payable under any salary continuation
plan (including any salary continuation provided under this agreement) or
disability plan maintained by the Company, and any amount payable as a
Social Security disability benefit or similar benefit to Executive or his
immediate family shall be counted towards the Company's fulfillment of such
obligation. Disability benefits will be payable monthly commencing thirty
(30) days following disability and will continue until Executive is no
longer disabled or, if earlier, until he reaches age 65.
During the Term of the Agreement, the Company shall also provide Executive
with the following additional fringe benefits:
(1) COMPANY CAR -- provide Executive with an appropriate automobile
selected by Executive and acceptable to the Company.
(2) CLUB MEMBERSHIPS -- reimburse Executive for the cost of membership
in any two (2) local recreational clubs of his choice and for expenses
incurred at such clubs in connection with Company business within fifteen
(15) days of submission of invoices and charges. Expenses of a personal
nature are not reimbursable by the Company.
(3) VACATIONS AND HOLIDAYS -- Executive shall be entitled to such paid
vacation time as may be reasonably taken at Executive's discretion so
long as such vacation time does not interfere with the efficient discharge
of the Executive's duties and responsibilities. Executive shall be entitled
to all holidays as delineated annually in the Company's official holiday
schedule.
(4) PERSONAL LIABILITY -- will indemnify Executive, through insurance or
otherwise, against any and all personal liability incurred in the conduct
of the Company's business, other than liability arising from Executive's
dishonesty, gross or willful misfeasance or nonfeasance of
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duty, or criminal conduct. The Company will purchase and keep in effect a
personal liability insurance policy insuring Executive in the face amount of
not less than Ten Million Dollars ($10,000,000) in his capacity as an
individual, corporate officer and corporate director.
(5) TAX RETURN PREPARATION ASSISTANCE; FINANCIAL ADVICE -- will provide
the Executive with the assistance of the Company's regular auditors for
the preparation of Executive's United States Federal and State tax returns
without charge to Executive. In addition, the Company shall reimburse
Executive for the costs incurred by Executive for financial planning
services in an amount not to exceed $5,000 annually.
(6) ANNUAL PHYSICAL EXAMINATION -- The Company shall reimburse Executive
100% of all costs incurred by Executive in obtaining an annual
comprehensive physical examination to be conducted by a physician, clinic,
or medical group of the Executive's choice and which is located within
reasonable proximity to Executive's place of Employment
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EXHIBIT 10.45
FORM OF
PARACELSUS HEALTHCARE CORPORATION
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of July 17, 1996, between Paracelsus Healthcare
Corporation, a California corporation (the "Company"), and James G. VanDevender
(the "Executive").
In consideration of the premises and the respective covenants and agreements
of the parties herein contained, and intending to be legally bound hereby, the
parties agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive and the
Executive hereby agrees to serve the Company, on the terms and conditions set
forth herein. In addition, the Executive and the Company hereby agree that
subject to and effective as of the closing of the proposed merger transaction
among the Company, Champion Healthcare Corporation, a Delaware corporation
("Champion") and PC Merger Sub, Inc., a Delaware corporation and a wholly-owned
subsidiary of the Company ("PC Merger Sub"), whereby Champion will become a
wholly owned subsidiary of the Company (the "Merger), this Agreement shall
supersede that certain employment agreement (the "Prior Agreement") between
Champion and the Executive, dated as of August 4, 1995.
2. TERM OF EMPLOYMENT; DUTIES. From the period commencing on the date
hereof and ending immediately prior to the Effective Time (as defined in the
Agreement and Plan of Merger by and among the Company, Champion and PC Merger
Sub dated as of April 12, 1996, as amended and restated May 29, 1996, and as
such agreement may be amended from time to time (the "Merger Agreement")), the
employment of the Executive shall be governed by the terms and conditions set
forth in the Prior Agreement. The term of this Agreement (the "Term"), and
Executive's employment with the Company hereunder, shall commence at the
Effective Time and, unless earlier terminated in accordance with the terms
hereof, shall continue until the fifth anniversary of the Effective Time (such
initial term of the Agreement referred to as the "Initial Term"); PROVIDED,
HOWEVER, that the Term shall automatically be renewed for an additional period
of five years (each such period, a "Renewal Period") at the end of the Initial
Term and at the end of each Renewal Period, if any, unless either the Company or
the Executive provides at least one year's notice to the other of its intention
not to renew the Term; and PROVIDED, FURTHER, that if the Merger Agreement is
terminated in accordance with its terms prior to the Effective Time or if the
Merger is abandoned or otherwise does not close, (x) this Agreement shall
automatically terminate without further obligation by either party hereto, (y)
the terms and conditions set forth in this Agreement shall not apply and (z) the
employment of the Executive shall continue to be governed by the terms and
conditions set forth in the Prior Agreement.
During the Term, the Executive shall be employed as the Executive
Vice-President and Chief Financial Officer of the Company serving at the will of
the Board of Directors of the Company (the "Board") with, subject to the express
terms and conditions hereof, the traditional duties, responsibilities and
authority of such officer in companies similar in size to the Company. The
Executive agrees that he shall perform his duties hereunder faithfully and to
the best of his abilities and in furtherance of the business of the Company and
its subsidiaries and shall devote substantially all of his business time, energy
and attention to the business of the Company and its subsidiaries. The Executive
shall agree to serve and the Company shall use its best efforts to nominate and
cause the Executive to be elected as a member of the Board. In addition, for so
long as the Executive shall serve as a member of the Board, he shall agree to
serve as and the Company shall use its best efforts to nominate and cause the
Executive to be elected as a member of the Executive Committee of the Board
("Executive Committee").
The Executive agrees to use his authorities as Executive Vice-President and
Chief Financial Officer and as a member of the Board and of the Executive
Committee to manage and cause others to manage the Company in accordance with
the management guidelines set forth on Exhibit A hereto; PROVIDED, HOWEVER, that
nothing in this Section shall require the Executive to violate or breach his
duties under the law of the state of incorporation of the Company or any other
applicable laws. The Company agrees to use its best efforts to manage and cause
others to manage the Company in accordance with the management guidelines set
forth in Exhibit A hereto.
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3. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY. During the Term, the Company shall pay to the
Executive an annual base salary (the "Base Salary") at an initial rate of
$350,000 per year, payable in accordance with the Company's normal payroll
practices or as the Company and Executive may otherwise agree. The Base
Salary shall be reviewed by the Company annually and shall be subject to
discretionary increase by the Company from time to time, but shall not be
decreased from the rate in effect at any time and from time to time during
the Term.
(b) ANNUAL PERFORMANCE BONUS. Executive shall be entitled to
participate in the Paracelsus Healthcare Corporation Executive Officer
Performance Bonus Plan or any similar or successor annual bonus plan of the
Company (the "Performance Bonus Plan") and to receive an annual performance
bonus upon the achievement of one or more annual performance goals (the
"Performance Goals") in accordance with the terms of the Performance Bonus
Plan; PROVIDED that Executive's annual target bonus under the Performance
Bonus Plan (the "Annual Target Bonus") shall not be less than 70% of the
Base Salary in effect at the time the Performance Goals for such plan year
are established.
(c) LONG-TERM INCENTIVE. The Executive shall be eligible to
participate in any long-term incentive compensation and/or stock option
plans maintained from time to time by the Company. In addition, pursuant to
prior action of the Stock Option Committee of the Board, Executive has
previously been granted (i) an option (the "Value Option") to purchase
180,000 shares of Company common stock, no stated par value (the "Common
Stock"), at an exercise price of $.01 per share with a term of 10 years from
the date of grant and (ii) an option (the "Market Option") to purchase an
additional 540,000 shares of Common Stock at an exercise price equal to the
fair market value (as defined in the Paracelsus Healthcare Corporation 1996
Stock Incentive Plan (the "1996 Stock Incentive Plan")) of the Common Stock
on the date of the Effective Time with a term of 10 years from the date of
grant. The Value Option will be fully vested on grant and will become fully
exercisable at the Effective Time, and the Market Option will generally vest
and become exercisable in equal annual installments of 25% on each of the
first four anniversaries of the Effective Time; PROVIDED, that neither the
Value Option nor the Market Option will become exercisable in whole or in
part in the event the Merger Agreement is terminated in accordance with its
terms prior to the Effective Time or if the Merger is abandoned or otherwise
does not close; and PROVIDED, FURTHER, that the Value Option and the Market
Option shall each be subject to the terms of the 1996 Stock Incentive Plan
and the stock option agreements to be entered into in connection with the
grant of such options.
(d) BENEFITS, PERQUISITES AND EXPENSES. During the Term, the Executive
shall be eligible to participate in employee benefit and fringe benefit
plans and programs generally available to the executive officers of the
Company and such additional benefits as the Board may from time to time
provide. In addition, Executive shall be entitled to receive the personal
benefits described in Exhibit A hereto. Reimbursement for business expenses,
including travel and entertainment, shall be limited to reasonable and
necessary expenses incurred by Executive in connection with performance of
duties on behalf of the Company subject to: (i) timely submission of a
properly executed Company expense report form accompanied by appropriate
supporting documentation, and (ii) compliance with Company policies and
procedures governing business expense reimbursement and reporting based upon
principles and guidelines established from time to time by the Audit
Committee of the Board, including periodic audits by the Internal Audit
Department of the Company and/or the Audit Committee.
(e) RETIREMENT BENEFITS. Effective as of the Effective Time of the
Merger, the Executive shall be entitled to participate in the Paracelsus
Healthcare Corporation Supplemental Executive Retirement Plan or any similar
or successor plan (the "SERP") and in any tax-qualified and any other
supplemental pension plans generally available to the executive officers of
the Company; PROVIDED, that employment with Champion and its subsidiaries
shall be taken into account for
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purposes of eligibility, vesting and benefit accrual under the SERP, but not
for purposes of determining whether a "Post-Participation Change in
Control", as defined in the SERP, has occurred.
(f) SIGN-ON BONUS. In connection with the commencement of Executive's
employment with the Company, as soon as practicable after the Effective
Time, the Company shall provide Executive a lump sum cash payment in the
amount of $750,000.
4. TERMINATION OF EXECUTIVE. Prior to the expiration of the Term and
subject to the payment of any amounts required under Section 5, the Executive's
employment with the Company may be terminated (a) by the Company with or without
Cause (as defined below), PROVIDED that no less than 80% of the then members of
the Board (excluding, for the purposes of such calculation, the Executive) and
no less than 2/3 of the Independent Directors (as defined in the Shareholder
Agreement of the Company to be entered into in connection with the Merger (the
"Shareholder Agreement")) have approved such termination, (b) by the Executive
for or without Good Reason (as defined herein), (c) by reason of the Executive's
death or Disability (as defined herein) or (d) by the mutual written consent of
the parties hereto. For purposes of this Agreement:
(i) "Cause" means (A) acts of embezzlement, theft and fraud established
by a preponderance of the evidence; (B) actions which have had or will
likely have a material adverse financial effect on the Company as a whole
for an extended period of time, where appropriate evidence exists that such
actions are directly attributable to the (I) gross management negligence or
repeated ineptitude of the Executive and/or (II) deliberate refusal of the
Executive to follow the instructions or directions of the Board; (C)
conviction of or a plea of guilty or NOLO CONTENDERE to a felony; (D)
violation of the noncompete or confidentiality provisions of this Agreement,
PROVIDED that no such violation will be deemed to have occurred if, within
30 days following receipt by Executive of a notice from the Board
identifying the violation, the Executive (I) cures the violation and (II)
establishes that the violation was unintentional and not reasonably likely
to result in harm to the Company, in each case to the reasonable
satisfaction of the Board; (E) material incapacitation or repeated absence
from work due to reckless and self abusive behavior or conduct, such as
alcoholism and drug abuse, which renders Executive incapable of performing
his duties; PROVIDED, that physical or mental disability due to injury or
disease shall not be grounds for termination for Cause; or (F) material
repeated incompetence in performing the duties of the Executive's office,
PROVIDED that such incompetence is: (I) supported by written documentation
of such incompetence, (II) occurs after the Executive has been previously
counseled by the Board both orally and in writing with respect to specific
examples of such incompetence and has been provided the opportunity to
respond in kind, and (III) determined to be incurable and to be of such a
nature as to have had or which would have been reasonably likely at the time
of such commission to have a material, adverse effect on the Company as a
whole;
For purposes of this Agreement, the Board shall have 60 days to
terminate the Executive for Cause following the date on which the Board
discovers the existence of a specific set of facts that, in the aggregate,
then constitute Cause, after which period no Cause with respect to such
specific set of facts shall be deemed to exist; PROVIDED, that the
repetition or reoccurrence of the same or a similar set of facts shall
constitute a separate ground for termination for Cause;
(ii) "Disability" means the Executive's absence from the full-time
performance of his duties with the Company for one hundred eighty (180) days
or more within any period of 12 consecutive months as a result of the
Executive's incapacity due to mental or physical illness; PROVIDED, that
during any period prior to the termination of Executive's employment by
reason of Disability in which Executive is absent from the full-time
performance of his duties with the Company due to Disability, the Company
shall continue to pay Executive his Base Salary at the rate in effect at the
commencement of such period of Disability;
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(iii) "Good Reason" means, without the Executive's express written
consent, the occurrence of any of the following events:
(A) a reduction by the Company in the Executive's Base Salary, or
Annual Target Bonus in effect from time to time; (B) a material reduction
in the aggregate level of participation in and/or compensation and
benefit opportunities under all other compensation and employee benefit
plans in which Executive is entitled to participate from time to time;
PROVIDED, HOWEVER, that changes affecting the participation in or
benefits under such plans (other than the Performance Bonus Plan, the
SERP and the benefits described in Exhibit B) with respect to similarly
situated executives of the Company shall not constitute Good Reason
hereunder; (C) a reduction in the Executive's titles, duties or authority
with the Company or a material adverse change in reporting relationship;
(D) the relocation of the principal executive offices of the Company to a
location that increases the Executive's one-way commute thereto by more
than 25 miles; (E) the Executive no longer reports to (I) Mr. Miller or
(II) in the event Mr. Miller's employment with the Company terminates as
a result of Mr. Miller's death, "Disability" (as defined in Mr. Miller's
employment agreement) or termination for "Cause" (as defined in Mr.
Miller's employment agreement), Mr. Miller's successor; (F) the
notification by the Company of its intention not to renew this Agreement
pursuant to Section 2; (G) the failure of the Executive to be nominated
for election and elected to serve as a member of the Board or, for so
long as he is a member of the Board, to be appointed to the Executive
Committee; or (H) the termination of the Executive's employment by the
Executive for any reason within 12 months following a Change of Control
(as defined herein);
(iv) "Change of Control" means the occurrence of any one of the
following events:
(A) any "person" (as such term is defined in Section 3(a)(9) of the
Securities Exchange Act of 1934 (the "Exchange Act") and as used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act) becomes an Acquiring
Person (as such term is defined in the Company's Shareholder Protection
Rights Agreement to be adopted at the Effective Time) or any person that
is not bound by the Shareholder Agreement becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 25% or more of the
undiluted total voting power of the Company's then outstanding securities
eligible to vote for the election of members of the Board (the "Company
Voting Securities"); PROVIDED, HOWEVER, that no event described in the
immediately preceding clause shall be deemed to constitute a Change in
Control by virtue of any of the following: (I) an acquisition of Company
Voting Securities by the Company and/or one or more direct or indirect
majority-owned subsidiaries of the Company; (II) an acquisition of
Company Voting Securities by any employee benefit plan sponsored or
maintained by the Company or any corporation controlled by the Company;
(III) an acquisition by any underwriter temporarily holding securities
pursuant to an offering of such securities; or (IV) any acquisition by
the Executive or any "group" (as such term is defined in Rule 3d-5 under
the Exchange Act) of persons including the Executive; or
(B) individuals who, at the beginning of any period of twenty-four
(24) consecutive months, constitute the Board (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof; PROVIDED,
HOWEVER, that any person becoming a director subsequent to the beginning
of such twenty-four (24) month period, whose election, or nomination for
election, by the Company's shareholders was approved by either (i) the
Board consistent with the terms of the Shareholder Agreement during the
period in which the Shareholder Agreement remains in effect or (ii) a
vote of at least 75% of the directors comprising the Incumbent Board
(either by a specific vote or by approval of the proxy statement of the
Company in which such person is named as a nominee for director, without
objection to such nomination), shall be, for purposes of this paragraph
(B), considered as though such person were a member of the Incumbent
Board; PROVIDED, FURTHER, that no individual initially elected or
nominated as a director of the Company as a result of an actual or
threatened election contest with
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respect to directors or any other actual or threatened solicitation of
proxies or consents by or on behalf of any person other than the Board
shall be deemed to be a member of the Incumbent Board; or
(C) there is consummated a merger or consolidation of the Company or
a subsidiary thereof with or into any other corporation other than a
merger or consolidation which would result in the holders of the voting
securities of the Company outstanding immediately prior thereto holding
securities which, in combination with the ownership of any trustee or
other fiduciary holding securities under an employee benefit plan of the
Company, represent immediately after such merger or consolidation at
least 60% of the combined voting power of the then outstanding voting
securities of either the Company or the other entity which survives such
merger or consolidation or any parent of such other entity; or
(D) the stockholders of the Company approve (i) a plan of complete
liquidation or dissolution of the Company or (ii) an agreement for the
sale or disposition by the Company of all or substantially all the
Company's assets.
5. PAYMENTS UPON TERMINATION OF EXECUTIVE.
(a) If the employment of the Executive shall be terminated other than by
reason of death or Disability (i) by the Company (other than for Cause) or
(ii) by the Executive for Good Reason, then the Company shall pay or provide
to the Executive (or the Executive's beneficiary or estate):
(1) within thirty (30) days following the date of such termination of
employment ("Termination Date"), a lump-sum cash amount equal to the sum
of (i) the Executive's unpaid Base Salary through the Termination Date;
(ii) any accrued but unpaid annual bonus under the Performance Bonus Plan
in respect of the annual bonus period preceding the bonus period in which
the Termination Date occurs; (iii) any unpaid reimbursable business
expenses properly incurred through the Termination Date; and (iv) a bonus
payment equal to the Executive's Annual Target Bonus in the year of
termination, multiplied by a fraction the numerator of which is the
number of months in the bonus year of termination in which the Executive
has worked at least one day and the denominator of which is 12;
(2) within thirty (30) days following the Termination Date, a
lump-sum cash amount equal to the greater of (A) the Executive's then
Base Salary payable over the remainder of the Term plus a bonus equal to
the Executive's Annual Target Bonus in the year of termination multiplied
by a fraction the numerator of which is the number of complete months
remaining in the Term and the denominator of which is 12, or (B) 3.0
times the sum of: (i) the Executive's annual rate of Base Salary as of
the Termination Date plus (ii) the Annual Target Bonus for the year in
which the Termination Date occurs (in each such case, Executive's Base
Salary and Target Bonus being determined without taking into account any
reductions thereto constituting Good Reason); PROVIDED, HOWEVER, that the
Executive shall not be entitled to any severance benefits from the
Company or under any Company severance plan, policy or arrangement other
than as specified in this Agreement;
(3) for a period terminating on the earlier of (A) the commencement
of the provision of substantially equivalent benefits by a new employer,
or (B) the later of (I) the last day of the Term, or (II) thirty-six (36)
months following the Termination Date, the Company shall continue to keep
in full force and effect (or otherwise provide) all policies of medical,
accident, disability and life insurance with respect to the Executive and
his dependents with substantially the same level of coverage, upon
substantially the same terms and otherwise substantially to the same
extent as such policies shall have been in effect immediately prior to
the Termination Date, and, as applicable, the Company and the Executive
shall share the costs of the continuation of such insurance coverage in
the same proportion as such costs were shared immediately prior to the
date of termination; and
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(4) for purposes of determining "final average compensation" (or
making any similar calculation) and years of service (for purposes of
eligibility, vesting and benefit accrual) under any tax-qualified or
supplemental defined benefit retirement plan (including without
limitation the SERP), Executive shall be deemed to have remained employed
by the Company hereunder through the end of the Term and to have received
his then current Base Salary and Annual Target Bonus through the end of
the Term; PROVIDED, that to the extent such benefits cannot be accrued
under and paid from any tax-qualified pension plan, such benefits shall
be accrued under and paid from the SERP or other supplemental plan;
(5) all options to purchase Common Stock held by the Executive shall
immediately become fully vested and exercisable and shall remain
exercisable until the earlier of (A) the date that is 24 months following
the Termination Date and (B) the expiration of the stated term of such
options; PROVIDED, that the Value Option shall remain exercisable until
the expiration of its stated term;
(b) If the employment of the Executive shall be terminated (i) by reason
of the Executive's death or Disability, (ii) by the Company for Cause, (iii)
by the Executive without Good Reason, or (iv) by the mutual written consent
of the parties hereto (each a "Nonqualifying Termination"), then the Company
shall pay to the Executive (or the Executive's beneficiary or estate) within
thirty (30) days following the Termination Date a lump sum cash amount equal
to the sum of the Executive's unpaid Base Salary through the Termination
Date plus any bonus payments which have been earned or become payable, to
the extent not theretofore paid, plus any unpaid reimbursable business
expenses properly incurred through the Termination Date. In addition,
Executive (or the Executive's beneficiary or estate) shall have no less than
ninety (90) days following the termination of his employment pursuant to a
Nonqualifying Termination to exercise any outstanding options to the extent
vested and exercisable as of the Termination Date; PROVIDED, that the Value
Option shall remain exercisable until the expiration of its stated term.
6. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Notwithstanding anything in this Agreement to the contrary, in the
event that any payment or distribution by the Company, by any affiliate of
the Company or by any person whose actions result in a Change in Control of
the Company (to the extent the Company approves of the arrangements pursuant
to which the payment by such person is made to the Executive) to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
Section 6) (a "Payment") would be subject to the excise tax imposed by
Section 4999 of the Code, or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as
the "Excise Tax"), then the Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that, after
payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes) including, without limitation, any
income and employment taxes and Excise Tax, imposed upon the Gross-Up
Payment but before deduction for any federal, state or local income or other
tax upon the Payments, the Executive will retain a net amount equal to the
sum of (i) the Payments and (ii) an amount equal to the product of any
deductions (or portion thereof) disallowed because of the inclusion of the
Gross-Up Payment in the Executive's adjusted gross income for federal income
tax purposes and the highest applicable marginal rate of federal income
taxation for the calendar year in which the Gross-Up Payment is to be made.
For purposes of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to (1) pay applicable federal income taxes at the
highest applicable marginal rates of federal income taxation (including
surcharges) for the calendar year in which the Gross-Up Payment is to be
made, (2) pay applicable state and local income taxes at the highest
applicable marginal rate of taxation (including surcharges) for the calendar
year in which the Gross-Up Payment is to be made, net of the maximum
reduction in federal income taxes which could be obtained from deduction of
such state
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and local taxes and (3) have otherwise allowable deductions for federal
income tax purposes at least equal to those disallowed because of the
inclusion of the Gross-Up Payment in the Executive's adjusted gross income.
(b) Subject to the provisions of Section 6(a), all determinations
required to be made under this Section 6, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made
by the public accounting firm that is retained by the Company as of the date
immediately prior to the Change in Control (the "Accounting Firm") which
shall provide detailed supporting calculations both to the Company and the
Executive within fifteen (15) business days of the receipt of notice from
the Company or the Executive that there has been a Payment, or such earlier
time as is requested by the Company (collectively, the "Determination"). In
the event that the Accounting Firm is serving as accountant or auditor for
the individual, entity or group effecting the Change in Control, the
Executive may appoint another nationally recognized public accounting firm
reasonably acceptable to the Company to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All reasonable fees and expenses of the Accounting Firm
shall be borne solely by the Company and, subject to applicable law and
obligations to the Company's stockholders, the Company shall enter into any
agreement reasonably requested by the Accounting Firm that is generally
recognized as standard in connection with the performance of the services
hereunder. The Gross-Up Payment under this Section 6 with respect to any
Payment shall be made no later than thirty (30) days following the date of
such Payment. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall furnish the Executive with a written
opinion to such effect, and to the effect that failure to report the Excise
Tax, if any, on the Executive's applicable federal income tax return should
not result in the imposition of a negligence or similar penalty. The
Determination by the Accounting Firm shall be binding upon the Company and
the Executive. As a result of uncertainty in the application of Section 4999
of the Code at the time of the Determination, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment") or Gross-Up Payments are made by the Company which should
not have been made ("Overpayment"), consistent with the calculations
required to be made hereunder. In the event that the Executive thereafter is
required to make payment of any additional Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any
such Underpayment (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code) shall be promptly paid by the Company to or for
the benefit of the Executive. In the event the amount of the Gross-Up
Payment exceeds the amount necessary to reimburse the Executive for his
Excise Tax, the Accounting Firm shall determine the amount of the
Overpayment that has been made and any such Overpayment (together with
interest at the rate provided in Section 1274(b)(2) of the Code) shall be
promptly paid by the Executive to or for the benefit of the Company. The
Executive shall cooperate, to the extent his reasonable expenses in
connection therewith are reimbursed by the Company, with any reasonable
requests by the Company in connection with any contests or disputes with the
Internal Revenue Service in connection with the Excise Tax.
7. WITHHOLDING TAXES. The Company shall have the right to withhold from
any and all payments due to the Executive (or his beneficiary or estate)
hereunder all taxes which, by applicable federal, state, local or other law, the
Company is required to withhold therefrom.
8. SUCCESSORS; BINDING AGREEMENT.
(a) This Agreement is personal in nature and none of the parties hereto
shall, without the consent of the other, assign, or transfer this Agreement
or any rights or obligations hereunder; PROVIDED, that in the event of the
merger, consolidation, transfer or sale of substantially all of the assets
of the Company with or to any other individual or entity, this Agreement
shall, subject to
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the provisions hereof, be binding upon and inure to the benefit of such
successor and such successor shall discharge and perform all the promises,
covenants, duties and obligations of the Company hereunder, and all
references herein to the "Company" shall refer to such successor.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
the Executive shall die while any amounts remain payable to the Executive
hereunder, all such amounts, unless otherwise provided herein, shall be paid
in accordance with the terms of this Agreement to such person or persons
appointed in writing by the Executive to receive such amounts or, if no
person is so appointed, to the Executive's estate.
9. RESOLUTION OF DISPUTES; LEGAL FEES; NO MITIGATION.
(a) Except as provided in Sections 10 and 11, all disputes hereunder
shall be settled by final, binding arbitration, conducted before a panel of
three (3) arbitrators in Texas, in accordance with the rules of the American
Arbitration Association then in effect. Judgment on the arbitration award
may be entered in any court having jurisdiction. The Company shall bear the
expenses of such arbitration.
(b) If any contest or dispute shall arise under this Agreement involving
termination of the Executive's employment with the Company or involving the
failure or refusal of the Company to perform fully in accordance with the
terms hereof, the Company shall advance and reimburse the Executive, on a
current basis, all legal fees and expenses, if any, incurred by the
Executive in connection with such contest or dispute; PROVIDED, that the
Executive agrees to return any advanced or reimbursed expenses to the extent
the arbitrators (or the Court, in the case of a dispute described in Section
10 or 11) determine that the Company has prevailed as to the material issues
raised in determination of the dispute.
(c) The Company's obligation to make any payments provided for in this
Agreement to the Executive and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against
the Executive or others. In no event shall the Executive be obligated to
seek other employment or take other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this
Agreement, and such amounts shall not be reduced whether or not the
Executive obtains other employment.
10. NONCOMPETITION.
(a) DISCLOSURE. The Executive has disclosed to the Board, in writing,
all healthcare related interests, investments, or business activities,
whether as proprietor, stockholder, partner, co-venturer, director, officer,
employee, independent contractor, agent, consultant, or in any other
capacity or manner whatsoever. The Executive shall promptly notify the
Board, in writing, of any changes in or additions to such interests,
activities or investments permitted in accordance with the terms of this
Agreement, within 15 days of such change or addition.
(b) PROHIBITED ACTIVITY. Without the written consent of a majority of
the Independent Directors, the Executive may not engage in any of the
following actions during the period that is (A) prior to the Executive's
termination of employment with the Company, (B) within two years following
the termination of his employment with the Company during the Initial Term
if such termination is by the Company for Cause or by the Executive (other
than for Good Reason) and (c) within one year following his termination of
employment during the Term but after the Initial Term if such termination is
by the Company for Cause or by the Executive (other than for Good Reason):
(i) own, either directly or indirectly, any interest in any business
that competes with the "Primary Business" in which the Company or any
subsidiary or affiliate is engaged, within a radius of 30 miles from any
site, facility, or location which is owned, managed or operated by or
affiliated with the Company or any of its subsidiaries and affiliates,
including
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physician practices of any kind. For purposes of this Agreement, "Primary
Business" shall mean the delivery of integrated healthcare services in
markets where the Company or its subsidiaries own hospitals and/or
skilled nursing facilities ("SNFs"), with the hospital serving as the hub
of the local delivery system in conjunction with its physician medical
staff. In addition to inpatient acute care, psychiatric care, and skilled
nursing care, these services can include (A) individual physician
practices and/or physician based organizations such as primary care and
specialty clinics, physician-hospital organizations ("PHOs") or medical
service organizations ("MSOs"), or physician medical groups and (B)
ambulatory programs such as home health care, ambulatory surgery,
psychiatric services, occupational and sports medicine centers,
psychiatric after-care and day care programs, and other diagnostic,
rehabilitative and treatment services. Some of these services, sites and
facilities may be located in satellite areas for the purpose of extending
the hub hospital's geographic service area and to serve as access points
and/or referral sources for either the local delivery system or the hub
hospital's geographic service area and to serve as access points and/or
referral sources for either the local delivery system or the hub
hospital. The Board may modify, from time to time, the definition of
Primary Business to include any additional business or service activity
in which the Company may engage during the Term or to exclude any
business or service in which the Company ceases to engage. The definition
of "Primary Business" may also be modified to include any business or
service into which, as of the Termination Date, the Company definitively
intends to expand regardless of whether such expansion actually occurs
after the Executive's termination. For purposes of the preceding
sentence, the date on which a modification of the definition of "Primary
Business" shall be effective shall be the date on which the Executive is
provided written notice of such modification (the "Notice Date");
PROVIDED, HOWEVER, that no such modification as to which notice is
provided on or after the Termination Date shall be effective against the
Executive; and PROVIDED, FURTHER, that no such modification shall be
effective with respect to any interests, investments or business
activities engaged in by Executive prior to the Notice Date of such
modification and properly disclosed prior to such Notice Date pursuant to
Section 10(a).
(ii) participate or serve, either directly or indirectly, whether as
a proprietor, stockholder, partner, co-venturer, director, officer,
employee, independent contractor, agent, consultant, or in any other
capacity or manner whatsoever in any business or service activity that
competes with the Primary Business;
(iii) directly or indirectly, solicit or recruit any individual
employed by the Company, its subsidiaries or affiliates for the purpose
of being employed by him or by any competitor of the Company on whose
behalf he is acting as an agent, representative or employee, or convey
any confidential information or trade secrets regarding other employees
of the Company, its subsidiaries or affiliates to any other person; or
(iv) directly or indirectly, influence or attempt to influence
customers of the Company or any of its subsidiaries or affiliates to
direct their business to any competitor of the Company;
PROVIDED, HOWEVER, that neither (i) the "beneficial ownership" by
Executive, either individually or as a member of a "group," as such terms
are used in Rule 13d under the Exchange Act, as a passive investment, of
not more than five percent (5%) of the voting stock of any publicly held
corporation, nor (ii) the beneficial ownership by Executive of any
interest described in the first sentence of Section 10(a) and properly
and timely disclosed in accordance with the terms therewith, shall alone
constitute a violation of this Agreement.
In the event that the Executive engages in the conduct proscribed by this
Section 10, the Executive agrees to repay any lump-sum severance amount
received pursuant to Section 5 of this Agreement, and all outstanding
stock options held by the Executive shall expire as of the date of
Executive's commencement of such proscribed conduct. It is further
expressly agreed that the Company will or would suffer irreparable injury
if Executive were to compete with
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the Company or any subsidiary or affiliate in violation of this Agreement
and that the Company would by reason of such competition be entitled to
preliminary or permanent injunctive relief in a court of appropriate
jurisdiction, and Executive further consents and stipulates to the entry
of such preliminary or permanent injunctive relief in such a court
prohibiting Executive from competing with the Company or any subsidiary
or affiliate of the Company in violation of this Agreement upon an
appropriate finding by such court that Executive has violated this
Section 10.
(c) UNENFORCEABLE PROVISIONS. It is the desire and the intent of the
parties that the provisions of this Section 10 shall be enforceable to the
fullest extent permissible under applicable law and public policy.
Accordingly, if this Section 10 or any portion thereof shall be adjudicated
to be invalid or unenforceable whether because of the duration and scope of
the covenants set forth herein or otherwise, the length and scope of the
restrictions set forth in this Section 10 shall be reduced to the extent
necessary so that this covenant may be enforced to the fullest extent
possible under applicable law.
11. CONFIDENTIAL INFORMATION. Executive acknowledges that in his
employment hereunder, and during prior periods of employment with the Company
and/or its subsidiaries, he has occupied and will continue to occupy a position
of trust and confidence. Executive shall not, except as may be required to
perform his duties hereunder or as required by applicable law, until the
expiration of the applicable period described in Section 10(b) or until such
information shall have become public other than by Executive's unauthorized
disclosure, disclose to others or use, whether directly or indirectly, any
Confidential Information regarding the Company, its subsidiaries and affiliates.
"Confidential Information" shall mean information about the Company, its
subsidiaries and affiliates, and their respective clients and customers that is
not publicly disclosed by the Company or otherwise generally available to a
member of the public seeking to obtain such information and that was learned by
Executive in the course of his employment by the Company, its subsidiaries and
affiliates, including (without limitation) any proprietary knowledge, trade
secrets, data, formulae, information and client and customer lists and all
papers, resumes, and records (including computer records) of the documents
containing such Confidential Information. Executive acknowledges that such
Confidential Information is specialized, unique in nature and of great value to
the Company, its subsidiaries and affiliates, and that such information gives
the Company, its subsidiaries and affiliates a competitive advantage. The
Executive agrees to deliver or return to the Company, at the Company's request
at any time or upon termination or expiration of his employment or as soon
thereafter as possible, all documents, computer tapes and disks, records, lists,
data, drawings, prints, notes and written information (and all copies thereof)
furnished by the Company, it subsidiaries or affiliates or prepared by the
Executive during the term of his employment by the Company, its subsidiaries and
affiliates.
In the event that the Executive engages in any conduct proscribed by this
Section 11, the Executive agrees to repay any lump-sum severance amount received
pursuant to Section 5 of this Agreement, and all outstanding stock options held
by the Executive shall expire as of the date of Executive's commencement of such
proscribed conduct. It is further expressly agreed that the Company will or
would suffer irreparable injury if Executive were to disclose or threaten to
disclose Confidential Information regarding the Company or any subsidiary or
affiliate in violation of this Agreement or otherwise fail to comply with the
provisions of this Section 11, and that the Company would, by reason of such
disclosure or threatened disclosure or other failure to comply, be entitled to
preliminary or permanent injunctive relief in a court of appropriate
jurisdiction, and Executive further consents and stipulates to the entry of such
preliminary or permanent injunctive relief in such a court prohibiting Executive
from disclosing Confidential Information in violation of this Agreement or
otherwise requiring Executive to comply with the provisions of this Section 11
upon an appropriate finding by such court that Executive has violated this
Section 11.
12. NOTICE. For the purposes of this Agreement, any notices, demands and
all other communications required or permitted hereunder shall be in writing and
shall be deemed to have been duly given upon (a) transmitter's confirmation of a
receipt of facsimile transmission, (b) confirmed delivery
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by a standard overnight carrier or (c) the expiration of five business days
after the day when mailed by certified or registered mail, addressed as follows
(or at such other address as the parties hereto shall specify to like notice):
<TABLE>
<S> <C>
If to Executive: James G. VanDevender
c/o Paracelsus Healthcare Corporation
515 West Greens Road
Suite 800
Houston, Texas 77067
Telecopy No. (713) 878-6686
With a copy to: Wayne Whitaker
Michener, Larimore, Swindle, Whitaker, Flowers, Sawyer,
Reynolds & Chalk, L.L.P.
3500 City Center Tower II
301 Commerce Street
Fort Worth, Texas 76102-4135
Telecopy No. (817) 335-6935
If to the Company: Paracelsus Healthcare Corporation
515 West Greens Road
Suite 800
Houston, Texas 77067
Telecopy No. (713) 878-6686
Attention: Robert C. Joyner
Senior Vice President and General Counsel
with a copy to: Thomas C. Janson, Jr.
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue
Los Angeles, California 90071
Telecopy No. (213) 687-5600
</TABLE>
13. AMENDMENT, WAIVER. No provisions of this Agreement may be waived,
modified or discharged unless such waiver, modification or discharge is agreed
to in a written document signed by the Executive and such officer of the
Company, as may be specifically designated by the Board. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement.
14. ENTIRE AGREEMENT. This Agreement and Exhibits A and B hereto set forth
the entire agreement of the parties hereto in respect of the subject matter
contained herein and supersede all prior agreements, promises, covenants,
arrangements, communications, representations or warranties, whether oral or
written, by any officer, employee or representative of any party hereto.
15. GOVERNING LAW; VENUE; VALIDITY. The interpretation, construction and
performance of this Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of Texas without regard to the
principle of conflicts of laws and, at the election of the Executive, the venue
of any dispute arising under this Agreement shall be Texas. The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which other
provisions shall remain in full force and effect.
16. HEADINGS. Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
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17. SEVERABILITY. In the event that a court of competent jurisdiction
determines that any portion of this Agreement is in violation of any statute or
public policy, only the portions of this Agreement that violate such statute or
public policy shall be stricken. All portions of this Agreement that do not
violate any statute or public policy shall continue in full force and effect.
Further, any court order striking any portion of this Agreement shall modify the
stricken terms as narrowly as possible to give as much effect as possible to the
intentions of the parties under this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first written above.
PARACELSUS HEALTHCARE CORPORATION
By:
-----------------------------------
Name:
Title:
-----------------------------------
James G. VanDevender
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EXHIBIT A
During the Term of the Agreement, the Company shall provide Executive with
the following life insurance and disability coverages:
(1) The Company shall maintain for Executive's benefit life insurance
coverage with a face amount equal to three (3) times the amount of
Executive's Base Salary as in effect from time to time; provided, however,
that if the Company shall be unable to obtain the full amount of such life
insurance coverage at a reasonable cost, the Company may alternatively
provide Executive with a lump-sum death benefit, payable within ninety (90)
days following the date of Executive's death, in such amount as will, when
added to any life insurance coverage actually obtained by the Company,
provide Executive's beneficiary(ies) with a net amount, after payment of any
Federal and state income taxes, equal to the net, after-tax amount such
beneficiary(ies) would have received had the Company obtained the full
amount of life insurance coverage provided for above. Executive shall have
the right to name and to change from time to time the beneficiary(ies) under
such life insurance coverage (and death benefits, if any). Such life
insurance coverage (and death benefit, if any) shall be in addition to any
death benefits which may be payable under any accidental death and
dismemberment plan, any separate business travel accident coverage, or any
pension plan in which the Executive may participate, and such coverage shall
also be in addition to any life insurance which Executive himself purchases.
(2) LONG-TERM DISABILITY -- Executive shall be provided a long-term
disability benefit that is no less beneficial to the Executive than that
currently provided to officers of the Company; provided, however, that as to
the Executive, such benefit shall not have a dollar limit on the annual or
monthly benefit payable to the Executive.
During the Term of the Agreement, the Company shall also provide Executive
with the following additional fringe benefits:
(1) VACATIONS AND HOLIDAYS -- Executive shall be entitled to such paid
vacation time as may be reasonably taken at Executive's discretion so
long as such vacation time does not interfere with the efficient discharge
of the Executive's duties and responsibilities. Executive shall be entitled
to all holidays as delineated annually in the Company's official holiday
schedule.
(2) TAX RETURN PREPARATION ASSISTANCE; FINANCIAL ADVICE -- will provide
the Executive with the assistance of the Company's regular auditors for
the preparation of Executive's United States Federal and State tax returns
without charge to Executive. In addition, the Company shall reimburse
Executive for the costs incurred by Executive for financial planning
services in an amount not to exceed $5,000 annually.
(3) ANNUAL PHYSICAL EXAMINATION -- The Company shall reimburse Executive
100% of all costs incurred by Executive in obtaining an annual
comprehensive physical examination to be conducted by a physician; clinic,
or medical group of the Executive's choice and which is located within
reasonable proximity to Executive's place of Employment.
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EXHIBIT 10.46
FORM OF
PARACELSUS HEALTHCARE CORPORATION
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of July 17, 1996, between Paracelsus Healthcare
Corporation, a California corporation (the "Company"), and Ronald R. Patterson
(the "Executive").
In consideration of the premises and the respective covenants and agreements
of the parties herein contained, and intending to be legally bound hereby, the
parties agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive and the
Executive hereby agrees to serve the Company, on the terms and conditions set
forth herein. In addition, the Executive and the Company hereby agree that
subject to and effective as of the closing of the proposed merger transaction
among the Company, Champion Healthcare Corporation, a Delaware corporation
("Champion") and PC Merger Sub, Inc., a Delaware corporation and a wholly-owned
subsidiary of the Company ("PC Merger Sub"), whereby Champion will become a
wholly owned subsidiary of the Company (the "Merger"), this Agreement shall
supersede that certain employment agreement (the "Prior Agreement") between
Champion and the Executive, dated as of August 4, 1995.
2. TERM OF EMPLOYMENT; DUTIES. From the period commencing on the date
hereof and ending immediately prior to the Effective Time (as defined in the
Agreement and Plan of Merger by and among the Company, Champion and PC Merger
Sub dated as of April 12, 1996, as amended and restated May 29, 1996, and as
such agreement may be amended from time to time (the "Merger Agreement")), the
employment of the Executive shall be governed by the terms and conditions set
forth in the Prior Agreement. The term of this Agreement (the "Term"), and
Executive's employment with the Company hereunder, shall commence at the
Effective Time and, unless earlier terminated in accordance with the terms
hereof, shall continue until the third anniversary of the Effective Time (such
initial term of the Agreement referred to as the "Initial Term"); PROVIDED,
HOWEVER, that the Term shall automatically be renewed for one additional period
of three years at the end of the Initial Term, unless either the Company or the
Executive provides at least one year's notice to the other of its intention not
to renew the Term; and PROVIDED, FURTHER, that if the Merger Agreement is
terminated in accordance with its terms prior to the Effective Time or if the
Merger is abandoned or otherwise does not close, (x) this Agreement shall
automatically terminate without further obligation by either party hereto, (y)
the terms and conditions set forth in this Agreement shall not apply and (z) the
employment of the Executive shall continue to be governed by the terms and
conditions set forth in the Prior Agreement.
During the Term, the Executive shall be employed as the Executive Vice
President and President, Healthcare Operations of the Company serving at the
will of the Board of Directors of the Company (the "Board") with the traditional
duties, responsibilities and authority of such office in companies similar in
size to the Company. The Executive agrees that he shall perform his duties
hereunder faithfully and to the best of his abilities and in furtherance of the
business of the Company and its subsidiaries and shall devote substantially all
of his business time, energy and attention to the business of the Company and
its subsidiaries.
3. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY. During the Term, the Company shall pay to the
Executive an annual base salary (the "Base Salary") at an initial rate of
$350,000 per year, payable in accordance with the Company's normal payroll
practices or as the Company and Executive may otherwise agree. The Base
Salary shall be reviewed by the Company annually and shall be subject to
discretionary increase by the Company from time to time, but shall not be
decreased from the rate in effect at any time and from time to time during
the Term.
(b) ANNUAL PERFORMANCE BONUS. Executive shall be entitled to
participate in the Paracelsus Healthcare Corporation Executive Officer
Performance Bonus Plan or any similar or successor annual bonus plan of the
Company (the "Performance Bonus Plan") and to receive an annual
<PAGE>
performance bonus upon the achievement of one or more annual performance
goals (the "Performance Goals") in accordance with the terms of the
Performance Bonus Plan; provided that Executive's annual target bonus under
the Performance Bonus Plan (the "Annual Target Bonus") shall not be less
than 70% of the Base Salary in effect at the time the Performance Goals for
such plan year are established.
(c) LONG-TERM INCENTIVE. The Executive shall be eligible to
participate in any long-term incentive compensation and/or stock option
plans maintained from time to time by the Company. In addition, pursuant to
prior action of the Stock Option Committee of the Board, Executive has
previously been granted (i) an option (the "Value Option") to purchase
180,000 shares of Company common stock, no stated par value (the "Common
Stock"), at an exercise price of $.01 per share with a term of 10 years from
the date of grant and (ii) an option (the "Market Option") to purchase an
additional 240,000 shares of Common Stock at an exercise price equal to the
fair market value (as defined in the Paracelsus Healthcare Corporation 1996
Stock Incentive Plan (the "1996 Stock Incentive Plan")) of the Common Stock
on the date of the Effective Time with a term of 10 years from the date of
grant. The Value Option will be fully vested on grant and will become fully
exercisable at the Effective Time, and the Market Option will generally vest
and become exercisable in equal annual installments of 25% on each of the
first four anniversaries of the Effective Time; PROVIDED, that neither the
Value Option nor the Market Option will become exercisable in whole or in
part in the event the Merger Agreement is terminated in accordance with its
terms prior to the Effective Time or if the Merger is abandoned or otherwise
does not close; and PROVIDED, FURTHER, that the Value Option and the Market
Option shall each be subject to the terms of the 1996 Stock Incentive Plan
and the stock option agreements to be entered into in connection with the
grant of such options.
(d) BENEFITS, PERQUISITES AND EXPENSES. During the Term, the Executive
shall be eligible to participate in employee benefit and fringe benefit
plans and programs generally available to the executive officers of the
Company and such additional benefits as the Board may from time to time
provide. In addition, Executive shall be entitled to receive the personal
benefits described in Exhibit A hereto. Reimbursement for business expenses,
including travel and entertainment, shall be limited to reasonable and
necessary expenses incurred by Executive in connection with performance of
duties on behalf of the Company subject to: (i) timely submission of a
properly executed Company expense report form accompanied by appropriate
supporting documentation, and (ii) compliance with Company policies and
procedures governing business expense reimbursement and reporting based upon
principles and guidelines established from time to time by the Audit
Committee of the Board, including periodic audits by the Internal Audit
Department of the Company and/or the Audit Committee.
(e) RETIREMENT BENEFITS. Effective as of the Effective Time of the
Merger, the Executive shall be entitled to participate in the Paracelsus
Healthcare Corporation Supplemental Executive Retirement Plan or any similar
or successor plan (the "SERP") and in any tax-qualified and any other
supplemental pension plans generally available to the executive officers of
the Company; provided, that employment with Champion and its subsidiaries
shall be taken into account for purposes of eligibility, vesting and benefit
accrual under the SERP, but not for purposes of determining whether a
"Post-Participation Change in Control," as defined in the SERP, has
occurred.
(f) SIGN-ON BONUS. In connection with the commencement of Executive's
employment with the Company, as soon as practicable after the Effective
Time, the Company shall provide Executive a lump sum cash payment in the
amount of $500,000.
4. TERMINATION OF EXECUTIVE. Prior to the expiration of the Term and
subject to the payment of any amounts required under Section 5, the Executive's
employment with the Company may be terminated (a) by the Board with or without
Cause (as defined herein), (b) by the Executive for or
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without Good Reason (as defined herein), (c) by reason of the Executive's death
or Disability (as defined herein) or (d) by the mutual written consent of the
parties hereto. For purposes of this Agreement:
(i) "Cause" means (A) acts of embezzlement, theft and fraud established
by a preponderance of the evidence; (B) actions which have had or will
likely have a material adverse financial effect on the Company as a whole
for an extended period of time, where appropriate evidence exists that such
actions are directly attributable to the (I) gross management negligence or
repeated ineptitude of the Executive and/or (II) deliberate refusal of the
Executive to follow the instructions or directions of the Board; (C)
conviction of or a plea of guilty or NOLO CONTENDERE to a felony; (D)
violation of the noncompete or confidentiality provisions of this Agreement,
PROVIDED that no such violation will be deemed to have occurred if, within
30 days following receipt by Executive of a notice from the Board
identifying the violation, the Executive (I) cures the violation and (II)
establishes that the violation was unintentional and not reasonably likely
to result in harm to the Company, in each case to the reasonable
satisfaction of the Board; (E) material incapacitation or repeated absence
from work due to reckless and self abusive behavior or conduct, such as
alcoholism and drug abuse, which renders Executive incapable of performing
his duties; PROVIDED, that physical or mental disability due to injury or
disease shall not be grounds for termination for Cause; or (F) material
repeated incompetence in performing the duties of the Executive's office,
provided that such incompetence is: (I) supported by written documentation
of such incompetence, (II) occurs after the Executive has been previously
counseled by the Board both orally and in writing with respect to specific
examples of such incompetence and has been provided the opportunity to
respond in kind, and (III) determined to be incurable and to be of such a
nature as to have had or which would have been reasonably likely at the time
of such commission to have a material, adverse effect on the Company as a
whole.
For purposes of this Agreement, the Board shall have 60 days to
terminate the Executive for Cause following the date on which the Board
discovers the existence of a specific set of facts that, in the aggregate,
then constitute Cause, after which period no Cause with respect to such
specific set of facts shall be deemed to exist; PROVIDED, that the
repetition or reoccurrence of the same or a similar set of facts shall
constitute a separate ground for termination for Cause;
(ii) "Disability" means the Executive's absence from the full-time
performance of his duties with the Company for one hundred eighty (180) days
or more within any period of 12 consecutive months as a result of the
Executive's incapacity due to mental or physical illness; PROVIDED, that
during any period prior to the termination of Executive's employment by
reason of Disability in which Executive is absent from the full-time
performance of his duties with the Company due to Disability, the Company
shall continue to pay Executive his Base Salary at the rate in effect at the
commencement of such period of Disability;
(iii) "Good Reason" means, without the Executive's express written
consent, the occurrence of any of the following events:
(A) a reduction by the Company in the Executive's Base Salary, or
Annual Target Bonus in effect from time to time; (B) a material reduction
in the aggregate level of participation in and/or compensation and
benefit opportunities under all other compensation and employee benefit
plans in which Executive is entitled to participate from time to time;
PROVIDED, HOWEVER, that changes affecting the participation in or
benefits under such plans (other than the Performance Bonus Plan, the
SERP and the benefits described in Exhibit A) with respect to similarly
situated executives of the Company shall not constitute Good Reason
hereunder; (C) a reduction in the Executive's titles, duties or authority
with the Company; (D) the relocation of the principal executive offices
of the Company to a location that increases the Executive's one-way
commute thereto by more than 25 miles; (E) the Executive no longer
reports to (I) Mr. Miller or (II) in the event Mr. Miller's employment
with the Company
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terminates as a result of Mr. Miller's death, "Disability" (as defined in
Mr. Miller's employment agreement) or termination for "Cause" (as defined
in Mr. Miller's employment agreement), Mr. Miller's successor; or (F) the
notification by the Company of its intention not to renew this Agreement
pursuant to Section 2;
(iv) "Change of Control" means the occurrence of any one of the
following events:
(A) any "person" (as such term is defined in Section 3(a)(9) of the
Securities Exchange Act of 1934 (the "Exchange Act") and as used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act) becomes an Acquiring
Person (as such term is defined in the Company's Shareholder Protection
Rights Agreement to be adopted at the Effective Time) or any person that
is not bound by the Shareholder Agreement becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 25% or more of the
undiluted total voting power of the Company's then outstanding securities
eligible to vote for the election of members of the Board (the "Company
Voting Securities"); PROVIDED, HOWEVER, that no event described in the
immediately preceding clause shall be deemed to constitute a Change in
Control by virtue of any of the following: (I) an acquisition of Company
Voting Securities by the Company and/or one or more direct or indirect
majority-owned subsidiaries of the Company; (II) an acquisition of
Company Voting Securities by any employee benefit plan sponsored or
maintained by the Company or any corporation controlled by the Company;
(III) an acquisition by any underwriter temporarily holding securities
pursuant to an offering of such securities; or (IV) any acquisition by
the Executive or any "group" (as such term is defined in Rule 3d-5 under
the Exchange Act) of persons including the Executive; or
(B) individuals who, at the beginning of any period of twenty-four
(24) consecutive months, constitute the Board (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof; PROVIDED,
HOWEVER, that any person becoming a director subsequent to the beginning
of such twenty-four (24) month period, whose election, or nomination for
election, by the Company's shareholders was approved by either (i) the
Board consistent with the terms of the Shareholder Agreement to be
entered into in connection with the Merger during the period in which the
Shareholder Agreement remains in effect or (ii) a vote of at least 75% of
the directors comprising the Incumbent Board (either by a specific vote
or by approval of the proxy statement of the Company in which such person
is named as a nominee for director, without objection to such
nomination), shall be, for purposes of this paragraph (B), considered as
though such person were a member of the Incumbent Board; PROVIDED,
FURTHER, that no individual initially elected or nominated as a director
of the Company as a result of an actual or threatened election contest
with respect to directors or any other actual or threatened solicitation
of proxies or consents by or on behalf of any person other than the Board
shall be deemed to be a member of the Incumbent Board; or
(C) there is consummated a merger or consolidation of the Company or
a subsidiary thereof with or into any other corporation other than a
merger or consolidation which would result in the holders of the voting
securities of the Company outstanding immediately prior thereto holding
securities which, in combination with the ownership of any trustee or
other fiduciary holding securities under an employee benefit plan of the
Company, represent immediately after such merger or consolidation at
least 60% of the combined voting power of the then outstanding voting
securities of either the Company or the other entity which survives such
merger or consolidation or any parent of such other entity; or
(D) the stockholders of the Company approve (i) a plan of complete
liquidation or dissolution of the Company or (ii) an agreement for the
sale or disposition by the Company of all or substantially all the
Company's assets.
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5. PAYMENTS UPON TERMINATION OF EXECUTIVE.
(a) If the employment of the Executive shall be terminated other than by
reason of death or Disability (i) by the Company (other than for Cause) or
(ii) by the Executive for Good Reason, then the Company shall pay or provide
to the Executive (or the Executive's beneficiary or estate):
(1) within thirty (30) days following the date of such termination of
employment ("Termination Date"), a lump-sum cash amount equal to the sum
of (i) the Executive's unpaid Base Salary through the Termination Date;
(ii) any accrued but unpaid annual bonus under the Performance Bonus Plan
in respect of the annual bonus period preceding the bonus period in which
the Termination Date occurs; (iii) any unpaid reimbursable business
expenses properly incurred through the Termination Date; and (iv) a bonus
payment equal to the Executive's Annual Target Bonus in the year of
termination, multiplied by a fraction the numerator of which is the
number of months in the bonus year of termination in which the Executive
has worked at least one day and the denominator of which is 12;
(2) within thirty (30) days following the Termination Date, a
lump-sum cash amount equal to the greater of (A) the Executive's then
Base Salary payable over the remainder of the Term plus a bonus equal to
the Executive's Annual Target Bonus in the year of termination multiplied
by a fraction the numerator of which is the number of complete months
remaining in the Term and the denominator of which is 12, or (B) 2.5
times the sum of: (i) the Executive's annual rate of Base Salary as of
the Termination Date plus (ii) the Annual Target Bonus for the year in
which the Termination Date occurs (in each such case, Executive's Base
Salary and Target Bonus being determined without taking into account any
reductions thereto constituting Good Reason); PROVIDED, HOWEVER, that the
Executive shall not be entitled to any severance benefits from the
Company or under any Company severance plan, policy or arrangement other
than as specified in this Agreement;
(3) for a period terminating on the earlier of (A) the commencement
of the provision of substantially equivalent benefits by a new employer,
or (B) the later of (I) the last day of the Term, or (II) thirty (30)
months following the Termination Date, the Company shall continue to keep
in full force and effect (or otherwise provide) all policies of medical,
accident, disability and life insurance with respect to the Executive and
his dependents with substantially the same level of coverage, upon
substantially the same terms and otherwise substantially to the same
extent as such policies shall have been in effect immediately prior to
the Termination Date, and, as applicable, the Company and the Executive
shall share the costs of the continuation of such insurance coverage in
the same proportion as such costs were shared immediately prior to the
date of termination; and
(4) for purposes of determining "final average compensation" (or
making any similar calculation) and years of service (for purposes of
eligibility, vesting and benefit accrual) under any tax-qualified or
supplemental defined benefit retirement plan (including without
limitation the SERP), Executive shall be deemed to have remained employed
by the Company hereunder through the end of the Term and to have received
his then current Base Salary and Annual Target Bonus through the end of
the Term; PROVIDED that to the extent such benefits cannot be accrued
under and paid from any tax-qualified pension plan, such benefits shall
be accrued under and paid from the SERP or other supplemental plan;
(5) all options to purchase Common Stock held by the Executive shall
immediately become fully vested and exercisable and shall remain
exercisable until the earlier of (A) the date that is 24 months following
the Termination Date and (B) the expiration of the stated term of such
options; PROVIDED, that the Value Option shall remain exercisable until
the expiration of its stated term;
(b) If the employment of the Executive shall be terminated (i) by reason
of the Executive's death or Disability, (ii) by the Company for Cause, (iii)
by the Executive without Good Reason, or
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<PAGE>
(iv) by the mutual written consent of the parties hereto (each a
"Nonqualifying Termination"), then the Company shall pay to the Executive
(or the Executive's beneficiary or estate) within thirty (30) days following
the Termination Date a lump sum cash amount equal to the sum of the
Executive's unpaid Base Salary through the Termination Date plus any bonus
payments which have been earned or become payable, to the extent not
theretofore paid, plus any unpaid reimbursable business expenses properly
incurred through the Termination Date. In addition, the Executive (or the
Executive's beneficiary or estate) shall have no less than ninety (90) days
following the termination of his employment pursuant to a Nonqualifying
Termination to exercise any outstanding options to the extent vested and
exercisable as of the Termination Date; PROVIDED, that the Value Option
shall remain exercisable until the expiration of its stated term.
6. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Notwithstanding anything in this Agreement to the contrary, in the
event that any payment or distribution by the Company, by any affiliate of
the Company or by any person whose actions result in a Change in Control of
the Company (to the extent the Company approves of the arrangements pursuant
to which the payment by such person is made to the Executive) to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
Section 6) (a "Payment") would be subject to the excise tax imposed by
Section 4999 of the Code, or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as
the "Excise Tax"), then the Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that, after
payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes) including, without limitation, any
income and employment taxes and Excise Tax, imposed upon the Gross-Up
Payment but before deduction for any federal, state or local income or other
tax upon the Payments, the Executive will retain a net amount equal to the
sum of (i) the Payments and (ii) an amount equal to the product of any
deductions (or portion thereof) disallowed because of the inclusion of the
Gross-Up Payment in the Executive's adjusted gross income for federal income
tax purposes and the highest applicable marginal rate of federal income
taxation for the calendar year in which the Gross-Up Payment is to be made.
For purposes of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to (1) pay applicable federal income taxes at the
highest applicable marginal rates of federal income taxation (including
surcharges) for the calendar year in which the Gross-Up Payment is to be
made, (2) pay applicable state and local income taxes at the highest
applicable marginal rate of taxation (including surcharges) for the calendar
year in which the Gross-Up Payment is to be made, net of the maximum
reduction in federal income taxes which could be obtained from deduction of
such state and local taxes and (3) have otherwise allowable deductions for
federal income tax purposes at least equal to those disallowed because of
the inclusion of the Gross-Up Payment in the Executive's adjusted gross
income.
(b) Subject to the provisions of Section 6(a), all determinations
required to be made under this Section 6, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made
by the public accounting firm that is retained by the Company as of the date
immediately prior to the Change in Control (the "Accounting Firm") which
shall provide detailed supporting calculations both to the Company and the
Executive within fifteen (15) business days of the receipt of notice from
the Company or the Executive that there has been a Payment, or such earlier
time as is requested by the Company (collectively, the "Determination"). In
the event that the Accounting Firm is serving as accountant or auditor for
the individual, entity or group effecting the Change in Control, the
Executive may appoint another nationally recognized public accounting firm
reasonably acceptable to the Company to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder).
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All reasonable fees and expenses of the Accounting Firm shall be borne
solely by the Company and, subject to applicable law and obligations to the
Company's stockholders, the Company shall enter into any agreement
reasonably requested by the Accounting Firm that is generally recognized as
standard in connection with the performance of the services hereunder. The
Gross-Up Payment under this Section 6 with respect to any Payment shall be
made no later than thirty (30) days following the date of such Payment. If
the Accounting Firm determines that no Excise Tax is payable by the
Executive, it shall furnish the Executive with a written opinion to such
effect, and to the effect that failure to report the Excise Tax, if any, on
the Executive's applicable federal income tax return should not result in
the imposition of a negligence or similar penalty. The Determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a
result of uncertainty in the application of Section 4999 of the Code at the
time of the Determination, it is possible that Gross-Up Payments which will
not have been made by the Company should have been made ("Underpayment") or
Gross-Up Payments are made by the Company which should not have been made
("Overpayment"), consistent with the calculations required to be made
hereunder. In the event that the Executive thereafter is required to make
payment of any additional Excise Tax, the Accounting Firm shall determine
the amount of the Underpayment that has occurred and any such Underpayment
(together with interest at the rate provided in Section 1274(b)(2)(B) of the
Code) shall be promptly paid by the Company to or for the benefit of the
Executive. In the event the amount of the Gross-Up Payment exceeds the
amount necessary to reimburse the Executive for his Excise Tax, the
Accounting Firm shall determine the amount of the Overpayment that has been
made and any such Overpayment (together with interest at the rate provided
in Section 1274(b)(2) of the Code) shall be promptly paid by the Executive
to or for the benefit of the Company. The Executive shall cooperate, to the
extent his reasonable expenses in connection therewith are reimbursed by the
Company, with any reasonable requests by the Company in connection with any
contests or disputes with the Internal Revenue Service in connection with
the Excise Tax.
7. WITHHOLDING TAXES. The Company shall have the right to withhold from
any and all payments due to the Executive (or his beneficiary or estate)
hereunder all taxes which, by applicable federal, state, local or other law, the
Company is required to withhold therefrom.
8. SUCCESSORS; BINDING AGREEMENT.
(a) This Agreement is personal in nature and none of the parties hereto
shall, without the consent of the other, assign, or transfer this Agreement
or any rights or obligations hereunder; PROVIDED, that in the event of the
merger, consolidation, transfer or sale of substantially all of the assets
of the Company with or to any other individual or entity, this Agreement
shall, subject to the provisions hereof, be binding upon and inure to the
benefit of such successor and such successor shall discharge and perform all
the promises, covenants, duties and obligations of the Company hereunder,
and all references herein to the "Company" shall refer to such successor.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
the Executive shall die while any amounts remain payable to the Executive
hereunder, all such amounts, unless otherwise provided herein, shall be paid
in accordance with the terms of this Agreement to such person or persons
appointed in writing by the Executive to receive such amounts or, if no
person is so appointed, to the Executive's estate.
9. RESOLUTION OF DISPUTES; LEGAL FEES; NO MITIGATION.
(a) Except as provided in Sections 10 and 11, all disputes hereunder
shall be settled by final, binding arbitration, conducted before a panel of
three (3) arbitrators in Texas, in accordance with the rules of the American
Arbitration Association then in effect. Judgment on the arbitration award
may be entered in any court having jurisdiction. The Company shall bear the
expenses of such arbitration.
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(b) If any contest or dispute shall arise under this Agreement involving
termination of the Executive's employment with the Company or involving the
failure or refusal of the Company to perform fully in accordance with the
terms hereof, the Company shall advance and reimburse the Executive, on a
current basis, all legal fees and expenses, if any, incurred by the
Executive in connection with such contest or dispute; PROVIDED, that the
Executive agrees to return any advanced or reimbursed expenses to the extent
the arbitrators (or the Court, in the case of a dispute described in Section
10 or 11) determine that the Company has prevailed as to the material issues
raised in determination of the dispute.
(c) The Company's obligation to make any payments provided for in this
Agreement to the Executive and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against
the Executive or others. In no event shall the Executive be obligated to
seek other employment or take other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this
Agreement, and such amounts shall not be reduced whether or not the
Executive obtains other employment.
10. NONCOMPETITION.
(a) DISCLOSURE. The Executive has disclosed to the Board, in writing,
all healthcare related interests, investments, or business activities,
whether as proprietor, stockholder, partner, co-venturer, director, officer,
employee, independent contractor, agent, consultant, or in any other
capacity or manner whatsoever. The Executive shall notify the Board
promptly, in writing, of any changes in or additions to such interests,
activities or investments permitted in accordance with the terms of this
Agreement, within 15 days of such change or addition.
(b) PROHIBITED ACTIVITY. Without the written consent of a majority of
the Independent Directors, the Executive may not engage in any of the
following actions during the period that is (A) prior to the Executive's
termination of employment with the Company, (B) within two years following
the termination of his employment with the Company during the Initial Term
if such termination is by the Company for Cause or by the Executive (other
than for Good Reason) and (c) within one year following his termination of
employment during the Term but after the Initial Term if such termination is
by the Company for Cause or by the Executive (other than for Good Reason):
(i) own, either directly or indirectly, any interest in any business
that competes with the "Primary Business" in which the Company or any
subsidiary or affiliate is engaged, within a radius of 30 miles from any
site, facility, or location which is owned, managed or operated by or
affiliated with the Company or any of its subsidiaries and affiliates,
including physician practices of any kind. For purposes of this
Agreement, "Primary Business" shall mean the delivery of integrated
healthcare services in markets where the Company or its subsidiaries own
hospitals and/or skilled nursing facilities ("SNFs"), with the hospital
serving as the hub of the local delivery system in conjunction with its
physician medical staff. In addition to inpatient acute care, psychiatric
care, and skilled nursing care, these services can include (A) individual
physician practices and/or physician based organizations such as primary
care and specialty clinics, physician-hospital organizations ("PHOs") or
medical service organizations ("MSOs"), or physician medical groups and
(B) ambulatory programs such as home health care, ambulatory surgery,
psychiatric services, occupational and sports medicine centers,
psychiatric after-care and day care programs, and other diagnostic,
rehabilitative and treatment services. Some of these services, sites and
facilities may be located in satellite areas for the purpose of extending
the hub hospital's geographic service area and to serve as access points
and/or referral sources for either the local delivery system or the hub
hospital's geographic service area and to serve as access points and/or
referral sources for either the local delivery system or the hub
hospital. The Board may modify, from time to time, the definition of
Primary Business to include any additional business or service activity
in
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which the Company may engage during the Term or to exclude any business
or service in which the Company ceases to engage. The definition of
"Primary Business" shall also include any business or service into which,
as of the Termination Date, the Company definitively intends to expand
regardless of whether such expansion actually occurs after the
Executive's termination. For purposes of the preceding sentence, the date
on which a modification of the definition of "Primary Business" shall be
effective shall be the date on which the Executive is provided written
notice of such modification (the "Notice Date"); provided, however, that
no such modification as to which notice is provided on or after the
Termination Date shall be effective against the Executive; and provided,
further, that no such modification shall be effective with respect to any
interests, investments or business activities engaged in by Executive
prior to the Notice Date of such modification and properly disclosed
prior to such Notice Date pursuant to Section 10(a).
(ii) participate or serve, either directly or indirectly, whether as
a proprietor, stockholder, partner, co-venturer, director, officer,
employee, independent contractor, agent, consultant, or in any other
capacity or manner whatsoever in any business or service activity that
competes with the Primary Business;
(iii) directly or indirectly, solicit or recruit any individual
employed by the Company, its subsidiaries or affiliates for the purpose
of being employed by him or by any competitor of the Company on whose
behalf he is acting as an agent, representative or employee, or convey
any confidential information or trade secrets regarding other employees
of the Company, its subsidiaries or affiliates to any other person; or
(iv) directly or indirectly, influence or attempt to influence
customers of the Company or any of its subsidiaries or affiliates to
direct their business to any competitor of the Company;
PROVIDED, HOWEVER, that neither (i) the "beneficial ownership" by
Executive, either individually or as a member of a "group," as such terms
are used in Rule 13d under the Exchange Act, as a passive investment, of
not more than five percent (5%) of the voting stock of any publicly held
corporation, nor (ii) the beneficial ownership by Executive of any
interest described in the first sentence of Section 10(a) and properly
and timely disclosed in accordance with the terms therewith, shall alone
constitute a violation of this Agreement.
In the event that the Executive engages in the conduct proscribed by this
Section 10, the Executive agrees to repay any lump-sum severance amount
received pursuant to Section 5 of this Agreement, and all outstanding
stock options held by the Executive shall expire as of the date of
Executive's commencement of such proscribed conduct. It is further
expressly agreed that the Company will or would suffer irreparable injury
if Executive were to compete with the Company or any subsidiary or
affiliate in violation of this Agreement and that the Company would by
reason of such competition be entitled to preliminary or permanent
injunctive relief in a court of appropriate jurisdiction, and Executive
further consents and stipulates to the entry of such preliminary or
permanent injunctive relief in such a court prohibiting Executive from
competing with the Company or any subsidiary or affiliate of the Company
in violation of this Agreement upon an appropriate finding by such court
that Executive has violated this Section 10.
(c) UNENFORCEABLE PROVISIONS. It is the desire and the intent of the
parties that the provisions of this Section 10 shall be enforceable to the
fullest extent permissible under applicable law and public policy.
Accordingly, if this Section 10 or any portion thereof shall be adjudicated
to be invalid or unenforceable whether because of the duration and scope of
the covenants set forth herein or otherwise, the length and scope of the
restrictions set forth in this Section 10 shall be reduced to the extent
necessary so that this covenant may be enforced to the fullest extent
possible under applicable law.
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11. CONFIDENTIAL INFORMATION. Executive acknowledges that in his
employment hereunder, and during prior periods of employment with the Company
and/or its subsidiaries, he has occupied and will continue to occupy a position
of trust and confidence. Executive shall not, except as may be required to
perform his duties hereunder or as required by applicable law, until expiration
of the applicable period described in section 10(b) or until such information
shall have become public other than by Executive's unauthorized disclosure,
disclose to others or use, whether directly or indirectly, any Confidential
Information regarding the Company, its subsidiaries and affiliates.
"Confidential Information" shall mean information about the Company, its
subsidiaries and affiliates, and their respective clients and customers that is
not publicly disclosed by the Company or otherwise generally available to a
member of the public seeking to obtain such information and that was learned by
Executive in the course of his employment by the Company, its subsidiaries and
affiliates, including (without limitation) any proprietary knowledge, trade
secrets, data, formulae, information and client and customer lists and all
papers, resumes, and records (including computer records) of the documents
containing such Confidential Information. Executive acknowledges that such
Confidential Information is specialized, unique in nature and of great value to
the Company, its subsidiaries and affiliates, and that such information gives
the Company, its subsidiaries and affiliates a competitive advantage. The
Executive agrees to deliver or return to the Company, at the Company's request
at any time or upon termination or expiration of his employment or as soon
thereafter as possible, all documents, computer tapes and disks, records, lists,
data, drawings, prints, notes and written information (and all copies thereof)
furnished by the Company, it subsidiaries or affiliates or prepared by the
Executive during the term of his employment by the Company, its subsidiaries and
affiliates.
In the event that the Executive engages in any conduct proscribed by this
Section 11, the Executive agrees to repay any lump-sum severance amount received
pursuant to Section 5 of this Agreement, and all outstanding stock options held
by the Executive shall expire as of the date of Executive's commencement of such
proscribed conduct. It is further expressly agreed that the Company will or
would suffer irreparable injury if Executive were to disclose or threaten to
disclose Confidential Information regarding the Company or any subsidiary or
affiliate in violation of this Agreement or otherwise fail to comply with the
provisions of this Section 11, and that the Company would, by reason of such
disclosure or threatened disclosure or other failure to comply, be entitled to
preliminary or permanent injunctive relief in a court of appropriate
jurisdiction, and Executive further consents and stipulates to the entry of such
preliminary or permanent injunctive relief in such a court prohibiting Executive
from disclosing Confidential Information in violation of this Agreement or
otherwise requiring Executive to comply with the provisions of this Section 11
upon an appropriate finding by such court that Executive has violated this
Section 11.
12. NOTICE. For the purposes of this Agreement, any notices, demands and
all other communications required or permitted hereunder shall be in writing and
shall be deemed to have been duly given upon (a) transmitter's confirmation of a
receipt of facsimile transmission, (b) confirmed delivery by a standard
overnight carrier or (c) the expiration of five business days after the day when
mailed by certified or registered mail, postage prepaid, addressed as follows
(or at such other address as the parties hereto shall specify to like notice):
<TABLE>
<S> <C>
If to Executive: Ronald R. Patterson
c/o Paracelsus Healthcare Corporation
515 West Greens Road
Suite 800
Houston, Texas 77067
Telecopy No. (713) 878-6686
</TABLE>
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<TABLE>
<S> <C>
With a copy to: Wayne Whitaker
Michener, Larimore, Swindle, Whitaker, Flowers, Sawyer,
Reynolds & Chalk, L.L.P.
3500 City Center Tower II
301 Commerce Street
Fort Worth, Texas 76102-4135
Telecopy No. (817) 335-6935
If to the Company: Paracelsus Healthcare Corporation
515 West Greens Road
Suite 800
Houston, Texas 77067
Telecopy No. (713) 878-6686
Attention: Robert C. Joyner
Senior Vice President and General Counsel
with a copy to: Thomas C. Janson, Jr.
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue
Los Angeles, California 90071
Telecopy No. (213) 687-5600
</TABLE>
13. AMENDMENT, WAIVER. No provisions of this Agreement may be waived,
modified or discharged unless such waiver, modification or discharge is agreed
to in a written document signed by the Executive and such officer of the
Company, as may be specifically designated by the Board. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement.
14. ENTIRE AGREEMENT. This Agreement and Exhibit A set forth the entire
agreement of the parties hereto in respect of the subject matter contained
herein and supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto.
15. GOVERNING LAW; VENUE; VALIDITY. The interpretation, construction and
performance of this Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of Texas without regard to the
principle of conflicts of laws and, at the election of the Executive, the venue
of any dispute arising under this Agreement shall be Texas. The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which other
provisions shall remain in full force and effect.
16. HEADINGS. Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
17. SEVERABILITY. In the event that a court of competent jurisdiction
determines that any portion of this Agreement is in violation of any statute or
public policy, only the portions of this Agreement that violate such statute or
public policy shall be stricken. All portions of this Agreement that do not
violate any statute or public policy shall continue in full force and effect.
Further, any court order striking any portion of this Agreement shall modify the
stricken terms as narrowly as possible to give as much effect as possible to the
intentions of the parties under this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first written above.
PARACELSUS HEALTHCARE CORPORATION
By:
-----------------------------------
Name:
Title:
-----------------------------------
Ronald R. Patterson
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EXHIBIT A
During the Term of the Agreement, the Company shall provide Executive with
the following life insurance and disability coverages:
(1) The Company shall maintain for Executive's benefit life insurance
coverage with a face amount equal to three (3) times the amount of
Executive's Base Salary as in effect from time to time; provided, however,
that if the Company shall be unable to obtain the full amount of such life
insurance coverage at a reasonable cost, the Company may alternatively
provide Executive with a lump-sum death benefit, payable within ninety (90)
days following the date of Executive's death, in such amount as will, when
added to any life insurance coverage actually obtained by the Company,
provide Executive's beneficiary(ies) with a net amount, after payment of any
Federal and state income taxes, equal to the net, after-tax amount such
beneficiary(ies) would have received had the Company obtained the full
amount of life insurance coverage provided for above. Executive shall have
the right to name and to change from time to time the beneficiary(ies) under
such life insurance coverage (and death benefits, if any). Such life
insurance coverage (and death benefit, if any) shall be in addition to any
death benefits which may be payable under any accidental death and
dismemberment plan, any separate business travel accident coverage, or any
pension plan in which the Executive may participate, and such coverage shall
also be in addition to any life insurance which Executive himself purchases.
(2) LONG-TERM DISABILITY Executive shall be provided a long-term
disability benefit that is no less beneficial to the Executive than that
currently provided to officers of the Company; provided, however, that as to
the Executive, such benefit shall not have a dollar limit on the annual or
monthly benefit payable to the Executive.
During the Term of the Agreement, the Company shall also provide Executive
with the following additional fringe benefits:
(1) VACATIONS AND HOLIDAYS Executive shall be entitled to such paid
vacation time as may be reasonably taken at Executive's discretion so long
as such vacation time does not interfere with the efficient discharge of the
Executive's duties and responsibilities. Executive shall be entitled to all
holidays as delineated annually in the Company's official holiday schedule.
(2) TAX RETURN PREPARATION ASSISTANCE; FINANCIAL ADVICE will provide
the Executive with the assistance of the Company's regular auditors for the
preparation of Executive's United States Federal and State tax returns
without charge to Executive. In addition, the Company shall reimburse
Executive for the costs incurred by Executive for financial planning
services in an amount not to exceed $5,000 annually.
(3) ANNUAL PHYSICAL EXAMINATION The Company shall reimburse Executive
100% of all costs incurred by Executive in obtaining an annual comprehensive
physical examination to be conducted by a physician; clinic, or medical
group of the Executive's choice and which is located within reasonable
proximity to Executive's place of Employment.
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EXHIBIT 10.47
FORM OF PARACELSUS HEALTHCARE CORPORATION
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of July 17, 1996, between Paracelsus Healthcare
Corporation, a California corporation (the "Company"), and Robert C. Joyner (the
"Executive").
In consideration of the premises and the respective covenants and agreements
of the parties herein contained, and intending to be legally bound hereby, the
parties agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive and the
Executive hereby agrees to serve the Company, on the terms and conditions set
forth herein. In addition, the Executive and the Company hereby agree that
subject to and effective as of the closing of the proposed merger transaction
among the Company, Champion Healthcare Corporation, a Delaware corporation
("Champion"), and PC Merger Sub, Inc., a Delaware corporation and a wholly owned
subsidiary of the Company ("PC Merger Sub"), whereby Champion will become a
wholly owned subsidiary of the Company (the "Merger"), this Agreement shall
supersede that certain letter agreement regarding employment (the "Prior
Agreement") between the Company and the Executive, dated as of April 15, 1986,
and the Prior Agreement shall thereupon automatically terminate without further
obligation by either Executive or the Company.
2. TERM OF EMPLOYMENT; DUTIES. From the period commencing on the date
hereof and ending immediately prior to the Effective Time (as defined in the
Agreement and Plan of Merger by and among the Company, Champion and PC Merger
Sub dated as of April 12, 1996, as amended May 29, 1996, and as such agreement
may be amended from time to time (the "Merger Agreement")), the employment of
the Executive shall be governed by the terms and conditions set forth in the
Prior Agreement. The term of this Agreement (the "Term"), and Executive's
employment with the Company hereunder, shall commence at the Effective Time and,
unless earlier terminated in accordance with the terms hereof, shall continue
until the third anniversary of the Effective Time (such initial term of the
Agreement referred to as the "Initial Term"); PROVIDED, HOWEVER, that the Term
shall automatically be renewed for one additional period of two years at the end
of the Initial Term, unless either the Company or the Executive provides at
least one year's notice to the other of its intention not to renew the Term; and
PROVIDED, FURTHER, that if the Merger Agreement is terminated in accordance with
its terms prior to the Effective Time or if the Merger is abandoned or otherwise
does not close, (x) this Agreement shall automatically terminate without further
obligation by either party hereto, (y) the terms and conditions set forth in
this Agreement shall not apply and (z) the employment of the Executive shall
continue to be governed by the terms and conditions set forth in the Prior
Agreement.
During the Term, the Executive shall be employed as the Senior Vice
President, Secretary and General Counsel of the Company, reporting to the
President of the Company, serving at the will of the Board of Directors of the
Company (the "Board") with the traditional duties, responsibilities and
authority of such office in companies similar in size to the Company. The
Executive agrees that he shall perform his duties hereunder faithfully and to
the best of his abilities and in furtherance of the business of the Company and
its subsidiaries and shall devote substantially all of his business time, energy
and attention to the business of the Company and its subsidiaries.
3. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY. During the Term, the Company shall pay to the
Executive an annual base salary (the "Base Salary") at an initial rate of
$240,000 per year, payable in accordance with the Company's normal payroll
practices or as the Company and Executive may otherwise agree. The Base
Salary shall be reviewed by the Company annually and shall be subject to
discretionary increase by the Company from time to time, but shall not be
decreased from the rate in effect at any time and from time to time during
the Term.
(b) ANNUAL PERFORMANCE BONUS. Executive shall be entitled to
participate in the Paracelsus Healthcare Corporation Executive Officer
Performance Bonus Plan or any similar or successor annual bonus plan of the
Company (the "Performance Bonus Plan") and to receive an annual
<PAGE>
performance bonus upon the achievement of one or more annual performance
goals (the "Performance Goals") in accordance with the terms of the
Performance Bonus Plan; PROVIDED, that Executive's annual target bonus under
the Performance Bonus Plan (the "Annual Target Bonus") shall not be less
than 60% of the Base Salary in effect at the time the Performance Goals for
such plan year are established.
(c) LONG-TERM INCENTIVE. The Executive shall be eligible to
participate in any long-term incentive compensation and/or stock option
plans maintained from time to time by the Company. In addition, pursuant to
prior action of the Stock Option Committee of the Board, Executive has
previously been granted an option (the "Value Option") to purchase 160,933
shares of Company common stock, no stated par value (the "Common Stock"), at
an exercise price of $.01 per share with a term of 10 years from the date of
grant. The Value Option will be fully vested on grant and will become fully
exercisable at the Effective Time; PROVIDED, that the Value Option will not
become exercisable in whole or in part in the event the Merger Agreement is
terminated in accordance with its terms prior to the Effective Time or if
the Merger is abandoned or otherwise does not close; and PROVIDED, FURTHER,
that the Value Option shall be subject to the terms of the Paracelsus
Healthcare Corporation 1996 Stock Incentive Plan and the stock option
agreement to be entered into in connection with the grant of the Value
Option.
(d) BENEFITS, PERQUISITES AND EXPENSES. During the Term, the Executive
shall be eligible to participate in employee benefit and fringe benefit
plans and programs generally available to the executive officers of the
Company and such additional benefits as the Board may from time to time
provide. In addition, Executive shall be entitled to receive the personal
benefits described on Exhibit A hereto. Executive shall be entitled to
reimbursement for business expenses, including travel and entertainment;
PROVIDED, that such reimbursement shall be limited to reasonable and
necessary expenses incurred by Executive in connection with the performance
of duties on behalf of the Company subject to: (i) timely submission of a
properly executed Company expense report form accompanied by appropriate
supporting documentation, and (ii) compliance with Company policies and
procedures governing business expense reimbursement and reporting based upon
principles and guidelines established by the Audit Committee of the Board,
including periodic audits by the Internal Audit Department of the Company
and/or the Audit Committee of the Board; and PROVIDED, FURTHER, that subject
to pre-approval of such expenses by the President of the Company, the
Company shall reimburse Executive for reasonable expenses incurred by
Executive's spouse when traveling with Executive on Company business.
(e) RETIREMENT BENEFITS. The Executive shall be entitled to
participate in the Paracelsus Healthcare Corporation Supplemental Executive
Retirement Plan or any similar or successor plan (the "SERP") and in any
tax-qualified and any other supplemental pension plans generally available
to the executive officers of the Company. The Company shall not take any
action, whether by amendment of the SERP or otherwise, to adversely affect
Executive's accrued benefits and other rights under the SERP as of the
Effective Time.
4. TERMINATION OF EXECUTIVE. Prior to the expiration of the Term and
subject to the payment of any amounts required under Section 5, the Executive's
employment with the Company may be terminated (a) by the Company for Cause (as
defined herein) or without Cause, (b) by the Executive for or without Good
Reason (as defined herein), (c) by reason of the Executive's death or Disability
(as defined herein) or (d) by the mutual written consent of the parties hereto.
For purposes of this Agreement:
(i) "Cause" means (A) acts of embezzlement, theft and fraud established
by a preponderance of the evidence; (B) actions which have had or will
likely have a material adverse financial effect on the Company as a whole
for an extended period of time, where appropriate evidence exists that such
actions are directly attributable to the (I) gross management negligence or
repeated ineptitude of the Executive and/or (II) deliberate refusal of the
Executive to follow the instructions or directions of the Board; (C)
conviction of or a plea of guilty or NOLO CONTENDERE to a
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felony; (D) violation of the noncompete or confidentiality provisions of
this Agreement, PROVIDED, that no such violation will be deemed to have
occurred if, within 30 days following receipt by Executive of a notice from
the Board identifying the violation, the Executive (I) cures the violation
and (II) establishes that the violation was unintentional and not reasonably
likely to result in harm to the Company, in each case to the reasonable
satisfaction of the Board; (E) material incapacitation or repeated absence
from work due to reckless and self-abusive behavior or conduct, such as
alcoholism and drug abuse, which renders Executive incapable of performing
his duties; PROVIDED, that physical or mental disability due to injury or
disease shall not be grounds for termination for Cause; (F) gross
insubordination or persistent refusal to follow instructions; or (G)
inability to perform the duties of the Executive's office or consistent
failure to perform in accordance with reasonable expectations due to
incompetence, or repeated and unexcused absence from work having a material
adverse effect on the Company as determined by the affirmative vote of no
less than 80% of the members of the Board.
For purposes of this Agreement, the Board shall have 60 days to
terminate the Executive for Cause following the date on which the Board
discovers the existence of a specific set of facts that, in the aggregate,
then constitute Cause, after which period no Cause with respect to such
specific set of facts shall be deemed to exist; PROVIDED, that the
repetition or reoccurrence of the same or a similar set of facts shall
constitute a separate ground for termination for Cause.
(ii) "Disability" means the Executive's absence from the full-time
performance of his duties with the Company for one hundred eighty (180) days
or more within any period of 12 consecutive months as a result of the
Executive's incapacity due to mental or physical illness; PROVIDED, that
during any period prior to the termination of Executive's employment by
reason of Disability in which Executive is absent from the full-time
performance of his duties with the Company due to Disability, the Company
shall continue to pay Executive his Base Salary at the rate in effect at the
commencement of such period of Disability;
(iii) "Good Reason" means, without the Executive's express written
consent, the occurrence of any of the following events:
(A) a reduction by the Company in the Executive's Base Salary or
Annual Target Bonus in effect from time to time; (B) a material reduction
in the aggregate level of participation in and/or compensation and
benefit opportunities under all other compensation and employee benefit
plans in which Executive is entitled to participate from time to time;
PROVIDED, HOWEVER, that changes affecting the participation in or
benefits under such plans (other than the Performance Bonus Plan, the
SERP and the benefits described in Exhibit A) with respect to similarly
situated executives of the Company shall not constitute Good Reason
hereunder; (C) a reduction in the Executive's titles with the Company;
(D) notification by the Company of its intention not to renew this
Agreement pursuant to the provisions of Section 2; (E) the relocation of
the principal executive offices of the Company (or of Executive's
principal place of employment, if different) to a location that increases
the Executive's one-way commute thereto by more than 25 miles (other than
in connection with the Company's planned relocation of its executive
offices to Houston, Texas in connection with the Merger); (F) the
termination of the Executive's employment by the Executive for any reason
within 12 months following a Change in Control (as defined herein); or
(G) a change in reporting relationships such that Executive no longer
reports to the Chief Executive Officer or the President of the Company.
(iv) "Change in Control" means the occurrence of any one of the following
events:
(A) any "person" (as such term is defined in Section 3(a)(9) of the
Securities Exchange Act of 1934 (the "Exchange Act") and as used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act) becomes an Acquiring
Person (as such term is defined in the Company's Shareholder Protection
Rights Agreement to be adopted at the Effective Time) or any person that
is not bound by the Shareholder Agreement of the Company to be entered
into in
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connection with the Merger (the "Shareholder Agreement") becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 25% or
more of the undiluted total voting power of the Company's then
outstanding securities eligible to vote for the election of members of
the Board (the "Company Voting Securities"); PROVIDED, HOWEVER, that no
event described in the immediately preceding clause shall be deemed to
constitute a Change in Control by virtue of any of the following: (I) an
acquisition of Company Voting Securities by the Company and/or one or
more direct or indirect majority-owned subsidiaries of the Company; (II)
an acquisition of Company Voting Securities by any employee benefit plan
sponsored or maintained by the Company or any corporation controlled by
the Company; (III) an acquisition by any underwriter temporarily holding
securities pursuant to an offering of such securities; or (IV) any
acquisition by the Executive or any "group" (as such term is defined in
Rule 3d-5 under the Exchange Act) of persons including the Executive; or
(B) individuals who, at the beginning of any period of twenty-four
(24) consecutive months, constitute the Board (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof; PROVIDED,
HOWEVER, that any person becoming a director subsequent to the beginning
of such twenty-four (24) month period, whose election, or nomination for
election, by the Company's shareholders was approved by either (i) the
Board consistent with the terms of the Shareholder Agreement, during the
period the Shareholder Agreement is in effect, or (ii) a vote of at least
75% of the directors comprising the Incumbent Board (either by a specific
vote or by approval of the proxy statement of the Company in which such
person is named as a nominee for director, without objection to such
nomination) shall be, for purposes of this paragraph (B), considered as
though such person were a member of the Incumbent Board; PROVIDED,
FURTHER, that no individual initially elected or nominated as a director
of the Company as a result of an actual or threatened election contest
with respect to directors or any other actual or threatened solicitation
of proxies or consents by or on behalf of any person other than the Board
shall be deemed to be a member of the Incumbent Board; or
(C) there is consummated a merger or consolidation of the Company or
a subsidiary thereof with or into any other corporation other than a
merger or consolidation which would result in the holders of the voting
securities of the Company outstanding immediately prior thereto holding
securities which, in combination with the ownership of any trustee or
other fiduciary holding securities under an employee benefit plan of the
Company, represent immediately after such merger or consolidation at
least 60% of the combined voting power of the then outstanding voting
securities of either the Company or the other entity which survives such
merger or consolidation or any parent of such other entity; or
(D) the stockholders of the Company approve (i) a plan of complete
liquidation or dissolution of the Company or (ii) an agreement for the
sale or disposition by the Company of all or substantially all the
Company's assets.
5. PAYMENTS UPON TERMINATION OF EXECUTIVE.
(a) If the employment of the Executive shall be terminated other than by
reason of death or Disability (i) by the Company (other than for Cause) or
(ii) by the Executive for Good Reason, then the Company shall pay or provide
to the Executive (or the Executive's beneficiary or estate):
(1) within thirty (30) days following the date of such termination of
employment ("Termination Date"), a lump-sum cash amount equal to the sum
of (i) the Executive's unpaid Base Salary through the Termination Date;
(ii) any accrued but unpaid annual bonus under the Performance Bonus Plan
in respect of the annual bonus period preceding the bonus period in which
the Termination Date occurs; (iii) any unpaid reimbursable business
expenses properly incurred through the Termination Date; and (iv) a bonus
payment equal to
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the Executive's Annual Target Bonus in the year of termination,
multiplied by a fraction the numerator of which is the number of months
in the bonus year of termination in which the Executive has worked at
least one day and the denominator of which is 12;
(2) within thirty (30) days following the Termination Date, a
lump-sum cash amount equal to the greater of (A) the Executive's then
Base Salary payable over the remainder of the Term plus a bonus equal to
the Executive's Annual Target Bonus in the year of termination multiplied
by a fraction the numerator of which is the number of complete months
remaining in the Term and the denominator of which is 12, or (B) 2.0
times the sum of: (i) the Executive's annual rate of Base Salary as of
the Termination Date plus (ii) the Annual Target Bonus for the year in
which the Termination Date occurs (in each such case, Executive's Base
Salary and Annual Target Bonus being determined without taking into
account any reductions thereto constituting Good Reason); PROVIDED,
HOWEVER, that the Executive shall not be entitled to any severance
benefits from the Company or under any Company severance plan, policy or
arrangement other than as specified in this Agreement;
(3) for a period terminating on the earlier of (A) the commencement
of the provision of substantially equivalent benefits by a new employer
or (B) the later of (I) the last day of the Term, or (II) twenty-four
(24) months following the Termination Date, the Company shall continue to
keep in full force and effect (or otherwise provide) all policies of
medical, accident, disability and life insurance with respect to the
Executive and his dependents with substantially the same level of
coverage, upon substantially the same terms and otherwise substantially
to the same extent as such policies shall have been in effect immediately
prior to the Termination Date, and, as applicable, the Company and the
Executive shall share the costs of the continuation of such insurance
coverage in the same proportion as such costs were shared immediately
prior to the date of termination;
(4) for purposes of determining final average compensation (or making
any similar calculation) and years of service (for purposes of
eligibility, vesting and benefit accrual) under any tax-qualified or
supplemental defined benefit retirement plan (including without
limitation the SERP), Executive shall be deemed to have remained employed
by the Company hereunder until the end of the Term and to have received
his then current Base Salary and Annual Target Bonus through the end of
the Term; PROVIDED, that to the extent such benefits cannot be accrued
under and paid from any tax-qualified pension plan, such benefits shall
be accrued under and paid from the SERP or other supplemental plan.
(5) all options to purchase Common Stock held by the Executive shall
immediately become fully vested and exercisable and shall remain
exercisable until the earlier of (A) the date that is 24 months following
the Termination Date and (B) the expiration of the stated term of such
options; PROVIDED, that the Value Option shall remain exercisable until
expiration of its stated term; and
(b) If the employment of the Executive shall be terminated (i) by reason
of the Executive's death or Disability, (ii) by the Company for Cause, (iii)
by the Executive without Good Reason, or (iv) by the mutual written consent
of the parties hereto (each a "Nonqualifying Termination"), then the Company
shall pay to the Executive (or the Executive's beneficiary or estate) within
thirty (30) days following the Termination Date a lump-sum cash amount equal
to the sum of the Executive's unpaid Base Salary through the Termination
Date plus any bonus payments which have been earned or become payable, to
the extent not theretofore paid, plus any unpaid reimbursable business
expenses properly incurred through the Termination Date. In addition,
Executive (or the Executive's beneficiary or estate) shall have no less than
ninety days following the termination of his employment pursuant to a
Nonqualifying Termination to exercise any outstanding options to the extent
vested and exercisable as of the Termination Date; PROVIDED, that the Value
Option shall remain exercisable until the expiration of its stated term.
6. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
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(a) Notwithstanding anything in this Agreement to the contrary, in the
event that any payment or distribution by the Company, by any affiliate of
the Company or by any person whose actions result in a change in control of
the Company (to the extent the Company approves of the arrangements pursuant
to which the payment by such person is made to the Executive) to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
Section 6) (a "Payment") would be subject to the excise tax imposed by
Section 4999 of the Code, or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as
the "Excise Tax"), then the Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that, after
payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes) including, without limitation, any
income and employment taxes and Excise Tax, imposed upon the Gross-Up
Payment but before deduction for any federal, state or local income or other
tax upon the Payments, the Executive will retain a net amount equal to the
sum of (i) the Payments and (ii) an amount equal to the product of any
deductions (or portions thereof) disallowed because of the inclusion of the
Gross-Up Payment in the Executive's adjusted gross income for federal income
tax purposes and the highest applicable marginal rate of federal income
taxation for the calendar year in which the Gross-Up Payment is to be made.
For purposes of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to (1) pay applicable federal income taxes at the
highest applicable marginal rates of federal income taxation (including
surcharges) for the calendar year in which the Gross-Up Payment is to be
made, (2) pay applicable state and local income taxes at the highest
applicable marginal rate of taxation (including surcharges) for the calendar
year in which the Gross-Up Payment is to be made, net of the maximum
reduction in federal income taxes which could be obtained from deduction of
such state and local taxes and (3) have otherwise allowable deductions for
federal income tax purposes at least equal to those disallowed because of
the inclusion of the Gross-Up Payment in the Executive's adjusted gross
income.
(b) Subject to the provisions of Section 6(a), all determinations
required to be made under this Section 6, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made
by the public accounting firm that is retained by the Company as of the date
immediately prior to the change in control (the "Accounting Firm") which
shall provide detailed supporting calculations both to the Company and the
Executive within fifteen (15) business days of the receipt of notice from
the Company or the Executive that there has been a Payment, or such earlier
time as is requested by the Company (collectively, the "Determination"). In
the event that the Accounting Firm is serving as accountant or auditor for
the individual, entity or group effecting the change in control, the
Executive may appoint another nationally recognized public accounting firm
reasonably acceptable to the Company to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All reasonable fees and expenses of the Accounting Firm
shall be borne solely by the Company and, subject to applicable law and
obligations to the Company's stockholders, the Company shall enter into any
agreement reasonably requested by the Accounting Firm that is generally
recognized as standard in connection with the performance of the services
hereunder. The Gross-Up Payment under this Section 6 with respect to any
Payment shall be made no later than thirty (30) days following the date of
such Payment. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall furnish the Executive with a written
opinion to such effect, and to the effect that failure to report the Excise
Tax, if any, on the Executive's applicable federal income tax return should
not result in the imposition of a negligence or similar penalty. The
Determination by the Accounting Firm shall be binding upon the Company and
the Executive. As a result of uncertainty in the application of Section 4999
of the Code at the time of the Determination, it is possible that Gross-Up
Payments which will not have been made by the Company should
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have been made ("Underpayment") or Gross-Up Payments are made by the Company
which should not have been made ("Overpayment"), consistent with the
calculations required to be made hereunder. In the event that the Executive
thereafter is required to make payment of any additional Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code) shall be promptly paid by the
Company to or for the benefit of the Executive. In the event the amount of
the Gross-Up Payment exceeds the amount necessary to reimburse the Executive
for his Excise Tax, the Accounting Firm shall determine the amount of the
Overpayment that has been made and any such Overpayment (together with
interest at the rate provided in Section 1274(b)(2) of the Code) shall be
promptly paid by the Executive to or for the benefit of the Company. The
Executive shall cooperate, to the extent his reasonable expenses in
connection therewith are reimbursed by the Company, with any reasonable
requests by the Company in connection with any contests or disputes with the
Internal Revenue Service in connection with the Excise Tax.
7. WITHHOLDING TAXES. The Company shall have the right to withhold from
any and all payments due to the Executive (or his beneficiary or estate)
hereunder all taxes which, by applicable federal, state, local or other law, the
Company is required to withhold therefrom.
8. SUCCESSORS; BINDING AGREEMENT.
(a) This Agreement is personal in nature and none of the parties hereto
shall, without the consent of the other, assign, or transfer this Agreement
or any rights or obligations hereunder; PROVIDED, that in the event of the
merger, consolidation, transfer or sale of substantially all of the assets
of the Company with or to any other individual or entity, this Agreement
shall, subject to the provisions hereof, be binding upon and inure to the
benefit of such successor and such successor shall discharge and perform all
the promises, covenants, duties and obligations of the Company hereunder,
and all references herein to the "Company" shall refer to such successor.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
the Executive shall die while any amounts remain payable to the Executive
hereunder, all such amounts, unless otherwise provided herein, shall be paid
in accordance with the terms of this Agreement to such person or persons
appointed in writing by the Executive to receive such amounts or, if no
person is so appointed, to the Executive's estate.
9. RESOLUTION OF DISPUTES; LEGAL FEES; NO MITIGATION.
(a) Except as provided in Sections 10 and 11, all disputes hereunder
shall be settled by final, binding arbitration, conducted before a panel of
three (3) arbitrators in California in accordance with the rules of the
American Arbitration Association then in effect. Judgment on the arbitration
award may be entered in any court having jurisdiction. The Company shall
bear the expenses of such arbitration.
(b) If any contest or dispute shall arise under this Agreement involving
termination of the Executive's employment with the Company or involving the
failure or refusal of the Company to perform fully in accordance with the
terms hereof, the Company shall advance and reimburse the Executive, on a
current basis, all legal fees and expenses, if any, incurred by the
Executive in connection with such contest or dispute; PROVIDED, that the
Executive agrees to return any advanced or reimbursed expenses to the extent
the arbitrators (or the court, in the case of a dispute described in Section
10 or 11) determine that the Company has prevailed as to the material issues
raised in determination of the dispute.
(c) The Company's obligation to make any payments provided for in this
Agreement to the Executive and otherwise to perform its obligations
hereunder shall not be affected by any setoff, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against
the Executive or others. In no event shall the Executive be obligated to
seek other
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employment or take other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement, and such
amounts shall not be reduced whether or not the Executive obtains other
employment.
10. NONCOMPETITION.
(a) DISCLOSURE. The Executive has disclosed to the Board, in writing,
all healthcare-related interests, investments, or business activities,
whether as proprietor, stockholder, partner, co-venturer, director, officer,
employee, independent contractor, agent, consultant, or in any other
capacity or manner whatsoever. The Executive shall notify the Board, in
writing, of any changes in or additions to such interests, activities or
investments permitted in accordance with the terms of this Agreement, within
15 days of such change or addition.
(b) PROHIBITED ACTIVITY. Without the written consent of a majority of
the Independent Directors, the Executive may not engage in any of the
following actions during the period that is (A) prior to the Executive's
termination of employment with the Company, (B) within two years following
the termination of his employment with the Company during the Initial Term
if such termination is by the Company for Cause or by the Executive other
than for Good Reason and (C) within one year following his termination of
employment during the Term but after the Initial Term if such termination is
by the Company for Cause or by the Executive other than Good Reason.
(i) own, either directly or indirectly, any interest in any business
that competes with the "Primary Business" in which the Company or any
subsidiary or affiliate is engaged, within a radius of 30 miles from any
site, facility, or location which is owned, managed or operated by or
affiliated with the Company or any of its subsidiaries and affiliates,
including physician practices of any kind. For purposes of this Agreement,
"Primary Business" shall mean the delivery of integrated healthcare services
in markets where the Company or its subsidiaries own hospitals and/or
skilled nursing facilities ("SNFs") with the hospital serving as the hub of
the local delivery system in conjunction with its physician medical staff.
In addition to inpatient acute care, psychiatric care, and skilled nursing
care, these services can include (A) individual physician practices and/or
physician-based organizations such as primary care and specialty clinics,
physician-hospital organizations ("PMOs") or medical service organizations
("MSOs"), or physician medical groups and (B) ambulatory programs such as
home health care, ambulatory surgery, psychiatric services, occupational and
sports medicine centers, psychiatric after-care and day care programs, and
other diagnostic, rehabilitative and treatment services. Some of these
services, sites and facilities may be located in satellite areas for the
purpose of extending the hub hospital's geographic service area and to serve
as access points and/or referral sources for either the local delivery
system or the hub hospital's geographic service area and to serve as access
points and/or referral sources for either the local delivery system or the
hub hospital. The Board may modify, from time to time, the definition of
Primary Business to include any additional business or service activity in
which the Company may engage during the Term or to exclude any business or
service in which the Company ceases to engage. The definition of "Primary
Business" may also be modified to include any business or service into
which, as of the Termination Date, the Company definitively intends to
expand, regardless of whether such expansion actually occurs after the
Executive's termination. For purposes of the preceding sentence, the date on
which a modification of the definition of "Primary Business" shall be
effective shall be the date on which the Executive is provided written
notice of such modification (the "Notice Date"); PROVIDED, HOWEVER, that no
such modification as to which notice is provided on or after the Termination
Date shall be effective against the Executive; and PROVIDED, FURTHER, that
no such modification shall be effective with respect to any interests,
investments or business activities engaged in by Executive prior to the
Notice Date of such modification and properly disclosed prior to such Notice
Date pursuant to Section 10(a);
8
<PAGE>
(ii) participate or serve, either directly or indirectly, whether as a
proprietor, stockholder, partner, co-venturer, director, officer, employee,
independent contractor, agent, consultant, or in any other capacity or
manner whatsoever in any business or service activity that competes with the
Primary Business;
(iii) directly or indirectly, solicit or recruit any individual employed
by the Company, its subsidiaries or affiliates for the purpose of being
employed by him or by any competitor of the Company on whose behalf he is
acting as an agent, representative or employee, or convey any confidential
information or trade secrets regarding other employees of the Company, its
subsidiaries or affiliates to any other person; or
(iv) directly or indirectly, influence or attempt to influence customers
of the Company or any of its subsidiaries or affiliates to direct their
business to any competitor of the Company;
PROVIDED, HOWEVER, that neither (i) the "beneficial ownership" by Executive,
either individually or as a member of a "group," as such terms are used in
Rule 13d under the Exchange Act, as a passive investment, of not more than
five percent (5%) of the voting stock of any publicly held corporation, nor
(ii) the beneficial ownership by Executive of any interest described in the
first sentence of Section 10(a) and properly and timely disclosed in
accordance with the terms therewith, shall alone constitute a violation of
this Agreement.
In the event that the Executive engages in the conduct proscribed by
this Section 10, the Executive agrees to repay any lump-sum severance amount
received pursuant to Section 5 of this Agreement, and all outstanding stock
options held by the Executive shall expire as of the date of the Executive's
commencement of such proscribed conduct. It is further expressly agreed that
the Company will or would suffer irreparable injury if Executive were to
compete with the Company or any subsidiary or affiliate in violation of this
Agreement and that the Company would by reason of such competition be
entitled to preliminary or injunctive relief in a court of appropriate
jurisdiction, and Executive further consents and stipulates to the entry of
such preliminary or injunctive relief in such a court prohibiting Executive
from competing with the Company or any subsidiary or affiliate of the
Company in violation of this Agreement upon an appropriate finding by such
court that Executive has violated this Section 10.
(c) UNENFORCEABLE PROVISIONS. It is the desire and the intent of the
parties that the provisions of this Section 10 shall be enforceable to the
fullest extent permissible under applicable law and public policy.
Accordingly, if this Section 10 or any portion thereof shall be adjudicated
to be invalid or unenforceable whether because of the duration and scope of
the covenants set forth herein or otherwise, the length and scope of the
restrictions set forth in this Section 10 shall be reduced to the extent
necessary so that this covenant may be enforced to the fullest extent
possible under applicable law.
11. CONFIDENTIAL INFORMATION. The Executive acknowledges that in his
employment hereunder, and during prior periods of employment with the Company
and/or its subsidiaries, he has occupied and will continue to occupy a position
of trust and confidence. The Executive shall not, except as may be required to
perform his duties hereunder or as required by applicable law, until the
expiration of the applicable periods described in Section 10(b) or until such
information shall have become public other than by the Executive's unauthorized
disclosure, disclose to others or use, whether directly or indirectly, any
Confidential Information regarding the Company, its subsidiaries and affiliates.
"Confidential Information" shall mean information about the Company, its
subsidiaries and affiliates, and their respective clients and customers that is
not publicly disclosed by the Company or otherwise generally available to
members of the public seeking such information and that was learned by the
Executive in the course of his employment by the Company, its subsidiaries and
affiliates, including (without limitation) any proprietary knowledge, trade
secrets, data, formulae, information and client and customer lists and all
papers, resumes, and records (including computer records) of the documents
containing such Confidential Information. The Executive acknowledges that such
Confidential Information is specialized, unique in nature and of great value to
the Company, its subsidiaries and
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<PAGE>
affiliates, and that such information gives the Company, its subsidiaries and
affiliates a competitive advantage. The Executive agrees to deliver or return to
the Company, at the Company's request at any time or upon termination or
expiration of his employment or as soon thereafter as possible, all documents,
computer tapes and disks, records, lists, data, drawings, prints, notes and
written information (and all copies thereof) furnished by the Company, its
subsidiaries or affiliates or prepared by the Executive during the term of his
employment by the Company, its subsidiaries and affiliates.
In the event that the Executive engages in any conduct proscribed by this
Section 11, the Executive agrees to repay any lump-sum severance amount received
pursuant to Section 5 of this Agreement, and all outstanding stock options held
by the Executive shall expire as of the date of the Executive's commencement of
such proscribed conduct. It is further expressly agreed that the Company will or
would suffer irreparable injury if Executive were to disclose or threaten to
disclose Confidential Information regarding the Company or any subsidiary or
affiliate in violation of this Agreement or otherwise fail to comply with the
provisions of this Section 11, and that the Company would, by reason of such
disclosure or threatened disclosure or other failure to comply, be entitled to
preliminary or permanent injunctive relief in a court of appropriate
jurisdiction, and Executive further consents and stipulates to the entry of such
preliminary or permanent injunctive relief in such a court prohibiting Executive
from disclosing Confidential Information in violation of this Agreement or
otherwise requiring Executive to comply with the provisions of this Section 11
upon an appropriate finding by such court that Executive has violated this
Section 11.
12. NOTICE. For the purposes of this Agreement, any notices, demands and
all other communications required or permitted hereunder shall be in writing and
shall be deemed to have been duly given upon (a) transmitter's confirmation of a
receipt of a facsimile transmission, (b) confirmed delivery by a standard
overnight carrier or (c) the expiration of five business days after the day when
mailed by certified or registered mail, postage prepaid, addressed as follows
(or at such other address as the parties hereto shall specify by like notice):
<TABLE>
<S> <C>
If to Executive: Robert C. Joyner
---------------------------------
---------------------------------
---------------------------------
If to Company: Paracelsus Healthcare Corporation
515 West Greens Road
Suite 800
Houston, Texas 77067
Telecopy No. (713) 878-6686
Attention: Chief Executive Officer
with a copy to: Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue, Suite 3400
Los Angeles, California 990071
Telecopy No. (213) 687-5600
Attention: Thomas C. Janson
</TABLE>
13. AMENDMENT, WAIVER. No provisions of this Agreement may be waived,
modified or discharged unless such waiver, modification or discharge is agreed
to in a written document signed by the Executive and such officer of the
Company, as may be specifically designated by the Board. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver
10
<PAGE>
of similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement.
14. ENTIRE AGREEMENT. This Agreement and Exhibit A hereto set forth the
entire agreement of the parties hereto in respect of the subject matter
contained herein and supersede all prior agreements, promises, covenants,
arrangements, communications, representations or warranties, whether oral or
written, by any officer, employee or representative of any party hereto.
15. GOVERNING LAW; VENUE; VALIDITY. The interpretation, construction and
performance of this Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of California without regard to
the principle of conflicts of laws and, at the election of the Executive, the
venue of any dispute arising under this Agreement shall be California. The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement,
which other provisions shall remain in full force and effect.
16. HEADINGS. Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
17. SEVERABILITY. In the event that a court of competent jurisdiction
determines that any portion of this Agreement is in violation of any statute or
public policy, only the portions of this Agreement that violate such statute or
public policy shall be stricken. All portions of this Agreement that do not
violate any statute or public policy shall continue in full force and effect.
Further, any court order striking any portion of this Agreement shall modify the
stricken terms as narrowly as possible to give as much effect as possible to the
intentions of the parties under this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first written above.
PARACELSUS HEALTHCARE CORPORATION
By:
-----------------------------------
Name:
Title:
-----------------------------------
ROBERT C. JOYNER
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EXHIBIT A
During the Term of the Agreement, the Company shall provide the Executive
with the following benefits:
1. LIFE INSURANCE. The Company shall maintain for Executive's benefit
life insurance coverage with a face amount equal to three (3) times the
amount of Executive's Base Salary as in effect from time to time; PROVIDED,
HOWEVER, that if the Company shall be unable to obtain the full amount of
such life insurance coverage at a reasonable cost, the Company may
alternatively provide Executive with a lump-sum death benefit, payable
within ninety (90) days following the date of Executive's death, in such
amount as will, when added to any life insurance coverage actually obtained
by the Company, provide Executive's beneficiary(ies) with a net amount,
after payment of any Federal and state income taxes, equal to the net,
after-tax amount such beneficiary(ies) would have received had the Company
obtained the full amount of life insurance coverage provided for above.
Executive shall have the right to name and to change from time to time the
beneficiary(ies) under such life insurance coverage (and death benefit, if
any). Such life insurance coverage (and death benefit, if any) shall be in
addition to any death benefits which may be payable under any accidental
death and dismemberment plan, any separate business travel accident
coverage, or any pension plan in which the Executive may participate, and
such coverage shall also be in addition to any life insurance which
Executive himself purchases.
2. RELOCATION ASSISTANCE. The Company shall reimburse Executive for
the reasonable costs he incurs in relocating from Los Angeles, California to
Houston, Texas in accordance with that certain letter dated May 29, 1996
from Charles R. Miller, President of Champion Healthcare Corporation, the
terms of which are incorporated herein as if they were set forth in full
herein.
3. POST-TERMINATION RELOCATION. In the event that, during the 24 month
period following the Effective Date, Executive's employment is terminated
(i) by Executive for any reason or (ii) by the Company without Cause, the
Company shall reimburse Executive for reasonable relocation expenses
incurred by Executive (to the extent not otherwise reimbursed by any
subsequent employer) during the 12 month period following such termination
in connection with his subsequent relocation anywhere in the continental
United States.
4. VACATIONS AND HOLIDAYS. Executive shall accrue paid vacation at the
rate of four (4) weeks per year. It is agreed that as of the Effective Time,
Executive shall have accrued 50 days of paid vacation with the Company,
which days shall be carried over until used by Executive or paid for by the
Company. Paid holidays shall be similarly calculated at Executive's rate of
Base Salary in accordance with standard Company practices.
5. TAX RETURN PREPARATION ASSISTANCE; FINANCIAL ADVICE -- will provide
the Executive with the assistance of the Company's regular auditors for
the preparation of Executive's United States Federal and State tax returns
without charge to Executive. In addition, the Company shall reimburse
Executive for the costs incurred by Executive for financial planning
services in an amount not to exceed $5,000 annually.
6. ANNUAL PHYSICAL EXAMINATION -- The Company shall reimburse Executive
100% of all costs incurred by Executive in obtaining an annual
comprehensive physical examination to be conducted by a physician, clinic,
or medical group of the Executive's choice and which is located within
reasonable proximity to Executive's place of Employment.
<PAGE>
EXHIBIT 10.48
FORM OF
PARACELSUS HEALTHCARE CORPORATION
1996 STOCK INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS.
The name of this plan is the Paracelsus Healthcare Corporation 1996 Stock
Incentive Plan (the "Plan"). The Plan was adopted by the Board on July 17, 1996,
subject to the approval of the stockholders of the Company, which approval was
obtained on the same date. The purpose of the Plan is to enable the Company to
attract and retain highly qualified personnel who will contribute to the
Company's success by their ability, ingenuity and industry and to provide
incentives to the participating officers, employees, consultants and advisors
that are linked directly to increases in stockholder value and will therefore
inure to the benefit of all stockholders of the Company.
For purposes of the Plan, the following terms shall be defined as set forth
below:
(1) "ADMINISTRATOR" means the Board, or if and to the extent the Board does
not administer the Plan, the Committee in accordance with Section 2.
(2) "BOARD" means the Board of Directors of the Company.
(3) "CODE" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor thereto.
(4) "COMMITTEE" means the Compensation and Stock Option Committee of the
Board plus such additional individuals as the Board may designate in order to
fulfill the Disinterested Persons requirement of Rule 16b-3 as promulgated by
the Securities and Exchange Commission (the "Commission") under the Securities
Exchange Act of 1934 (the "Exchange Act"), and as such Rule may be amended from
time to time, or any successor definition adopted by the Commission, or any
other Committee the Board may subsequently appoint to administer the Plan. To
the extent applicable, the Committee shall be composed entirely of individuals
who meet the qualifications referred to in Rule 16b-3 and Section 162(m) of the
Code. If at any time or to any extent the Board shall not administer the Plan,
then the functions of the Board specified in the Plan shall be exercised by the
Committee.
(5) "COMPANY" means Paracelsus Healthcare Corporation, a California
corporation (or any successor corporation).
(6) "DEFERRED STOCK" means an award made pursuant to Section 7 below of the
right to receive Stock at the end of a specified deferral period.
(7) "DISABILITY" means the inability of a Participant to perform
substantially his duties and responsibilities to the Company by reason of a
physical or mental disability or infirmity (i) for a continuous period of six
months, or (ii) at such earlier time as the Participant submits medical evidence
satisfactory to the Administrator that he has a physical or mental disability or
infirmity which will likely prevent him from returning to the performance of his
work duties for six months or longer. The date of such Disability shall be on
the last day of such six-month period or the day on which the Participant
submits such satisfactory medical evidence, as the case may be.
(8) "DISINTERESTED PERSON" shall have the meaning set forth in Rule 16b-3 of
the Exchange Act, and as such Rule may be amended from time to time, or any
successor definition adopted by the Commission.
(9) "EFFECTIVE DATE" shall mean the date provided pursuant to Section 11.
(10) "ELIGIBLE EMPLOYEE" means an officer, employee, consultant or advisor
of the Company or any Subsidiary.
(11) "FAIR MARKET VALUE" means, as of any given date, with respect to any
awards granted hereunder, (A) if the Stock is publicly traded, the closing sale
price of the Stock on such date as reported in the Western Edition of the Wall
Street Journal, or the average of the closing price of the
<PAGE>
Stock on each day on which the Stock was traded over a period of up to twenty
trading days immediately prior to such date, (B) the fair market value of the
Stock as determined in accordance with a method prescribed in the agreement
evidencing any award hereunder, or (C) the fair market value of the Stock as
otherwise determined by the Administrator in the good faith exercise of its
discretion.
(12) "INCENTIVE STOCK OPTION" means any Stock Option intended to be
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.
(13) "LIMITED STOCK APPRECIATION RIGHT" means a Stock Appreciation Right
that can be exercised only in the event of a "Change of Control" (as defined in
the award evidencing such Limited Stock Appreciation Right).
(14) "NON-QUALIFIED STOCK OPTION" means any Stock Option that is not an
Incentive Stock Option, including any Stock Option that provides (as of the time
such option is granted) that it will not be treated as an Incentive Stock
Option.
(15) "PARENT CORPORATION" means any corporation (other the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations in the chain (other than the Company) owns stock possessing 50% or
more of the combined voting power of all classes of stock in one of the other
corporations in the chain.
(16) "PARTICIPANT" means any Eligible Employee, consultant or advisor to the
Company selected by the Administrator, pursuant to the Administrator's authority
in Section 2 below, to receive grants of Stock Options, Stock Appreciation
Rights, Limited Stock Appreciation Rights, Restricted Stock awards, Deferred
Stock awards, Performance Shares or any combination of the foregoing.
(17) "PERFORMANCE SHARE" means an award of shares of Stock pursuant to
Section 7 that is subject to restrictions based upon the attainment of specified
performance objectives.
(18) "RESTRICTED STOCK" means an award granted pursuant to Section 7 of
shares of Stock subject to certain restrictions.
(19) "STOCK" means the common stock, no par value, of the Company.
(20) "STOCK APPRECIATION RIGHT" means the right pursuant to an award granted
under Section 6 to receive an amount equal to the difference between (A) the
Fair Market Value, as of the date such Stock Appreciation Right or portion
thereof is surrendered, of the shares of Stock covered by such right or such
portion thereof, and (B) the aggregate exercise price of such right or such
portion thereof.
(21) "STOCK OPTION" means any option to purchase shares of Stock granted
pursuant to Section 5.
(22) "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations (other than the last corporation) in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
SECTION 2. ADMINISTRATION.
The Plan shall be administered in accordance with the requirements of Rule
16b-3 of the Exchange Act and Section 162(m) of the Code (but only to the extent
necessary to maintain qualification of the Plan under Rule 16b-3 of the Exchange
Act and Section 162(m) of the Code) by the Board or by the Committee which shall
be appointed by the Board and which shall serve at the pleasure of the Board.
Pursuant to the terms of the Plan, the Administrator shall have the power
and authority to grant to Eligible Employees, consultants and advisors to the
Company, pursuant to the terms of the Plan: (a) Stock Options, (b) Stock
Appreciation Rights or Limited Stock Appreciation Rights, (c) Restricted Stock,
(d) Performance Shares, (e) Deferred Stock or (f) any combination of the
foregoing.
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<PAGE>
In particular, the Administrator shall have the authority:
(a) to select those Eligible Employees, consultants and advisors of the
Company who shall be Participants;
(b) to determine whether and to what extent Stock Options, Stock
Appreciation Rights, Limited Stock Appreciation Rights, Restricted Stock,
Deferred Stock, Performance Shares or a combination of the foregoing, are to
be granted hereunder to Participants;
(c) to determine the number of shares of Stock to be covered by each
such award granted hereunder;
(d) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder (including, but not
limited to, (x) the restrictions applicable to Restricted or Deferred Stock
awards and the conditions under which restrictions applicable to such
Restricted or Deferred Stock shall lapse, and (y) the performance goals and
periods applicable to the award of Performance Shares); and
(e) to determine the terms and conditions, not inconsistent with the
terms of the Plan, which shall govern all written instruments evidencing the
Stock Options, Stock Appreciation Rights, Limited Stock Appreciation Rights,
Restricted Stock, Deferred Stock, Performance Shares or any combination of
the foregoing.
The Administrator shall have the authority, in its discretion, to adopt,
alter and repeal such administrative rules, guidelines and practices governing
the Plan as it shall from time to time deem advisable; to interpret the terms
and provisions of the Plan and any award issued under the Plan (and any
agreements relating thereto); and to otherwise supervise the administration of
the Plan.
All decisions made by the Administrator pursuant to the provisions of the
Plan shall be final and binding on all persons, including the Company and the
Participants.
SECTION 3. STOCK SUBJECT TO PLAN.
The total number of shares of Stock reserved and available for issuance
under the Plan shall be 8,749,933. Such shares may consist, in whole or in part,
of authorized and unissued shares or treasury shares. The aggregate number of
shares of Stock as to which Stock Options, Stock Appreciation Rights, Restricted
Stock and Performance Shares may be granted to any individual during any
calendar year may not, subject to adjustment as provided in this Section 3,
exceed 80% of the shares of Stock reserved for the purposes of the Plan in
accordance with the provisions of this Section 3.
Consistent with the provisions of Section 162(m) of the Code, as from time
to time applicable, to the extent that (i) a Stock Option expires or is
otherwise terminated without being exercised, or (ii) any shares of Stock
subject to any Restricted Stock, Deferred Stock or Performance Share award
granted hereunder are forfeited, such shares shall again be available for
issuance in connection with future awards under the Plan. If any shares of Stock
have been pledged as collateral for indebtedness incurred by a Participant in
connection with the exercise of a Stock Option and such shares are returned to
the Company in satisfaction of such indebtedness, such shares shall again be
available for issuance in connection with future awards under the Plan.
In the event of any merger, reorganization, consolidation, recapitalization,
stock dividend or other change in corporate structure affecting the Stock, a
substitution or adjustment shall be made in (i) the aggregate number of shares
reserved for issuance under the Plan, (ii) the kind, number and option price of
shares subject to outstanding Stock Options granted under the Plan, and (iii)
the kind, number and purchase price of shares issuable pursuant to awards of
Restricted Stock, Deferred Stock and Performance Shares, as may be determined by
the Administrator, in its sole discretion. Such other substitutions or
adjustments shall be made as may be determined by the Administrator, in its sole
discretion. An adjusted option price shall also be used to determine the amount
payable by the Company upon the exercise of any Stock Appreciation Right or
Limited Stock Appreciation Right
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<PAGE>
associated with any Stock Option. In connection with any event described in this
paragraph, the Administrator may provide, in its discretion, for the
cancellation of any outstanding awards and payment in cash or other property
therefor.
SECTION 4. ELIGIBILITY.
Officers (including officers who are directors of the Company), employees of
the Company, and consultants and advisors to the Company who are responsible for
or are in a position to contribute to the management, growth and/or
profitability of the business of the Company shall be eligible to be granted
Stock Options, Stock Appreciation Rights, Limited Stock Appreciation Rights,
Restricted Stock awards, Deferred Stock awards or Performance Shares hereunder.
The Participants under the Plan shall be selected from time to time by the
Administrator, in its sole discretion, from among the Eligible Employees,
consultants and advisors to the Company recommended by the senior management of
the Company, and the Administrator shall determine, in its sole discretion, the
number of shares of Stock covered by each award.
SECTION 5. STOCK OPTIONS.
Stock Options may be granted alone or in addition to other awards granted
under the Plan. Any Stock Option granted under the Plan shall be in such form as
the Administrator may from time to time approve, and the provisions of Stock
Option awards need not be the same with respect to each optionee. Recipients of
Stock Options shall enter into a subscription and/or award agreement with the
Company, in such form as the Administrator shall determine, which agreement
shall set forth, among other things, the exercise price of the option, the term
of the option and provisions regarding exercisability of the option granted
thereunder.
The Stock Options granted under the Plan may be of two types: (i) Incentive
Stock Options and (ii) Non-Qualified Stock Options.
The Administrator shall have the authority to grant any Eligible Employee
Incentive Stock Options, Non-Qualified Stock Options, or both types of Stock
Options (in each case with or without Stock Appreciation Rights or Limited Stock
Appreciation Rights). Consultants and advisors may only be granted Non-Qualified
Stock Options (with or without Stock Appreciation Rights or Limited Stock
Appreciation Rights). To the extent that any Stock Option does not qualify as an
Incentive Stock Option, it shall constitute a separate Non-Qualified Stock
Option. More than one option may be granted to the same optionee and be
outstanding concurrently hereunder.
Stock Options granted under the Plan shall be subject to the following terms
and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Administrator shall deem
desirable:
(1) OPTION PRICE. The option price per share of Stock purchasable under a
Stock Option shall be determined by the Administrator in its sole discretion at
the time of grant but shall not, in the case of Incentive Stock Options, be less
than 100% of the Fair Market Value of the Stock on such date and shall not, in
any event, be less than the par value (if any) of the Stock. If an employee owns
or is deemed to own (by reason of the attribution rules applicable under Section
424(d) of the Code) more than 10% of the combined voting power of all classes of
stock of the Company or any Parent Corporation and an Incentive Stock Option is
granted to such employee, the option price of such Incentive Stock Option (to
the extent required by the Code at the time of grant) shall be no less than 110%
of the Fair Market Value of the Stock on the date such Incentive Stock Option is
granted.
(2) OPTION TERM. The term of each Stock Option shall be fixed by the
Administrator, but no Stock Option shall be exercisable more than ten years
after the date such Stock Option is granted; PROVIDED, HOWEVER, that if an
employee owns or is deemed to own (by reason of the attribution rules of Section
424(d) of the Code) more than 10% of the combined voting power of all classes of
stock of the Company or any Parent Corporation and an Incentive Stock Option is
granted to such employee, the term of such Incentive Stock Option (to the extent
required by the Code at the time of grant) shall be no more than five years from
the date of grant.
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(3) EXERCISABILITY. Stock Options shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by the
Administrator at or after grant. The Administrator may provide, in its
discretion, that any Stock Option shall be exercisable only in installments, and
the Administrator may waive such installment exercise provisions at any time in
whole or in part based on such factors as the Administrator may determine, in
its sole discretion, including but not limited to in connection with any "change
in control" of the Company, as defined in any stock option agreement.
(4) METHOD OF EXERCISE. Subject to Section 5(3) above, Stock Options may
be exercised in whole or in part at any time during the option period, by giving
written notice of exercise to the Company specifying the number of shares to be
purchased, accompanied by payment in full of the purchase price in cash or its
equivalent as determined by the Administrator. As determined by the
Administrator, in its sole discretion, payment in whole or in part may also be
made (i) by means of any cashless exercise procedure approved by the
Administrator, (ii) in the form of unrestricted Stock already owned by the
optionee, or (iii) in the case of the exercise of a Non-Qualified Stock Option,
in the form of Restricted Stock or Performance Shares subject to an award
hereunder (based, in each case, on the Fair Market Value of the Stock on the
date the option is exercised); PROVIDED, HOWEVER, that in the case of an
Incentive Stock Option, the right to make payment in the form of already owned
shares may be authorized only at the time of grant. If payment of the option
exercise price of a Non-Qualified Stock Option is made in whole or in part in
the form of Restricted Stock or Performance Shares, the shares received upon the
exercise of such Stock Option (to the extent of the number of shares of
Restricted Stock or Performance Shares surrendered upon exercise of such Stock
Option) shall be restricted in accordance with the original terms of the
Restricted Stock or Performance Share award in question, except that the
Administrator may direct that such restrictions shall apply only to that number
of shares equal to the number of shares surrendered upon the exercise of such
option. An optionee shall generally have the rights to dividends and any other
rights of a stockholder with respect to the Stock subject to the option only
after the optionee has given written notice of exercise, has paid in full for
such shares, and, if requested, has given the representation described in
paragraph (1) of Section 10.
The Administrator may require the voluntary surrender of all or a portion of
any Stock Option granted under the Plan as a condition precedent to the grant of
a new Stock Option. Subject to the provisions of the Plan, such new Stock Option
shall be exercisable at the price, during such period and on such other terms
and conditions as are specified by the Administrator at the time the new Stock
Option is granted; PROVIDED, HOWEVER, should the Administrator so require, the
number of shares subject to such new Stock Option shall not be greater than the
number of shares subject to the surrendered Stock Option. Consistent with the
provisions of Section 162(m), to the extent applicable, upon their surrender,
Stock Options shall be canceled and the shares previously subject to such
canceled Stock Options shall again be available for grants of Stock Options and
other awards hereunder.
(5) LOANS. The Company may make loans available to Stock Option holders in
connection with the exercise of outstanding options granted under the Plan, as
the Administrator, in its discretion, may determine. Such loans shall (i) be
evidenced by promissory notes entered into by the Stock Option holders in favor
of the Company, (ii) be subject to the terms and conditions set forth in this
Section 5(5) and such other terms and conditions, not inconsistent with the
Plan, as the Administrator shall determine, (iii) bear interest, if any, at such
rate as the Administrator shall determine, and (iv) be subject to Board approval
(or to approval by the Administrator to the extent the Board may delegate such
authority). In no event may the principal amount of any such loan exceed the sum
of (x) the exercise price less the par value (if any) of the shares of Stock
covered by the option, or portion thereof, exercised by the holder, and (y) any
federal, state, and local income tax attributable to such exercise. The initial
term of the loan, the schedule of payments of principal and interest under the
loan, the extent to which the loan is to be with or without recourse against the
holder with respect to principal or interest and the conditions upon which the
loan will become payable in the event of the holder's termination of employment
shall be determined by the Administrator. Unless the Administrator determines
otherwise, when a loan is made, shares of Stock having a Fair Market Value at
least equal
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to the principal amount of the loan shall be pledged by the holder to the
Company as security for payment of the unpaid balance of the loan, and such
pledge shall be evidenced by a pledge agreement, the terms of which shall be
determined by the Administrator, in its discretion; PROVIDED, HOWEVER, that each
loan shall comply with all applicable laws, regulations and rules of the Board
of Governors of the Federal Reserve System and any other governmental agency
having jurisdiction.
(6) NON-TRANSFERABILITY OF OPTIONS. Unless otherwise determined by the
Administrator subject to the limitations on transferability set forth in Rule
16b-3, no Stock Option shall be transferable by the optionee, and all Stock
Options shall be exercisable, during the optionee's lifetime, only by the
optionee.
(7) TERMINATION OF EMPLOYMENT OR SERVICE. If an optionee's employment with
or service as a consultant or advisor to the Company terminates by reason of
death, Disability or for any other reason, the Stock Option may thereafter be
exercised to the extent provided in the applicable subscription or award
agreement, or as otherwise determined by the Administrator.
(8) ANNUAL LIMIT ON INCENTIVE STOCK OPTIONS. To the extent that the
aggregate Fair Market Value (determined as of the date the Incentive Stock
Option is granted) of shares of Stock with respect to which Incentive Stock
Options granted to an Optionee under this Plan and all other option plans of the
Company or its Parent Corporation become exercisable for the first time by the
Optionee during any calendar year exceeds $100,000, such Stock Options shall be
treated as Non-Qualified Stock Options.
SECTION 6. STOCK APPRECIATION RIGHTS AND LIMITED STOCK APPRECIATION RIGHTS.
(1) GRANT AND EXERCISE. Stock Appreciation Rights and Limited Stock
Appreciation Rights may be granted either alone ("Free Standing Rights") or in
conjunction with all or part of any Stock Option granted under the Plan
("Related Rights"). In the case of a Non-Qualified Stock Option, Related Rights
may be granted either at or after the time of the grant of such Stock Option. In
the case of an Incentive Stock Option, Related Rights may be granted only at the
time of the grant of the Incentive Stock Option.
A Related Right or applicable portion thereof granted in conjunction with a
given Stock Option shall terminate and no longer be exercisable upon the
termination or exercise of the related Stock Option, except that, unless
otherwise provided by the Administrator at the time of grant, a Related Right
granted with respect to less than the full number of shares covered by a related
Stock Option shall only be reduced if and to the extent that the number of
shares covered by the exercise or termination of the related Stock Option
exceeds the number of shares not covered by the Related Right.
A Related Right may be exercised by an optionee, in accordance with
paragraph (2) of this Section 6, by surrendering the applicable portion of the
related Stock Option. Upon such exercise and surrender, the optionee shall be
entitled to receive an amount determined in the manner prescribed in paragraph
(2) of this Section 6. Stock Options which have been so surrendered, in whole or
in part, shall no longer be exercisable to the extent the Related Rights have
been so exercised.
(2) TERMS AND CONDITIONS. Stock Appreciation Rights shall be subject to
such terms and conditions, not inconsistent with the provisions of the Plan, as
shall be determined from time to time by the Administrator, including the
following:
(a) Stock Appreciation Rights that are Related Rights ("Related Stock
Appreciation Rights") shall be exercisable only at such time or times and to
the extent that the Stock Options to which they relate shall be exercisable
in accordance with the provisions of Section 5 and this Section 6 of the
Plan; PROVIDED, HOWEVER, that no Related Stock Appreciation Right shall be
exercisable during the first six months of its term, except that this
additional limitation shall not apply in the event of death or Disability of
the optionee prior to the expiration of such six-month period.
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(b) Upon the exercise of a Related Stock Appreciation Right, an optionee
shall be entitled to receive up to, but not more than, an amount in cash or
that number of shares of Stock (or in some combination of cash and shares of
Stock) equal in value to the excess of the Fair Market Value of one share of
Stock as of the date of exercise over the option price per share specified
in the related Stock Option multiplied by the number of shares of Stock in
respect of which the Related Stock Appreciation Right is being exercised,
with the Administrator having the right to determine the form of payment.
(c) Related Stock Appreciation Rights shall be transferable only when
and to the extent that the underlying Stock Option would be transferable
under paragraph (6) of Section 5 of the Plan.
(d) Upon the exercise of a Related Stock Appreciation Right, the Stock
Option or part thereof to which such Related Stock Appreciation Right is
related shall be deemed to have been exercised for the purpose of the
limitation set forth in Section 3 of the Plan on the number of shares of
Stock to be issued under the Plan, but only to the extent of the number of
shares issued under the Related Stock Appreciation Right.
(e) A Related Stock Appreciation Right granted in connection with an
Incentive Stock Option may be exercised only if and when the Fair Market
Value of the Stock subject to the Incentive Stock Option exceeds the
exercise price of such Stock Option.
(f) Stock Appreciation Rights that are Free Standing Rights ("Free
Standing Stock Appreciation Rights") shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by the
Administrator at or after grant; PROVIDED, HOWEVER, that no Free Standing
Stock Appreciation Right shall be exercisable during the first six months of
its term, except that this limitation shall not apply in the event of death
or Disability of the recipient of the Free Standing Stock Appreciation Right
prior to the expiration of such six-month period.
(g) The term of each Free Standing Stock Appreciation Right shall be
fixed by the Administrator, but no Free Standing Stock Appreciation Right
shall be exercisable more than ten years after the date such right is
granted.
(h) Upon the exercise of a Free Standing Stock Appreciation Right, a
recipient shall be entitled to receive up to, but not more than, an amount
in cash or that number of shares of Stock (or any combination of cash or
shares of Stock) equal in value to the excess of the Fair Market Value of
one share of Stock as of the date of exercise over the price per share
specified in the Free Standing Stock Appreciation Right (which price shall
be no less than 100% of the Fair Market Value of the Stock on the date of
grant) multiplied by the number of shares of Stock in respect to which the
right is being exercised, with the Administrator having the right to
determine the form of payment.
(i) Free Standing Stock Appreciation Rights shall be transferable only
when and to the extent that a Stock Option would be transferable under
paragraph (6) of Section 5 of the Plan.
(j) In the event of the termination of employment or service of a
Participant who has been granted one or more Free Standing Stock
Appreciation Rights, such rights shall be exercisable at such time or times
and subject to such terms and conditions as shall be determined by the
Administrator at or after grant.
(k) Limited Stock Appreciation Rights may only be exercised within the
30-day period following a "Change of Control" (as defined by the
Administrator in the agreement evidencing such Limited Stock Appreciation
Right) and, with respect to Limited Stock Appreciation Rights that are
Related Rights ("Related Limited Stock Appreciation Rights"), only to the
extent that the Stock Options to which they relate shall be exercisable in
accordance with the provisions of Section 5 and this Section 6 of the Plan;
PROVIDED, HOWEVER, that no Related Limited Stock
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Appreciation Right shall be exercisable during the first six months of its
term, except that this additional limitation shall not apply in the event of
death or Disability of the optionee prior to the expiration of such
six-month period.
(l) Upon the exercise of a Limited Stock Appreciation Right, the
recipient shall be entitled to receive an amount in cash equal in value to
the excess of the "Change of Control Price" (as defined in the agreement
evidencing such Limited Stock Appreciation Right) of one share of Stock as
of the date of exercise over (A) the option price per share specified in the
related Stock Option, or (B) in the case of a Limited Stock Appreciation
Right which is a Free Standing Stock Appreciation Right, the price per share
specified in the Free Standing Stock Appreciation Right, such excess to be
multiplied by the number of shares in respect of which the Limited Stock
Appreciation Right shall have been exercised.
SECTION 7. RESTRICTED STOCK, DEFERRED STOCK AND PERFORMANCE SHARES.
(1) GENERAL. Restricted Stock, Deferred Stock or Performance Share awards
may be issued either alone or in addition to other awards granted under the
Plan. The Administrator shall determine the Eligible Employees, consultants and
advisors to whom, and the time or times at which, grants of Restricted Stock,
Deferred Stock or Performance Share awards shall be made; the number of shares
to be awarded; the price, if any, to be paid by the recipient of Restricted
Stock, Deferred Stock or Performance Share awards; the Restricted Period (as
defined in paragraph (3) hereof) applicable to Restricted Stock or Deferred
Stock awards; the performance objectives applicable to Performance Share or
Deferred Stock awards; the date or dates on which restrictions applicable to
such Restricted Stock or Deferred Stock awards shall lapse during such
Restricted Period; and all other conditions of the Restricted Stock, Deferred
Stock and Performance Share awards. The Administrator may also condition the
grant of Restricted Stock, Deferred Stock awards or Performance Shares upon the
exercise of Stock Options, or upon such other criteria as the Administrator may
determine, in its sole discretion. The provisions of Restricted Stock, Deferred
Stock or Performance Share awards need not be the same with respect to each
recipient. In the discretion of the Administrator, loans may be made to
Participants in connection with the purchase of Restricted Stock under
substantially the same terms and conditions as provided in Section 5(5) with
respect to the exercise of stock options.
(2) AWARDS AND CERTIFICATES. The prospective recipient of a Restricted
Stock, Deferred Stock or Performance Share award shall not have any rights with
respect to such award, unless and until such recipient has executed an agreement
evidencing the award (a "Restricted Stock Award Agreement," "Deferred Stock
Award Agreement" or "Performance Share Award Agreement," as appropriate) and
delivered a fully executed copy thereof to the Company, within a period of sixty
days (or such other period as the Administrator may specify) after the award
date. Except as otherwise provided below in this Section 7(2), (i) each
Participant who is awarded Restricted Stock or Performance Shares shall be
issued a stock certificate in respect of such shares of Restricted Stock or
Performance Shares; and (ii) such certificate shall be registered in the name of
the Participant, and shall bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such award.
The Company may require that the stock certificates evidencing Restricted
Stock or Performance Share awards hereunder be held in the custody of the
Company until the restrictions thereon shall have lapsed, and that, as a
condition of any Restricted Stock award or Performance Share award, the
Participant shall have delivered a stock power, endorsed in blank, relating to
the Stock covered by such award.
With respect to Deferred Stock awards, at the expiration of the Restricted
Period, stock certificates in respect of such shares of Deferred Stock shall be
delivered to the participant, or his legal representative, in a number equal to
the number of shares of Stock covered by the Deferred Stock award.
(3) RESTRICTIONS AND CONDITIONS. The Restricted Stock, Deferred Stock and
Performance Share awards granted pursuant to this Section 7 shall be subject to
the following restrictions and conditions:
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(a) Subject to the provisions of the Plan and the Restricted Stock Award
Agreement, Deferred Stock Award Agreement or Performance Share Award
Agreement, as appropriate, governing such award, during such period as may
be set by the Administrator commencing on the grant date (the "Restricted
Period"), the Participant shall not be permitted to sell, transfer, pledge
or assign shares of Restricted Stock, Performance Shares or Deferred Stock
awarded under the Plan; PROVIDED, HOWEVER, that the Administrator may, in
its sole discretion, provide for the lapse of such restrictions in
installments and may accelerate or waive such restrictions in whole or in
part based on such factors and such circumstances as the Administrator may
determine, in its sole discretion, including, but not limited to, the
attainment of certain performance related goals, the Participant's
termination of employment or service, death or Disability or the occurrence
of a "Change of Control" as defined in the agreement evidencing such award.
(b) Except as provided in paragraph (3)(a) of this Section 7, the
Participant shall generally have, with respect to the shares of Restricted
Stock or Performance Shares, all of the rights of a stockholder with respect
to such stock during the Restricted Period. The Participant shall generally
not have the rights of a stockholder with respect to stock subject to
Deferred Stock awards during the Restricted Period; PROVIDED, HOWEVER, that
dividends declared during the Restricted Period with respect to the number
of shares covered by a Deferred Stock award shall be paid to the
Participant. Certificates for shares of unrestricted Stock shall be
delivered to the Participant promptly after, and only after, the Restricted
Period shall expire without forfeiture in respect of such shares of
Restricted Stock, Performance Shares or Deferred Stock, except as the
Administrator, in its sole discretion, shall otherwise determine.
(c) The rights of holders of Restricted Stock, Deferred Stock and
Performance Share awards upon termination of employment or service for any
reason during the Restricted Period shall be set forth in the Restricted
Stock Award Agreement, Deferred Stock Award Agreement or Performance Share
Award Agreement, as appropriate, governing such awards.
SECTION 8. AMENDMENT AND TERMINATION.
The Board may amend, alter or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made that would impair the rights of a
Participant under any award theretofore granted without such Participant's
consent, or that without the approval of the stockholders (as described below)
would:
(1) except as provided in Section 3, increase the total number of shares of
Stock reserved for the purpose of the Plan;
(2) change the class of officers, employees, consultants and advisors
eligible to participate in the Plan; or
(3) extend the maximum option period under paragraph (2) of Section 5 of the
Plan.
Notwithstanding the foregoing, stockholder approval under this Section 8
shall only be required at such time and under such circumstances as stockholder
approval would be required under Rule 16b-3 of the Exchange Act or Section
162(m) of the Code with respect to any material amendment to any employee
benefit plan of the Company.
The Administrator may amend the terms of any award theretofore granted,
prospectively or retroactively, but, subject to Section 3 above, no such
amendment shall impair the rights of any holder without his or her consent.
SECTION 9. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive
compensation. With respect to any payments not yet made to a Participant by the
Company, nothing contained herein shall give any such Participant any rights
that are greater than those of a general creditor of the Company.
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SECTION 10. GENERAL PROVISIONS.
(1) The Administrator may require each person purchasing shares pursuant to
a Stock Option to represent to and agree with the Company in writing that such
person is acquiring the shares without a view to distribution thereof. The
certificates for such shares may include any legend which the Administrator
deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock delivered under the Plan shall be
subject to such stock-transfer orders and other restrictions as the
Administrator may deem advisable under the rules, regulations, and other
requirements of the Commission, any stock exchange upon which the Stock is then
listed, and any applicable federal or state securities law, and the
Administrator may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions.
(2) Nothing contained in the Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to stockholder approval
if such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases. The adoption of the Plan shall
not confer upon any employee, consultant or advisor of the Company any right to
continued employment or service with the Company, as the case may be, nor shall
it interfere in any way with the right of the Company to terminate the
employment or service of any of its employees, consultants or advisors at any
time.
(3) Each Participant shall, no later than the date as of which the value of
an award first becomes includible in the gross income of the Participant for
federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Administrator regarding payment of, any federal, state, or
local taxes of any kind required by law to be withheld with respect to the
award. The obligations of the Company under the Plan shall be conditional on the
making of such payments or arrangements, and the Company shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment of
any kind otherwise due to the Participant.
(4) No member of the Board or the Administrator, nor any officer or employee
of the Company acting on behalf of the Board or the Administrator, shall be
personally liable for any action, determination, or interpretation taken or made
in good faith with respect to the Plan, and all members of the Board or the
Administrator and each and any officer or employee of the Company acting on
their behalf shall, to the extent permitted by law, be fully indemnified and
protected by the Company in respect of any such action, determination or
interpretation.
SECTION 11. EFFECTIVE DATE OF PLAN.
The Plan became effective (the "Effective Date") on July 17, 1996, the date
the Company's stockholders formally approved the Plan.
SECTION 12. TERM OF PLAN.
No Stock Option, Stock Appreciation Right, Limited Stock Appreciation Right,
Restricted Stock, Deferred Stock or Performance Share award shall be granted
pursuant to the Plan on or after the tenth anniversary of the Effective Date,
but awards theretofore granted may extend beyond that date.
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EXHIBIT 10.49
FORM OF
PARACELSUS HEALTHCARE CORPORATION
EXECUTIVE OFFICER
PERFORMANCE BONUS PLAN
PURPOSE
This Executive Officer Performance Bonus Plan (the "Plan") is designed to
reward executive officers of Paracelsus Healthcare Corporation (the "Company")
for achieving corporate performance objectives. The Plan is intended to provide
an incentive for superior work and to motivate participating officers toward
even higher achievement and business results, to link their goals and interests
more closely with those of the Company and its shareholders, and to enable the
Company to attract and retain highly qualified executive officers.
ARTICLE I
ELIGIBILITY AND PARTICIPATION
1.1 All executive officers of the Company shall be eligible to participate
in the Plan. Prior to or at the time performance objectives are established for
a "Performance Period," as defined below, the Committee of the Company's Board
of Directors (the "Board") designated under Section 6.1 (the "Committee") will
identify those executive officers who shall in fact be participants for such
Performance Period.
ARTICLE II
PLAN YEAR, PERFORMANCE PERIODS AND PERFORMANCE OBJECTIVES
2.1 The fiscal year of the Plan (the "Plan Year") shall be the calendar
year. The performance period (the "Performance Period") with respect to which
bonuses may be payable under the Plan shall generally be the Plan Year; provided
however, that the Committee shall have the authority to designate different
Performance Periods under the Plan.
2.2 The Committee shall establish in writing, with respect to each
Performance Period, one or more performance goals, a specific target objective
or objectives with respect to such performance goals and an objective formula or
method for computing the amount of bonus compensation payable to each
participant under the Plan if and to the extent that the performance goals are
attained.
2.3 Performance goals shall be based upon one or more of the following
business criteria for the Company as a whole or any of its subsidiaries,
operating divisions or other operating units: Stock price, gross revenue, pretax
income, operating income, cash flow, earnings per share, return on equity,
return on invested capital or assets, cost reductions and savings or return on
revenues. In addition, performance goals may be based upon a participant's
attainment of specific objectives set for that participant's performance by the
Company with respect to any of the foregoing performance goals or implementing
policies and plans, negotiating transactions, developing long-term business
goals or exercising managerial responsibility. Measurements of the Company's or
a participant's performance against the performance goals established by the
Committee shall be objectively determinable and, if applicable, shall be
determined according to generally accepted accounting principles as in existence
on the date on which the performance goals are established and without regard to
any changes in such principles after such date.
ARTICLE III
DETERMINATION OF BONUS AWARDS
3.1 As soon as practicable after the end of each Performance Period, the
Committee shall certify in writing to what extent the Company and the
participants have achieved the performance goal or
<PAGE>
goals for such Performance Period, including the specific target objective or
objectives and the satisfaction of any other material terms of the bonus award,
and the Committee shall calculate the amount of each participant's bonus for
such Performance Period based upon the performance goals, objectives and
computation formulae or methods for such Performance Period.
ARTICLE IV
PAYMENT OF AWARDS
4.1 Approved bonus awards shall be payable by the Company in cash to each
participant, or to his estate in the event of his death, as soon as practicable
after the end of each Performance Period and after the Committee has certified
in writing pursuant to Section 3.1 that the relevant performance goals were
achieved.
4.2 Except as otherwise provided in any employment agreement between the
Company and a participant or as otherwise determined by the Committee, a bonus
award that would otherwise be payable to a participant who is not employed by
the Company or one of its subsidiaries on the last day of a Performance Period
(or who is employed on the last day of a Performance Period but is absent from
the performance of the participant's duties for a significant portion of the
Plan Year) shall be prorated, or not paid, as may be determined by the Committee
in the exercise of its discretion.
ARTICLE V
OTHER TERMS AND CONDITIONS
5.1 No person shall have any legal claim to be granted an award under the
Plan, and the Committee shall have no obligation to treat participants
uniformly. Except as may be otherwise required by law, bonus awards under the
Plan shall not be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or
levy of any kind, either voluntary or involuntary. Bonuses awarded under the
Plan shall be payable from the general assets of the Company, and no participant
shall have any claim with respect to any specific assets of the Company.
5.2 Neither the Plan nor any action taken under the Plan shall be construed
as giving any employee the right to be retained in the employment of the Company
or any subsidiary or to maintain any participant's compensation at any level.
5.3 The Company or any of its subsidiaries may deduct from any award any
applicable withholding taxes or any amounts owed by the employee to the Company
or any of its subsidiaries.
ARTICLE VI
ADMINISTRATION
6.1 The Compensation and Stock Option Committee of the Board (or any other
committee satisfying the requirements of Section 162(m) of the Internal Revenue
Code of 1986, as amended, subsequently designated by the Board) shall constitute
the Committee hereunder.
6.2 The Committee shall have full power, authority and discretion to
administer and interpret the provisions of the Plan and to adopt such rules,
regulations, agreements, guidelines and instruments for the administration of
the Plan and for the conduct of its business as the Committee deems necessary or
advisable.
6.3 The Committee shall have full power to delegate to any officer or
employee of the Company the authority to administer and interpret the procedural
aspects of the Plan, subject to the Plan's terms, including adopting and
enforcing rules to decide procedural and administrative issues.
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6.4 The Committee may rely on opinions, reports or statements of officers
or employees of the Company or any subsidiary thereof and of Company counsel
(inside or retained counsel), public accountants and other professional or
expert persons.
6.5 The Board reserves the right to amend or terminate the Plan in whole or
in part at any time.
6.6 To the extent permitted by applicable law, (a) no member of the
Committee shall be liable for any action taken or omitted to be taken or for any
determination made by him or her in good faith with respect to the Plan, and (b)
the Company shall indemnify and hold harmless each member of the Committee
against any reasonable cost or expense (including reasonable counsel fees) or
liability (including any sum paid in settlement of a claim with the approval of
the Committee) arising out of any act or omission in connection with the
administration or interpretation of the Plan, unless arising out of such
person's own fraud or bad faith.
6.7 The place of administration of the Plan shall be in the State of Texas,
and the validity, construction, interpretation, administration and effect of the
Plan and of its rules and regulations, and rights relating to the Plan, shall be
determined in accordance with the laws of the State of Texas.
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EXHIBIT 10.50
FORM OF
RIGHT OF FIRST REFUSAL AGREEMENT
This RIGHT OF FIRST REFUSAL AGREEMENT (the "Agreement") is made and entered
into as of , 1996, by and among Park Hospital GmbH, a German
corporation (the "Paracelsus Shareholder"), and Dr. Manfred George Krukemeyer
(Dr. Krukemeyer and the Paracelsus Shareholder, together with their Permitted
Transferees (as such term is defined in the Shareholder Agreement between the
Paracelsus Shareholder and the Company, dated , 1996, the
"Beneficiary") and the persons whose signatures appear on the execution pages of
this Agreement (each, together with his permitted successors and assigns, a
"Holder" and, collectively the "Holders").
WHEREAS, in connection with that certain Amended and Restated Agreement and
Plan of Merger, dated as of May 29, 1996 (as further amended from time to time
in accordance with the terms thereof, the "Merger Agreement"), by and among
Paracelsus Healthcare Corporation, a California corporation (the "Company"),
Champion Healthcare Corporation, a Delaware corporation, and PC Merger Sub,
Inc., a Delaware corporation and a wholly owned subsidiary of the Company, each
of the Holders has agreed to provide the Beneficiary with the right of first
refusal set forth in this Agreement;
NOW, THEREFORE, the parties hereto, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, intending to be bound
hereby, agree as follows:
SECTION 1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings:
AFFILIATE: With respect to any specified person, any other person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" when used with respect to any specified person means the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "CONTROLLING" and "CONTROLLED" have meanings correlative to the
foregoing.
AGREEMENT: See the introductory clauses hereof.
BENEFICIARY: See the introductory clauses hereof.
BENEFICIARY'S NOTICE: See Section 2(b) hereof.
BUSINESS DAY: Any day that is not a Saturday, a Sunday, a legal holiday or
a day on which banking institutions in the States of New York or Texas are not
required to be open.
COMMON STOCK: The common stock, no stated value per share, of the Company
or any other shares of capital stock of the Company into which such stock shall
be reclassified or changed. If the Common Stock has been so reclassified or
changed, or if the Company pays a dividend or makes a distribution on the Common
Stock in shares of capital stock, or subdivides (or combines) its outstanding
shares of the Common Stock into a greater (or smaller) number of shares of the
Common Stock, a share of the Common Stock shall be deemed to be such number of
shares of capital stock and amount of other securities to which a holder of a
share of the Common Stock outstanding immediately prior to such
reclassification, exchange, dividend, distribution, subdivision or combination
would be entitled.
COMPANY: See the introductory clauses hereof.
HOLDER'S NOTICE: See Section 2(a) hereof.
HOLDERS: See the introductory clauses hereof.
MERGER AGREEMENT: See the introductory clauses hereof.
NOTIFYING HOLDER: See the introductory paragraph of Section 2 hereof.
PERSON: Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
<PAGE>
SHARES: The shares of Common Stock or any rights, options or warrants to
purchase, or securities convertible into or exchangeable for, Common Stock, but
excluding shares of Common Stock held by registered brokers in margin accounts
for so long as they remain so held or shares of Common Stock held pursuant to a
BONA FIDE pledge of such shares to a financial institution to secure borrowings
as permitted by applicable laws, rules and regulations provided such financial
institution agrees to be bound by the terms hereof.
SECTION 2. RIGHT OF FIRST REFUSAL.
If at any time after the execution of this Agreement a Holder desires to
sell or transfer (which terms shall expressly exclude any (i) tranfer to a
registered broker solely in connection with a BONA FIDE margin transaction or
(ii) transfer to a financial institution in connection with securing borrowings
as permitted in applicable laws, rules and regulations for purposes of a BONA
FIDE pledge provided such financial institution agrees to be bound by the terms
hereof) any portion of his Shares to an unaffiliated third party (such Holder is
hereinafter referred to as a "Notifying Holder"), the Beneficiary shall first be
given the opportunity, in the following manner, to purchase any or all of such
Shares:
(a) The Notifying Holder shall deliver a written notice in accordance
with Section 4 hereof (the "Holder's Notice") to the Beneficiary of such
intention, describing the specific intention to sell the Shares and the
terms thereof, identifying, if applicable, the offeror and the proposed
price of the Shares, and setting forth, if applicable, all the other terms
and conditions of such offer, and, if applicable, a copy of such offer shall
be attached to the Holder's Notice.
(b) The Beneficiary shall have the right for four (4) Business Days from
the receipt of the Holder's Notice, exercisable by written notice in
accordance with Section 4 hereof (the "Beneficiary's Notice"), to elect to
purchase any or all of the Shares specified in the Holder's Notice at the
price set forth therein and otherwise substantially upon any material terms
and conditions contained in the offer attached to the Holder's Notice. If
the purchase price specified in the Holder's Notice includes any property
other than cash, such purchase price shall be deemed to be the amount of any
cash included in the purchase price plus the value (as may be mutually
agreed by the Beneficiary and the Notifying Holder, or, if they are unable
to agree, as determined by an independent investment banking firm selected
by mutual agreement of the Beneficiary and the respective Holder) of such
other property included in such price; and in such event (i) the Beneficiary
shall not be deemed to be in receipt of the Holder's Notice until the value
of the other property is agreed upon, and (ii) the Beneficiary's Notice
shall set forth the purchase price so determined.
(c) If the Beneficiary does not exercise his right to elect to purchase
the Shares specified in the Holder's Notice within four (4) Business Days
from the receipt of the Holder's Notice, the Notifying Holder shall be free
to sell or agree to sell the Shares specified in the Holder's Notice as
described in the Holder's Notice, at the price specified therein or at any
price in excess thereof and on other terms and conditions no less favorable
to the Notifying Holder than specified in the Holder's Notice. If the
Notifying Holder shall not so sell any or all of the Shares specified in the
Holder's Notice within twenty (20) Business Days after delivery of the
Beneficiary's Notice in accordance with Section 2(b) hereof (or, if no
Beneficiary's Notice is given, within twenty-four (24) Business Days
following the Beneficiary's receipt of the Holder's Notice), the provisions
of this Section 2 shall thereafter apply to the Shares not so sold.
(d) If the Beneficiary exercises its right to purchase specified in this
Section 2, the closing of the purchase of the Shares shall take place within
three (3) Business Days after receipt of the Beneficiary's Notice by the
Holder, at a place, time and date specified by the Holder and agreed to by
the Beneficiary. At the closing, the Beneficiary shall deliver to the
Notifying Holder same day funds or other agreed upon consideration, in an
amount equal to the purchase price set forth in the Holder's Notice or the
Beneficiary's Notice, as the case may be, and the Notifying Holder shall
2
<PAGE>
deliver to the Beneficiary certificates representing the Shares, duly
endorsed in blank or accompanied by stock powers or their equivalents duly
executed and otherwise in form acceptable for transfer on the books of the
Company.
SECTION 3. TRANSFER RESTRICTIONS; LEGENDS.
(a) Each Holder agrees that it shall not sell or otherwise transfer its
Shares except in accordance with the terms hereof, and that all certificates
representing the Shares subject to this Agreement shall bear the following
legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
AGREEMENT DATED , 1996 (A COPY OF WHICH IS ON FILE WITH
THE SECRETARY OF THE COMPANY) WHICH PROVIDES, AMONG OTHER THINGS, FOR
CERTAIN RESTRICTIONS ON TRANSFER THEREOF. THE SECURITIES REPRESENTED
BY THIS CERTIFICATE MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT
IN COMPLIANCE WITH SAID AGREEMENT. ANY SALE OR OTHER TRANSFER NOT IN
COMPLIANCE WITH SAID AGREEMENT SHALL BE VOID."
(b) Upon termination with respect to the Holder of this Agreement or the
Shares ceasing to be subject to the terms of this Agreement pursuant to a
transfer permitted by this Agreement in accordance with its terms and upon
request by such Holder, the Company shall issue new certificates with the
forgoing legend removed.
SECTION 4. TERMINATION.
This Agreement and the obligations of the Holders shall terminate on the
earliest of (i) the tenth anniversary of the date hereof, (ii) the first date on
which all Shares held by the Holders shall have been sold, (iii) the first date
on which any Holder ceases to be a director or employee of the Company and (iv)
the ceasing of the Paracelsus Shareholder to beneficially own, together with all
of its Affiliates and Associates, at least thirty-five percent (35%) of the
Shares.
SECTION 5. NOTICES.
Any notices or other communications required or permitted hereunder shall be
in writing and shall be deemed duly given upon (a) a transmitter's written
confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by
a standard overnight carrier or (c) the expiration of three business days after
receipt by certified or registered mail, postage prepaid, addressed at the
following addresses (or at such other address as the parties hereto shall
specify by like notice):
(a) If to the Beneficiary, to:
AM Natruper Holz 69
D-49076 Osnabruck
Federal Republic of Germany
Telecopier No. (011) 49-541-966-4006
Attention:
with copies to:
R.J. Messenger
155 North Lake Avenue, Suite 1100
Pasadena, California 91101
and to:
Dr. Meyer zu Losebeck
Sozietat Dr. H. Mertens
Hasemauer 9
49074 Osnabruck, Germany
Facsimile: (011) 49-541-331-1616
3
<PAGE>
(b) If to any of the Holders, to the respective addresses indicated
below each Holder's signature set forth on the signature page of this
Agreement.
SECTION 6. SEPARABILITY. If any provision of this Agreement shall be
declared to be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
SECTION 7. ASSIGNMENT.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns and shall not be assignable
(by operation of law or otherwise) without the written consent of all other
parties hereto; PROVIDED, that the rights and obligations under this Agreement
may be assigned by a party hereto in the same manner as such party is permitted
to assign its interest in the Shareholder Agreement pursuant to Section 13
thereof, which assignment shall not terminate any portion of this Agreement with
respect to such assignor except in accordance with Section 4 of this Agreement.
SECTION 8. ENTIRE AGREEMENT.
This Agreement represents the entire agreement of the parties and shall
supersede any and all previous contracts, arrangements or understandings between
the parties hereto with respect to the subject matter hereof. This Agreement may
be amended at any time by mutual written agreement of the parties hereto.
SECTION 9. PUBLICITY.
The Beneficiary and each Holder agree that no public release or announcement
concerning the transactions contemplated hereby shall be issued by either party
without the prior consent of the other party, except to the extent that the
Beneficiary or the Holder is advised by counsel that such release or
announcement is necessary or advisable under applicable law or the rules or
regulations of any securities exchange, in which case the party required to make
the release or announcement shall provide the other party with an opportunity to
review and comment on such release or announcement in advance of its issuance.
SECTION 10. EXPENSES. Whether or not the transactions contemplated hereby
are consummated, except as otherwise provided herein, 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.
SECTION 11. INTERPRETATION. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 12. COUNTERPARTS. This Agreement may be executed in two 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 party.
SECTION 13. GOVERNING LAW AND VENUE. This Agreement shall be construed,
interpreted, and governed in accordance with and subject to the laws of Texas,
without reference to rules relating to conflicts of law. The parties hereby
irrevocably submit to the jurisdiction of the courts of the State of Texas and
the Federal courts of the United States of America located in the State of Texas
solely in respect of the interpretation and enforcement of the provisions of
this Agreement, and in respect of the transactions contemplated hereby, and
hereby waive, and agree not to assert, as a defense in any action, suit or
proceeding for the interpretation or enforcement hereof or of any such document,
that it is not subject thereto or that such action, suit or proceeding may not
be brought or is not maintainable in said courts or that the venue thereof may
not be appropriate or that this Agreement or any such document may not be
enforced in or by such courts, and the parties hereto irrevocably agree that all
claims with respect to such action or proceeding shall be heard and determined
in such a Texas State or Federal court. The parties hereby consent to and grant
any such court jurisdiction over the person
4
<PAGE>
of such parties and over the subject matter of such dispute and agree that
mailing of process or other papers in connection with any such action or
proceeding in the manner provided in Section 5 shall be valid and sufficient
service thereof.
SECTION 14. CALCULATION OF TIME PERIODS. Except as otherwise indicated,
all periods of time referred to herein shall include all Saturdays, Sundays and
holidays; provided, that if the date to perform the act or give any notice with
respect to this Agreement shall fall on a day other than a Business Day, such
act or notice may be timely performed or given if performed or given on the next
succeeding Business Day.
SECTION 15. NO INCONSISTENT AGREEMENTS.
No Holder has, as of the date hereof, and shall not, on or after the date of
this Agreement, enter into any agreement with respect to his securities which is
inconsistent with the rights granted to the Beneficiary in this Agreement or
otherwise conflicts with the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
PARK HOSPITAL GmbH
______________________________________
By:
Title:
______________________________________
Name: Dr. Manfred George Krukemeyer
______________________________________
Name: R.J. Messenger
Address for Notice:
______________________________________
Name: Charles R. Miller
Address for Notice:
______________________________________
Name: James G. VanDevender
Address for Notice:
______________________________________
Name: Ronald R. Patterson
Address for Notice:
5
<PAGE>
EXHIBIT 10.51
FORM OF
CHAMPION HEALTHCARE CORPORATION
1996 ANNUAL BONUS PLAN
PURPOSE
The purpose of the Plan is to promote the interests of Champion Healthcare
Corporation (the "Company") and its subsidiaries by providing key employees of
the Company and its subsidiaries with incentive compensation based on the
achievement of pre-established performance criteria.
ARTICLE I: DEFINITIONS
For purposes of this Plan, the following terms shall have the following
meanings:
Section 1.1 "A/R Days" has the meaning specified in the Annual Budget.
Section 1.2 "Annual Budget" means the 1996 annual budget of the Company as
approved by the Board.
Section 1.3 "Board" shall mean the Board of Directors of the Company.
Section 1.4 "Committee" shall mean the Compensation Committee of the Board.
Section 1.5 "Cont. Margin." has the meaning specified in the Annual Budget.
Section 1.6 "Cont. Margin %" has the meaning specified in the Annual
Budget.
Section 1.7 "Corp. Pre-Tax $" has the meaning specified in the Annual
Budget.
Section 1.8 "Corp. EBITDA Margin %" has the meaning specified in the Annual
Budget.
Section 1.9 "MBO" has the meaning specified in the Annual Budget.
Section 1.10 "Participant" means each employee (other than the President)
of the Company or its subsidiaries who occupies a position listed on Schedule I
and who is designated as a Participant by the President and, in the case of the
President, is designated by the Committee.
Section 1.11 "Performance Targets" means, with respect to each Participant,
the targets set forth in the Annual Budget for Corp Pre-Tax $, Corp. EBITDA
Margin %, A/R Days, Cont. Margin $, Cont. Margin % and MBO's that are applicable
to such Participant.
Section 1.12 "Plan" shall mean the Champion Healthcare Corporation 1996
Annual Bonus Plan.
Section 1.13 "Plan Year" shall mean the period commencing January 1, 1996
and ending on December 31, 1996, and shall be divided into four quarters ending
on March 31, June 30, September 30 and December 31.
Section 1.14 "President" shall mean the President of the Company.
Section 1.15 "Salary" shall mean a Participant's annual base salary in
effect as of March 1, 1996.
Section 1.16 "Vice President" shall mean the employee of the Company
occupying a position with the title of "Senior Vice President -- Development,"
and any successor to such position.
ARTICLE II: PLAN ADMINISTRATION
The Plan shall be administered by the Committee, which shall have full power
and authority to interpret the Plan, to establish and determine the amount and
terms of the awards hereunder, to provide for conditions and assurances deemed
necessary or advisable to protect the interests of the Company and to make all
other determinations necessary or advisable for the administration of the Plan.
The determination of the Committee as to any question arising under the Plan,
including
<PAGE>
questions of construction and interpretation, shall be final and binding upon
all persons, including the Company, its shareholders, the Participants and the
Vice Presidents. The Committee shall specify whether the President shall be a
Participant. The President, if so specified, shall name all other Participants.
ARTICLE III: ELIGIBILITY
The individuals occupying the positions listed on Schedule I for a
significant portion of the Plan Year (including any shortened Plan Year) shall
be eligbile to earn a "Performance Bonus" in accordance with Section 4.2. In
addition, each Vice-President shall be eligible to earn a "Development Bonus" in
accordance with Section 4.3.
ARTICLE IV: BONUS AMOUNTS
Section 4.1 GENERAL. Each Participant shall be eligible to earn a bonus in
accordance with the provisions of Section 4.2. Each Vice-President shall be
entitled to earn a bonus in accordance with the provisions of Section 4.3.
Section 4.2 PERFORMANCE BONUS.
(a) AWARDS BASED ON ATTAINMENT OF PERFORMANCE TARGETS. Upon attainment
of certain specified Performance Targets, each Participant shall be entitled
receive an award under the Plan. The amount of the bonus to which each
Participant is entitled upon attainment of the each applicable Performance
Target, which is expressed as a percentage of the Participant's Salary, is
set forth on Shedule I.
(b) ADJUSTMENT TO AWARDS BASED ON ACHIEVEMENT BELOW OR ABOVE TARGET
LEVELS. If Performance Targets are not met or are exceeded, the amount of
the Performance Bonus, expressed as a percentage of Salary, shall be
adjusted in accordance with Schedules II and III.
Section 4.3 VICE PRESIDENT BONUS.
(a) HOSPITAL ACQUISITION IDENTIFICATION AND NEGOTIATION BONUS. A Vice
President shall be entitled to $40,000 for each hospital that is acquired by
the Company during the Plan Year provided that (i) such Vice President
identified the hospital to be acquired or followed up a lead identifying the
hospital, (ii) such Vice President played a lead role in negotiating the
definitive documents reflecting the terms of the acquisition, (iii) such
Vice President supervised the closing of such acquisition and (iv) no
outside broker or third party received a fee from Champion in connection
with the acquisition.
(b) HOSPITAL ACQUISITION CLOSING BONUS. A Vice President shall be
entitled to $20,000 for each hospital acquistion for which such Vice
President was principally responsible for managing if either (i) the
material terms of the acquistion had been basically negotiated before being
referred to such Vice President for closing or (ii) a broker or third party
receives a fee from Champion in connection with the transaction.
(c) PHYSICIAN PRACTICE BONUS. A Vice President shall be entitled to a
$10,000 bonus for each "qualifying transaction" identified or managed by
such Vice President provided that (i) no broker or third party received a
fee from Champion in connection with such transaction and (ii) the
transaction was approved in advance as a "qualifying transaction" by the
Executive Vice President -- Chief Financial Officer. For purposes of the
Plan, a "qualifying transaction" is an acquistion related to the business of
the Company (other than a hospital acquisition), such as the acquisition of
a physician group or participations in joint ventures involving the
Company's assets.
(d) NO DUPLICATION OF AWARDS. A Vice President shall be entitled to
receive only one award (any of (a), (b) or (c)) in connection with a single
transaction.
<PAGE>
ARTICLE V: PAYMENTS
Except as specified in Article VII, payment of earned awards with respect to
the Plan Year will be made to Participants within 90 days following the end of
the Plan Year.
ARTICLE VI: TERMINATION OF EMPLOYMENT
If a Participant terminates employment with the Company and its subsidiaries
prior to the end of the Plan Year for any reason, the Committee shall have the
discretion to award a pro-rata award to such Participant.
ARTICLE VII: CHANGE IN CONTROL
Section 7.1 PERFORMANCE BONUS. In the event that a change in control
occurs during a Plan Year, a Participant shall be entitled to a pro-rata
Performance Bonus, payable within 30 days of the change in control, equal to the
product of (a) a fraction, the numerator of which is the number of the quarter
in the Plan Year in which the change in control occurs and the denominator of
which is 4 and (b) the amount of the Performance Bonus the Participant would
have been entitled to receive as of the change in control date, calculated on a
full-year basis, based on the Company's actual performance in relation to the
targets specified in the Annual Budget applicable to the date the change in
control occurs.
Section 7.2 VICE PRESIDENT BONUS. In the event of a change in control, the
Vice President shall be entitled to recieve a Vice President Bonus in accordance
with Section 4.3, except that the Vice President shall also be entitled to
receive a Vice President Bonus for any transaction that would have been
reasonably likely to generate a Vice President Bonus but for the occurrence of
the change in control.
Section 7.2 CHANGE IN CONTROL DEFINITION. For purposes of the Plan, a
change in control shall generally mean any merger, reorganization or
consolidation of the Company, the sale of the Company or a substantial portion
of its assets or the change in ownership of the majority of the equity interests
in the Company; PROVIDED, HOWEVER, that the Committee shall have exclusive and
ultimate authority to resolve any dispute over whether a transaction or event
constitutes a change in control.
ARTICLE VIII: MISCELLANEOUS
Section 8.1 GOVERNING LAW. The Plan shall be construed and its provisions
enforced and administered in accordance with the laws of the State of Texas.
Section 8.2 NO RIGHT TO EMPLOYMENT. Nothing contained in the Plan gives
any Participant or Vice President any rights to employment.
Section 8.3 AMENDMENT. The Board shall have the power to amend the Plan
from time to time.
Section 8.4 WITHHOLDING. Any income and other taxes required to be
withheld shall be withheld from payment.
Section 8.5 TRANSFER. No award or payment thereof shall be subject in any
manner to anticipation, alienation, pledge, transfer or assignment except by
will or the laws of descent and distribution.
Section 8.6 EFFECTIVE DATE. This Plan is effective as of January 1, 1996.
<PAGE>
EXHIBIT 10.53
CHAMPION HEALTHCARE CORPORATION
515 WEST GREEN ROAD
SUITE 800
HOUSTON, TEXAS 77067
July 12, 1996
Mr. James VanDevender
7081 Kingston Cove Lane
Willis, Texas 77378
Dear Mr. VanDevender:
This letter is provided to you in connection with your inquiry as to the
meaning of Section 5(c) of the Subscription Agreement between you and Champion
Healthcare Corporation ("Champion"), dated as of February 10, 1990 and amended
on October 1, 1990 and December 31, 1990 (the "Agreement").
Section 5(c) of the Agreement provides that "[t]his Agreement shall inure to
the benefit of and be binding upon the respective parites, and their heirs,
representatives, successors and assigns; provided however that the Company may
not assign its rights hereof." We hereby confirm that such provision of the
Agreement was intended to mean that any successor to Champion or its business,
and any corporation issuing shares in a merger in which Champion is a
constituent corporation, shall be obligated to assume the Agreement. In
addition, Champion acknowledges that you will be entitled to rely on this letter
in determining how and when to exercise your rights under the Agreement.
CHAMPION HEALTHCARE CORPORATION
By: /s/ SUSANNE S. MISKIN
-----------------------------------
Name: Susanne S. Miskin
Title: Vice President -- Legal
Services
<PAGE>
EXHIBIT 10.54
FORM OF
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into as of , 1996, by and among PARACELSUS HEALTHCARE CORPORATION, a
California corporation (together with its permitted successors and assigns, the
"Company"), and the persons whose signatures appear on the execution pages of
this Agreement (the "Holders").
WHEREAS, in connection with that certain Amended and Restated Merger
Agreement dated as of May 29, 1996 (as further amended from time to time in
accordance with the terms thereof, the "Merger Agreement"), by and among the
Company, Champion Healthcare Corporation, a Delaware corporation, and PC Merger
Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company,
the Company has agreed to provide the Holders with the registration rights set
forth in this Agreement;
NOW, THEREFORE, the parties hereto, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, intending to be bound
hereby, agree as follows:
SECTION 1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings:
AFFILIATE: With respect to any specified person, any other person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" when used with respect to any specified person means the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "CONTROLLING" and "CONTROLLED" have meanings correlative to the
foregoing.
AGREEMENT: See the introductory clauses hereof.
BUSINESS DAY: Any day that is not a Saturday, a Sunday, a legal holiday or
a day on which banking institutions in the States of New York or Texas are not
required to be open.
COMPANY: See the introductory clauses hereof.
COMPANY COMMON STOCK: The common stock, no stated value per share, of the
Company or any other shares of capital stock of the Company into which such
stock shall be reclassified or changed. If the Company Common Stock has been so
reclassified or changed, or if the Company pays a dividend or makes a
distribution on the Company Common Stock in shares of capital stock, or
subdivides (or combines) its outstanding shares of the Company Common Stock into
a greater (or smaller) number of shares of the Company Common Stock, a share of
the Company Common Stock shall be deemed to be such number of shares of capital
stock and amount of other securities to which a holder of a share of the Company
Common Stock outstanding immediately prior to such reclassification, exchange,
dividend, distribution, subdivision or combination would be entitled.
COMPANY NOTICE: See Section 2(b) hereof.
DELAY PERIOD: See Section 2(c) hereof.
DEMAND NOTICE: See Section 2(a) hereof.
DEMAND REGISTRATION: See Section 2(b) hereof.
EFFECTIVENESS PERIOD: See Section 2(c) hereof.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended, and the
rules and regulations of the SEC promulgated thereunder.
HOLDERS: See the introductory clauses hereof.
INDEMNIFIED PARTY: See Section 8(c) hereof.
<PAGE>
INDEMNIFYING PARTY: See Section 8(c) hereof.
LOSSES: See Section 8(a) hereof.
MERGER AGREEMENT: See the introductory clauses hereof.
PERSON: Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
PIGGYBACK REGISTRATION: See Section 3(b) hereof.
PROSPECTUS: The prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A or any term sheet meeting the requirements
of Rule 434), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable Shares
covered by such Registration Statement and all other amendments and supplements
to the prospectus, including post-effective amendments, and all material
incorporated by reference or deemed to be incorporated by reference in such
Prospectus.
REGISTRABLE SHARES: The Shares until (i) a registration statement (other
than the Registration Statement on Form S-4 effective prior to the date hereof)
covering such Shares has been declared effective by the SEC and such Shares have
been disposed of pursuant to such effective registration statement, (ii) such
Shares have been sold or transferred, (iii) such Shares can be sold under
circumstances in which all of the applicable conditions of Rule 144 (or any
similar provisions then in force, but not Rule 144A) under the Securities Act
are met or (iv) such Shares are otherwise freely transferable under the
Securities Act.
REGISTRATION STATEMENT: Any registration statement of the Company under the
Securities Act that covers any of the Registrable Shares pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such registration statement, including post-effective amendments,
all exhibits, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
RULE 144: Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or any similar rule or regulation hereafter adopted by the
SEC.
SEC: The Securities and Exchange Commission.
SECURITIES ACT: The Securities Act of 1933, as amended, and the rules and
regulations of the SEC promulgated thereunder.
SHARES: The shares of Company Common Stock beneficially owned [and issuable
upon exercise of warrants to purchase such shares] by the Holders as of the date
of this Agreement as set forth on the signature pages hereto.
UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING: A registration or
offering in which securities of the Company are sold to an underwriter for
reoffering to the public.
SECTION 2. DEMAND REGISTRATION.
(a) The Holders of [50%] [25%] or more of the Registrable Shares shall have
the right, by written notice (the "Demand Notice") given to the Company so long
as this Agreement has not been terminated in accordance with Section 9.1 hereof,
to request that the Company register under and in accordance with the provisions
of the Securities Act all or part of the Registrable Shares designated by such
holders; PROVIDED, that the Demand Notice may not be exercised prior to the
first anniversary of the date of this Agreement. The Demand Notice shall specify
the amount of Registrable Shares to be registered and the intended methods of
disposition thereof. The Holders shall be entitled in the aggregate to one
Demand Registration pursuant to this Section 2 unless a Demand Registration did
not become effective or was not maintained effective for a period (whether or
not continuous) of at
2
<PAGE>
least 120 days (subject to Section 2(e)) or such shorter period at the end of
which all Registrable Shares covered by such Demand Registration have been sold
pursuant thereto, in which case the Holders will be entitled in the aggregate to
one additional Demand Registration pursuant hereto for each instance in which
the condition set forth above had not been satisfied.
(b) The Company shall file with, and shall use reasonable best efforts to
cause to be declared effective by, the SEC within 90 days of the date on which
the Company first receives the Demand Notice given by the Holders pursuant to
Section 2 hereof, a Registration Statement under the Securities Act relating to
the number of Registrable Shares specified in such Demand Notice (a "Demand
Registration"); PROVIDED, that the Company shall have the right for a reasonable
period of time not in excess of 90 days to delay the filing of such Registration
Statement if, in the Company's good faith exercise of its reasonable business
judgment (i) such registration and offering would adversely affect or interfere
with a pending BONA FIDE corporate transaction involving, or any BONA FIDE
financing by, the Company, (ii) the Company is in possession of material
information that it determines, if disclosed in a registration statement, would
have a material adverse effect on the business or operations of the Company and
would not otherwise be required under law to be publicly disclosed or (iii) the
Company is engaged in a program for the purchase of any shares of Company Common
Stock, unless such repurchase program and the requested registration may proceed
concurrently pursuant to an exemption from Rule 10b-6 under the Exchange Act.
(c) The Company agrees to use reasonable best efforts to keep any
Registration Statement filed pursuant to this Section 2 continuously effective
and usable for the resale of Registrable Shares for a period of 120 days
(subject to Section (2(e)) from the date on which the SEC declares such
Registration Statement effective or such shorter period which will terminate
when all the Registrable Shares covered by such Registration Statement have been
sold pursuant to such Registration Statement. The foregoing notwithstanding, the
Company shall have the right to suspend the use of the Registration Statement
for a reasonable length of time not exceeding with respect to any one Demand
Registration an aggregate of 90 days (a "Delay Period") if and only if in the
good faith exercise of the Company's reasonable business judgment (i) such use
would adversely affect or interfere with a pending BONA FIDE corporate
transaction involving, or any BONA FIDE financing by, the Company, (ii) the
Company is in possession of material information that it determines, if
disclosed in a registration statement, would have a material adverse effect on
the business or operations of the Company and would not otherwise be required
under law to be publicly disclosed or (iii) the Company is engaged in a program
for the purchase of any shares of Company Common Stock, unless such repurchase
program and the requested registration may proceed concurrently pursuant to an
exemption from Rule 10b-6 under the Exchange Act; PROVIDED, that the Company may
so suspend sales with respect to any one Demand Registration twice, but no more
than twice, in any twelve-month period. The Company shall provide written notice
to the Holders of the beginning and end of each Delay Period and the Holders
shall cease all disposition efforts with respect to Registrable Shares held by
them immediately upon receipt of notice of the beginning of any Delay Period.
The period for which the Company is required to maintain the effectiveness of
the Registration Statement shall be extended by the aggregate number of days of
all Delay Periods. Such period, including the extension thereof required by the
preceding sentence, is hereafter referred to as the "Effectiveness Period."
(d) In the case of a proposed offering pursuant to a Demand Registration,
the Company may, in its sole discretion, include shares of Company Common Stock
in such Demand Registration (whether for the account of the Company or
otherwise, including without limitation shares of Company Common Stock held by
security holders, if any, who have piggyback registration rights with respect
thereto) on the same terms and conditions as the Registrable Shares.
Notwithstanding the foregoing, if the Company or, in case of any underwritten
public offering, the managing underwriter or underwriters participating in such
offering conclude that the total amount of shares of Company Common Stock
requested to be included in such Demand Registration exceeds the amount which
can be sold without materially and adversely delaying or affecting the success
of the offering, then the amount of securities to be offered for the account of
all holders other than the Company and the Holders shall be
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reduced (to zero if necessary) PRO RATA on the basis of the number of shares of
Company Common Stock requested to be registered by each such Holder. If, after
such cut back, the Company or such underwriter concludes that the total amount
of securities to be included in such Demand Registration still materially and
adversely affects the success of such offering, then the amount of securities to
be offered for the account of the Company shall be reduced (to zero if
necessary).
SECTION 3. PIGGYBACK REGISTRATION.
(a) RIGHT TO PIGGYBACK. If at any time the Company proposes to file a
registration statement under the Securities Act with respect to an offering of
Company Common Stock (other than a registration statement (i) on Form S-4 or S-8
or any successor forms thereto, or (ii) filed solely in connection with an
exchange offer or dividend reinvestment plan) whether or not for its own
account, then the Company shall give written notice of such proposed filing to
the Holders at least ten days before the anticipated filing date. Such notice
shall offer the Holders the opportunity to register such amount of Registrable
Shares as they may request (a "Piggyback Registration"). Subject to Section 3(b)
hereof, the Company shall include in each such Piggyback Registration all
Registrable Shares with respect to which the Company has received written
requests for inclusion therein within ten (10) days after notice has been
received by the applicable holder. The Holders shall be permitted to withdraw
all or part of the Registrable Shares from a Piggyback Registration by giving
written notice to the Company at least one Business Day prior to the later of
the expected or actual effective date of such Piggyback Registration.
(b) PRIORITY ON PIGGYBACK REGISTRATIONS. The Company shall permit the
Holders to include all such Registrable Shares on the same terms and conditions
as any similar securities, if any, of the Company included therein.
Notwithstanding the foregoing, if the Company or an underwriter participating in
such offering concludes that the total amount of securities requested to be
included in such Piggyback Registration exceeds the amount which can be sold
without materially and adversely delaying or affecting the success of the
offering, then the amount of securities to be offered for the account of the
Holders shall be reduced in the following manner:
(i) if such Piggyback Registration is a primary registration on behalf
of the Company, the amount of securities to be offered for the account of
the Holders and other holders of securities who have piggyback registration
rights with respect thereto shall be reduced (to zero if necessary) PRO RATA
on the basis of the number of capital stock equivalents requested to be
registered by each such holder participating in such offering; and
(ii) if such Piggyback Registration is an underwritten secondary
registration on behalf of holders of securities of the Company other than
the Holders, the Company shall include in such registration: (x) first, up
to the full number of common stock equivalents of such persons exer-cising
"demand" registration rights, and (y) second, the number of securities to be
offered for the account of the Holders and other holders of securities who
have piggyback registration rights with respect thereto in excess of the
amount of securities such persons exercising "demand" registration rights
propose to sell (allocated pro rata on the basis of the number of common
stock equivalents requested to be registered by such holders.
SECTION 4. HOLD-BACK AGREEMENTS.
The Holders agree, if requested by the Company or the managing underwriter
in connection with a public offering of equity securities of the Company
(whether for the account of the Company or otherwise), not to effect any public
sale or distribution of any shares of Company Common Stock, including a sale
pursuant to Rule 144 (except as part of such underwritten registration), during
a period equivalent to that requested by the Company or such underwriter,
PROVIDED that such period shall not exceed 180 days in the first such offering
by the Company and 90 days in all such offerings thereafter.
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SECTION 5. REGISTRATION PROCEDURES.
In connection with the registration obligations of the Company and in
accordance with Sections 2 and 3 hereof, the Company will use its best efforts
to effect such registrations to permit the sale of such Registrable Shares in
accordance with the intended method or methods of disposition thereof, and
pursuant thereto the Company shall:
(a) Prepare and file with the SEC a Registration Statement or Registration
Statements on such form which shall be available for the sale of the Registrable
Shares by the Holders thereof in accordance with the intended method or methods
of distribution thereof, and use reasonable best efforts to cause such
Registration Statement to become effective as soon as practicable after such
filing and to remain effective as provided herein; PROVIDED, HOWEVER, that
before filing a Registration Statement or Prospectus or any amendments or
supplements thereto (including documents that would be incorporated or deemed to
be incorporated therein by reference), the Company shall, upon the written
request of participating Holders, furnish or otherwise make available to such
holders of the Registrable Shares covered by such Registration Statement, their
counsel and the managing underwriters, if any, copies of all such documents
proposed to be filed, which documents will be subject to the review of such
holders, their counsel and such underwriters, if any, PROVIDED, HOWEVER, that
the Company shall not be required to deliver to such holders a copy of any such
document that has not been materially changed from a copy of such document that
was previously delivered to such holders. The Company shall not file any such
Registration Statement or Prospectus or any amendments or supplements thereto
(including such documents that, upon filing, would be incorporated or deemed to
be incorporated by reference therein) to which the holders of a majority of the
Registrable Shares covered by such Registration Statement, their counsel or the
managing underwriters, if any, shall reasonably object in writing on a timely
basis unless, in the opinion of the Company, such filing is necessary to comply
with applicable law.
(b) Prepare and file with the SEC such amendments (including post-effective
amendments) to each Registration Statement as may be necessary to keep such
Registration Statement continuously effective during the period provided herein
with respect to the disposition of all securities covered by such Registration
Statement; and cause the related Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424
(or any similar provision then in force) under the Securities Act.
(c) Notify the Holders registering Registrable Shares as part of such
Registration Statement, their counsel and the managing underwriters, if any,
promptly and (if requested by any such person) confirm such notice in writing,
(i) when a Prospectus or any Prospectus supplement or post-effective amendment
has been filed, and, with respect to a Registration Statement or any
post-effective amendment, when the same has become effective, (ii) of any
request by the SEC for amendments or supplements to a Registration Statement or
related Prospectus or for additional information regarding the Holders
registering shares as part of such Registration Statement, (iii) of the issuance
by the SEC of any stop order suspending the effectiveness of a Registration
Statement or the initiation of any proceedings for that purpose, (iv) if at any
time the representations and warranties of the Company contained in any
agreement (including any underwriting agreement) contemplated by Section 5(j)
below cease to be true and correct, (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Shares for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose, and (vi) of
the happening of any event that requires the making of any changes in such
Registration Statement, Prospectus or documents incorporated or deemed to be
incorporated therein by reference so that in the case of the Registration
Statement it will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, and that in the case of the Prospectus it
will not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
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(d) Use reasonable best efforts to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement, or the lifting of any
suspension of the qualification or exemption from qualification of any of the
Registrable Shares for sale in any jurisdiction.
(e) If requested by a Holder, furnish to counsel for the Holders and each
managing underwriter, if any, without charge, one conformed copy of each
Registration Statement as declared effective by the SEC and of each
post-effective amendment thereto, in each case including financial statements
and schedules and all exhibits and reports incorporated or deemed to be
incorporated therein by reference; and deliver, without charge, such number of
copies of the preliminary prospectus, each amended preliminary prospectus, each
final Prospectus and each post-effective amendment or supplement thereto, as the
Holder may reasonably request in order to facilitate the disposition of the
Registrable Shares covered by each Registration Statement in conformity with the
requirements of the Securities Act.
(f) Prior to any public offering of Registrable Shares, use reasonable best
efforts to register or qualify such Registrable Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions in the United States as
the holders of a majority of the Registrable Shares to which such public
offering relates shall reasonably request in writing; and do any and all other
reasonable acts or things necessary or advisable to enable the Holders to
consummate the disposition in such jurisdictions of such Registrable Shares
covered by the Registration Statement, PROVIDED, HOWEVER, that the Company shall
in no event be required to qualify generally to do business as a foreign
corporation or as a dealer in any jurisdiction where it is not at the time so
qualified or to execute or file a consent to general service of process in any
such jurisdiction where it has not theretofore done so or to take any action
that would subject it to service of process or taxation in any such jurisdiction
where it is not then subject.
(g) Except during any Delay Period, upon the occurrence of any event
contemplated by Sections 5(c)(ii) or 5(c)(vi) above, prepare a supplement or
post-effective amendment to each Registration Statement or related Prospectus or
any document incorporated or deemed to be incorporated therein by reference, or
file any other required document so that, as thereafter delivered to the
purchasers of the Registrable Shares being sold thereunder, such Prospectus will
not contain an untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(h) Use its best efforts to cause all Registrable Shares covered by such
Registration Statement to be listed on each securities exchange or quoted on
each automated interdealer quotation system, if any, on which the shares of
Company Common Stock are then listed or quoted.
(i) On or before the effective date of the Registration Statement, provide
the transfer agent of the Company for the Registrable Shares with printed
certificates for the Registrable Shares, which are in a form eligible for
deposit with The Depository Trust Company.
(j) If requested by the holders of a majority of the Registrable Shares
being sold, enter into one or more customary "firm commitment" or "best efforts"
underwriting agreements, engagement letters, agency agreements or similar
agreements, as appropriate, and in such connection, whether or not any such
agreement is entered into and whether or not the Registration is an underwritten
registration, the Company shall (i) make such representations and warranties to
the holders of such Registrable Shares and the underwriters, if any, with
respect to the business of the Company and its subsidiaries, and the
Registration Statement, Prospectus and documents, if any, incorporated or deemed
to be incorporated by reference therein, in each case, in form, substance and
scope as are customarily made by issuers to underwriters in underwritten
offerings, and if true, confirm the same if and when requested, (ii) use its
reasonable efforts to obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriters, if any, and counsel to
such Holders of the Registrable Shares being sold), addressed to each such
selling Holder of Registrable Shares and each of the underwriters, if any,
covering the matters customarily covered in opinions requested in underwritten
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offerings and such other matters as may be reasonably requested by such counsel
and underwriters, (iii) use its reasonable efforts to obtain "cold comfort"
letters and updates thereof from the independent certified public accountants of
the Company (and, if necessary, any other independent certified public
accountants of any subsidiary of the Company or of any business acquired by the
Company for which financial statements and financial data are, or are required
to be, included in the Registration Statement), addressed to each such selling
Holder of Registrable Shares (unless such accountants shall be prohibited from
so addressing such letters by applicable standards of the accounting profession)
and each of the underwriters, if any, such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort" letters in
connection with underwritten offerings, and (iv) if an underwriting agreement is
entered into, the same shall contain indemnification provisions and procedures
substantially to the effect set forth in Section 8 hereof with respect to all
parties to be indemnified pursuant to said Section. The above shall be done at
each closing under such underwriting or similar agreement, or as and to the
extent required thereunder.
(k) Comply with all applicable rules and regulations of the SEC and make
generally available to its securityholders earning statements satisfying the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder, or
any similar rule promulgated under the Securities Act, no later than forty-five
(45) days after the end of any twelve (12) month period (or ninety (90) days
after the end of any twelve (12) month period if such period is a fiscal year)
(i) commencing at the end of any fiscal quarter in which Registrable Shares are
sold to underwriters in a "firm commitment" or "best efforts" underwritten
offering and (ii) if not sold to underwriters in such an offering, commencing on
the first day of the first fiscal quarter of the Company after the effective
date of a Registration Statement, which statements shall cover said twelve (12)
month periods.
The Company may require each seller of Registrable Shares as to which any
registration is being effected to furnish to the Company such information
regarding such seller and the distribution of such Registrable Shares as the
Company may, from time to time, reasonably request in writing. If any such
information with respect to a seller or such distribution of Registrable Shares
is not furnished within a reasonable period of time after receipt of such
request, the Company may exclude such Shareholder's Registrable Shares from such
Registration Statement. Each seller of Registrable Shares agrees to notify the
Company as promptly as practicable following its discovery of any inaccuracy or
change in information so furnished by such seller to the Company or of the
occurrence of any event that causes any prospectus relating to such registration
to contain an untrue statement of a material fact or omit to state any material
fact regarding such seller or such distribution of Registrable Shares that is
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which they were made.
Each holder of Registrable Shares agrees that, upon receipt of any notice
from the Company of the happening of any event of the kind described in Section
5(c)(ii), 5(c)(iii), 5(c)(v) or 5(c)(vi) hereof, that such Holder shall
forthwith discontinue disposition of such Registrable Shares covered by such
Registration Statement or Prospectus until receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 5(g) hereof, or until
such Holder is advised in writing by the Company that the use of the applicable
Prospectus may be resumed, and has received copies of any amended or
supplemented Prospectus or any additional or supplemental filings which are
incorporated, or deemed to be incorporated, by reference in such Prospectus and,
if requested by the Company, such Holder shall deliver to the Company (at the
expense of the Company) all copies then in its possession, other than permanent
file copies then in such Holder's possession, of the Prospectus covering such
Registrable Shares at the time of receipt of such request.
Each holder of Registrable Shares further agrees not to utilize any material
other than the applicable current Prospectus in connection with the offering of
Registrable Shares pursuant to a Demand Registration or otherwise hereunder.
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SECTION 6. REGISTRATION EXPENSES.
(a) Whether or not any Registration Statement becomes effective, the Company
shall pay all costs, fees and expenses incident to the Company's performance of
or compliance with this Agreement, including without limitation (i) all
registration and filing fees, (ii) fees and expenses of compliance with
securities or Blue Sky laws, (iii) printing expenses (including without
limitation expenses of printing certificates for Registrable Shares and of
printing prospectuses if the printing of prospectuses is requested by the
managing underwriter, if any, or by the Holders of a majority of the Registrable
Shares included in any Registration Statement), (iv) messenger, telephone and
delivery expenses, (v) fees and disbursements of counsel for the Company and one
special counsel for the sellers of Registrable Shares (subject to the provisions
of Section 6(b) hereof), and (vi) fees and disbursements of all independent
certified public accountants of the Company (including without limitation
expenses of any "cold comfort" letters required in connection with this
Agreement) and all other persons retained by the Company in connection with the
Registration Statement. In addition, the Company shall pay its internal expenses
(including without limitation all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit and the fees and expenses incurred in connection with the listing of the
securities to be registered on any securities exchange on which similar
securities issued by the Company are then listed. Notwithstanding the foregoing,
each participating Holder shall pay all commissions, fees or discounts payable
to brokers, dealers or underwriters and all transfer taxes in connection with
the sale of its Registrable Shares.
(b) In connection with any Demand Registration or Piggyback Registration
(including any "shelf" registration in connection therewith) hereunder, the
Company shall reimburse the Holders of the Registrable Shares being registered
in such registration for the reasonable fees and disbursements of not more than
one counsel (together with appropriate local counsel, if required) chosen by the
Holders of a majority of all of such Registrable Shares being registered in such
registration.
SECTION 7. UNDERWRITTEN REGISTRATIONS.
(a) Subject to Section 7(b) hereof, the Holders shall have the right, by
written notice, to request that any Demand Registration be made pursuant to an
underwritten offering.
(b) In the case of any underwritten registration, the Company shall select
in its sole discretion the institution or institutions that shall manage or lead
the offering or placement. The Holders shall not be entitled to participate
unless and until it or they shall enter into an underwriting or other agreement
with such lead institutions for such offering in such form as the Company and
such lead institutions shall reasonably determine.
SECTION 8. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. The Company shall, without limitation
as to time, indemnify and hold harmless, to the full extent permitted by law,
each Holder of Registrable Securities whose Registrable Securities are covered
by a Registration Statement or Prospectus, the officers, directors and agents
and employees of each of them, each Person who controls each such holder (within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) and the officers, directors, agents and employees of each such controlling
person, to the fullest extent lawful, from and against any and all losses,
claims, damages, liabilities, costs (including, without limitation, reasonable
costs of preparing, investigating or defending such claim and reasonable
attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising out
of or based upon any untrue or alleged untrue statement of a material fact
contained in such Registration Statement or Prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or based
upon any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as the same arise out of or are based upon information furnished in
writing to the Company by such holder expressly for use therein; PROVIDED,
HOWEVER, that the Company shall not be liable to any Holder of Registrable
Securities to the extent that any such Losses arise out of or are based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in any preliminary prospectus if (i) such Holder failed to send or
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deliver a copy of the Prospectus with or prior to the delivery of written
confirmation of the sale by such Holder of a Registrable Security to the person
asserting the claim from which such Losses arise and (ii) the Prospectus would
have corrected in all material respects such untrue statement or alleged untrue
statement or such omission or alleged omission; and PROVIDED FURTHER, that the
Company shall not be liable in any such case to the extent that any such Losses
arise out of or are based upon an untrue statement or alleged untrue statement
or omission or alleged omission in the Prospectus, if (x) such untrue statement
or alleged untrue statement, omission or alleged omission is corrected in all
material respects in an amendment or supplement to the Prospectus and (y) having
previously been furnished by or on behalf of the Company with copies of the
Prospectus as so amended or supplemented, such Holder thereafter fails to
deliver such Prospectus as so amended or supplemented, prior to or concurrently
with the sale of a Registrable Security to the person asserting the claim from
which such Losses arise.
(b) INDEMNIFICATION BY HOLDER OF REGISTRABLE SECURITIES. In connection with
any Registration Statement in which a Holder of Registrable Securities is
participating, such holder of Registrable Securities shall furnish to the
Company in writing such information as the Company reasonably requests for use
in connection with any Registration Statement or Prospectus and agrees to
indemnify, to the full extent permitted by law, the Company, its directors,
officers, agents and employees, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, agents or employees of such controlling persons,
from and against all Losses arising out of or based upon any untrue or alleged
untrue statement of a material fact contained in any Registration Statement or
Prospectus or any amendment or supplement thereto, or any preliminary
prospectus, or arising out of or based upon any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein not misleading, to the extent, but only to the extent, that
such untrue or alleged untrue statement or omission or alleged omission is
contained in any information so furnished in writing by such holder to the
Company expressly for use in such Registration Statement or Prospectus and that
such information was relied upon by the Company in preparation of such
Registration Statement or Prospectus or amendment, supplement or preliminary
prospectus.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any Person shall be entitled
to indemnity hereunder (an "indemnified party"), such indemnified party shall
give prompt written notice to the party from which such indemnity is sought (the
"indemnifying party") of any claim or of the commencement of any proceeding with
respect to which such indemnified party seeks indemnification or contribution
pursuant hereto; PROVIDED, HOWEVER, that the delay or failure to so notify the
indemnifying party shall not relieve the indemnifying party from any obligation
or liability except to the extent that the indemnifying party has been
prejudiced materially by such delay or failure. The indemnifying party shall
have the right, exercisable by giving written notice to an indemnified party
promptly after the receipt of written notice from such indemnified party of such
claim or proceeding, to assume, at the indemnifying party's expense, the defense
of any such claim or proceeding, with counsel reasonably satisfactory to such
indemnified party; PROVIDED, HOWEVER, that an indemnified party shall have the
right to employ separate counsel in any such claim or proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such indemnified party unless: (l) the indemnifying
party agrees in writing to pay such fees and expenses, (2) the indemnifying
party fails promptly to assume the defense of such claim or proceeding or fails
to employ counsel reasonably satisfactory to such indemnified party, or (3) in
the judgment of counsel to such indemnified party a conflict of interest is
reasonably likely to exist between such indemnified party and any other of such
indemnified parties with respect to such proceeding (in which case the
indemnified party shall have the right to employ counsel and to assume the
defense of such claim or proceeding); PROVIDED, HOWEVER, that the indemnifying
party shall not, in connection with any one such claim or proceeding or separate
but substantially similar or related claims or proceedings in the same
jurisdiction, arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one firm of attorneys (together
with appropriate local counsel) at any time for all of the indemnified parties,
or for fees and expenses that are not reasonable. Whether or not such defense is
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assumed by the indemnifying party, such indemnified party will not be subject to
any liability for any settlement made without its consent (but such consent will
not be unreasonably withheld). The indemnifying party shall not, without the
written consent of the indemnified party, consent to entry of any judgment or
enter into any settlement that does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such indemnified party of a release,
in form and substance reasonably satisfactory to the indemnified party, from all
liability in respect of such claim or litigation for which such indemnified
party would be entitled to indemnification hereunder.
(d) CONTRIBUTION. If the indemnification provided for in this Section 8 is
unavailable to an indemnified party in respect of any Losses (other than in
accordance with its terms) or is insufficient to hold such indemnified party
harmless, then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the indemnifying party, on the one
hand, and such indemnified party, on the other hand, in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such indemnifying
party, on the one hand, and indemnified party, on the other hand, shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact, has been taken by, or relates to
information supplied by, such indemnifying party or indemnified party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent any such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include any
legal or other fees or expenses incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by PRO RATA
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provision of this Section 8(d), an indemnifying party that
is a selling holder of Registrable Securities shall not be required to
contribute any amount in excess of the amount by which the total price at which
the Registrable Securities sold by such indemnifying party exceeds the amount of
any damages that such indemnifying party has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
SECTION 9. MISCELLANEOUS.
9.1 TERMINATION. This Agreement and the obligations of the Company
hereunder shall terminate on the earliest of (i) the tenth anniversary of the
date hereof and (ii) the first date on which all Registrable Shares covered by
this Agreement shall have been sold.
9.2 NOTICES. All notices or communications hereunder shall be in writing
(including telecopy or similar writing), addressed to the Holders as set forth
on the signature pages hereto, and to the Company as follows:
To the Company:
Paracelsus Healthcare Corporation
515 West Greens Road, Suite 800
Houston, Texas 77067
Attention: Robert C. Joyner,
Senior Vice President and General Counsel
Telecopier No.: (713) 873-6686
10
<PAGE>
With a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue
Suite 3400
Los Angeles, California 90071
Attention: Thomas C. Janson, Jr.
Telecopier No.: (213) 687-5600
Any such notice or communication shall be deemed given (i) when made, if
made by hand delivery, (ii) one business day after being deposited with a
next-day courier, postage prepaid, or (iii) three business days after receipt by
certified or registered mail, return receipt requested, postage prepaid, in each
case addressed as above (or to such other address as such party may designate in
writing from time to time).
9.3 SEPARABILITY. If any provision of this Agreement shall be declared to
be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
9.4 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, legal representatives,
successors and assigns; PROVIDED, HOWEVER, that neither this Agreement nor any
rights hereunder shall be assignable or otherwise subject to hypothecation by
the Holder.
9.5 ENTIRE AGREEMENT. This Agreement represents the entire agreement of
the parties and shall supersede any and all previous contracts, arrangements or
understandings between the parties hereto with respect to the subject matter
hereof. This Agreement may be amended at any time by mutual written agreement of
the parties hereto.
9.6 PUBLICITY. Each of the Holders and the Company agree that no public
release or announcement concerning the transactions contemplated hereby shall be
issued by either party without the prior consent of the other party, except to
the extent that the Holders or the Company is advised by counsel that such
release or announcement is necessary or advisable under applicable law or the
rules or regulations of any securities exchange, in which case the party
required to make the release or announcement shall provide the other party with
an opportunity to review and comment on such release or announcement in advance
of its issuance.
9.7 EXPENSES. Whether or not the transactions contemplated hereby are
consummated, except as otherwise provided herein, 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.
9.8 INTERPRETATION. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.9 COUNTERPARTS. This Agreement may be executed in two 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 party.
9.10 GOVERNING LAW; VENUE. This Agreement shall be construed, interpreted,
and governed in accordance with the laws of the state of incorporation of
Paracelsus, without reference to rules relating to conflicts of law. The parties
hereby irrevocably submit to the jurisdiction of the courts of the state of
incorporation of Paracelsus and the Federal courts of the United States of
America located in the state of incorporation of Paracelsus solely in respect of
the interpretation and enforcement of the provisions of this Agreement, and in
respect of the transactions contemplated hereby, and hereby waive, and agree not
to assert, as a defense in any action, suit or proceeding for the interpretation
or enforcement hereof or of any such document, that it is not subject thereto or
that such action, suit or proceeding may not be brought or is not maintainable
in said courts or that the venue thereof may not be appropriate or that this
Agreement or any such document may not be enforced in or by such courts,
11
<PAGE>
and the parties hereto irrevocably agree that all claims with respect to such
action or proceeding shall be heard and determined in a State or Federal court
in the state of incorporation of Paracelsus. The parties hereby consent to and
grant any such court jurisdiction over the person of such parties and over the
subject matter of such dispute and agree that mailing of process or other papers
in connection with any such action or proceeding in the manner provided in
Section 9.2 hereof shall be valid and sufficient service thereof.
9.11 CALCULATION OF TIME PERIODS. Except as otherwise indicated, all
periods of time referred to herein shall include all Saturdays, Sundays and
holidays; provided, that if the date to perform the act or give any notice with
respect to this Agreement shall fall on a day other than a Business Day, such
act or notice may be timely performed or given if performed or given on the next
succeeding Business Day.
9.12 NO INCONSISTENT AGREEMENTS. The Company has not, as of the date
hereof, and shall not, on or after the date of this Agreement, enter into any
agreement with respect to its securities which is inconsistent with the rights
granted to the holders of Registrable Shares in this Agreement or otherwise
conflicts with the provisions hereof.
9.13 PARTICIPATION BY HOLDERS. Each Holder hereby agrees that it may not
participate in any offering hereunder unless it (i) agrees to sell the
Registrable Shares to be included by it therein in the manner and upon the terms
and conditions provided in any underwriting or other agreement approved by the
persons entitled hereunder to determine the method of distribution thereof and
(ii) completes and executes such questionnaires, powers of attorney,
indemnities, underwriting agreements or other similar documents reasonably
required in accordance with the terms hereof or any agreement contemplated by
the foregoing clause (i).
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
PARACELSUS HEALTHCARE CORPORATION
By:
--------------------------------------
Name:
Title:
HOLDER
--------------------------------------
Name:
Title:
Number of Shares:
Address for Notices:
with a copy to:
13
<PAGE>
EXHIBIT 10.55
April 10, 1996
PRIVATE AND CONFIDENTIAL
Champion Healthcare Corporation
515 W. Greens Road
Suite 800
Houston, TX 77067
Attention: Charles R. Miller
Gentlemen:
This letter agreement (the "Agreement") confirms our understanding that
Champion Healthcare Corporation (which together with its subsidiaries and
affiliates is hereinafter referred to as the "Company") has engaged Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ") to act as its exclusive
financial advisor for a period of six months commencing upon your acceptance of
this Agreement, with respect to the sale, merger, consolidation or any other
business combination, in one or a series of transactions, involving
substantially all of the business, securities or assets of the Company,
including a business combination in which the Company is the surviving entity
(each a "Transaction").
As discussed, we propose to undertake certain services on your behalf
including to the extent requested by you: (i) assisting you in preparing an
offering memorandum, describing the Company, its operations, its historical
performance and its future prospects; (ii) identifying and contacting selected
qualified acquirors acceptable to you; (iii) arranging for potential acquirors
to conduct business investigations; (iv) advising on a proposed purchase price
and form of consideration; (v) negotiating the financial aspects of any proposed
Transaction under your guidance; and (vi) delivering a written opinion to the
Board of Directors of the Company, if requested, as to the fairness from a
financial point of view of the consideration to be received by the Company's
stockholders in any proposed Transaction. The scope, form and substance of the
opinion shall be such as DLJ considers appropriate and, in the case of a
stock-for-stock merger, may be an opinion as to the fairness from a financial
point of view of the ratio to be applied for the exchange of common shares in
the merger.
As compensation for the services to be provided by DLJ hereunder, the
Company agrees (i) to pay to DLJ (a) a fee of $500,000 at the time DLJ delivers
to the Board of Directors of the Company DLJ's written opinion referred to in
clause (vi) of the preceding paragraph, (b) except for the first update of the
opinion referred to in the preceding clause, an additional fee of $50,000 for
each additional or updated opinion delivered by DLJ with respect to a
Transaction, and (c) a cash "Success Fee" of $3,500,000, payable in cash
promptly upon consummation of a Transaction, less the opinion fees in (a) and
(b) above, if previously paid; and (ii) upon request by DLJ from time to time,
to reimburse DLJ promptly for all out-of-pocket expenses (including the
reasonable fees and expenses of counsel) incurred by DLJ in connection with its
engagement hereunder, whether or not a Transaction is consummated. DLJ will not
seek reimbursement for more than $100,000 of its out-of-pocket expenses without
the prior approval of the Company, whose consent shall not be unreasonably
withheld. As DLJ will be acting on your behalf, the Company agrees to the
indemnification and other obligations set forth in Schedule I attached hereto,
which Schedule is an integral part hereof.
For purposes of this Agreement, a Transaction shall be deemed to have been
consummated upon the earliest of any of the following events to occur; (a) the
acquisition of a majority of the outstanding common stock of the Company
calculated on a fully-diluted basis; (b) a merger or consolidation of the
Company with another person; (c) the acquisition by another person of assets of
the Company representing a majority of the Company's book value; or (d) in the
case of any other Transaction, the consummation thereof.
In connection with any debt or equity financing (other than bank financing)
by the Company (i) the proceeds of which are used to finance all or a portion of
the Transaction or (ii) which is effected at any time within nine months
following consummation of the Transaction, DLJ shall have the right but not the
obligation to act, as sole private placement agent or lead managing underwriter
to the
<PAGE>
Charles R. Miller
Champion Healthcare Corporation April 10, 1996
Page 2
Company, provided that the fees of DLJ for such services shall be competitive
with those customarily charged by DLJ and other investment bankers in similar
transactions. In connection with such financings, the Company shall take such
action as is necessary or desirable to facilitate the public or private sale of
such securities, including the preparation of any documents required to be filed
with the Securities and Exchange Commission and shall enter into a private
placement agreement or underwriting agreement with DLJ which shall contain
normal and customary provisions for such agreements in which DLJ acts as
placement agent or managing underwriter, as the case may be.
The Company shall make available to DLJ all financial and other information
concerning its business and operations which DLJ reasonably requests as well as
any other information relating to any Transaction prepared by the Company or any
of its other advisors. In performing its services hereunder (including, without
limitation, in giving an opinion of the type referred to in the second paragraph
hereof), DLJ shall be entitled to rely without investigation upon all
information that is available from public sources as well as all other
information supplied to it by or on behalf of the Company or its advisors and
shall not in any respect be responsible for the accuracy or completeness of, or
have any obligation to verify, the same or to conduct any appraisal of assets.
To the extent consistent with legal requirements, all information given to DLJ
by the Company, unless publicly available or otherwise available to DLJ without
restriction or breach of any confidentiality agreement, will be held by DLJ in
confidence and will not be disclosed to anyone other than DLJ's agents and
advisors without the Company's prior approval or used for any purpose other than
those referred to in this Agreement.
Any opinion requested by the Company and any advice, written or oral,
provided by DLJ pursuant to this Agreement will be treated by the Company as
confidential, will be solely for the information and assistance of the Company
in connection with its consideration of a transaction of the type referred to in
the first paragraph of this Agreement and will not be used, circulated, quoted
or otherwise referred to for any other purpose, nor will it be filed with,
included in or referred to in whole or in part in any registration statement,
proxy statement or any other document, except in each case with our prior
written consent. We understand that our opinion may be reproduced in full in any
proxy statement mailed to shareholders of the Company, and we agree to provide
our written consent to such use; provided that we are afforded a reasonable
opportunity to review and influence those portions of any such proxy statement
that include or refer to our opinion otherwise refer to DLJ.
In order to coordinate our efforts with respect to a possible Transaction
satisfactory to the Company, during the period of our engagement hereunder
neither the Company no any representative thereof (other than DLJ) will initiate
discussions regarding a Transaction except through DLJ. In the event the Company
or its management receives an inquiry regarding a Transaction, it will promptly
advise DLJ of such inquiry in order that we may evaluate such prospective
purchaser and its interest and assist the Company in any resulting negotiations.
This Agreement may be terminated by either the Company or DLJ upon receipt
of written notice to that effect by the other party. Upon any termination or
expiration of this Agreement, DLJ will be entitled to prompt payment of all fees
due prior to such termination or expiration and reimbursement of all
out-of-pocket expenses as described above. The indemnity and other provisions
contained in Schedule I will also remain operative and in full force and effect
regardless of any termination or expiration of this Agreement. In addition, if
at any time prior to twelve months after the execution of this Agreement a
Transaction is consummated, DLJ will be entitled to payment in full of the
Success Fee and, if the Transaction is consummated with Paracelsus Healthcare
Corporation or any of its affiliates, DLJ will also be entitled to its rights
under the fifth paragraph of this Agreement.
It is understood that if the Company completes a transaction in lieu of any
Transactions for which DLJ is entitled to compensation pursuant to this
Agreement, DLJ and the Company will in good faith mutually agree upon acceptable
compensation for DLJ taking into account, among other things, the results
obtained and the custom and practice of investment bankers acting in similar
transactions.
<PAGE>
Charles R. Miller
Champion Healthcare Corporation April 10, 1996
Page 3
The Company further agrees that it will not enter into any transaction
referred to in either of the two preceding paragraphs unless, prior to or
simultaneously with such transaction, adequate provision is made with respect to
the payment of compensation to DLJ as contemplated by such paragraph.
Please note that DLJ is a full service securities firm engaged in securities
trading and brokerage activities, as well as providing investment banking and
financial advisory services. In the ordinary course of our trading and brokerage
activities, DLJ or its affiliates may at any time hold long or short positions,
and may trade or otherwise effect transactions, for our own account or on the
accounts of customers, in debt or equity securities of the Company or other
entities that may be involved in the Transaction. We recognize our
responsibility for compliance with Federal laws in connection with any such
activities.
The Company acknowledges and agrees that DLJ has been retained solely to
provide the advice or services set forth in this Agreement. DLJ shall act as an
independent contractor, and any duties of DLJ arising out of its engagement
hereunder shall be owed solely to the Company.
This Agreement shall be binding upon and inure to the benefit of the
Company, DLJ, each Indemnified Person (as defined in Schedule I hereto) and
their respective successors and assigns.
This Agreement shall be governed by, and construed and enforced in
accordance with the laws of the State of New York.
The Company irrevocably and unconditionally submits to the exclusive
jurisdiction of any State or Federal court sitting in New York City over any
suit, action or proceeding arising out of or relating to this letter (including
Schedule I hereto). The Company hereby agrees that service of any process,
summons, notice or document by U.S. registered mail addressed to the Company
attention Chief Financial Officer, with a copy to Vice President -- Legal, shall
be effective service of process for any action, suit or proceeding brought in
any such court. The Company irrevocably and unconditionally waives any objection
to the laying of venue of any such suit, action or proceeding brought in any
such court and any claim that any such suit, action or proceeding brought in
such a court has been brought in an inconvenient forum. The Company agrees that
final judgment in any such suit, action or proceeding brought in any such court
shall be conclusive and binding upon the Company any may be enforced in any
other courts to whose jurisdiction the Company is or may be subject, by suit
upon such judgment.
If any term, provisions, covenant or restriction contained in this
Agreement, including Schedule I, is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions
contained in this Agreement shall remain in full force and effect and shall in
no way be affected, impaired or invalidated.
<PAGE>
Charles R. Miller
Champion Healthcare Corporation April 10, 1996
Page 4
After reviewing this Agreement, please confirm that the foregoing is in
accordance with your understanding by signing and returning to me the duplicate
of this letter attached hereto, whereupon it shall be our binding Agreement.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ W. PATRICK MCMULLAN, III
-----------------------------------
W. Patrick McMullan, III
Managing Director
Accepted and agreed to
this 11th day of April, 1996
Champion Healthcare Corporation
By: /s/ JAMES G. VANDEVENDER
----------------------------------------------
James G. VanDevender
EVP/CFO
<PAGE>
EXHIBIT 10.56
FORM OF
INDEMNITY AND INSURANCE COVERAGE AGREEMENT
This Indemnity and Insurance Coverage Agreement ("Indemnity Agreement") is
made and entered into as of the , by and between Paracelsus
Healthcare Corporation, a California corporation (the "Company"), and
(the "Indemnitee").
WHEREAS, Indemnitee is currently serving or will serve as a director,
officer, employee and/or agent of the Company and/or, at the Company's request,
as a director, officer, employee, trustee and/or agent of another corporation,
partnership, joint venture, trust or other enterprise, and the Company wishes
Indemnitee to serve in such capacity or capacities;
WHEREAS, the Restated Articles of Incorporation (the "Restated Articles of
Incorporation") and the Amended and Restated Bylaws (the "Bylaws") of the
Company each provide that the Company shall indemnify the directors of the
Company against liability for monetary damages, in the manner and to the fullest
extent permitted under California law;
WHEREAS, the Restated Articles of Incorporation and the Bylaws authorize the
Company to Indemnify the officers, employees or other agents of the Company to
the fullest extent permitted under California law;
WHEREAS, Indemnitee has indicated that he or she may not be willing to serve
as a director, officer, employee and/or agent of the Company and/or, at the
Company's request, as a director, officer, employee, trustee and/or agent of
another corporation, partnership, joint venture, trust or other enterprise if
the Company fails to use its authority under the Restated Articles of
Incorporation and the Bylaws of the Company to indemnify him or her to the
fullest extent permitted under California law;
WHEREAS, Section 317(g) of the General Corporation Law of California
("GCLC") expressly recognizes that the indemnification provisions of the GCLC
are not exclusive of any other rights to which a corporate director, officer or
employee (including a director, officer or employee of a predecessor
corporation) seeking indemnification may be entitled under the Restated Articles
of Incorporation or Bylaws of the Company, provided that the Restated Articles
of Incorporation or Bylaws state that the GCLC indemnification provisions are
not exclusive;
WHEREAS, the Bylaws expressly recognize that the indemnification provisions
of the Bylaws shall not be deemed exclusive of, and shall not affect, any other
rights to which a person seeking indemnification may be entitled under any
agreement, vote of shareholders or directors or otherwise and this Indemnity
Agreement is being entered into pursuant to the Restated Articles of
Incorporation and Bylaws as permitted by the GCLC, and as authorized by the
stockholders of the Company.
WHEREAS, the Company, in order to induce Indemnitee to serve as director,
officer, employee, trustee and/or agent, has agreed to provide Indemnitee with
the benefits contemplated by this Indemnity Agreement, and, as a result of the
provision of such benefits, Indemnitee has agreed to serve in such capacity;
WHEREAS, Section 207(f) of the GCLC expressly recognizes that the Company
may indemnify and purchase and maintain insurance on behalf of any fiduciary of
an employee benefit plan of the Company; and
WHEREAS, Section 317(i) of the GCLC expressly recognizes that the Company
can purchase on behalf of its directors, officers and employees (including
directors, officers and employees of a predecessor corporation) indemnity
insurance covering acts for which the Company cannot indemnify such directors,
officers and employees;
NOW, THEREFORE, in consideration of the promises, conditions and
representations set forth herein, including Indemnitee's service as a director,
officer, employee and/or agent of the Company
<PAGE>
and/or, at the Company's request, as a director, officer, employee, trustee
and/or agent of another corporation, partnership, joint venture, trust or other
enterprise, the Company and Indemnitee hereby agree as follows:
Section 1. DEFINITIONS. The following terms, as used herein, shall have
the following meanings:
(a) "Covered Claim" shall mean any threatened, pending or completed
claim, action, suit or proceeding against Indemnitee (including any claim,
action, suit or proceeding brought by the Company or the shareholders of the
Company) based upon or arising out of any past, present or future act,
omission, neglect or breach of duty, including, without limitation, any
actual or alleged error, omission, misstatement or misleading statement,
that Indemnitee may commit while serving in his or her capacity as a
director, officer, employee and/or agent of the Company and/or, at the
Company's request, as a director, officer, employee, trustee and/or agent of
another corporation, partnership, joint venture, trust or other enterprise
(including, without limitation, employee benefit plans and administrative
committees thereof):
(b) "Determination" shall mean a determination, based upon the facts
known at the time, made by:
(i) the Board of Directors of the Company, by the vote of a majority
of the directors who are not parties to the action, suit or proceeding in
question, at a meeting at which there is a quorum consisting solely of
such disinterested directors;
(ii) if such a quorum is not obtainable, or, even if obtainable, if
directed by a majority of such disinterested directors at a meeting of
the Board of Directors of the Company at which there is a quorum
consisting solely of such disinterested directors, by independent legal
counsel in a written opinion;
(iii) the shareholders of the Company; or
(iv) a court or administrative tribunal of competent jurisdiction in
a final, nonappealable adjudication.
(c) "Payment" shall mean any and all amounts that Indemnitee is or
becomes legally obligated to pay in connection with a Covered Claim,
including, without limitation, damages, judgments, amounts paid in
settlement, reasonable costs of investigation, reasonable fees of attorneys,
reasonable costs of investigative, judicial or administrative proceedings or
appeals, costs of attachment or similar bonds, fines, penalties, excise
taxes assessed with respect to employee benefit plans, and any expenses of
establishing a right to indemnification under this Indemnity Agreement.
Section 2. INDEMNIFICATION. The Company shall indemnify and hold harmless
Indemnitee against and from any and all Payments provided that:
(a) a Determination has been made that, in connection with a covered
claim, the Indemnitee acted in good faith and in a manner reasonably
believed to be in, or not opposed to, the best interests of the Company,
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his or her conduct was unlawful;
(b) Indemnitee shall not already have received payment on account of
such Payments; and
(c) such indemnification by the Company is not unlawful.
Notwithstanding anything contained in this Indemnity Agreement to the contrary,
except for proceedings to enforce rights to indemnification pursuant to Section
5 hereof or advancement of expenses pursuant to Section 3 hereof, the Company
shall have no obligation to indemnify Indemnitee in connection with a proceeding
(or part thereof) initiated by Indemnitee unless such proceeding (or part
thereof) was authorized or consented to by the Board of Directors of the
Company. Further, the Company shall have no obligation to indemnify Indemnitee
under this Indemnity Agreement for any amounts paid in a settlement of any
action, suit or proceeding effected without the Company's prior written consent,
which consent shall not be unreasonably withheld.
<PAGE>
Section 3. ADVANCEMENTS OF COSTS AND EXPENSES.
All costs and expenses, including reasonable fees of attorneys, incurred by
Indemnitee in defending or investigating any covered claim shall be paid by the
Company in advance of the final disposition of such action, suit or proceeding,
PROVIDED, THAT, prior to the payment of any advances pursuant to this Section 3,
Indemnitee shall undertake, in a manner reasonably acceptable to the Company and
its counsel, to repay the Company for any costs or expenses advanced by or on
behalf of the Company pursuant to this Section 3 if it shall ultimately be
determined by a court of competent jurisdiction in a final, nonappealable
adjudication that Indemnitee is not entitled to indemnification under this
Indemnity Agreement.
Section 4. INDEMNIFICATION PROCEDURE.
(a) Promptly after receipt by Indemnitee of notice of the commencement
or threat of commencement of any action, suit or proceeding, Indemnitee
shall, if indemnification with respect thereto may be sought from the
Company under this Indemnity Agreement, notify the Company thereof in
writing in the manner set forth in Section 10 hereof.
(b) The Company shall give prompt notice of the commencement of such
action, suit or proceeding to the insurers in accordance with the procedures
set forth in the respective policies in favor of Indemnitee. The Company
shall thereafter take all reasonably necessary or desirable action to cause
such insurers to pay, on behalf of Indemnitee, all Payments payable as a
result of such action, suit or proceeding in accordance with the terms of
such policies.
(c) The Company shall be entitled to assume the defense of any Covered
Claim with counsel reasonably satisfactory to Indemnitee, upon delivery to
Indemnitee of written notice of its election to do so. The Company shall not
settle any claim in any manner that would impose any obligation on
Indemnitee without Indemnitee's prior written consent. Indemnitee shall not
unreasonably withhold his consent to any proposed settlement. After delivery
of such notice, the Company shall not be liable to Indemnitee under this
Indemnity Agreement for any costs or expenses subsequently incurred by
Indemnitee in connection with such defense other than reasonable costs and
expenses of investigation; PROVIDED, however, that:
(i) Indemnitee shall have the right to employ separate counsel in any
such action, suit or proceeding provided that the fees and expenses of such
counsel incurred after delivery of notice by the Company of its assumption
of such defense shall be at Indemnitee's own expense; and
(ii) the fees and expenses of counsel employed by Indemnitee shall be at
the expense of the Company if (aa) the employment of counsel by Indemnitee
has previously been authorized in writing by the Company and has not
subsequently been revoked, (bb) counsel for Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense and has provided the Company
with written notice of such conclusion (provided that the Company shall not
be required to pay for more than one counsel to represent two or more
Indemnitees where such Indemnitees have reasonably concluded that there is
no conflict of interest among them in the conduct of such defense), or (cc)
the Company shall not have provided Indemnitee with written notice that it
has employed counsel to assume the defense of such action, suit or
proceeding within forty-five (45) days of the date on which the Indemnitee
provided the Company with the Notice required under Section 10.
(d) All payments on account of the Company's advancement obligations
under Section 3 of this Indemnity Agreement shall be made within ninety (90)
days of the Company's receipt of Indemnitee's written request therefor and
the undertaking of Indemnitee contemplated by Section 3. All other payments
on account of the Company's obligations under this Indemnity Agreement shall
be made within ninety (90) days of the Company's receipt of Indemnitee's
written request therefor, unless a Determination is made that the claims
giving rise to Indemnitee's request are not payable under this Indemnity
Agreement. Each request for payment hereunder shall be accompanied by
evidence reasonably satisfactory to the Company of Indemnitee's incurrence
of the costs and expenses for which such payment is sought.
<PAGE>
Section 5. ENFORCEMENT OF INDEMNIFICATION; BURDEN OF PROOF. If a claim for
indemnification or advancement of costs and expenses under this Indemnity
Agreement is not paid in full by or on behalf of the Company within the time
period specified in Section 4(d) of this Indemnity Agreement, Indemnitee may at
any time thereafter bring suit against the Company to recover the unpaid amount
of such claim. In any such action, the Company shall have the burden of proving
that indemnification is not required under this Indemnity Agreement.
Section 6. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under
any provision of this Indemnity Agreement to indemnification by the Company for
some portion of any Payments, but not, however, for the total amount thereof,
the Company shall nevertheless indemnify the Indemnitee for the portion of any
such Payment to which the Indemnitee is entitled.
Section 7. EMPLOYEE BENEFIT PLANS. The term "other enterprises," as used
in this Indemnity Agreement, shall include employee benefit plans and any
administrative committees thereof. All references in this Indemnity Agreement to
"serving . . . at the Company's request" shall include any service by Indemnitee
as a director, officer, employee, trustee and/or agent of the Company which
imposes duties on, or involves services by, Indemnitee with respect to an
employee benefit plan, its participants or beneficiaries. If Indemnitee acts in
good faith and in a manner he or she reasonably believes to be in the interests
of the participants and beneficiaries of any employee benefit plan, then, for
purposes of Section 3 hereof, Indemnitee shall be deemed to have acted in a
manner he or she "reasonably believed to be in, or not opposed to, the best
interests of the Company."
Section 8. RIGHTS NOT EXCLUSIVE. The rights to indemnification and
advancement of costs and expenses provided hereunder shall not be deemed
exclusive of any other rights to which Indemnitee may be entitled under any
charter document, bylaw, agreement, vote of stockholders or disinterested
directors or otherwise.
Section 9. SUBROGATION. In the event of payment under this Indemnity
Agreement by or on behalf of the Company, Indemnitee shall subrogate to the
Company his or her rights of recovery to the extent of the Company's payment.
Indemnitee shall execute all papers that may be required and shall do all things
that may be necessary to secure such rights, including, without limitation, the
execution of such documents as may be necessary to enable the Company
effectively to bring suit to enforce such rights.
Section 10. NOTICE OF CLAIM. The Indemnitee, as a condition precedent to
his or her right to be indemnified under this Indemnity Agreement, shall give to
the Company notice in writing as soon as practicable of any claim made against
him or her for which indemnity will or could be sought under this Indemnity
Agreement, PROVIDED, HOWEVER, that the Indemnitee's right to indemnification
hereunder shall not be forfeited if the Indemnitee's failure to provide the
notice required under this Section 10 does not materially prejudice the Company.
Any notices or other communications required or permitted hereunder shall be in
writing and shall be deemed to have been duly given upon (a) transmitter's
confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by
a standard overnight carrier or (c) the expiration of five business days after
the day when received by certified or registered mail, postage prepaid,
addressed as follows (or at such other address as the parties hereto shall
specify by like notice):
If to Indemnitee:
____________________________________
____________________________________
____________________________________
____________________________________
with a copy to:
____________________________________
____________________________________
____________________________________
____________________________________
<PAGE>
If to the Company:
Paracelsus Healthcare Corporation
515 West Greens Road, Suite 800
Houston, TX 77067
Attention: Robert C. Joyner
Vice President and General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue
Suite 3400
Los Angeles, California 90071
Attention: Thomas C. Janson, Jr.
Telecopier No.: (213) 687-5600
Section 11. PROVISION OF INSURANCE COVERAGE. The Company shall provide the
Indemnitee with insurance covering all Payments no less than $[ ] for
any single Covered Claim that would be required to be indemnified by the Company
under this Agreement without regard to the limitations on the Company's ability
to indemnify the Indemnitee under the Employee Retirement Income Security Act of
1974, as amended, or other applicable law, provided such insurance is available
on commercially reasonable terms and shall be equal to that provided by the
Company to similarly situated individuals.
Section 12. CHOICE OF LAW. This Indemnity Agreement shall be governed by
and construed and enforced in accordance with the laws of the State of
incorporation of the Company.
Section 13. JURISDICTION. The Company and Indemnitee hereby irrevocably
consent to the jurisdiction of the courts of the State of incorporation of the
Company for all purposes in connection with any action, suit or proceeding which
arises out of or relates to this Indemnity Agreement as between each other, and
agree that any action instituted under this Indemnity Agreement shall be brought
only in the state courts of the State of incorporation of the Company.
Section 14. COVERAGE. The provisions of this Indemnity Agreement shall
apply to the Indemnitee's service as a director, officer, employee and/or agent
of the Company and/or at the Company's request, as a director, officer,
employee, trustee and/or agent of another corporation, partnership, joint
venture, trust or other enterprise with respect to all periods of such service
prior to and after the date of this Indemnity Agreement, even though the
Indemnitee may have ceased such service at the time of indemnification
hereunder.
Section 15. ATTORNEYS' FEES. If any action, suit, or proceeding is
commenced in connection with or related to this Indemnity Agreement, the Company
shall, consistent with Section 4(d), bear the reasonable costs and expenses,
including, without limitation, reasonable attorneys' fees and reasonable
expenses of investigation, paid by the Indemnitee within ninety (90) days of
presentation of documentation supporting such expenses.
Section 16. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or any
circumstance, is invalid or unenforceable, (i) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (ii) the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
<PAGE>
Section 17. SUCCESSORS AND ASSIGNS. This Indemnity Agreement shall be
binding upon all successors and assigns of the Company, including any transferee
of all or substantially all of its assets and any successor by merger or
otherwise by operation of law, and shall be binding upon and inure to the
benefit of the heirs, executors and administrators of Indemnitee.
Section 18. DESCRIPTIVE HEADINGS. The descriptive headings in this
Indemnity Agreement are included for the convenience of the parties only and
shall not affect the construction of this Indemnity Agreement.
Section 19. COUNTERPARTS. This Indemnity Agreement may be executed in two
counterparts, both of which taken together shall constitute one document.
Section 20. AMENDMENT. No amendment, modification, termination or
cancellation of this Indemnity Agreement shall be effective unless made in
writing and signed by each of the parties hereto.
Section 21. THIRD PARTY BENEFICIARIES. NOTHING IN THIS AGREEMENT, EXPRESS
OR IMPLIED, IS INTENDED TO CONFER UPON ANY THIRD PARTY (INCLUDING ANY HOLDER OF
VOTING SECURITIES OF PARACELSUS) ANY RIGHTS OR REMEDIES OF ANY NATURE WHATSOEVER
UNDER OR BY REASON OF THIS AGREEMENT.
IN WITNESS WHEREOF, the Company and Indemnitee have executed this Indemnity
Agreement as of the day and year first above written.
PARACELSUS HEALTHCARE CORPORATION
By ___________________________________
Name: ________________________________
Title: _______________________________
______________________________________
INDEMNITEE
<PAGE>
EXHIBIT 10.64
FORM OF
6.51% SUBORDINATED NOTE DUE , 2006
US $7,360,087 PASADENA, CALIFORNIA
, 1996
1. PRINCIPAL AND INTEREST PAYMENTS. For value received, Paracelsus
Healthcare Corporation, a California corporation with a business address at 515
W. Greens Road, Suite 800, Houston, Texas 77067 (the "Maker" or the "Company"),
hereby promises to pay to the order of Park Hospital GmbH, a German corporation
with a business address at AM Natruper Holz 69, D-49076 Osnabruck, Federal
Republic of Germany, or its registered assigns (the "Holder"), the principal sum
of SEVEN MILLION, THREE HUNDRED AND SIXTY THOUSAND AND EIGHTY-SEVEN DOLLARS
($7,360,087), with interest on unpaid principal at the rate of 6.51% per annum
from this date until paid, principal and interest payable in lawful money of the
United States of America in equal, successive yearly installments of $1 million,
consisting of 1/10 of the principal amount hereof together with interest
thereon, commencing on , 1997 and continuing on each annual
anniversary thereof until , 2006, at which time any unpaid balance
of principal and all accrued and unpaid interest thereon will be due and
payable. Interest will be computed on the basis of a 360-day year of twelve
30-day months. The Company will pay interest on the Note (except defaulted
interest) to the person who is the registered holder of Note at the close of
business on the fourth business day prior to the interest payment date. The
Company may mail an interest check to the Holder's registered address. Each
payment will be applied first to interest then due and the remainder to
principal. Certain capitalized terms used herein are defined in Section 11
below.
2. SUBORDINATION.
2.1 SECURITIES SUBORDINATED TO SENIOR INDEBTEDNESS. The Company for itself
and its successors, and the Holder by its acceptance of the Note, agree that the
payment of the Note by the Company is subordinated, to the extent and in the
manner provided in this Section 2, to the prior payment in full of all Senior
Indebtedness, whether outstanding on the date of this Note or thereafter
incurred. This Section 2 will constitute a continuing offer to all persons who,
in reliance upon its provisions, become holders of, or continue to hold, Senior
Indebtedness, and such holders are made obligees under this Section 2 and they
and/or each of them may enforce its provisions.
2.2 NO PAYMENT ON NOTES IN CERTAIN CIRCUMSTANCES.
(a) No payment or distribution of cash or property (other than capital stock
of the Company or other securities of the Company that are subordinated to
Senior Indebtedness to at least the same extent as the Note) of the Company will
be made on account of principal of or interest on the Note, or to defease or
acquire the Note (i) upon the maturity of any Senior Indebtedness by lapse of
time, acceleration or otherwise, unless and until all Senior Indebtedness shall
first be paid in full in cash, or such payment duly made in a manner
satisfactory to the holders (or a trustee or authorized agent on behalf thereof)
of such Senior Indebtedness, (ii) in the event that the Company defaults in the
payment of any principal of, premium, if any, or interest on or any other
amounts payable on or due in connection with any Senior Indebtedness when it
becomes due and payable, whether at maturity or at a date fixed for prepayment
or by declaration or otherwise, unless and until such default has been cured or
waived in writing or has ceased to exist, (iii) in the event any judicial
proceeding shall be pending with respect to any of the events described in
clauses (i), (ii) or (iv) of this Section 2.2(a) or (iv) any other default shall
have occurred and be continuing that would permit the holders (or a trustee or
authorized agent on behalf thereof) of the Designated Senior Indebtedness to
accelerate the maturity of Designated Senior Indebtedness, upon written notice
(a "Payment Blockage Notice") of the default given to the Company and the Holder
by the holders of, or an agent, trustee or other representative for, such
Designated Senior Indebtedness, then, unless and until such default has been
cured or waived in writing, no payment or distribution of cash or property
(other than capital stock of the Company or other securities of the Company that
are subordinated to Senior Indebtedness to at
<PAGE>
least the same extent as the Note) shall be made by the Company with respect to
the principal of or interest on the Note or to acquire or repurchase the Note
for cash or property other than Capital Stock of the Company. With respect to
clause (ii) above, if such Designated Senior Indebtedness is not declared due
and payable within [ ] days after the Payment Blockage Notice is given,
promptly after the end of the [ ]-day period the Company will pay all sums due
in respect of the Note and not paid during the [ ]-day period. Payments on the
Note may and shall be resumed in the case of a payment default upon the date on
which such default is cured or waived. During any [ ]-day consecutive period,
only one such period during which payment with respect to the Note may not be
made may commence and the duration of such period may not exceed [ ] days. No
nonpayment default that existed or was continuing on the date of delivery of any
Payment Blockage Notice to the Holder shall be, or be made, the basis for a
subsequent Payment Blockage Notice unless such default shall have been waived
for a period of not less than 90 days.
(c) if any payment or distribution of assets of the Company is received by
the Holder in respect of the Note at a time when that payment or distribution
should not have been made because of paragraph (a) of this Section 2.2, such
payment or distribution will be received and held and will be paid over to the
holders of Senior Indebtedness (PRO RATA as to each of such holders on the basis
of the respective amounts of Senior Indebtedness held by them) until all such
Senior Indebtedness has been paid in full, after giving effect to any concurrent
payment or distribution or provision therefor to the holders of such Senior
Indebtedness.
2.3 NOTE SUBORDINATED TO PRIOR PAYMENT OF ALL SENIOR INDEBTEDNESS ON
DISSOLUTION, LIQUIDATION OR REORGANIZATION. Upon any distribution of assets of
the Company upon any dissolution, winding up, liquidation or reorganization of
the Company (whether in bankruptcy, insolvency, receivership or similar
proceeding relating to the Company or its property or upon an assignment for the
benefit of creditors or any marshalling of the Company's assets or liabilities
or otherwise):
(a) the holders of all Senior Indebtedness will first be entitled to receive
payment in full of all amounts due or to become due on or in respect of on
Senior Indebtedness (including interest accruing after the commencement of a
bankruptcy or insolvency at the rate specified in the applicable Senior
Indebtedness and including, without limitation, in respect of premiums,
indemnities or otherwise, and all indebtedness under the Credit Agreement which
is disallowed, avoided or subordinated pursuant to Section 548 of Title 11,
United States Code or any applicable state fraudulent conveyance law) in cash
before the Holder is entitled to receive any payment or distribution on account
of the principal of or interest on the Note;
(b) any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities (except that the Holder may
receive securities that are subordinated at least to the same extent as the Note
is subordinated to Senior Indebtedness as provided in this Section 2 and any
securities issued in exchange for Senior Indebtedness), to which the Holder
would be entitled except for the provisions of this Section 2.3, will be paid by
the liquidating trustee or agent or other persons making such a payment or
distribution directly to the holders of Senior Indebtedness (PRO RATA to such
holders on the basis of the respective amounts of Senior Indebtedness held by
such holders) or their representatives to the extent necessary to make or
provide for payment in full in cash of all Senior Indebtedness remaining unpaid,
after giving effect to any concurrent payment or distribution to the holders of
such Senior Indebtedness or provision for that payment or distribution; and
(c) if, notwithstanding the foregoing, any payment or distribution of assets
of the Company of any kind or character, whether in cash, property or securities
(except that the Holder may receive securities that are subordinated at least to
the same extent as the Note is so subordinated to Senior Indebtedness as
provided in this Section 2 and any securities issued in exchange for Senior
Indebtedness) is received by the Holder on account of the principal of or
interest on the Note (notwithstanding the provisions of this Section 2.3) before
all Senior Indebtedness is paid in full such payment or distribution will be
received and held in trust for and will be forthwith paid over to the holders of
the Senior Indebtedness remaining unpaid or unprovided for or their
representatives for application (in
2
<PAGE>
the case of cash) to, or as collateral (in the case of non-cash property or
securities) for the payment of such Senior Indebtedness until all such Senior
Indebtedness has been paid in full, after giving effect to any concurrent
payment or distribution or provision therefor to the holders of such Senior
Indebtedness.
The Company will give prompt written notice to the Holder of any
dissolution, winding up, liquidation or reorganization of it or any assignment
for the benefit of its creditors.
2.4 HOLDER TO BE SUBROGATED TO RIGHTS OF HOLDERS OF SENIOR
INDEBTEDNESS. Subject to the prior payment in full of all Senior Indebtedness,
the Holder shall be subrogated to the rights of the holders of Senior
Indebtedness to receive payments or distributions of cash, property or
securities of the Company applicable to the Senior Indebtedness until all
amounts owing on the Note shall be paid in full; and, for the purposes of such
subrogation:
(a) no payments or distributions to the holders of the Senior Indebtedness
of any cash, property or securities to which the Holder would be entitled except
for the provisions of this Section 2 and no payment over pursuant to the
provisions of this Section 2 to the holders of Senior Indebtedness by the Holder
shall, as between the Company, its creditors (other than holders of Senior
Indebtedness) and the Holder, be deemed to be a payment by the Company to or on
account of the Senior Indebtedness; and
(b) no payment or distributions of cash, property or securities to or for
the benefit of the Holder pursuant to the subrogation provisions of this Section
2, which would otherwise have been paid to the holders of Senior Indebtedness,
shall be deemed to be a payment by the Company to or for the account of the
Note.
It is understood that the provisions of this Section 2 are intended solely
for the purpose of defining the relative rights of the Holder, on the one hand,
and the holders of the Senior Indebtedness, on the other hand.
2.5 OBLIGATIONS OF THE COMPANY UNCONDITIONAL. Nothing contained in this
Section 2 or elsewhere in this Note is intended to or will impair, as between
the Company and the Holder, the obligations of the Company, which are absolute
and unconditional, to pay to the Holder the principal of and interest on the
Note as and when they become due and payable in accordance with their terms, or
is intended to or will affect the relative rights of the Holder and creditors of
the Company other than the holders of the Senior Indebtedness, nor will anything
herein or therein prevent the Holder from exercising all remedies otherwise
permitted by applicable law upon default under this Note, subject to the rights,
if any, under this Section 2 of the holders of Senior Indebtedness to receive
the cash, property or securities of the Company receivable upon the exercise of
any such remedy.
2.6 SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF THE COMPANY
OR HOLDERS OF SENIOR INDEBTEDNESS. No right of any present or future holders of
any Senior Indebtedness to enforce subordination as provided herein will at any
time in any way be prejudiced or impaired by any act or failure to act on the
part of the Company or by any act or failure to act by any such holder, or by
any noncompliance by the Company with the terms of this Note, regardless of any
knowledge thereof which any such holder may have or otherwise be charged with.
Without in any way limiting the generality of the foregoing, the holders of
Senior Indebtedness may extend, renew, modify or amend the terms of the Senior
Indebtedness or any security therefor and release, sell or exchange such
security and otherwise deal freely with the Company, all without affecting the
liabilities and obligations of the parties to the Note or the Holder.
2.7 THIS SECTION NOT TO PREVENT EVENTS OF DEFAULT. The failure to make a
payment on account of the principal of or interest on the Note by reason of any
provision of this Section 2 will not be construed as preventing the occurrence
of an Event of Default.
3
<PAGE>
2.8 REPRESENTATIVE OF SENIOR INDEBTEDNESS. Any notices to be given or
payments to be made to any holders of Senior Indebtedness pursuant to this Note
may be made or given to their authorized representative.
3. EVENTS OF DEFAULT.
3.1 EVENTS OF DEFAULT. Each of the following constitutes an "Event of
Default":
(a) default for 30 days in the payment when due of interest on the Note
(whether or not prohibited by Section 2 of this Note);
(b) default in payment when due of principal on the Note, either at
maturity, by declaration or otherwise (whether or not prohibited by Section 2 of
this Note);
(c) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any Indebtedness for
money borrowed by the Company or any of its Subsidiaries (or the payment of
which is guaranteed by the Company or any of its Subsidiaries) whether such
indebtedness or guarantee exists as of the date of this Note, or is created
after the date of this Note, after which default the holders of such
Indebtedness accelerate the maturity of such Indebtedness having an outstanding
principal amount of at least $15 million, or a failure to pay such Indebtedness
having an outstanding principal amount of at least $15 million at its stated
maturity, as such maturity may be extended, provided that such acceleration or
failure to pay is not cured within 30 days after such acceleration or failure to
pay;
(d) failure by the Company or any of its Subsidiaries to pay final
non-appealable judgments (to the extent not covered by insurance and as to which
the insurer has not acknowledged coverage in writing) aggregating in excess of
$15 million which are not stayed within 60 days after their entry;
(e) a decree, judgment, or order by a court of competent jurisdiction shall
have been entered adjudging the Company or any of its Significant Subsidiaries
as bankrupt or insolvent, or approving as properly filed a petition seeking
reorganization of the Company or any of its Significant Subsidiaries under any
bankruptcy or similar law, and such decree or order shall have continued
undischarged and unstayed for a period of 60 days; or a decree or order of a
court of competent jurisdiction appointing a receiver, liquidator, trustee, or
assignee in bankruptcy or insolvency of the Company or any of its Significant
Subsidiaries, or of the property of any such person, or for the winding up or
liquidation of the affairs of any such person, shall have been entered, and such
decree, judgment, or order shall have remained in force undischarged and
unstayed for a period of 60 days;
(f) the Company or any of its Significant Subsidiaries shall institute
proceedings to be adjudicated a voluntary bankrupt, or shall consent to the
filing of a bankruptcy proceeding against it, or shall file a petition or answer
or consent seeking reorganization under any bankruptcy or similar law or similar
statute, or shall consent to the filing of any such petition, or shall consent
to the appointment of a custodian, receiver, liquidator, trustee, or assignee in
bankruptcy or insolvency of it or any of its assets or property, or shall make a
general assignment for the benefit of creditors, or shall be generally unable to
pay its debts as they become due.
The subordination provisions set forth in Section 2 prohibiting the Company
from making a payment or distribution of cash or property on account of
principal or interest on the Note, or to defease or acquire the Note, shall not
prevent the occurrence of an Event of Default.
3.2 ACCELERATION. If an Event of Default occurs and is continuing (other
than an Event of Default specified in clause (e) or (f) of Section 3.1 relating
to the Company), unless the principal of the Note shall have already become due
and payable, the Holder, by notice in writing to the Company (an "Acceleration
Notice"), may declare all principal and accrued interest on the Note to be due
and payable (a) immediately if no Senior Bank Debt or Existing Senior
Subordinated Notes are outstanding or (b) if Senior Bank Debt or Existing Senior
Subordinated Notes are outstanding, upon the earlier of (i) ten days after such
Acceleration Notice is received by the Company or (ii) the acceleration of
Senior Indebtedness; PROVIDED, that (x) prior to the expiration of such period,
such acceleration shall
4
<PAGE>
be automatically rescinded and annulled without further action required on the
part of the Holder in the event that any default specified in the Acceleration
Notice under the Note shall have been cured, waived or otherwise remedied and
(y) at any time before the entry of a judgment or decree for the payment of
moneys due under this Note, the Holder may waive all defaults and annul the
consequences thereof if certain conditions are satisfied, including that all
Events of Default (other than the non-payment of the principal of the Note which
became due by acceleration) shall have been cured, waived or otherwise remedied.
If an Event of Default specified in clause (e) or (f) of Section 3.1 above
relating to the Company occurs, all principal and accrued interest shall be
immediately due and payable on this Note without any declaration or other act on
the part of the Holder. Prior to the declaration of acceleration of the maturity
of the Note, the Holder may waive any default, except where such waiver would
conflict with any judgment or decree of a court of competent jurisdiction.
3.3 WAIVER OF PAST DEFAULTS. The Holder may waive in writing an existing
Default or Event of Default and its consequences except a continuing Default or
Event of Default in the payment of the principal of or interest on the Note.
Upon any such waiver in writing, such Default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured for every
purpose of this Note; but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereon.
3.4 RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Notwithstanding any other
provision of this Note, the right of the Holder to receive payment of principal
and interest on the Note, on or after the respective due dates expressed in the
Note, or to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of the
Holder.
4. REMEDIES. Upon the occurrence of an Event of Default (and for so long
as it continues), the Holder shall have the option to declare the entire balance
of principal, together with all accrued interest thereon, immediately due and
payable. Upon the Holder so declaring the principal and interest to be
immediately due and payable, the entire principal balance of this Note, together
with all interest theretofore accrued thereon, shall thereafter bear interest at
a per annum rate equal to percent ( %). No delay or omission on the part
of the Holder hereof in exercising any right under this Note shall operate as a
waiver of such right.
5. TRANSFER AND EXCHANGE; REPLACEMENT NOTES.
5.1 TRANSFER AND EXCHANGE. Where the Note is presented to the Company with
a request to register a transfer or to exchange it for an equal principal amount
of Notes of other denominations, the Company shall register the transfer or make
the exchange if its reasonable requirements for such transactions are met;
PROVIDED, HOWEVER, that any Note presented or surrendered for registration of
transfer or exchange shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the Company duly executed by the
Holder thereof or by its, his or her attorney duly authorized in writing. No
service charge shall be made to the Holder for any registration of transfer or
exchange (except as otherwise expressly permitted herein), but the Company may
require payment of a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection therewith.
5.2 REPLACEMENT NOTES. If any mutilated Note is surrendered to the Company
and the Company receives evidence to its satisfaction of the destruction, loss
or theft of any Note, the Company shall issue and authenticate a replacement
Note. If reasonably required by the Company, an indemnity bond must be supplied
by the Holder that is in the judgment of the Company sufficient to protect the
Company from any loss which it may suffer if a Note is replaced. Every
replacement Note issued pursuant to this Section 5.2 in lieu of any destroyed,
lost or stolen Note shall constitute an additional obligation of the Company.
5
<PAGE>
6. WAIVER. The Maker hereby waives diligence, presentment, protest and
demand, notice of protest, dishonor and nonpayment of this Note and expressly
agrees, without in any way affecting the liability of the Maker hereunder, that
the Holder may extend any maturity date or the time for payment of any amount
due hereunder.
7. ATTORNEYS' FEES; COSTS OF COLLECTION. If this Note is not paid when due
or if any Event of Default occurs, the Maker promises to pay all reasonable
costs of enforcement and collection, including but not limited to the Holder's
reasonable attorneys' fees whether or not legal proceedings were commenced.
8. SEVERABILITY. Every provision of this Note is intended to be severable.
In the event any term or provision hereof is declared by a court of competent
jurisdiction to be illegal or invalid for any reason whatsoever, such illegality
or invalidity shall not affect the balance of the terms and provisions hereof,
which terms and provisions shall remain binding and enforceable.
9. INTEREST RATE LIMITATION. It is the intent of the Maker and the Holder
in the execution of this Note and in all transactions related hereto to comply
with the Usury Laws. In the event that, for any reason, it should be determined
that the Usury Laws apply to this Note, the Holder and the Maker stipulate and
agree that none of the terms and provisions contained herein or in the Dividend
and Note Agreement shall ever be construed to create a contract for use,
forbearance or detention of money requiring payment of interest at a rate in
excess of the maximum interest rate permitted to be charged by the Usury Laws.
In such event, if the Holder shall collect monies or other property which are
deemed to constitute interest which would otherwise increase the effective
interest rate on this Note to a rate in excess of the maximum rate permitted to
be charged by the Usury Laws, all such sums or property deemed to constitute
interest in excess of such maximum rate shall, at the option of the Holder, be
credited to the payment of the principal sum due hereunder.
10. NO RECOURSE AGAINST OTHERS. A director, officer, employee or
shareholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Note or for any claim based on, in respect
of or by reason of such obligations or their creation. The Holder by accepting
the Note waives and releases all such liability. The waiver and release are part
of the consideration for the issue of the Note.
11. AMENDMENT. This Note may not be amended, supplemented or modified, and
no provisions hereof may be modified or waived, or any consent granted
hereunder, except by a written instrument signed by the Maker and the Holder. No
waiver of any of the provisions hereof by the Maker or the Holder shall be
deemed a waiver of any other provisions hereof by any such party, nor shall any
such waiver be deemed a continuing waiver of any provision hereof by such party.
12. CERTAIN DEFINITIONS.
"AFFILIATE" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such person, whether through the
ownership of voting securities, by agreement or otherwise; PROVIDED, HOWEVER,
that beneficial ownership of 10% or more of the voting securities of a person
shall be deemed to be control.
"ATTRIBUTABLE DEBT" in respect of a sale-leaseback transaction means, at the
time of determination, the present value (discounted at the interest rate
implicit in the lease, compounded semiannually) of the obligation of the lessee
of the property subject to such sale-leaseback transaction for rental payments
during the remaining term of the lease included in such transaction including
any period for which such lease has been extended or may, at the option of the
lessor, be extended or until the earliest date on which the lessee may terminate
such lease without penalty or upon payment of penalty (in
6
<PAGE>
which case the rental payments shall include such penalty), after excluding all
amounts required to be paid on account of maintenance and repairs, insurance,
taxes, assessments, water, utilities and similar charges.
"BANKRUPTCY LAW" means title 11, U.S. Code or any similar Federal or state
law for the relief of debtors.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the discounted present value of the rental obligations of any person
under any lease of any property that would at such time be so required to be
capitalized on the balance sheet of such person in accordance with GAAP.
"CAPITAL STOCK" means any and all shares, interests, participations, rights
or other equivalents (however designated) of corporate stock, including without
limitation partnership interests and preferred stock.
"CONSOLIDATED SUBSIDIARY" of any person means a person which for financial
reporting purposes is or, in accordance with GAAP should be, accounted for by
such person as a consolidated subsidiary.
"CREDIT AGREEMENT" means that certain Credit Agreement, dated as of June 26,
1990, by and among the Company and Bank of America National Trust and Savings
Association and NationsBank of Tennessee, N.A., providing for up to $75 million
of revolving credit borrowings, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended, modified, renewed, refunded, replaced or
refinanced from time to time or, when such agreement is refinanced, that certain
Credit Agreement, dated as of , 1996, by and among the Company and
, providing for up to $400 million of revolving credit borrowing's
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case as amended,
modified, renewed, refunded, replaced or refinanced from time to time.
"CUSTODIAN" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.
"DEFAULT" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"DESIGNATED SENIOR INDEBTEDNESS" means (i) the Senior Bank Debt and (ii) any
other Indebtedness constituting Senior Indebtedness permitted under the Existing
Senior Subordinated Notes Indenture or the New Senior Subordinated Notes
Indenture and which at the time of determination has an aggregate amount
outstanding of at least $10 million and is specifically designated in the
instrument creating or evidencing such Senior Indebtedness as "Designated Senior
Indebtedness."
"DISQUALIFIED STOCK" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable for cash, pursuant to a sinking fund obligation or otherwise, or
redeemable for cash at the option of the holder thereof, in whole or in part, on
or prior to October 15, 2003.
"DIVIDEND AND NOTE AGREEMENT" means the Dividend and Note Agreement dated as
of the , 1996, by and between Park Hospital GmbH and the Company.
"EXISTING SENIOR SUBORDINATED NOTES" means the Company's 9 7/8% Senior
Subordinated Notes due 2003.
"EXISTING SENIOR SUBORDINATED NOTES INDENTURE" means the indenture, dated as
of October 15, 1993, between the Company and NationsBank of Tennessee, N.A., as
trustee, with respect to the Existing Senior Subordinated Notes.
7
<PAGE>
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
which are in effect from time to time.
"HEDGING OBLIGATIONS" means, with respect to any person, the obligations of
such person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such person against fluctuations in interest
rates.
"INDEBTEDNESS" of any person means at any date, without duplication, (i) all
obligations of such person for borrowed money (including net overdrafts in any
bank not extinguished within three days), (ii) all obligations of such person
evidenced by bonds, debentures, notes or other similar instruments, (iii) all
obligations of such person to pay the deferred price of property or services
required to be accrued on the balance sheet of such person, except accounts
payable arising in the ordinary course of business, (iv) all Capital Lease
Obligations of such person, (v) all Indebtedness of others secured by a Lien on
any asset of such person, whether or not such Indebtedness is assumed by such
person (the amount of such obligation being deemed to be the lesser of the value
of the property or assets or the amount of the obligation so secured), (vi) all
Indebtedness of others guaranteed by such person, (vii) all obligations of such
person to reimburse the issuer of any letter of credit, (viii) Attributable Debt
of such person, (ix) preferred stock issued by a Subsidiary of such person, (x)
Disqualified Stock, and (xi) Hedging Obligations; PROVIDED, HOWEVER, that
"Indebtedness" does not include any obligations pursuant to receivables
financing which are not required under GAAP to be booked as liabilities on the
balance sheet of the Company and its Consolidated Subsidiaries.
"NEW SENIOR SUBORDINATED NOTES" means the Company's % Senior Subordinated
Notes due 2006.
"NEW SENIOR SUBORDINATED NOTES INDENTURE" means the indenture dated as of
, 1996, between the Company and , as trustee, with respect to
the New Senior Subordinated Notes.
"SENIOR BANK DEBT" means, with respect to any person, the Indebtedness
outstanding under the Credit Agreement as such agreement may be restated,
further amended, supplemented or otherwise modified or replaced from time to
time hereafter, together with any refunding or replacement of such Indebtedness,
up to an aggregate maximum principal amount outstanding or available at any time
of $[400] million, less the aggregate amount of all proceeds of sales or other
disposition of assets (i) applied to reduce the outstanding amount of such
Indebtedness and (ii) not reinvested in the business or businesses of the
Company or any of its Consolidated Subsidiaries or otherwise in accordance with
the terms of the New Senior Subordinated Notes Indenture and of the Existing
Senior Subordinated Notes Indenture.
"SENIOR INDEBTEDNESS" means (i) the Senior Bank Debt, the New Senior
Subordinated Notes the Existing Senior Subordinated Notes and all indebtedness
ranking senior to or PARI PASSU with the Existing Senior Subordinated Notes or
New Senior Subordinated Notes; (ii) all obligations consisting of the principal,
premium, if any, and accrued and unpaid interest, whether existing on the date
of this Note or thereafter incurred, in respect of (A) indebtedness of the
Company for money borrowed and (B) indebtedness evidenced by notes, debentures,
bonds or other instruments of indebtedness for which the Company is responsible
or liable; (iii) all Capital Lease Obligations of the Company; (iv) all
obligations of the Company (A) for the reimbursement of any obligor on any
letter of credit, banker's acceptance or similar credit transaction, (B) under
interest rate swaps, caps, collars, options or similar arrangements and foreign
currency hedges entered into in respect of any obligations described in clauses
(i), (ii) and (iii) immediately above and (C) issued or assumed as the deferred
purchase price of property or services and all conditional sale obligations and
all obligations under any title retention agreement; (v) all obligations of the
type referred to in clauses (ii), (iii) and (iv) immediately above and all
dividends of other persons for the payment of which, in either case, the Company
is responsible or
8
<PAGE>
liable as obligor, guarantor or otherwise; (vi) all obligations consisting of
modifications, renewals, extensions, replacements and refundings of any
obligations described in clause (i), (ii), (iii), (iv) or (v) immediately above;
(vii) any other Indebtedness which by its terms or the terms of any instrument
creating it is designated as "Senior Indebtedness" under the terms of the
Existing Senior Subordinated Notes Indenture or the New Senior Subordinated
Notes Indenture, or is otherwise expressed as being senior in right of payment
to the Existing Senior Subordinated Notes or the New Senior Subordinated Notes.
Notwithstanding anything to the contrary in the foregoing, "Senior Indebtedness"
shall not include (A) any Indebtedness, liability or obligation of the Company
to (i) any of its Subsidiaries or other Affiliates, or (ii) any trade credit,
(B) any liability for Federal, state, local or other taxes owed or owing by the
Company or (C) any Indebtedness, liability or obligation the instrument creating
or evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness, liability or obligation is not senior in right
of payment to this Note.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary which would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulations S-X promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"SUBSIDIARY" means any corporation, association or other business entity of
which more than 50% of the total voting power of shares of Capital Stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by any person or one or more of the other
Subsidiaries of that person or a combination thereof.
"USURY LAWS" means, collectively, the usury laws of the State of New York
(or the usury laws of any other state that might be determined by a court of
competent jurisdiction to be applicable notwithstanding such notice of law).
12. APPLICABLE LAW AND VENUE. This Note shall be governed by and construed
in accordance with the laws of the State of New York, as applied to contracts
made and performed within the State of New York, without regard to the conflicts
of laws principles thereof. The Maker irrevocably submits to (and this Note
shall be subject only to) the jurisdiction of the courts of the State of New
York and the Federal courts of the United States of America located in the State
of New York solely in respect of the interpretation and enforcement of the
provisions of this Agreement, and in respect of the transactions contemplated
hereby, and hereby waives, and agrees not to assert, as a defense in any action,
suit or proceeding for the interpretation or enforcement hereof or of any such
document, that it is not subject thereto or that such action, suit or proceeding
may not be brought or is not maintainable in said courts or that the venue
thereof may not be appropriate or that this Agreement or any such document may
not be enforced in or by such courts. It is irrevocably agreed that all claims
with respect to such action or proceeding shall be heard and determined in such
a New York State or Federal court. Any such court shall have jurisdiction over
the person of such party and over the subject matter of such dispute and agrees
that mailing of process or other papers in connection with any such action or
proceeding in the manner provided in applicable law, shall be valid and
sufficient service thereof.
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed as
of the year and date first above written.
PARACELSUS HEALTHCARE CORPORATION
By
-----------------------------------
Name:
Title:
9
<PAGE>
EXHIBIT 11.1A
CHAMPION HEALTHCARE CORPORATION
EXHIBIT 11.1A -- COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
PRIMARY:
Weighted average common shares outstanding.................................. 1,122 1,457 4,255
Net effect of dilutive stock options and warrants -- based on the treasury
stock method using average market price (1)................................ -- -- --
---------- ---------- ----------
Total primary shares........................................................ 1,122 1,457 4,255
---------- ---------- ----------
---------- ---------- ----------
Net income (loss)........................................................... $ (12,153) $ 2,243 $ 2,314
Preferred stock dividend requirement........................................ (1,589) (4,490) (11,060)
Accretion of preferred stock issuance cost.................................. (63) (220) (271)
---------- ---------- ----------
Loss applicable to common stock............................................. $ (13,805) $ (2,467) $ (9,017)
---------- ---------- ----------
---------- ---------- ----------
Loss before extraordinary items............................................. $ (11.21) $ (1.69) $ (1.86)
Extraordinary items......................................................... (1.10) -- (0.26)
---------- ---------- ----------
Loss per share............................................................ $ (12.31) $ (1.69) $ (2.12)
---------- ---------- ----------
---------- ---------- ----------
FULLY DILUTED:
Weighted average common shares outstanding.................................. 1,122 1,457 4,255
Net effect of dilutive stock options and warrants -- based on the treasury
stock method using the year-end market price, if higher than average market
price...................................................................... 456 778 729
Assumed conversion of preferred stock (2)................................... 4,335 8,317 10,006
---------- ---------- ----------
Total fully diluted shares.................................................. 5,913 10,552 14,990
---------- ---------- ----------
---------- ---------- ----------
Net income (loss)........................................................... $ (12,153) $ 2,243 $ 2,314
---------- ---------- ----------
---------- ---------- ----------
Income (loss) before extraordinary items.................................... $ (1.85) $ 0.21 $ 0.23
Extraordinary items......................................................... (0.21) -- (0.08)
---------- ---------- ----------
Income (loss) per share................................................... $ (2.06) $ 0.21 $ 0.15
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ------------------------
(1) The effect of options was anti-dilutive for the years ended December 31,
1993, 1994 and 1995.
(2) At December 31, 1993, 1994 and 1995, the Company had 9,564,611, 10,400,725
and 2,605,714 shares of preferred stock outstanding.
<PAGE>
EXHIBIT 11.1B
CHAMPION HEALTHCARE CORPORATION
EXHIBIT 11.1B -- COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
(DOLLARS IN
THOUSANDS, EXCEPT
PER SHARE DATA)
PRIMARY:
Weighted average shares outstanding..................................................... 4,228 11,960
Net effect of dilutive stock options and warrants -- based on the treasury stock method
using average market price (1)......................................................... -- 875
--------- ---------
Total................................................................................... 4,228 12,835
--------- ---------
--------- ---------
Net income.............................................................................. $ 177 $ 1,393
Preferred stock dividend requirements................................................... (1,421) N/A
Accretion of preferred stock issuance cost.............................................. (68) (49)
--------- ---------
Income (loss) applicable to common stock................................................ $ (1,312) $ 1,344
--------- ---------
--------- ---------
Income (loss) per share................................................................. $ (0.31) $ 0.10
--------- ---------
--------- ---------
FULLY DILUTED:
Weighted average shares outstanding..................................................... 4,228 11,960
Net effect of dilutive stock options and warrants -- based on the treasury stock method
using the year-end market price, if higher than average market price................... 3,330 1,008
Assumed conversion of Preferred Stock (2)............................................... 9,920 5,216
--------- ---------
Total................................................................................... 17,478 18,184
--------- ---------
--------- ---------
Net income.............................................................................. $ 177 $ 1,393
Interest reduction, net of tax effect................................................... 363 N/A
--------- ---------
Income applicable to common stock....................................................... $ 540 $ 1,393
--------- ---------
--------- ---------
Income per share........................................................................ $ .03 $ 0.08
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) The effect of options and warrants was anti-dilutive for the quarter ended
March 31, 1995.
(2) At March 31, 1995 and 1996, the Company had 10,408,286 and 2,608,176 shares
of preferred stock outstanding, respectively.
<PAGE>
EXHIBIT 11.2
PARACELSUS HEALTHCARE CORPORATION
EXHIBIT 11.2 -- COMPUTATION OF PRO FORMA EARNINGS PER SHARE
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED
SEPTEMBER 30, 1995 MARCH 31, 1995 MARCH 31, 1996
------------------ ---------------- ----------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
PRIMARY:
Weighted average common shares outstanding............... 46,851 46,745 47,001
Net effect of dilutive stock options and
warrants -- based on the treasury stock method using
average market price (1)................................ 3,473 3,582 --
-------- -------- --------
Total primary shares..................................... 50,324 50,327 47,001
-------- -------- --------
-------- -------- --------
Income (loss) applicable to common stock................. $ 7,472 $ 3,695 $ (6,706)
-------- -------- --------
-------- -------- --------
Income (loss) per share.................................. $ 0.15 $ 0.07 $ (0.14)
-------- -------- --------
-------- -------- --------
FULLY DILUTED:
Weighted average common shares outstanding............... 46,851 46,745 47,001
Net effect of dilutive stock options and
warrants -- based on the treasury stock method using the
year-end market price, if higher than average market
price (1)............................................... 3,473 3,582 --
Assumed conversion of convertible debt................... -- -- --
-------- -------- --------
Total fully diluted shares............................... 50,324 50,327 47,001
-------- -------- --------
-------- -------- --------
Net Income (loss)........................................ $ 7,472 $ 3,695 $ (6,706)
-------- -------- --------
-------- -------- --------
Income (loss) per share.................................. $ 0.15 $ 0.07 $ (0.14)
-------- -------- --------
-------- -------- --------
</TABLE>
- ------------------------
(1) The effect of options was anti-dilutive for the six months ended March 31,
1996.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of (i) our report dated December 14, 1995, with respect to the
consolidated financial statements of Paracelsus Healthcare Corporation as of
September 30, 1994 and 1995 and for each of the three years in the period ended
September 30, 1995, (ii) our report dated December 14, 1995 with respect to the
financial statement schedule of Paracelsus Healthcare Corporation for the years
ended December 31, 1993, 1994 and 1995, and (iii) our report dated May 17, 1996,
with respect to the combined financial statements of Davis Hospital and Medical
Center, Pioneer Valley Hospital and Santa Rosa Medical Center as of December 31,
1994 and 1995 and for the years then ended appearing in the Registration
Statement on Form S-4 filed with the Securities and Exchange Commission pursuant
to the Securities Act of 1933.
ERNST & YOUNG LLP
Los Angeles, California
July 19, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion of (i) our report dated February 27, 1996, on
our audits of the consolidated financial statements and financial statement
schedules of Champion Healthcare Corporation as of December 31, 1994 and 1995
and for each of the three years in the period ended December 31, 1995; (ii) our
report dated February 16, 1996, on our audits of the financial statements of
Dakota Heartland Health System as of December 31, 1994 and 1995 and for the year
ended December 31, 1995; (iii) our report dated December 28, 1995, on our audit
of the financial statements of Jordan Valley Hospital as of September 30, 1995
and for the period from January 1, 1995 through September 30, 1995 and (iv) our
report dated June 11, 1995, on our audits of the consolidated financial
statements of Salt Lake Regional Medical Center as of May 31, 1994 and April 13,
1995 and for each of the two years in the period ended May 31, 1994 and for the
period from June 1, 1994 through April 13, 1995 appearing in the Registration
Statement on Form S-4 dated July 19, 1996, filed with the Securities and
Exchange Commission pursuant to the Securities Act of 1933. We also consent to
the reference to our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Houston, Texas
July 19, 1996
<PAGE>
EXHIBIT 23.5
CONSENT
I hereby consent to the references to me in the Schedule 14A of Champion
Healthcare Corporation ("Champion") and in the Proxy Statement/Prospectus
forming a part of the Registration Statement on Form S-4 of Paracelsus
Healthcare Corporation ("Paracelsus") relating to the merger of Champion with
and into PC Merger Sub, a wholly owned subsidiary of Paracelsus, including
without limitation under the Captions Management, Summary and Security Ownership
of Management and Certain Beneficial Owners.
/s/ James A. Conroy
--------------------------------------
James A. Conroy
Date: July 19, 1996
<PAGE>
EXHIBIT 23.6
CONSENT
I hereby consent to the references to me in the Schedule 14A of Champion
Healthcare Corporation ("Champion") and in the Proxy Statement/Prospectus
forming a part of the Registration Statement on Form S-4 of Paracelsus
Healthcare Corporation ("Paracelsus") relating to the merger of Champion with
and into PC Merger Sub, a wholly owned subsidiary of Paracelsus, including
without limitation under the Captions Management, Summary and Security Ownership
of Management and Certain Beneficial Owners.
Date: July 19, 1996 _________/s/_Charles R. Miller________
Charles R. Miller
<PAGE>
EXHIBIT 23.7
CONSENT
I hereby consent to the references to me in the Schedule 14A of Champion
Healthcare Corporation ("Champion") and in the Proxy Statement/Prospectus
forming a part of the Registration Statement on Form S-4 of Paracelsus
Healthcare Corporation ("Paracelsus") relating to the merger of Champion with
and into PC Merger Sub, a wholly owned subsidiary of Paracelsus, including
without limitation under the Captions Management, Summary and Security Ownership
of Management and Certain Beneficial Owners.
/s/ James G. VanDevender
--------------------------------------
James G. VanDevender
Date: July 19, 1996
<PAGE>
EXHIBIT 23.8
CONSENT
I hereby consent to the references to me in the Schedule 14A of Champion
Healthcare Corporation ("Champion") and in the Proxy Statement/Prospectus
forming a part of the Registration Statement on Form S-4 of Paracelsus
Healthcare Corporation ("Paracelsus") relating to the merger of Champion with
and into PC Merger Sub, a wholly owned subsidiary of Paracelsus, including
without limitation under the Captions Management, Summary and Security Ownership
of Management and Certain Beneficial Owners.
/s/ Angelo R. Mozilo
--------------------------------------
Angelo R. Mozilo
Date: July 19, 1996
<PAGE>
EXHIBIT 23.9
CONSENT
I hereby consent to the references to me in the Schedule 14A of Champion
Healthcare Corporation ("Champion") and in the Proxy Statement/Prospectus
forming a part of the Registration Statement on Form S-4 of Paracelsus
Healthcare Corporation ("Paracelsus") relating to the merger of Champion with
and into PC Merger Sub, a wholly owned subsidiary of Paracelsus, including
without limitation under the Captions Management, Summary and Security Ownership
of Management and Certain Beneficial Owners.
/s/ Daryl J. White
--------------------------------------
Daryl J. White
Date: July 19, 1996
<PAGE>
EXHIBIT 23.10
CONSENT OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
We hereby consent to (i) the inclusion of our opinion letter, dated July 18,
1996, to the Board of Directors of Champion Healthcare Corporation (the
"Company") as Annex D to the Proxy Statement/ Prospectus of the Company relating
to the merger of PC Merger Sub, Inc., a wholly owned subsidiary of Paracelsus
Healthcare Corporation ("Paracelsus"), with and into the Company pursuant to the
terms of the Amended and Restated Agreement and Plan of Merger dated as of May
29, 1996 among Paracelsus, the Company and PC Merger Sub, Inc. and (ii) all
references to DLJ in the sections captioned "Summary -- The Merger -- Opinion of
Financial Advisor," "The Merger -- Approval of the Champion Board; Reasons for
the Merger" and "The Merger -- Opinion of Champion Financial Advisor" of the
Proxy Statement/ Prospectus of the Company which forms a part of this
Registration Statement on Form S-4 of Paracelsus. In giving such consent, we do
not admit that we come within the category of persons whose consent is required
under, and we do not admit and we disclaim that we are "experts" for purposes
of, the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ W. Patrick McMullan, III
-----------------------------------
New York, New York
July 19, 1996
<PAGE>
CHAMPION HEALTHCARE CORPORATION
515 WEST GREENS ROAD, SUITE 800
HOUSTON, TEXAS 77067
PROXY FOR THE AUGUST 9, 1996 SPECIAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
CHAMPION HEALTHCARE CORPORATION
The undersigned stockholder of Champion Healthcare Corporation
(Champion) hereby appoints Suzanne Miskin and Robert Starling, and each of
them, the lawful attorneys and proxies of the undersigned, each with several
powers of substitution, to vote all the shares of Common Stock and Preferred
Stock of Champion held of record by the undersigned on July 15, 1996 at the
Special Meeting of Stockholders to be held at 515 West Greens Road, Suite
800, Houston, Texas 77067, on August 9, 1996 at 10:00 a.m. local time, and at
any and all postponements and adjournments thereof, with all the powers the
undersigned would possess if personally present, upon all matters set forth
in the Notice of Special Meeting of Stockholders dated July 19, 1996 and in
the Proxy Statement/Prospectus dated July 19, 1996.
(Continued and to be signed and dated on the reverse side and
returned promptly in the enclosed envelope)
<PAGE>
Please mark
your votes as /X/
indicated in
this example
1.Approval and adoption of the Amended and Restated Agreement and Plan of
Merger dated May 29, 1996 (the Merger Agreement), by and among Paracelsus
Healthcare Corporation (Paracelsus), Champion and PC Merger Sub, Inc., a
wholly owned subsidiary of Paracelsus (Merger Sub), pursuant to which, among
other things, Merger Sub will be merged with and into Champion and, as a
result, each share of Common Stock of Champion will be converted into one
share of Common Stock of Paracelsus, each share of Preferred Stock of
Champion will be converted into two shares of Common Stock of Paracelsus and
Champion will become a wholly owned subsidiary of Paracelsus. A vote in
favor of the Merger Agreement will also be deemed to be a vote in favor of
amendments to the Directors Stock Option Plan and the Selected Executive
Stock Option Plan No. 5.
FOR AGAINST ABSTAIN
/ / / / / /
2.Approval of amendments to certain Founders Stock Option agreements between
Champion and each of Messrs. Charles R. Miller and James G. VanDevender.
FOR AGAINST ABSTAIN
/ / / / / /
Shares represented by all properly executed proxies will be voted in
accordance with instructions appearing on the proxy and in the discretion of
the proxy holders as to any other matter that may properly come before the
Special Meeting of Stockholders. IN THE ABSENCE OF SPECIFIC INSTRUCTIONS,
PROXIES WILL BE VOTED FOR ITEM 1 AND 2, AND IN THE DISCRETION OF THE PROXY
HOLDERS AS TO ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE SPECIAL
MEETING OF STOCKHOLDERS.
Signature(s)_____________________________________________ Dated__________, 1996
Please sign as name(s) appear on this proxy, and date this proxy. If a joint
account, each joint owner must sign. If signing for a corporation or
partnership or as agent, attorney or fiduciary, indicate the capacity in
which you are signing.
